-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MYq88p7UhZR39NEJ0F9GjwQBotseFOcP3DWJFyL0qWaPkkMtH4bcb3UiGFOzrzEm PbxbPHnLaPsfdZm6FwlV/w== 0001047469-99-030417.txt : 19990810 0001047469-99-030417.hdr.sgml : 19990810 ACCESSION NUMBER: 0001047469-99-030417 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON CORP CENTRAL INDEX KEY: 0001090709 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541023915 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-84835 FILM NUMBER: 99681528 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 BUSINESS PHONE: 7032460300 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANALYSIS & TECHNOLOGY INC CENTRAL INDEX KEY: 0000310876 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 952579365 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-84835-01 FILM NUMBER: 99681529 BUSINESS ADDRESS: STREET 1: TECHNOLOGY PARK RTE 2 STREET 2: PO BOX 220 CITY: NORTH STONINGTON STATE: CT ZIP: 06359 BUSINESS PHONE: 8605993910 MAIL ADDRESS: STREET 1: TECHNOLOGY PARK RTE 2 STREET 2: P O BOX 220 CITY: NORTH STONINGTON STATE: CT ZIP: 06359 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TECHMATICS INC CENTRAL INDEX KEY: 0001090711 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541194322 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-84835-02 FILM NUMBER: 99681530 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 BUSINESS PHONE: 7032460300 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VECTOR DATA SYSTEMS INC CENTRAL INDEX KEY: 0001090712 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541559969 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-84835-03 FILM NUMBER: 99681531 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 BUSINESS PHONE: 7032460300 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERACTIVE MEDIA CORP CENTRAL INDEX KEY: 0001090720 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251096900 STATE OF INCORPORATION: MD FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-84835-04 FILM NUMBER: 99681532 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 BUSINESS PHONE: 7032460300 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN RD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ ANTEON CORPORATION (Exact name of Registrant as specified in its charter) VIRGINIA 7379 54-1023915 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification incorporation or organization) Classification Code Number) No.)
------------------------ 3211 JERMANTOWN ROAD, SUITE 700 FAIRFAX, VIRGINIA, 22030-2801 703-246-0200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) CURTIS L. SCHEHR, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY ANTEON CORPORATION 3211 JERMANTOWN ROAD, SUITE 700 FAIRFAX, VIRGINIA, 22030-2801 703-246-0200 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ Copies to: CARL L. REISNER, ESQ. PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 212-373-3000 ------------------------ APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED NOTE PRICE(1) FEE(2) 12% Senior Subordinated Notes due 2009 $100,000,000 100% $100,000,000 $27,800
(1) Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457 of the Securities Act of 1933. (2) The registration fee has been calculated in accordance with Rule 457(f)(1) under the Securities Act of 1933. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF ADDITIONAL REGISTRANTS
PRIMARY STATE OR OTHER STANDARD IRS JURISDICTION OF INDUSTRIAL EMPLOYER INCORPORATION CLASSIFICATION IDENTIFICATION NAME OR ORGANIZATION CODE NUMBER NUMBER - ----------------------------------------------- --------------- ------------- -------------- Vector Data Systems, Inc....................... Virginia 8711 54-1559969 Techmatics, Inc................................ Virginia 8711 54-1194322 Analysis & Technology, Inc..................... Connecticut 8711 95-579365 Interactive Media Corp......................... Delaware 7373 25-1096900 ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL NAME EXECUTIVE OFFICES - ----------------------------------------------- ------------------------------------ Vector Data Systems, Inc....................... 1100 South Washington St. Alexandria, VA 22030-2801 Techmatics, Inc................................ 3211 Jermantown Road Fairfax, VA 22030-2801 Analysis & Technology, Inc..................... Technology Park Route 2, P.O. Box 220 North Stonington, CT 06359 Interactive Media Corp......................... Technology Park Route 2, P.O. Box 220 North Stonington, CT 06359
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE AMENDED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED AUGUST 9, 1999 PRELIMINARY PROSPECTUS ANTEON CORPORATION EXCHANGE OFFER FOR $100,000,000 OF ITS 12% SENIOR SUBORDINATED NOTES DUE 2009 TERMS OF THE EXCHANGE OFFER - It will expire at 5:00 p.m., New York City time, on 1999, unless we extend it. - If all the conditions to this exchange offer are satisfied, we will exchange all old notes that are validly tendered and not withdrawn. - You may withdraw your tender of old notes at any time before the expiration of this exchange offer. - The exchange notes that we will issue you in exchange for your old notes will be substantially identical to your old notes except that, unlike your old notes, the exchange notes will have no transfer restrictions or registration rights. - The exchange notes that we will issue you in exchange for your old notes are new securities with no established market for trading. BEFORE PARTICIPATING IN THIS EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN THIS PROSPECTUS ENTITLED "RISK FACTORS" COMMENCING ON PAGE 15. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------ The date of this prospectus is , 1999. ------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. ------------------------ TABLE OF CONTENTS
PAGE ----- FORWARD-LOOKING STATEMENTS..................... ii SUMMARY........................................ 1 RISK FACTORS................................... 15 USE OF PROCEEDS................................ 25 CAPITALIZATION................................. 26 SELECTED CONSOLIDATED FINANCIAL DATA........... 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 39 BUSINESS....................................... 50 MANAGEMENT..................................... 69 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................. 77 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 78 PAGE ----- DESCRIPTION OF OTHER MATERIAL AGREEMENTS....... 79 THE EXCHANGE OFFER............................. 82 DESCRIPTION OF THE NOTES....................... 90 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............................... 129 PLAN OF DISTRIBUTION........................... 133 LEGAL MATTERS.................................. 134 WHERE YOU CAN OBTAIN ADDITIONAL AVAILABLE INFORMATION.................................. 134 DOCUMENTS INCORPORATED BY REFERENCE............ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... F-1
i FORWARD-LOOKING STATEMENTS This prospectus includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future projects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases, such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, and may also include references to assumptions. These statements are contained in the sections entitled " Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anteon Corporation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Analysis & Technology, Inc.," "Business" and other sections of this prospectus. Such forward-looking statements include, but are not limited to: - funded backlog; - our expectations regarding the Federal government's downsizing and increased reliance on outsourcing of services; - our financial condition and liquidity, as well as future cash flows and earnings; and - Analysis & Technology, Inc.'s financial condition and liquidity, as well as future cash flows and earnings. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: - the integration of Analysis & Technology, Inc. without disruption to our other business activities; - changes in general economic and business conditions; - changes in Federal government procurement laws, regulations and policies; - the number and type of contracts and task orders awarded to Anteon; - technological changes; - the ability to attract and retain qualified personnel; - changes in Federal government procurement budgets; - industry capacity; - competition; and - our ability to retain our contracts during any rebidding process. Our risks are more specifically described in "Risk Factors." If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. ii SUMMARY THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO YOU. WE ENCOURAGE YOU TO READ THE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND RELATED NOTES, IN ITS ENTIRETY. UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED IN THIS PROSPECTUS, ALL REFERENCES TO (I) "ANTEON," "WE" AND "US" ARE TO ANTEON CORPORATION AND ITS SUBSIDIARIES, AND (II) "A&T" ARE TO ANALYSIS & TECHNOLOGY, INC. AND ITS SUBSIDIARIES. THE TERM "INITIAL NOTES" REFERS TO THE 12% SENIOR SUBORDINATED NOTES DUE 2009 THAT WERE ISSUED ON MAY 11, 1999. THE TERM "EXCHANGE NOTES" REFERS TO THE 12% SENIOR SUBORDINATED NOTES DUE 2009 OFFERED WITH THIS PROSPECTUS. THE TERM "NOTES" REFERS TO THE INITIAL NOTES AND THE EXCHANGE NOTES COLLECTIVELY. UNLESS OTHERWISE INDICATED, THE INDUSTRY DATA IS DERIVED FROM PUBLICLY AVAILABLE SOURCES, WHICH WE HAVE NOT INDEPENDENTLY VERIFIED. YOU SHOULD PAY SPECIAL ATTENTION TO THE "RISK FACTORS" SECTION TO DETERMINE WHETHER TO PARTICIPATE IN THIS EXCHANGE OFFER. THIS PROSPECTUS CONTAINS REFERENCES TO AND DESCRIPTIONS OF A NUMBER OF INDUSTRY-SPECIFIC TERMS. FOR YOUR CONVENIENCE, THE "GLOSSARY OF TERMS" THAT APPEARS LATER IN THIS PROSPECTUS PROVIDES EXPLANATIONS OF SUCH TERMS. THE COMPANY Anteon is a leading provider of advanced information technology and engineering systems and services. We serve hundreds of governmental clients, principally within the U.S. Federal government, from 39 offices worldwide. We have performed work for the U.S. Congress and all 14 Cabinet-level government agencies, designing, maintaining and upgrading critical systems such as defense, intelligence, emergency response, logistics support and financial management systems. For the year ended December 31, 1998, we performed work on approximately 3,000 task orders on more than 500 contracts. In addition, during the past four years, we have increased revenues at a 32.0% compound annual growth rate including a 19.9% compound annual growth rate excluding acquisitions. Pro forma for our acquisition of A&T described below under "--The Transactions," our 1998 revenues and Adjusted EBITDA (as defined) were $450.8 million and $35.1 million, respectively. Similarly, cash flows used in operations on a pro forma basis were $2.3 million for 1998. The Federal government is among the world's largest purchasers of information technology, with total expenditures in fiscal 1999 expected to be in excess of $30 billion and expected to increase by approximately 4.4% per annum from $29.5 billion in 1998 to $35.1 billion in 2002. Due to projected increased Federal government outsourcing, the amount of information technology services procured from contractors is expected to increase at a faster rate, by approximately 6.9% per annum from 1998 to 2002. We believe that the emphasis of the Federal government on downsizing and budget constraints for large new projects will continue to result in the increased use of technology to enhance productivity with expenditures focused on upgrading existing equipment and systems, including many that we designed and are currently supporting. In this environment, contractors like us that are capable of providing complete end-to-end technology services across a number of applications are well-positioned to take advantage of the opportunities presented by these trends. We have developed over a 22-year period the expertise and capabilities to deliver a broad range of technology solutions. For example, we are currently working with the U.S. Federal Emergency Management Agency to design and integrate the National Emergency Management Information System, a management information system that enables the White House and other governmental offices to effectively monitor and mobilize multiple agencies and financial resources in response to national emergencies. This program is the largest WindowsNT implementation in the Federal government and we believe it is the most comprehensive emergency management system available. In addition, we believe there is significant potential for generating additional revenues based on the knowledge we have acquired in designing and integrating this system and its wide applicability to other government agencies and projects. Another example of our work is the logistics system we developed for the U.S. Air Force called Cargo Movement Operation System ("CMOS"). CMOS tracks all equipment and cargo movement 1 operations for the Air Force world wide. This system is the first standard U.S. Air Force client/server application to be installed. CMOS is currently installed at air bases worldwide, and was recently chosen by the Office of the Secretary of Defense to be the model transportation system for the Department of Defense. As a result of developing and integrating CMOS, we were awarded another major logistics automation contract to develop a model logistics system to manage the transportation requirements of all branches of the U.S. armed forces. COMPETITIVE STRENGTHS We attribute our growth and performance to several factors, including the following: - BROAD ENGINEERING AND INFORMATION TECHNOLOGY CAPABILITIES. We have developed comprehensive information technology and engineering expertise and capabilities over our 22-year history of providing support for critical applications within the Federal government's military and intelligence infrastructure. Our employees are highly trained, enabling us to provide services for many complex governmental systems, including defense, intelligence, emergency response, logistics support and financial management. - LEADING FEDERAL GOVERNMENT SYSTEMS INTEGRATOR AND STRONG REPUTATION. We believe that the Federal government primarily uses three criteria in seeking suppliers of technical systems and services: the ability to deliver a broad range of sophisticated technical capabilities; a track record of excellence in servicing the needs of the Federal government; and the ability to deliver at a competitive price. Based on these criteria, we have developed a reputation as a premier provider to the Federal government and we have received numerous awards for our broad technical expertise and consistently high quality performance. In March, 1999 we were ranked as the No. 1 systems integrator in a survey of over 1,200 Federal government customers by FEDERAL COMPUTER WEEK, a leading publication in the Federal government information technology sector. We believe that our demonstrated capabilities and reputation for service excellence have allowed us to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted over the past three years. - DIVERSE CUSTOMER AND CONTRACT BASE; STRONG INCUMBENT POSITIONS. We have a diverse customer base with hundreds of governmental clients worldwide, which has included all 14 Cabinet-level agencies and all branches of the military. In 1998 we performed work on approximately 3,000 task orders, and since 1996 we have completed approximately 7,000 task orders for our clients. In executing these orders, we have acquired extensive knowledge of the particular information technology needs of our clients, and we believe that our typical position as the incumbent designer and integrator enables us to anticipate their changing technical requirements. These factors often position us as the preferred provider of ongoing support, upgrades and next generation systems development. As a result of these relationships we have developed a backlog of approximately $1.3 billion (and, after giving pro forma effect to the Acquisition, a backlog of $2.1 billion as of June 30, 1999), providing significant predictability of revenues. For a further discussion of management's calculation of our backlog, please refer to the section in this prospectus entitled "Business--Backlog." - STRONG OPERATIONS MANAGEMENT; LOW COST STRUCTURE. Our focus on control of indirect costs and cost center flexibility has permitted us to increase profitability and we believe that we have achieved one of the lowest cost structures in the industry. Management has developed rigorous control procedures to mitigate losses in "at risk" situations where task order performance has commenced but funding or appropriation has not been formally authorized or where contract performance has begun because management considers the award of a contract to be imminent. We also employ management information and resource management systems to maximize operational efficiency and reduce indirect costs. Our indirect costs have been reduced to 15% of revenues in 1998 compared to an industry peer group average estimated by management to be between 18% to 20%, 2 and we have increased EBITDA margins from 1.9% in 1995 to 6.6% in 1998, after giving pro forma effect to the Techmatics acquistion. - WELL-POSITIONED TO CAPITALIZE ON INDUSTRY GROWTH. Federal government information technology spending will total approximately $30 billion in 1999 according to the Office of Management and Budget and is expected to increase to $35.1 billion in 2002. In addition, the outsourced portion of this spending is expected to increase from 78% in 1998 to 86% in 2002. Due to this increased outsourcing, the amount of information technology services procured from contractors is estimated to increase at 6.9% per year from 1998 to 2002. Anteon believes that growth in Federal government information technology spending will be driven by government downsizing, increased outsourcing and increasing attempts to utilize more efficient means of procurement. We expect a significant portion of this growth to be derived from major government-wide acquisition contract vehicles, such as the $25 billion GSA ANSWER multiple-award contract and the $10 billion Department of Transportation ITOP II multiple-award contract. We are one of a limited number of qualified suppliers under both of these major contract vehicles. We believe that our size, capabilities, reputation and long-standing relationships combined with our position as incumbent supplier to many Federal government agencies, position us to capitalize on the opportunities presented by these industry trends. - STRONG MANAGEMENT AND HIGHLY EXPERIENCED BOARD. Each of the five senior members of Anteon's management team has over 20 years of experience in managing both small and large companies in both the defense and commercial markets. In addition, several members of management and the Board of Directors are former military officers or senior government officials who are familiar with the information technology requirements of government agencies. Dr. Paul Kaminski, a director of Anteon, recently served as Under Secretary of Defense for Acquisition and Technology. Mr. Gilbert Decker, a Director of Anteon, recently served as Assistant Secretary of the U.S. Army for Research, Development and Acquisition, and in that capacity led the Army's acquisition and procurement reform efforts. Our management team is responsible for our growth and improved profitability in the current procurement environment and has a significant equity stake in Anteon through direct investment and equity-based incentives. BUSINESS STRATEGY We believe that a key element of Anteon's success is its high standard of performance and customer service. Past performance is one of the three critical elements the government employs to evaluate information technology suppliers. Our demonstrated performance record and service excellence have enabled us to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted over the past three years. We believe that our high-level technical abilities and low cost structure will allow us to further expand our customer base, improve our operating results and continue to grow. Specifically, we will pursue the following business strategies: - BROADEN CAPABILITIES. We continually seek to acquire new expertise and keep pace with developments in technology by acquiring and training our employees and acquiring technologies to complement our skill set. We are aggressively pursuing several new disciplines that complement our existing technology capabilities. Particular areas of expertise we are pursuing include network communications, remote sensor information processing, geographic information systems and information security. We also seek to broaden our technology skills by providing extensive training to new and current employees. For example, we have an extensive in-house, computer-based training program consisting of over 150 courses. These efforts will enable us to remain at the forefront of information technology applications and be more responsive and flexible in servicing the needs of our customers. 3 - LEVERAGE EXPERIENCE AND REPUTATION TO EXPAND MARKET SHARE. We have performed a variety of services for a diverse base of customers, including hundreds of governmental clients worldwide, including all Cabinet-level agencies and all branches of the military. The new Federal government procurement environment has reduced the number of suppliers and favors those companies with experience and broad capabilities. We plan to leverage our comprehensive capabilities and our position as the incumbent provider on critical Federal government applications to provide complete end-to-end services including new systems development, integration, upgrades, maintenance, support and training. To support our plans, we have increased our national and global presence, opening offices in Albuquerque, New Mexico; Colorado Springs, Colorado; Australia and Asia. We have also acquired a comprehensive new business development and bidding software system, known as WinAward, which scans for and targets new programs or task orders which require skills and services particularly suited to Anteon's capabilities. This system provides early identification of prospects, allowing us to mobilize the resources necessary to win the award. - CONTINUE TO IMPROVE OPERATING AND FINANCIAL PERFORMANCE. We believe that a key element of our success in the Federal government market has been our continuous pursuit of cost reductions and focus on working capital management. We have developed and employ integrated management information and resource management systems and policies that have enabled us to maintain indirect cost levels that we believe are among the lowest in the industry. We will continue to leverage our operating efficiency and risk management capabilities to bid aggressively on contracts to further improve our operating and financial performance. - PURSUE STRATEGIC ACQUISITIONS. We believe the changes in the government procurement market will result in continuing consolidation opportunities. We will selectively review acquisition candidates with a focus on companies having complementary skills and established positions in key segments of the marketplace that provide opportunities for revenue enhancement or a reduction in indirect costs. A key element of all acquisitions is the existence of rigorous risk management procedures and strong operational management. THE TRANSACTIONS On March 7, 1999, Anteon entered into a definitive merger agreement to acquire all of the issued and outstanding shares of common stock of A&T at a price of $26.00 per share. We consummated the acquisition on June 23, 1999 after the approval of the acquisition by the stockholders of A&T. In connection with the acquisition, Anteon received an equity contribution of $22.5 million from affiliates of Caxton-Iseman Capital, Inc. In addition, in connection with the acquisition we entered into a new credit facility in an aggregate principal amount of $180.0 million, a portion of which was used to repay all of the amounts previously outstanding under Anteon's and A&T's credit facilities. For purposes of this prospectus, the "Transactions" refers to the acquisition, the issuance of the initial notes, the equity contribution, the borrowings under the new credit facility in connection with the Acquisition and the repayment of the outstanding debt under the current credit facilities of A&T and Anteon. Caxton-Iseman Capital is a New York based private equity investment company founded in 1993. Caxton-Iseman Capital currently manages a $600 million private investment fund on behalf of a select group of limited partners and seeks to invest with management of companies positioned for growth in a variety of industries. Caxton-Iseman Capital has made investments in eleven companies including Magnavox Electronic Systems, Inc., Leisure Link Holdings and Glass's Group. Please refer to the section entitled "The Transactions" which appears later in this prospectus for additional information. ------------------------ Our executive offices are located at 3211 Jermantown Road, Suite 700, Fairfax, Virginia, 22030-2801 and our telephone number is (703) 246-0200. 4 SUMMARY OF THE EXCHANGE OFFER We are offering to exchange $100,000,000 aggregate principal amount of our exchange notes for a like aggregate principal amount of our initial notes. In order to exchange your initial notes, you must properly tender them and we must accept your tender. We will exchange all outstanding initial notes that are validly tendered and not validly withdrawn. Exchange Offer............... We will exchange our exchange notes for a like aggregate principal amount at maturity of our initial notes. Expiration Date.............. This exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we decide to extend it. Conditions to the Exchange Offer...................... We will complete this exchange offer only if: - there is no litigation or threatened litigation which would impair our ability to proceed with this exchange offer, - there is no change in the laws and regulations which would impair our ability to proceed with this exchange offer, - there is no change in the current interpretation of the staff of the Commission which permits resales of the exchange notes, - there is no stop order issued by the Commission which would suspend the effectiveness of the registration statement which includes this prospectus or the qualification of the exchange notes under the Trust Indenture Act of 1939, and - we obtain all the governmental approvals we deem necessary to complete this exchange offer. Please refer to the section in this prospectus entitled "The Exchange Offer--Conditions to the Exchange Offer." Procedures for Tendering Initial Notes.............. To participate in this exchange offer, you must complete, sign and date the letter of transmittal or its facsimile and transmit it, together with your initial notes to be exchanged and all other documents required by the letter of transmittal, to IBJ Whitehall Bank & Trust Company, as exchange agent, at its address indicated under "The Exchange Offer--Exchange Agent." In the alternative, you can tender your initial notes by book-entry delivery following the procedures described in this prospectus. If your initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should contact that person promptly to tender your initial notes in this exchange offer. For more information on tendering your notes, please refer to the section in this prospectus entitled "The Exchange Offer--Procedures for Tendering Initial Notes." Guaranteed Delivery Procedures................. If you wish to tender your initial notes and you cannot get the required documents to the exchange agent on time, you may tender your notes by using the guaranteed delivery procedures described under the section of this prospectus entitled "The Exchange Offer--
5 Procedures for Tendering Initial Notes--Guaranteed Delivery Procedure." Withdrawal Rights............ You may withdraw the tender of your initial notes at any time before 5:00 p.m., New York City time, on the expiration date of the exchange offer. To withdraw, you must send a written or facsimile transmission notice of withdrawal to the exchange agent at its address indicated under the "The Exchange Offer--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date of the exchange offer. Acceptance of Initial Notes and Delivery of Exchange Notes...................... If all the conditions to the completion of this exchange offer are satisfied, we will accept any and all initial notes that are properly tendered in this exchange offer on or before 5:00 p.m., New York City time, on the expiration date. We will return any initial notes that we do not accept for exchange to you without expense as promptly as practicable after the expiration date. We will deliver the exchange notes to you as promptly as practicable after the expiration date and acceptance of your initial notes for exchange. Please refer to the section in this prospectus entitled "The Exchange Offer--Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes." Federal Income Tax Considera- tions Relating to the Exchange Offer............. Exchanging your initial notes for exchange notes should not be a taxable event to you for United States federal income tax purposes. Please refer to the section of this prospectus entitled "Certain United States Federal Income Tax Considerations." Exchange Agent............... IBJ Whitehall Bank & Trust Company is serving as exchange agent in the exchange offer. Fees and Expenses............ We will pay all expenses related to this exchange offer. Please refer to the section of this prospectus entitled "The Exchange Offer--Fees and Expenses." Use of Proceeds.............. We will not receive any proceeds from the issuance of the exchange notes. We are making the exchange offer solely to satisfy certain of our obligations under our registration rights agreement. Consequences to Holders who do not Participate in the Exchange Offer............. If you do not participate in this exchange offer: - you will not necessarily be able to require us to register your initial notes under the Securities Act, - you will not be able to resell, offer to resell or otherwise transfer your initial notes unless they are registered under the Securities Act or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act, and - the trading market for your initial notes will become more limited to the extent other holders of initial notes participate in the exchange offer.
6 Please refer to the section in this exchange offer entitled "Risk Factors--Your failure to participate in the exchange offer will have adverse consequences."
SUMMARY OF TERMS OF THE EXCHANGE NOTES Issuer....................... Anteon Corporation. Notes Offered................ $100 million aggregate principal amount of 12% Senior Subordinated Notes due 2009. The form and terms of the exchange notes are the same as the form and terms of the initial notes except that the exchange notes are registered under the Securities Act, will not bear legends restricting their transfer and will not be entitled to registration rights under our registration rights agreement. The exchange notes will evidence the same debt as the initial notes and both the initial notes and the exchange notes will be governed by the same indenture. Maturity Date................ May 15, 2009. Interest Payment Dates....... We will pay interest on the exchange notes on May 15 and November 15 of each year, commencing November 15, 1999. Optional Redemption.......... We cannot redeem the exchange notes prior to May 15, 2004, except as discussed below. Until May 15, 2002, we can choose to redeem the exchange notes in an amount not to exceed 25% of the sum of the original principal amount of the exchange notes and the original principal amount of any other notes issued under the same Indenture, with money we raise in certain equity offerings, as long as: - we pay the holders of the exchange notes and any such other notes redeemed a redemption price of 112% of the face amount of the exchange notes and any such other notes we redeem, plus accrued interest to the date of redemption; and - at least 75% of the original aggregate principal amount of the exchange notes (including the original principal amount of any additional notes) remains outstanding after each such redemption. On or after May 15, 2004, we can redeem some or all of the exchange notes at the redemption prices listed in the "Description of the Notes--Optional Redemption" section of this prospectus, plus accrued interest to the date of redemption. Change of Control............ If a Change of Control of our company occurs, subject to certain conditions, we must give holders of the exchange notes an opportunity to sell to us their exchange notes at a purchase price of 101% of their face amount, plus accrued interest. The term "Change of Control" is defined in the "Description of the Notes--Change of Control" section of this prospectus. Ranking...................... The exchange notes will be unsecured and subordinated obligations and will rank junior to our existing and future senior indebtedness. As of June 30, 1999, we had $73.0 million outstanding under our new credit facility. The exchange notes will rank PARI PASSU in right of payment with any future Senior Subordinated Indebtedness and will
7 rank senior to any other subordinated indebtedness. The terms "Senior Indebtedness" and "Senior Subordinated Indebtedness" are defined in the "Description of the Notes--Certain Definitions" section of this prospectus. Subsidiary Guaranties........ Our obligations to make any principal, premium and interest payments on the exchange notes will be fully and unconditionally guaranteed on a senior subordinated basis by each of our existing and certain of our future domestic subsidiaries. These subsidiary guaranties will be subordinated to all existing and future Senior Indebtedness of such subsidiaries, including their guarantee of our obligations under the new credit facility. Please refer to the sections in this prospectus entitled "Description of the Notes--Subsidiary Guaranties" and "-- Certain Covenants--Future Guarantors." Restrictive Covenants........ The Indenture governing the exchange notes will contain covenants that limit our ability and our subsidiaries' ability to: - incur or guarantee additional indebtedness; - pay dividends or other distributions on our capital stock or redeem, repurchase or retire our capital stock or subordinated obligations; - make investments; - issue or sell capital stock of subsidiaries; - engage in transactions with affiliates; - restrict dividend or other payments to us; - transfer or sell assets; and - consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. These covenants are subject to important exceptions and qualifications, which are described in the "Description of the Notes--Certain Covenants" section of this prospectus. Federal Income Tax Considera- tions Relating to the Exchange Offer............. Exchanging your initial notes for exchange notes will not be a taxable event to you for United States federal income tax purposes. Please refer to the section of this prospectus entitled "Certain United States Federal Income Tax Considerations." Absence of a Public Market for the Exchange Notes..... The exchange notes are new securities with no established market for them. We cannot assure you that a market for these notes will develop or that this market will be liquid. Form of the Exchange Notes... The exchange notes will be represented by one or more permanent global securities in bearer form deposited on behalf of The Depository Trust Company with IBJ Whitehall Bank & Trust Company, as custodian. You will not receive exchange notes in registered form unless one of the events described in the section of this prospectus entitled "Description of the Notes--Book Entry; Delivery and Form"
8 occurs. Instead, beneficial interests in the exchange notes will be shown on, and transfers of these notes will be effected only through, records maintained in book-entry form by The Depository Trust Company with respect to its participants. Initial notes issued in certificated form may be exchanged for beneficial interests in the global securities.
RISK FACTORS You should carefully consider all of the information provided in this prospectus and, in particular, you should evaluate the specific factors described under "Risk Factors" for a description of the risks associated with this exchange offer and an investment in the exchange notes. 9 SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The following summary unaudited pro forma condensed consolidated financial data of Anteon has been derived from the pro forma financial statements included under Unaudited Pro Forma Condensed Consolidated Financial Data. The pro forma statement of operations and other data give effect to the Transactions and Anteon's acquisition of Techmatics, Inc. on May 29, 1998, as if they each occurred on January 1, 1998. This pro forma data is not necessarily indicative of Anteon's financial condition or actual results of operations that would have occurred had the Transactions occurred on such date or of any expected future results. This information should be read in conjunction with "Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anteon Corporation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Analysis & Technology, Inc." and the historical consolidated financial statements of Anteon, Techmatics and A&T, together with the respective notes thereto, included elsewhere in this prospectus.
PRO FORMA PRO FORMA FOR THE YEAR FOR THE SIX ENDED MONTHS ENDED DECEMBER 31, 1998 JUNE 30, 1999 ----------------- ----------------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues................................................................... $ 450,786 $ 235,706 Gross profit............................................................... 57,130 30,686 Operating income........................................................... 19,377 11,251 Interest expense, net...................................................... 22,546 11,453 Loss before income taxes................................................... (3,194) (219) Income tax expense (benefit)............................................... (9) 547 -------- -------- Net loss................................................................... $ (3,185) $ (766) -------- -------- -------- -------- OTHER DATA: Cash interest expense (a).................................................. $ 19,060 $ 9,650 EBITDA (b)................................................................. 31,437 16,530 Adjusted EBITDA (c)........................................................ 35,093 17,910 Cash flow from (used in) operating activities.............................. (2,315) 18,304 Gross margin............................................................... 12.7% 13.0% Capital expenditures....................................................... $ 5,105 $ 2,652 Adjusted EBITDA to cash interest expense................................... 1.8x 1.9x Adjusted EBITDA minus capital expenditures to cash interest expense........ 1.6x 1.6x Net debt to Adjusted EBITDA (d)............................................ 4.9x
- ------------------------ (a) Cash interest expense excludes the noncash portion of interest expense. (b) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA also excludes infrequent and unusual charges of $0.1 million for the year ended December 31, 1998 relating to asset write-offs at Techmatics, and $0.24 million for the six months ended June 30, 1999 relating to a settlement with a former executive. Management believes that these charges will not recur and will not result in future cash charges. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of our operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. 10 (c) Management believes that additional cost savings of $3.7 million will be generated through reduced general and administrative expenses and the allocation of a portion of Anteon's corporate expenses to A&T. Anteon's Adjusted EBITDA equals pro forma EBITDA plus the following adjustments:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1998 JUNE 30, 1999 ----------------- ---------------- (IN THOUSANDS) Pro forma EBITDA.................................................. $ 31,437 $ 16,530 Anteon indirect cost reductions................................... 1,190 160 Increase in billable indirect costs............................... 2,466 1,220 ------- ------- Adjusted EBITDA................................................. $ 35,093 $ 17,910
ANTEON INDIRECT COSTS REDUCTIONS. Anteon has reduced indirect personnel (I.E., personnel not directly engaged in contract performance) saving approximately $1.2 million in total salary expense. In addition, on January 1, 1999 Anteon replaced Techmatics' employee benefits programs with its own employee benefits programs to ensure consistency in benefits among its employees. These new programs have resulted in savings of approximately $1.0 million per year. In 1999, Anteon closed a Techmatics office facility and further reduced indirect overhead which produced combined savings of $1.9 million. Because the government previously reimbursed Anteon for a portion of these expenses under cost-plus contracts, Anteon and the government will share in the benefit of the expense reduction with Anteon realizing $1.2 million for the year ended December 31, 1998 and $0.2 million for the six months ended June 30, 1999 of additional EBITDA and the government realizing $2.9 million of lower costs annually. INCREASE IN BILLABLE INDIRECT COSTS. After giving pro forma effect to the acquisition of A&T, the level of billable indirect costs under our contracts will increase because the proportion of our revenues generated by cost-plus contracts will increase from 40% to 55%. This adjustment to indirect billable costs is determined pursuant to government regulations and accounting standards. As a result of this adjustment, Anteon will be permitted to bill the government for a greater portion of its indirect costs. Based on our ability to pass such indirects costs through to our government customers, we estimate this will result in an additional reimbursable costs of $2.5 million for the year ended December 31, 1998 and $1.2 million for the six months ended June 30, 1999. As management implements cost reductions following the acquisition, these savings will be passed through to our customers. There can be no assurances, however, that the projected cost savings outlined above will be achieved. Adjusted EBITDA has not been examined, reviewed or compiled by KPMG LLP, and accordingly no opinion has been expressed on Adjusted EBITDA by said firm. (d) Represents the ratio of net debt to Adjusted EBITDA using net debt as of June 30, 1999 and Adjusted EBITDA for the year ended December 31, 1998. 11 SUMMARY CONSOLIDATED FINANCIAL DATA--ANTEON CORPORATION The following summary consolidated financial data has been derived from (1) in the case of Anteon, its unaudited consolidated financial statements as of June 30, 1999 and for the six months ended June 30, 1999 and 1998 and its audited consolidated financial statements for the years ended December 31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996 and (2) in the case of Ogden Professional Services Corporation (the "Predecessor Company"), its audited consolidated financial statements for the period from January 1, 1996 to March 31, 1996. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, that are necessary for a fair presentation of the financial position and results of operations for these periods. Each of the audited consolidated financial statements of Anteon and our Predecessor Company have been audited by KPMG LLP, independent certified public accountants. The results of operations for each period presented below are not comparable to the prior period as a result of business acquisitions consummated in 1997, 1998 and 1999. Results of operations of these acquired businesses are included in Anteon's consolidated financial statements for the periods subsequent to the respective dates of acquisition. You should read the following information in conjunction with "Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anteon Corporation," "Business" and the historical consolidated financial statements of Anteon, together with the notes thereto, included elsewhere in this prospectus.
PREDECESSOR ANTEON COMPANY(A) ------------------------------------------------------- ------------- PERIOD FROM PERIOD FROM APRIL 1, JANUARY 1, 1996 1996 TO YEAR ENDED SIX MONTHS ENDED TO DECEMBER DECEMBER 31, JUNE 30, MARCH 31, 31, -------------------- -------------------- 1996 1996 1997 1998 1998 1999 ------------- ----------- --------- --------- --------- --------- (DOLLARS IN (DOLLARS IN THOUSANDS) THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues....................... $ 32,046 $ 109,780 $ 176,292 $ 249,776 $ 108,196 $ 145,609 Gross profit................... 2,828 9,354 16,753 28,188 12,057 17,033 Operating income............... 757 2,678 5,080 10,443 5,009 6,648 Interest expense, net.......... -- 1,455 2,365 1,736 1,736 5,500 Income before provision for income taxes and extraordinary item........... 757 1,223 2,702 4,821 3,259 1,131 Income tax expense............. 303 416 1,063 2,353 1,310 399 Net income before extraordinary item......................... $ 454 $ 807 $ 1,639 $ 2,468 1,949 732 Extraordinary item, net of tax.......................... -- -- -- -- -- 463(b) ------------- ----------- --------- --------- --------- --------- Net income..................... 454 807 1,639 2,468 1,949 269 ------------- ----------- --------- --------- --------- --------- ------------- ----------- --------- --------- --------- --------- OTHER DATA: EBITDA(c)...................... $ 1,143 $ 5,800 $ 9,583 $ 15,988 $ 7,112 $ 9,393 EBITDA margin.................. 3.6% 5.3% 5.4% 6.4% 6.6% 6.5% Cash flow from (used in) operating activities......... $ 2,224 $ 7,519 $ 14,094 $ (8,340) $ (9,426) $ 5,677 Capital expenditures........... 211 376 817 2,089 1,164 1,335 Ratio of earnings to fixed charges(d)................... 4.5x 1.6x 1.8x 1.6x 2.3x 1.2x
AS OF JUNE 30, 1999 ------------- BALANCE SHEET DATA: Current assets..................................................................................... $ 106,459 Working capital.................................................................................... $ 43,602 Total assets....................................................................................... 287,107
12 - ------------------------ (a) Represents the results of operations and financial position of our Predecessor Company prior to its acquisition by Anteon. (b) Represents the write-off of $772 of deferred financing fees, net of income taxes of $309, related to the existing credit facility which was repaid early in conjunction with the Transactions. (c) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA also excludes a one-time noncash, nonrecurring charge of $0.1 million relating to asset write-offs at Techmatics. Management believes that these charges will not recur and will not result in future cash charges. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of our operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. (d) For purposes of this computation, earnings are defined as losses plus fixed charges. Fixed charges are the sum of (i) interest expensed and capitalized, (ii) amortization of deferred financing costs, premium and debt discounts, (iii) the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third) and (iv) dividends on preferred stock. 13 SUMMARY CONSOLIDATED FINANCIAL DATA--ANALYSIS & TECHNOLOGY, INC. The following summary consolidated financial data has been derived from A&T's audited consolidated financial statements as of March 31, 1997, 1998, and 1999, and for the years ended March 31, 1996, 1997, 1998, and 1999, which have been audited by KPMG LLP, independent certified public accountants. The results of operations for each period presented below are not comparable to the prior period as a result of business acquisitions consummated in 1997 and 1998. Results of operations of these acquired businesses are included in A&T's consolidated financial statements for the periods subsequent to the respective dates of acquisition. You should read this data in conjunction with "Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Analysis & Technology, Inc." "Business" and the historical consolidated financial statements of A&T, together with the notes thereto, included elsewhere in this prospectus.
YEAR ENDED MARCH 31, ---------------------------------------------- 1996 1997 1998(A) 1999 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues......................................................... $ 122,924 $ 142,547 $ 159,956 $ 170,355 Operating earnings............................................... 6,254 6,770 7,945 10,280 Interest expense, net............................................ 512 319 171 350 Income before provision for income taxes......................... 5,404 5,813 8,344 8,751 Income tax expense............................................... 1,816 2,437 4,152 3,879 ---------- ---------- ---------- ---------- Net earnings from continuing operations.......................... $ 3,588 $ 3,376 $ 4,192 $ 4,872 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- OTHER DATA: EBITDA (b)....................................................... $9,155 $9,337 $11,781 $12,620 EBITDA margin.................................................... 7.4% 6.6% 7.4% 7.4% Cash flow from operating activities.............................. $3,123 $9,108 $ 7,774 $ 6,130 Capital expenditures............................................. 1,748 2,327 3,031 2,508
AS OF MARCH 31, ------------------------------- 1997 1998 1999 --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets................................................................... $ 28,869 $ 28,088 $ 31,110 Working capital.................................................................. 16,578 14,455 15,925 Total assets..................................................................... 57,813 63,609 73,746
- ------------------------ (a) Includes the results of operations of Command Control, Inc. from October 1997, Interactive Media Solutions, Inc. from April 1997, UP, Inc. from November 1997, Dalco Electronics Corporation from August 1997 and Cambridge Acoustical Associates, Inc. from February 1998, the respective dates of acquisition by A&T. (b) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. 14 RISK FACTORS BEFORE YOU TENDER THE INITIAL NOTES IN THE EXCHANGE OFFER, YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. CERTAIN STATEMENTS IN THIS PROSPECTUS (INCLUDING CERTAIN OF THE FOLLOWING RISK FACTORS) CONSTITUTE FORWARD-LOOKING STATEMENT. SEE "FORWARD-LOOKING STATEMENTS." RISK FACTORS RELATING TO THE NOTES SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD AVERSELY AFFECT OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES. We have a significant amount of debt outstanding. You should be aware that this level of debt could have important consequences to you as a holder of the notes. Below we have identified for you some of the material potential consequences resulting from this significant amount of debt. - We may be unable to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes. - A significant portion of our cash flow from operations must be dedicated to the repayment of indebtedness, thereby reducing the amount of cash we have available for other purposes. - Our ability to adjust to changing market conditions may be hampered. We may be more vulnerable in a volatile market. ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE. We and our subsidiaries may be able to incur additional indebtedness in the future. The terms of the Indenture limit but do not prohibit us or our subsidiaries from doing so. Our new credit facility currently permits additional borrowings of up to $53.4 million, based on our current borrowing base and ratio of net debt to EBITDA (as defined in the new credit facility) and amounts currently outstanding under the revolving credit facility, and any such borrowings will be senior to the notes and the Subsidiary Guarantees (as defined in "Description of the Notes--Certain Definitions"). If new debt is added by us or our subsidiaries, the related risks that we and they now face could intensify. Please refer to the sections in this prospectus entitled "Capitalization," "Selected Consolidated Financial Data," "Description of Other Material Agreements--New Credit Facility" and "Description of the Notes." ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL. You should be aware that our ability to repay or refinance our debt depends on our successful financial and operating performance. We cannot assure you that our business strategy will succeed or that we will achieve our anticipated financial results. Our financial and operational performance depends upon a number of factors, many of which are beyond our control. These factors include: - the current economic and competitive conditions in the information technology industry; - Federal government spending levels, both generally and by our particular customers; - any operating difficulties, operating costs or pricing pressures we may experience; - the passage of legislation or other regulatory developments that affects us adversely; and - any delays in implementing any strategic projects we may have. We cannot assure you that we will generate sufficient cash flow from operations or that we will be able to obtain sufficient funding to satisfy all of our obligations, including the notes. Our ratio of EBITDA to total cash interest expense for the six months ended June 30, 1999 would have been 2.3 to 1.0. If we are 15 unable to pay our debts, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional equity capital. However, we cannot assure you that any alternative strategies will be feasible at the time or prove adequate. Also, certain alternative strategies would require the consent of our senior secured lenders before we engage in any such strategy. Please refer to the sections in this prospectus entitled "Description of Other Material Agreements" and "Description of the Notes." SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO A SIGNIFICANT PORTION OF OUR GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE CLAIMS OF CREDITORS OF OUR NON-GUARANTOR SUBSIDIARIES WILL HAVE PRIORITY WITH RESPECT TO THE ASSETS AND EARNINGS OF SUCH SUBSIDIARIES OVER YOUR CLAIMS. The notes and the Subsidiary Guaranties will be subordinated to the prior payment in full of our and the Subsidiary Guarantors' (as defined in "Description of the Notes--Certain Definitions") current and future Senior Indebtedness. As of June 30, 1999, we had $73.0 million outstanding under our new credit facility and the Subsidiary Guarantors had $73.0 million of Senior Indebtedness (consisting solely of their Senior Guaranty of our obligations under the new credit facility). Because of the subordination provisions of the notes, in the event of the bankruptcy, liquidation or dissolution of our company or any subsidiary guarantor, our assets or the assets of the Subsidiary Guarantors would be available to pay obligations under the notes only after all payments had been made on our or the Subsidiary Guarantors' Senior Indebtedness. We cannot assure you that sufficient assets will remain after all such payments have been made to make any payments on the notes, including payments of interest when due. We conduct a portion of our business through our subsidiaries. Any future domestic subsidiary that does not incur indebtedness and all of our foreign subsidiaries will not be guaranteeing the notes. Claims of creditors or our non-guarantor subsidiaries, including trade creditors, secured creditors and creditors holding indebtedness or guaranties issued by such subsidiaries, will generally have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of our company, including holders of the notes, even if the obligations of such subsidiaries do not constitute Senior Indebtedness. As of June 30, 1999, after eliminating intercompany activity, our subsidiaries that are not Subsidiary Guarantors would have 0.4% of our consolidated liabilities and assets, respectively. Please refer to the sections in this prospectus entitled "Description of the Notes--Ranking" and "Description of the Notes--Certain Covenants--Limitations on Indebtedness." RESTRICTIVE DEBT COVENANTS--THE TERMS OF OUR NEW CREDIT FACILITY AND THE INDENTURE IMPOSE SIGNIFICANT RESTRICTIONS ON OUR ABILITY AND THAT OF OUR SUBSIDIARIES TO TAKE CERTAIN ACTIONS, WHICH MAY HAVE AN IMPACT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The indenture and our new credit facility will impose significant operating and financial restrictions on us and our subsidiaries and require us to meet certain financial tests. These restrictions may significantly limit or prohibit us from engaging in certain transactions, including the following: - incurring or guaranteeing additional indebtedness; - paying dividends or other distributions to our stockholders or redeeming, repurchasing or retiring our capital stock or subordinated obligations; - making investments; - creating liens on our assets; - issuing or selling capital stock of our subsidiaries; - transforming or selling assets currently held by us; - engaging in transactions with affiliates; and - engaging in mergers or consolidations. 16 The failure to comply with any of these covenants would cause a default under the indenture and our other debt agreements. A default, if not waived, could result in acceleration of our indebtedness, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us. Complying with these covenants may cause us to take actions that are not favorable to holders of the notes. Please refer to the sections in this prospectus entitled "Description of Other Material Agreements" and "Description of the Notes--Certain Covenants". LIMITATIONS ON SUBSIDIARY GUARANTIES--THE GUARANTIES PROVIDED BY OUR SUBSIDIARIES ARE SUBJECT TO CERTAIN DEFENSES WHICH MAY LIMIT YOUR RIGHT TO RECEIVE PAYMENT ON THE NOTES AND ARE SUBORDINATED TO THE RIGHTS OF OTHER CREDITORS OF SUCH SUBSIDIARY GUARANTORS. Although the Subsidiary Guaranties provide the holders of the notes with a direct claim against the assets of the Subsidiary Guarantors, enforcement of the Subsidiary Guaranties against any Subsidiary Guarantor would be subject to certain "suretyship" defenses available to guarantors generally. Enforcement could also be subject to other defenses available to the Subsidiary Guarantors in some circumstances. Please refer to the section in this prospectus entitled "--Fraudulent Conveyance Matters." To the extent that the Subsidiary Guaranties are not enforceable, the notes and Subsidiary Guaranties would be effectively subordinated to all liabilities of the Subsidiary Guarantors, including trade payables of such Subsidiary Guarantors, whether or not such liabilities otherwise would constitute Senior Indebtedness under the indenture. In addition, the payment of dividends to us by our subsidiaries is contingent upon the earnings of those subsidiaries and approval of those subsidiaries. FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID THE NOTES AND THE SUBSIDIARY GUARANTIES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM ANTEON OR THE SUBSIDIARY GUARANTORS. An unpaid creditor or representative of creditors, such as a trustee in bankruptcy or Anteon as a debtor-in-possession in a bankruptcy proceeding, could file a lawsuit claiming that the issuance of the notes constituted a "fraudulent conveyance." To make such a determination, a court would have to find that we did not receive fair consideration or reasonably equivalent value for the notes, and that, at the time the notes were issued, we: - were insolvent; - were rendered insolvent by the issuance of the notes; - were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital; or - intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they matured. If a court were to make such a finding, it could void our obligations under the notes, subordinate the notes to our other indebtedness or take other actions detrimental to you as a holder of the notes. The measure of insolvency for these purposes will vary depending upon the law of the jurisdiction being applied. Generally, however, a company will be considered insolvent for these purposes if the sum of that company's debts is greater than the fair value of all of that company's property, or if the present fair saleable value of that company's assets is less than the amount that will be required to pay its probable liability on its existing debts as they mature. Moreover, regardless of solvency, a court could void an incurrence of indebtedness, including the notes, if it determined that the transaction was made with intent to hinder, delay or defraud creditors, or a court could subordinate the indebtedness, including the notes, to the claims of all existing and future creditors on similar grounds. We cannot determine in advance what standard a court would apply to determine whether we were "insolvent" in connection with the sale of the notes. 17 The making of the Subsidiary Guaranties might also be subject to similar review under relevant fraudulent conveyance laws if a bankruptcy, reorganization or rehabilitation case or a lawsuit (including circumstances in which bankruptcy is not involved) were commenced by, or on behalf of, unpaid creditors of the Subsidiary Guarantors at some future date. A court could impose legal and equitable remedies, including subordinating the obligations under the subsidiary guaranties, directing the repayment of any amounts paid from the proceeds of the Subsidiary Guaranties to a fund for the benefit of other creditors or taking other actions detrimental to you as a holder of the notes. FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE. If a Change of Control (as defined in "Description of the Notes--Certain Definitions") occurs, you have the right to require us to repurchase any or all of the notes you own at a price equal to 101% of the principal amount thereof, together with any interest we owe you. Upon a Change of Control, we may be required immediately to repay the outstanding principal, any accrued interest on the notes, any amounts owed by us under our new credit facility and other indebtedness or preferred stock then outstanding. We cannot assure you that we would be able to repay the amounts outstanding under our new credit facility or the principal amount outstanding of our other indebtedness or shares of our preferred stock, if applicable, or to obtain the necessary consents to purchase the notes. Any requirement to offer to purchase any outstanding notes may result in our having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance such indebtedness, such financing may be on terms unfavorable to us. If we fail to repurchase all of the notes tendered for purchase upon the occurrence of a Change of Control, such failure will be an event of default under the indenture and under our new credit facility. NO PRIOR MARKET FOR THE EXCHANGE NOTES--AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES. The exchange notes will be registered under the Securities Act but will not be eligible for trading on the Private Offerings, Resales and Trading through Automated Linkages market. The exchange notes will constitute a new issue of securities with no established trading market, and there can be no assurance as to: - the development of any market for the exchange notes, - the liquidity of any market for the exchange notes that may develop, - your ability to sell your exchange notes, or - the price at which would be able to sell your exchange notes. We have been advised by the initial purchasers for the initial notes that they presently intend to make a market in the exchange notes. However, they are not obligated to do so and may discontinue any market-making activity with respect to the exchange notes at any time without notice. If a market for the exchange notes were to exist, the exchange notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar debentures and the financial performance of Anteon and A&T. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. We cannot assure you that the market for the exchange notes, if any, will not be subject to similar disruptions. Any disruption may adversely affect you as a holder of the exchange notes. ISSUANCE OF THE EXCHANGE NOTES -- THE ISSUANCE OF THE EXCHANGE NOTES MAY ADVERSELY AFFECT THE MARKET FOR THE INITIAL NOTES. Following commencement of the exchange offer, you may continue to trade the initial notes in the Private Offerings, Resales and Trading through Automated Linkages market. If initial notes are tendered for exchange and accepted in the exchange offer, the trading market for the untendered and tendered but unaccepted initial notes could be adversely affected. 18 FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER -- YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES. The initial notes were not registered under the Securities Act or under the securities laws of any state and you may not resell them, offer them for resale or otherwise transfer them unless they are subsequently registered or resold under an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your initial notes for exchange notes pursuant to the exchange offer, or if you do not properly tender your initial notes in the exchange offer, you will not be able to resell, offer to resell or otherwise transfer the initial notes unless they are registered under the Securities Act. In addition, you will no longer be able to obligate us to register the initial notes under the Securities Act except in the limited circumstances provided under our registration rights agreement. DELIVERY OF A PROSPECTUS -- CERTAIN PERSONS WHO PARTICIPATE IN THE EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN CONNECTION WITH RESALES OF THE EXCHANGE NOTES. Based on certain no-action letters issued by the staff of the Securities and Exchange Commission, we believe that you may offer for resale, resell or otherwise transfer the exchange notes without compliance with the registration and prospectus delivery requirements of the Securities Act. However, in some instances described in this prospectus under "The Exchange Offer," you will remain obligated to comply with the registration and prospectus delivery requirements of the Securities Act to transfer your exchange notes. In these cases, if you transfer an exchange note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your exchange notes under this Act, you may incur liability under the Securities Act. We do not and will not assume or indemnify you against this liability. RISKS ASSOCIATED WITH FEDERAL GOVERNMENT CONTRACTING FEDERAL GOVERNMENT CONTRACTING RISKS--OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THERE WERE ANY SIGNIFICANT CHANGES IN THE CONTRACTING POLICIES OR FISCAL POLICIES OF THE U.S. FEDERAL GOVERNMENT. We derive substantially all of our revenues from contracts with the U.S. Federal government or subcontracts under Federal government prime contracts, and we believe that the success and development of our business will continue to depend on our successful participation in Federal government contract programs. Accordingly, changes in Federal government contracting policies could directly affect our financial performance. Among the factors that could materially adversely affect our Federal government contracting business are: - budgetary constraints affecting Federal government spending generally, or specific departments or agencies in particular, and changes in fiscal policies or available funding; - changes in Federal government programs or requirements; - curtailment of the Federal government's use of technology services firms; - the adoption of new laws or regulations; - technological developments; - Federal governmental shutdowns (such as that which occurred during the Federal government's 1996 fiscal year); - competition and consolidation in the information technology industry; and - general economic conditions. These or other factors could cause Federal governmental agencies to reduce their purchases under contracts, to exercise their right to terminate contracts or not to exercise options to renew contracts, any of which could have a material adverse effect on our financial condition, results of operations and debt service capability. 19 Many of our Federal government customers are subject to increasingly stringent budgetary constraints. We have substantial contracts in place with many Federal departments and agencies, and our continued performance under these contracts, or award of additional contracts from these agencies, could be materially adversely affected by spending reductions or budget cutbacks at these agencies. Please refer to the section in this prospectus entitled "Overview of Federal Government Contracting." Such reductions or cutbacks could have a material adverse effect on our financial condition, results of operations and debt service capability. EARLY TERMINATION OF CONTRACTS--WE ARE NOT ABLE TO GUARANTEE THAT OUR CONTRACTS WITH THE U.S. FEDERAL GOVERNMENT AND SUBCONTRACTS UNDER FEDERAL GOVERNMENT PRIME CONTRACTS WILL NOT BE TERMINATED PRIOR TO THEIR COMPLETION AND THERE IS NO GUARANTEE THAT WE WILL RETAIN THESE CONTRACTS IN ANY COMPETITIVE REBIDDING PROCESS. We derive substantially all of our revenues from U.S. Federal government contracts and subcontracts under Federal government prime contracts that typically span one or more base years and one or more option years and are awarded through formal competitive bidding processes. Many of the option periods cover more than half of the contract's potential duration. Federal government agencies generally have the right not to exercise these option periods. In addition, our contracts typically also contain provisions permitting a government client to terminate the contract on short notice, with or without cause. A decision not to exercise option periods or to terminate contracts would reduce the profitability of these contracts to us. Our contractual costs and revenues are subject to adjustment as a result of Federal government audits. Please refer to the section in this prospectus entitled "--Contracts Subject to Audit." Upon expiration, if the customer requires further services of the type provided in the contract, there is frequently a competitive rebidding process, and there can be no assurance that we will win any particular bid, or that we will be able to replace business lost upon expiration or completion of a contract. Further, all Federal government contracts are subject to protest by competitors. The unexpected termination of one or more of our significant contracts could result in significant revenue shortfalls. The termination or nonrenewal of any of our significant contracts, short-term revenue shortfalls, the imposition of fines or damages or our suspension or debarment from bidding on additional contracts could have a material adverse effect on our financial condition, results of operations and debt service capability. For a description of some of our material contracts, please refer to the sections in this prospectus entitled "Business-- Anteon Divisions" and "Business--A&T Divisions." CONTRACTS SUBJECT TO AUDIT--OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A NEGATIVE AUDIT BY THE DEFENSE CONTRACT AUDIT AGENCY. WE COULD BE REQUIRED TO REIMBURSE THE U.S. FEDERAL GOVERNMENT FOR COSTS THAT WE HAVE EXPENDED ON OUR CONTRACTS AND OUR ABILITY TO COMPETE SUCCESSFULLY FOR FUTURE CONTRACTS COULD BE MATERIALLY IMPAIRED. The Defense Contract Audit Agency, which we refer to as "DCAA" and certain other government agencies, routinely audit and investigate government contracts. These agencies review a contractor's performance on its contract, pricing practices, cost structure and compliance with applicable laws, regulations and standards. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while costs already reimbursed must be refunded. Therefore, a DCAA audit could result in a substantial adjustment to our revenues. No material adjustments have resulted from any DCAA audits of us completed as of December 31, 1996, and we believe that adjustments resulting from subsequent audits will not adversely affect our business. If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or debarment from doing business with the Federal government. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us. Any such government determination of impropriety or illegality, or allegation of impropriety, could have a material adverse effect on our financial condition, results of operations and debt service capabilities. 20 RISKS UNDER IDIQ CONTRACTS AND GSA SCHEDULE CONTRACT VEHICLES--MANY OF OUR U.S. FEDERAL GOVERNMENT CUSTOMERS SPEND THEIR PROCUREMENT BUDGETS THROUGH GSA SCHEDULE CONTRACTS AND WE ARE REQUIRED TO COMPETE FOR POST-AWARD ORDERS. Budgetary pressures and reforms in the procurement process have caused many U.S. Federal government customers to increasingly purchase goods and services through "indefinite delivery, indefinite quantity", which we refer to as "IDIQ", contracts, General Service Administration, which we refer to as "GSA", Schedule contracts and other multiple award and/or government-wide acquisition contract vehicles. These contract vehicles have resulted in increased competition and pricing pressure requiring that we make sustained post-award efforts to realize revenues under the relevant contract. There can be no assurance that we will continue to increase revenues or otherwise sell successfully under these contract vehicles. Our failure to compete effectively in this procurement environment could have a material adverse effect on our financial condition, results of operations and debt service capability. For a description of some of our material contracts, please refer to the sections in this prospectus entitled "Business--Anteon Divisions" and "Business--A&T Divisions." RISK FACTORS RELATING TO THE INDUSTRY GOVERNMENT REGULATIONS--WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF PROCUREMENT RULES AND REGULATIONS. CHANGES IN GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our defense and commercial businesses must comply with and are affected by various government regulations. Among the most significant regulations are the Federal Acquisition Regulations, which comprehensively regulate the formation, administration and performance of government contracts; the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-based government contracts; and laws, regulations and Executive Orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data. These regulations affect how our customers and we can do business and, in some instances, impose added costs on our businesses. Any changes in applicable laws could adversely affect the financial performance of the business affected by the changed regulations. Any failure to comply with applicable laws could result in contract termination, price or fee reductions or suspension or debarment from contracting with the Federal government. RISKS RELATING TO FURTHER REDUCTIONS OR CHANGES IN MILITARY EXPENDITURES--A DECLINE IN THE U.S. DEFENSE BUDGET MAY ADVERSELY AFFECT OUR OPERATIONS. Sales under contracts with the U.S. Government's Department of Defense, including under subcontracts that identified the Department of Defense as the ultimate purchaser, represented approximately 34% of our sales in 1998. The U.S. defense budget has generally declined since the mid-1980s, resulting in a slowing of new program starts, program delays and program cancellations. This reduction in the U.S. defense budget has caused most defense-related government contractors to experience declining revenues, increased pressure on operating margins and, in some cases, net losses. The loss or significant curtailment of our material U.S. or international military contracts or the failure to renew or replace material contracts upon expiration or completion or a general significant decline in military expenditures, could materially and adversely affect our financial condition, results of operations and debt service capability. RISK FACTORS RELATING TO ANTEON AND A&T BACKLOG--WE ARE NOT ABLE TO GUARANTEE THAT CONTRACT ORDERS IN OUR OR A&T'S BACKLOG WILL RESULT IN ACTUAL REVENUES IN ANY PARTICULAR FISCAL PERIOD. 21 There can be no assurance that our or A&T's backlog will result in actual revenues in any particular period or at all. Further, there can be no assurance that any contract included in backlog that generates revenue will be profitable. Our backlog consists of "funded" backlog which is based upon amounts actually appropriated by a customer for payment of goods and services and "unfunded" backlog which is based upon management's estimate of the future potential of our existing contracts to generate revenues for us. These estimates are based on our experience under such contracts and similar contracts, and management believes such estimates to be reasonable. However, there can be no assurances that all of such backlog will be recognized as revenue. In addition, the Federal government's ability to select multiple winners under IDIQ contracts, as well as its right to award subsequent task orders to any particular awardee, means that there is no assurance that unfunded contract backlog will result in actual orders. Further, the Federal government enjoys broad rights to unilaterally modify or terminate such contracts. Accordingly, most of our and A&T's backlog is subject to modification and termination at the Federal government's discretion. In addition, funding for orders from the Federal government is subject to approval on an annual basis by Congress pursuant to the appropriations process. RELIANCE ON SUBCONTRACTORS--WE REGULARLY EMPLOY SUBCONTRACTORS TO ASSIST US IN SATISFYING OUR CONTRACTUAL OBLIGATIONS. IF THESE SUBCONTRACTORS FAIL TO PERFORM THEIR CONTRACTUAL OBLIGATIONS, OUR PRIME CONTRACT PERFORMANCE AND OUR ABILITY TO OBTAIN FUTURE BUSINESS COULD BE MATERIALLY AND ADVERSELY IMPACTED. Our performance of government contracts may involve the issuance of subcontracts to other companies upon which we rely to perform all or a portion of the work we are obligated to deliver to our customers. A failure by one or more of our subcontractors to satisfactorily deliver on a timely basis the agreed-upon supplies and/or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations as a prime contractor. In extreme cases, such subcontractor performance deficiencies could result in the government terminating Anteon's contract for default. A default termination could expose Anteon to liability for excess costs of reprocurement by the government and have a material adverse effect on our ability to compete for future contracts and task orders. DEPENDENCE ON KEY TECHNICAL PERSONNEL--IF WE LOSE OUR TECHNICAL PERSONNEL, OUR BUSINESS MAY BE ADVERSELY AFFECTED. Our continued success depends in large part on our ability to recruit and retain the technical personnel necessary to serve our clients effectively. Competition for skilled personnel in the information technology and engineering services industry is intense, and technology service companies often experience high attrition among their skilled employees. Excessive attrition among our technical personnel could increase our costs of performing our contractual obligations, reduce our ability to efficiently satisfy our clients' needs and constrain our future growth. In addition, we must often comply with provisions in Federal government contracts that require employment of persons with specified levels of education, work experience and security clearances. The loss of any significant number of our existing key technical personnel or the inability to attract and retain key employees in the future could have a material adverse effect on our ability to win new business as well as our financial condition, results of operations and debt service capability. Please refer to the sections in this prospectus entitled "Business--Employees" and "Management." ACQUISITION STRATEGY--WE INTEND TO PURSUE FUTURE ACQUISITIONS AND ARE CURRENTLY CONSIDERING SPECIFIC ACQUISITIONS WHICH MAY ADVERSELY AFFECT OUR BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW OPERATIONS. Our continued success will depend upon our ability to integrate Vector Data Systems, Inc., Tech-matics, A&T and any businesses we may acquire in the future. The integration of such businesses into our operations may require a disproportionate amount of management's attention and our resources. There can be no assurance that the acquired entities will operate profitably, that we will realize anticipated synergies or that acquisitions will cause our operating performance to improve. 22 Although management regularly engages in discussions with and submits acquisition proposals to acquisition targets, there can be no assurance that suitable acquisition targets will be available in the future on reasonable terms. In addition, to the extent that we complete any additional acquisitions, no assurance can be given that acquisition financing will be available on reasonable terms or at all, that any new businesses will generate revenues or net income comparable to our existing businesses or that such businesses will be integrated successfully or operated profitably. In addition, the new credit facility contains certain covenants restricting, among other things, acquisitions and capital expenditures, and the new credit facility and the indenture limit the incurrence of additional indebtedness. Such covenants may further limit our ability to complete additional acquisitions. POTENTIAL UNDISCLOSED LIABILITIES ASSOCIATED WITH ACQUISITIONS--WE MAY BE SUBJECT TO CERTAIN LIABILITIES ASSUMED IN CONNECTION WITH OUR ACQUISITIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS. We conduct due diligence in connection with each of our acquisitions. In connection with our acquisition of A&T, or any other acquisition made by us, there may be liabilities that we fail to discover or that we inadequately assess in our due diligence efforts. In particular, to the extent that prior owners of any acquired businesses failed to comply with or otherwise violated procurement requirements or applicable laws, Anteon, as the successor owner, may be financially responsible for these violations or otherwise be adversely affected. The discovery of any material liabilities could have a material adverse effect on our financial condition, results of operations and debt service capability. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS--OUR INTERNATIONAL BUSINESS EXPOSES US TO ADDITIONAL RISKS INCLUDING EXCHANGE RATE FLUCTUATIONS, FOREIGN TAX AND LEGAL REGULATIONS AND POLITICAL OR ECONOMIC INSTABILITY THAT COULD ADVERSELY AFFECT OUR BUSINESS. In connection with our international operations, which generated less than 5% of our 1998 revenues, we are subject to risks associated with operating in and selling to foreign countries, including: - devaluations and fluctuations in currency exchange rates; - changes in or interpretations of foreign regulations that may adversely affect our ability to sell all of our products or repatriate profits to the United States; - imposition of limitations on conversions of foreign currencies into dollars; - imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; - hyperinflation or political instability in foreign countries; - imposition or increase of investment and other restrictions or requirements by foreign governments; and - U.S. arms export control regulations and policies which govern our ability to supply foreign affiliates and customers. To the extent we expand our international operations, these and other risks associated with international operations are likely to increase. Although such risks have not had a material adverse effect on our financial condition, results of operations or debt service capability in the past, no assurance can be given that such risks will not have such an adverse effect on us in the future. CONCENTRATION OF OWNERSHIP--WE WILL BE CONTROLLED BY ENTITIES UNDER THE CONTROL OF MR. ISEMAN, WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS. Affiliates of Caxton-Iseman Capital which are controlled by Mr. Frederick J. Iseman beneficially own more than 99% of our capital stock. Consequently, Mr. Iseman can control the election of our directors and the outcome of all matters submitted to a vote of our shareholders, as well as our management, operations and policies. Mr. Iseman's interests may not be fully aligned with yours and this could lead to a strategy that is not in your best interests. 23 RISKS ASSOCIATED WITH "YEAR 2000" PROBLEM We are dependent on business systems, which include our information technology systems and non-information technology devices with embedded microprocessors in operating our business. We also depend on the proper functioning of business systems of third parties, such as our vendors and customers. The failure of any of these systems to appropriately interpret the upcoming calendar year 2000 could have a material adverse effect on our financial condition, results of operations, debt service capability, cash flow and business prospects. During fiscal 1998 we implemented a plan which prepared our systems to be Year 2000 compliant. We have completed our inventory phase and, based on this analysis, we believe that our systems and applications will not be adversely affected by any Year 2000 issues. Our aggregate costs incurred in 1998 to assess our Year 2000 readiness were not material and management expects that any future expenditures in 1999 will be similarly immaterial. However, we cannot assure you that this estimate will be correct. In addition, we have addressed the Year 2000 issue with our significant third-party suppliers and customers through inclusion of appropriate contractual provisions in our business dealings with such companies to ensure their Year 2000 readiness. Management has no reason to believe that any such companies will encounter Year 2000 issues. However, we cannot assure you that they will be successful in avoiding any Year 2000 issues or resolving them in a timely manner, or that any failure to do so would not materially and adversely affect our business. Our inability to remedy our own Year 2000 problems or the failure of third parties to do so may cause business interruptions or shutdown and result in financial loss, regulatory actions, reputational harm and/or legal liability. 24 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes in exchange for the outstanding initial notes. We are making this exchange solely to satisfy our obligations under our registration rights agreement. In consideration for issuing the exchange notes, we will receive initial notes in like aggregate accreted value equal to the accreted value of the exchange notes. The following table sets forth sources and uses of funds in connection with the Transactions:
AMOUNT SOURCES USES ------------- - ------------------------------------- ------------------------------------- (IN AMOUNT THOUSANDS) ------------- (IN THOUSANDS) New Credit Facility: Revolving Credit Facility.......... $ 13,000 Acquisition of A&T................... $ 108,800 Term Loan Facility................. 60,000 Repayment of Anteon debt............. 76,200 Initial Notes........................ 100,000 Repayment of A&T debt................ 3,200 Equity Contribution.................. 22,500 Estimated fees and expenses.......... 11,600 Existing cash........................ 4,300 ------------- ------------- Total Sources...................... $ 199,800 Total Uses........................... $ 199,800 ------------- ------------- ------------- -------------
25 CAPITALIZATION The following table sets forth the capitalization of Anteon at June 30, 1999. Each of the Transactions were consummated prior to June 30, 1999 and are reflected in the amounts in the table. You should read this table in conjunction with the information in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anteon Corporation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Analysis & Technology, Inc." and the historical consolidated financial statements of Anteon and A&T, together with the respective exchange notes thereto, included elsewhere in this prospectus.
AS OF JUNE 30, 1999 ------------- (IN THOUSANDS) Total debt: New credit facility: Revolving credit facility...................................................................... $ 13,000 Term loan facility............................................................................. 60,000 12% Senior Subordinated Notes Due 2009........................................................... 100,000 Subordinated notes payable for Techmatics acquisition............................................ 8,648 Mortgage long-term debt.......................................................................... 2,076 ------------- Total debt................................................................................... $ 183,724 ------------- Stockholders' equity: Common stock, $0.05 par value, 4,415,460 shares authorized; 3,557,672 shares issued and outstanding.................................................................................... 178 Additional paid-in capital....................................................................... 40,751 Accumulated other comprehensive income........................................................... 1,970 Retained earnings................................................................................ 5,183 ------------- Total stockholders' equity................................................................... 48,082 ------------- Total capitalization....................................................................... $ 231,806 ------------- -------------
26 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The following unaudited pro forma condensed consolidated financial data is based on the historical consolidated financial statements of Anteon, A&T and Techmatics, adjusted to give effect to (1) the acquisition of Techmatics, (2) the acquisition of A&T, (3) the offering of the initial notes, (4) the receipt of the equity contribution, (5) the initial borrowings under the new credit facility, (6) the repayment of all the amounts outstanding under the existing credit facility and the repayment of all the outstanding indebtedness of A&T. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1998 and the six months ended June 30, 1999 give effect to the Transactions as if they were completed as of January 1, 1998 and combine Anteon's and A&T's statements of income for the year ended December 31, 1998 and the six months ended June 30, 1999, and the results of operations of Techmatics for the period from January 1, 1998 to May 29, 1998. The Techmatics acquisition was effective as of May 29, 1998 and is reflected in the historical balance sheet of Anteon as of June 30, 1999 and Anteon's historical statements of income for the period from May 29, 1998 to December 31, 1998, and for the six months ended June 30, 1999. The acquisition of A&T has been accounted for using the purchase method of accounting. The purchase method of accounting allocates the aggregate purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based upon their respective estimated fair market values as of the assumed date of combination. These estimates were based on preliminary appraisals and other studies that will be completed during the remainder of 1999. The estimates of fair market value in the final allocation of the purchase price may differ from those presented in the accompanying unaudited pro forma condensed consolidated financial data. The unaudited pro forma condensed consolidated financial data does not include certain cost savings related to the acquisition of A&T that we expect to realize in connection with the acquisition or the costs of achieving such cost savings. Such pro forma cost savings also do not reflect certain other cost savings related to previous acquisitions or the costs of achieving such cost savings. Management believes that additional cost savings will be generated through reduced general and administrative expenses and the allocation of a portion of Anteon's home office expenses to A&T. A significant portion of such allocated home office expenses will be recovered through A&T's cost-plus contracts which provide for reimbursement of a portion of A&T's indirect costs. Management estimates that such cost savings will be approximately $3.7 million annually before income taxes; however, there can be no assurance that such cost savings will be achieved in the amounts expected or at all. These estimated savings are not reflected in the pro forma data. The method of combining historical financial statements for the preparation of the pro forma condensed consolidated financial data is for presentation only. Actual statements of operations of Anteon will reflect the operating results of both Anteon and A&T from the closing date of the acquisition with no retroactive restatements. The unaudited pro forma condensed consolidated financial data is provided for illustrative purposes only and does not purport to be indicative of the financial condition or results of operations that would have been reported had the Transactions occurred on the dates indicated, nor does it represent a forecast of the consolidated financial position or results of operations for any future period. The unaudited pro forma condensed consolidated financial data should be read in conjunction with the historical financial statements, together with the respective notes thereto, for Anteon, A&T and Techmatics, included elsewhere in this prospectus. 27 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
ADJUSTMENTS FOR ADJUSTMENTS HISTORICAL HISTORICAL THE TECHMATICS PRO FORMA HISTORICAL FOR THE ANTEON TECHMATICS(A) ACQUISITION ANTEON A&T(B) TRANSACTIONS PRO FORMA ---------- ------------- --------------- ---------- ---------- ------------- ---------- Revenue......................... $ 249,776 $ 32,763 $ 282,539 $ 168,247 $ 450,786 Cost of revenues................ 221,588 28,639 250,227 143,429 393,656 ---------- ------------- ---------- ---------- ---------- Gross profit.................... 28,188 4,124 32,312 24,818 57,130 General and administrative expenses...................... 15,286 1,883 17,169 14,917 (568) (c) 31,518 Amortization of non-compete agreements.................... 530 -- 379(d) 909 -- 909 Goodwill amortization........... 1,814 -- 372(d) 2,186 944 1,839(e) 4,969 Other........................... 115 -- 115 242 357 ---------- ------------- ---------- ---------- ---------- Operating income................ 10,443 2,241 11,933 8,715 19,377 Interest expense, net........... 5,597 74 5,671 357 16,518(f) 22,546 Minority interest in earnings of subsidiary.................... 25 -- 25 -- 25 ---------- ------------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes.... 4,821 2,167 6,237 8,358 (3,194) Income tax expense (benefit).... 2,353 -- 275(g) 2,628 3,689 (6,326)(g) (9) ---------- ------------- ---------- ---------- ---------- Net income (loss)............... $ 2,468 $ 2,167 $ 3,609 $ 4,669 $ (3,185) ---------- ------------- ---------- ---------- ---------- ---------- ------------- ---------- ---------- ---------- EBITDA(i)....................... $ 15,988 $ 18,772 $ 31,437 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations. 28 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
ADJUSTMENTS HISTORICAL HISTORICAL FOR THE ANTEON A&T(B) TRANSACTIONS PRO FORMA ---------- ---------- ------------- ---------- Revenue............................................................ $ 145,609 $ 90,097 $ 235,706 Cost of revenues................................................... 128,576 76,444 205,020 ---------- ---------- ---------- Gross profit....................................................... 17,033 13,653 30,686 General and administrative expenses................................ 8,907 7,312 (292)(c) 15,927 Amortization of non-compete agreements............................. 454 -- 454 Goodwill amortization.............................................. 1,024 579 813(e) 2,416 Other.............................................................. -- 638 638 ---------- ---------- ---------- Operating income................................................... 6,648 5,124 11,251 Interest expense, net.............................................. 5,500 93 5,860(f) 11,453 Minority interest in earnings of subsidiary........................ 17 -- 17 ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes.......... 1,131 5,031 (219) Income tax expense (benefit)....................................... 399 2,240 (2,092)(g) 547 ---------- ---------- ---------- Net income (loss)(h)............................................... $ 732 2,791 $ (766) ---------- ---------- ---------- ---------- ---------- ---------- EBITDA(i).......................................................... $ 9,393 $ 16,530 ---------- ---------- ---------- ----------
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations. 29 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) The following adjustments have been reflected in the Unaudited Pro Forma Condensed Consolidated Statements of Operations: (a) To reflect the historical results of operations of Techmatics for the period January 1, 1998 to May 29, 1998. The Techmatics acquisition was effective as of May 29, 1998 and is reflected in Anteon's historical statements of income for the periods from May 29, 1998 to December 31, 1998, and January 1, 1999 to June 30, 1999. (b) To reflect the historical results of operations of A&T. (c) To reflect cost savings associated with the elimination of general and administrative expenses of A&T operating as a public company, including fees payable to the board of directors of A&T. (d) To reflect incremental amortization of goodwill and non-compete agreements resulting from the Techmatics acquisition for the period January 1, 1998 to May 29, 1998. (e) To reflect the amortization of goodwill of $83,490 from the acquisition of A&T, determined as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1998 JUNE 30, 1999 ----------------- ----------------- Amortization expense from the acquisition............... $ 2,783 $ 1,392 Elimination of historical A&T goodwill.................. (944) (579) ------ ------ Pro forma adjustment to goodwill amortization expense............................................. $ 1,839 $ 813 ------ ------ ------ ------
The acquisition was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of combination. These estimates were based on preliminary appraisals and other studies that will be completed during the remainder of 1999. Amortization expense on the goodwill from the acquisition is being amortized on a straight-line basis over 30 years. (f) To reflect incremental interest expense associated with (1) the 12% Senior Subordinated Notes Due 2009, (2) initial borrowings under the new credit facility and (3) the amortization of deferred financing costs. Also reflects the elimination of interest expense associated with the existing credit facility. The components of pro forma interest expense for the year ended December 31, 1998 and the six months ended June 30, 1999 are as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1998 JUNE 30, 1999 ----------------- ---------------- 12% Senior Subordinated Notes Due 2009.................. $ 12,000 $ 6,000 Term Loan Facility...................................... 6,000 3,000 Revolving Credit Facility............................... 1,300 650 Techmatics subordinated notes payable................... 1,040 485 Amortization of deferred financing costs................ 1,780 1,217 Other................................................... 426 101 ------- ------- Pro forma interest expense.............................. 22,546 11,453 Less historical interest expense........................ (6,028) (5,593) ------- ------- Pro forma adjustment to interest expense.............. $ 16,518 $ 5,860 ------- ------- ------- -------
The interest rates used above are the interest rates that we estimate will be applicable. The Term Loan Facility and the Revolving Credit Facility bear interest at adjustable rates. An increase of 1/8% in the 30 interest rate applicable to the Term Loan Facility or the Revolving Credit Facility will result in pro forma interest expense and pro forma net loss for the year ended December 31, 1998 and the six months ended June 30, 1999 as follows:
YEAR ENDED DECEMBER 31, 1998 SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------- ----------------------------------- REVOLVING REVOLVING TERM LOAN CREDIT TERM LOAN CREDIT FACILITY FACILITY TOTAL FACILITY FACILITY TOTAL ----------- ----------- --------- ----------- ----------- --------- Pro forma interest expense...... $ 22,621 $ 22,562 $ 22,637 $ 11,491 $ 11,461 $ 11,499 ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- Pro forma net loss.............. $ (3,230) $ (3,195) $ (3,240) $ (789) $ (771) $ (794) ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- ---------
(g) To recognize Federal and state income taxes at a combined rate of 40%, after adjusting income (loss) before taxes for non-deductibility of goodwill amortization expense. (h) The accompanying unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 1999 excludes $772 ($463, net of tax) of deferred financing costs associated with the existing credit facility, which were written off upon early repayment of all the amounts outstanding under such facility. (i) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA also excludes infrequent and unusual charges of $0.1 million for the year ended December 31, 1998 relating to asset write-offs at Techmatics, and $0.24 million for the six months ended June 30, 1999 relating to a settlement with a former executive. Management believes that these charges will not recur and will not result in further cash charges. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of our operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. 31 SELECTED CONSOLIDATED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA OF ANTEON CORPORATION The following selected consolidated financial data has been derived from (1) in the case of Anteon, its unaudited consolidated financial statements as of June 30, 1999 and for the six months ended June 30, 1999 and 1998 and its audited consolidated financial statements as of and for the years ended December 31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996 and (2) in the case of our Predecessor Company, its audited consolidated financial statements for the period from January 1, 1996 to March 31, 1996, in each case included elsewhere in this prospectus. The following selected consolidated financial data as of December 31, 1996 of Anteon and as of and for the year ended December 31, 1995 of our Predecessor Company is derived from audited consolidated financial statements not included in this prospectus. Each of the audited consolidated financial statements of Anteon and our Predecessor Company have been audited by KPMG LLP, independent certified public accountants. The following selected consolidated financial data as of and for the year ended December 31, 1994 of our Predecessor Company is unaudited and has been prepared on the same basis as the audited consolidated financial statements of our Predecessor Company included elsewhere in this prospectus. In the opinion of Anteon's management, the unaudited data reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of such data. These results are not necessarily indicative of the results that may be expected for a complete year or for any future period and are not comparable to the prior period as a result of business acquisitions consummated in 1997, 1998 and 1999. Results of operations of these acquired businesses are included in Anteon's consolidated financial statements for the periods subsequent to the respective dates of acquisition. You should read this data in conjunction with "Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Anteon Corporation," "Business" and the historical consolidated financial statements of Anteon, together with the respective notes thereto, included elsewhere in this prospectus.
ANTEON PREDECESSOR COMPANY(A) --------------------------------------------------------- --------------------------------- PERIOD FROM PERIOD FROM JANUARY 1, APRIL 1, 1996 1996 YEAR ENDED TO MARCH TO DECEMBER YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 31, 31, DECEMBER 31, JUNE 30, -------------------- ----------- ------------- -------------------- -------------------- 1994 1995 1996 1996 1997(B) 1998(C) 1998(C) 1999(D) --------- --------- ----------- ------------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues....................... $ 78,154 $ 108,504 $ 32,046 $ 109,780 $ 176,292 $ 249,776 $ 108,196 145,609 Costs of revenues.............. 73,771 101,084 29,218 100,426 159,539 221,588 96,139 128,576 --------- --------- ----------- ------------- --------- --------- --------- --------- Gross profit................... 4,383 7,420 2,828 9,354 16,753 28,188 12,057 17,033 General and administrative expenses..................... 9,471 6,489 2,071 4,616 8,061 15,286 6,203 8,907 Amortization of non-compete agreements (e)............... -- -- -- 1,714 2,286 530 76 454 Goodwill amortization.......... -- -- -- 346 742 1,814 751 1,024 Costs of acquisitions (f)...... -- -- -- -- 584 115 18 -- --------- --------- ----------- ------------- --------- --------- --------- --------- Operating income (loss)........ (5,088) 931 757 2,678 5,080 10,443 5,009 6,648 Interest expense, net.......... 952 105 -- 1,455 2,365 5,597 1,736 5,500 Minority interest in earnings of subsidiary................ -- -- -- -- 13 25 14 17 --------- --------- ----------- ------------- --------- --------- --------- --------- Income (loss) before provision for income taxes and extraordinary item........... (6,040) 826 757 1,223 2,702 4,821 3,259 1,131 Income tax expense (benefit)... (2,416) 330 303 416 1,063 2,353 1,310 399 --------- --------- ----------- ------------- --------- --------- --------- --------- Net income (loss) before extraordinary item........... $ (3,624) $ 496 $ 454 $ 807 $ 1,639 $ 2,468 $ 1,949 $ 732 Extraordinary item, net of tax.......................... -- -- -- -- -- -- -- 463(g) --------- --------- ----------- ------------- --------- --------- --------- --------- Net income (loss).............. (3,624) 496 454 807 1,639 2,468 1,949 269 --------- --------- ----------- ------------- --------- --------- --------- --------- --------- --------- ----------- ------------- --------- --------- --------- ---------
32
ANTEON PREDECESSOR COMPANY(A) --------------------------------------------------------- --------------------------------- PERIOD FROM PERIOD FROM JANUARY 1, APRIL 1, 1996 1996 YEAR ENDED TO MARCH TO DECEMBER YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 31, 31, DECEMBER 31, JUNE 30, -------------------- ----------- ------------- -------------------- -------------------- 1994 1995 1996 1996 1997(B) 1998(C) 1998(C) 1999(D) --------- --------- ----------- ------------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) OTHER DATA: EBITDA (h)........... $ (4,426) $ 2,039 $ 1,143 $ 5,800 $ 9,583 $ 15,988 $ 6,694 $ 9,393 EBITDA margin........ (5.7)% 1.9% 3.6% 5.3% 5.4% 6.4% 6.2% 6.5% Cash flow from (used in) operating activities......... $ 849 $ (8,119) $ 2,224 $ 7,519 $ 14,094 $ (8,340) $ (9,426) $ 5,677 Capital expenditures....... 570 1,195 211 376 817 2,089 1,164 1,335 Ratio of earnings to fixed charges (i)................ -- 1.8x 4.5 x 1.6 x 1.8x 1.6x 2.3x 1.2x Deficiency in earnings to cover fixed charges...... $ (6,040) -- -- -- -- -- -- -- BALANCE SHEET DATA (AS OF DECEMBER 31): Currents assets...... $ 32,135 $ 36,591 $ 42,394 $ 35,744 $ 73,556 $ 106,459 Working capital...... 22,223 23,859 23,397 11,767 34,161 43,602 Total assets......... 38,673 40,697 59,599 68,572 143,168 287,107 Net debt (j)......... -- -- 19,486 23,448 73,573 170,427
- ------------------------ (a) Represents the results of operations and financial position of our Predecessor Company prior to its acquisition by Anteon, effective April 1, 1996. (b) Includes the results of operations of Vector Data from August 29, 1997, the date of acquisition by Anteon. (c) Includes the results of operations of Techmatics from May 29, 1998, the date of acquisition by Anteon. (d) The Company consummated the acquisition of A&T on June 23, 1999. The results of operations of A&T were not significant for the period ended June 30, 1999 and are not included in Anteon's consolidated statements of operations for the six months ended June 30, 1999. Balance sheet data as of June 30, 1999 reflects the acquisition of A&T. (e) Non-compete agreements entered into by Anteon in connection with purchase business combinations are amortized on a straight-line basis over the terms of such non-compete agreements. (f) Costs incurred on successful acquisitions are capitalized as a cost of the acquisition, while costs incurred by Anteon in connection with proposed acquisitions that were unsuccessful or discontinued are expensed as incurred. (g) Represents the write-off of $772 of deferred financing fees, net of income taxes of $309, related to the existing credit facility which was repaid early in conjunction with the Transactions. (h) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA also excludes infrequent and unusual charges of $0.1 million for the year ended December 31, 1998 relating to asset write-offs at Techmatics, and $0.24 million for the six months ended June 30, 1999 relating to a settlement with a former executive. Management believes that these charges will not recur and will not result in future cash charges. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of our operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. (i) For purposes of determining the ratio of earnings to fixed charges, "earnings" includes pre-tax income adjusted for fixed charges. "Fixed charges" consist of interest expense and that portion of operating lease rental expense representative of interest (deemed to be one-third of rental expense). (j) Net debt represents total indebtedness less cash and investments in marketable securities. 33 SELECTED CONSOLIDATED FINANCIAL DATA OF ANALYSIS & TECHNOLOGY, INC. The following selected consolidated financial data as of March 31, 1999, and 1998 and for the years ended March 31, 1999, 1998 and 1997 has been derived from the audited consolidated financial statements of A&T, each included elsewhere in this prospectus. The following selected consolidated financial data as of March 31, 1997, 1996 and 1995 and for the years ended March 31, 1996 and 1995 have been derived from the audited consolidated financial statements of A&T not included in this prospectus. Each of these audited consolidated financial statements have been audited by KPMG LLP, independent certified public accountants. You should read the following information in conjunction with "Capitalization," "Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Analysis & Technology, Inc.," "Business" and the audited consolidated financial statements of A&T, together with the respective notes thereto, included elsewhere in this prospectus.
YEAR ENDED MARCH 31, ---------------------------------------------------------- 1995 1996 1997 1998(A) 1999 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues from continuing operations......................... $ 131,174 $ 122,924 $ 142,547 $ 159,956 $ 170,355 Costs and expenses.......................................... 125,222 116,670 135,777 152,011 160,075 ---------- ---------- ---------- ---------- ---------- Operating earnings from continuing operations............... 5,952 6,254 6,770 7,945 10,280 Interest expense............................................ 542 512 319 171 350 Other, net.................................................. 269 338 638 (570) 1,179 ---------- ---------- ---------- ---------- ---------- Earnings before provision for income taxes.................. 5,141 5,404 5,813 8,344 8,751 Income tax expense.......................................... 2,171 1,816 2,437 4,152 3,879 ---------- ---------- ---------- ---------- ---------- Net earnings from continuing operations..................... 2,970 3,588 3,376 4,192 4,872 DISCONTINUED OPERATIONS: Loss from discontinued operations, net of tax............... (197) (195) -- -- -- Loss from disposal of discontinued operations, net of tax... -- (1,316) -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings................................................ $ 2,773 $ 2,077 $ 3,376 $ 4,192 $ 4,872 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
34
YEAR ENDED MARCH 31, ----------------------------------------------------- 1995 1996 1997 1998(A) 1999 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT RATIOS) OTHER DATA: EBITDA (b)................................................. $ 8,444 $ 9,155 $ 9,337 $ 11,781 $ 12,620 Gross margin (c)........................................... 4.5% 5.1% 4.8% 5.0% 6.0% EBITDA margin.............................................. 6.4% 7.5% 6.6% 7.4% 7.4% Cash flow from operating activities........................ $ 4,888 $ 3,123 $ 9,108 $ 7,774 $ 6,130 Capital expenditures....................................... 2,258 1,748 2,327 3,031 2,508 Ratio of earnings to fixed charges (d)..................... 3.5x 3.6x 3.8x 4.8x 4.8x BALANCE SHEET DATA (AS OF END OF PERIOD): Current assets............................................. $ 29,910 $ 31,232 $ 28,869 $ 28,088 $ 31,110 Working capital............................................ 15,610 19,789 16,578 14,455 15,925 Total assets............................................... 61,033 56,437 57,813 63,609 73,746
- ------------------------ (a) Includes the results of operations of Command Control, Inc. from October 1997, Interactive Media Solutions, Inc. from April 1997, UP, Inc. from November 1997, Dalco Electronics Corporation from August 1997 and Cambridge Acoustical Associates, Inc. from February 1998, the respective dates of acquisition by A&T. (b) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is presented because we believe that it is a widely accepted supplemental indicator of an entity's ability to incur and service debt. However, EBITDA should not be considered by an investor as an alternative to net income or operating income as an indicator of our operating performance or cash flow from operations, or as an alternative to cash flows as a measure of liquidity. (c) Gross margin is determined by dividing gross profit by revenues from continuing operations. Gross profit is based on operating income from continuing operations, including amortization of intangibles and depreciation expense. (d) For purposes of determining the ratio of earnings to fixed charges, "earnings" includes pre-tax income adjusted for fixed charges. "Fixed charges" consist of interest expense and that portion of operating lease rental expense representative of interest (deemed to be one-third of rental expense). 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- ANTEON CORPORATION YOU SHOULD READ THE FOLLOWING INFORMATION TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS IN THIS SECTION ARE "FORWARD-LOOKING STATEMENTS" AND YOU SHOULD READ THE "FORWARD-LOOKING STATEMENTS" SECTION FOR SPECIAL INFORMATION ABOUT OUR PRESENTATION OF FORWARD-LOOKING INFORMATION. GENERAL Anteon is a leading provider of advanced information technology and engineering services principally to a wide range of customers within the U.S. Federal government. We serve hundreds of governmental clients through 39 offices worldwide. We have performed work for all 14 Cabinet-level agencies, designing, maintaining and upgrading critical elements of the government's information technology infrastructure, such as emergency response, defense, intelligence, logistics and financial management systems. The Federal government is among the world's largest purchasers of information technology with expected total expenditures in fiscal 1999 in excess of $30 billion. In April 1996 an investor group led by affiliates of Caxton-Iseman Capital acquired Ogden Professional Services Corporation (the Predecessor Company), which was renamed Anteon Corporation. Since that acquisition, we have implemented a strategy designed to increase revenues through internal growth and acquisitions, improve EBITDA profit margins to a level among the highest in our industry and improve asset turnover. As a result of this strategy, from 1995 to 1998 we increased revenues at a compound annual growth rate of 32%. Improved internal performance accounted for approximately 19% of this compound annual growth rate with the remaining 13% increase attributable to our acquisitions of Vector Data and Techmatics. In addition, EBITDA increased at a faster rate than revenues and grew from $2.0 million in 1995 to $16.0 million in 1998 (or $18.8 million after giving effect to the full year of the Techmatics acquisition). EBITDA margins increased from 1.9% to 6.4% during the same period (or 6.6% after giving effect to the full year of the Techmatics acquisition). Cash flows used in operations were $9.4 million for 1998. Substantially all of our services and products are provided under long-term government contracts. Our contract base is well diversified and in 1998, we performed work on approximately 3,000 task orders under more than 500 contracts for approximately 400 customers. Management estimates that no task order accounted for more than 5% of 1998 revenues. The contracts we perform can be categorized into three primary types: time and materials ("time and materials"), cost-plus fixed fee reimbursement ("cost-plus") and firm fixed price ("fixed price"). Time and materials contracts represented approximately 47% of our 1998 revenues. Revenue recognition for time and materials contracts is recorded at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable because of our ability to negotiate rates and manage costs on those contracts. Cost-plus contracts represented approximately 34% of our 1998 revenues. Revenue is recognized under cost-plus contracts on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of our costs. Cost-plus contracts provide lower risk to us than other contract types because we are reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative charges, and are paid a fixed fee for work performed. Revenues are recognized under fixed price contracts based on a percentage-of-completion method. We may be exposed to cost overruns if we encounter variances from our estimated costs under fixed price contracts. Accordingly, we attempt to minimize the number of fixed price contracts, particularly for advanced software development projects. Over the past three-year period fixed price contracts have represented only 15% to 20% of our revenues, including 19% of 1998 revenues. 36 Prices on Federal government contracts are generally set using estimated costs plus a negotiated profit percentage. Under time and materials and fixed price contracts, margins are not limited by law or regulation; however, the Federal government's profit objectives in negotiating time and materials and fixed price contracts seldom provide for operating profits in excess of 15%. Due to competitive pressures, operating profits on time and materials and fixed price contracts are often less than 10%. Under cost-plus contracts, operating profits are statutorily limited to 15% of costs. In each year a significant portion of our revenues is derived from contract backlog and a significant portion of that backlog represents work related to maintenance, upgrade or replacement of systems under contracts or projects for which we are the incumbent provider. Proper management of contracts is critical to the overall financial success of Anteon and we believe that we manage costs effectively. This allows us to be highly competitive on price. Our demonstrated performance record and service excellence have enabled us to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted over the past three years, while increasing our backlog from $428 million in 1996 to $1.1 billion at June 30, 1999. These backlog amounts consist of "funded" backlog, which is based upon amounts actually appropriated by a customer for payment of goods and services and "unfunded" backlog which is based upon management's estimates of the future potential of our existing contracts to generate revenues for us. Anteon's costs may be categorized as direct costs such as labor and related fringe costs which are directly attributable to contract performance, and indirect costs such as corporate overhead which are not directly attributable to contract performance. Under our time and materials and cost-plus contracts we are allowed to charge our direct costs and an agreed-upon portion of our indirect costs to the customer. A key element in the successful bidding and execution of contracts is the control of indirect costs. We have developed comprehensive management information and resource management systems in order to increase the productivity of our finance and administrative support areas. As a result of these efforts, our indirect costs have grown at rates much lower than overall revenues. We believe our indirect costs, at approximately 15% of sales, are among the lowest in the industry. On March 7, 1999 we entered into a definitive agreement to acquire all the outstanding shares of common stock of A&T. We consummated the acquisition on June 23, 1999 after the approval of the acquisition by the shareholders of A&T. The acquisition significantly increased the size of Anteon. Pro forma for the acquisition, Anteon's net sales and EBITDA in 1998 would have been $450.8 million and $31.4 million, respectively. Following the consummation of the acquisition, in addition to the cost savings reflected in the Unaudited Pro Forma Condensed Consolidated Financial Data appearing elsewhere in this prospectus, we believe that Anteon will be able to realize costs savings through synergies in indirect costs and general and administrative expenses. In addition, after giving pro forma effect to the acquisition, the level of billable indirect costs under our contracts will increase because the proportion of our revenues generated by cost-plus contracts will increase from 40% to 55%. This will allow Anteon to receive payment for a greater portion of its indirect costs. Based on our ability to pass such indirect costs through to our government customers, we estimate this will result in an additional $2.5 million of reimbursable costs. 37 RESULTS OF OPERATIONS The following table sets forth our results of operations based on the percentage relationship of certain items to contract revenues during the period shown:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31 JUNE 30 ------------------------------- -------------------- 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- Revenues............................................................... 100.0% 100.0% 100.0% 100% 100% Costs of revenues...................................................... 91.4 90.5 88.7 89.1 88.3 --------- --------- --------- --------- --------- Gross profit....................................................... 8.6 9.5 11.3 10.9 11.7 General and administrative expenses.................................. 4.7 4.6 6.1 5.4 5.6 Costs related to acquisitions(a)..................................... 1.5 2.0 1.0 0.8 1.5 --------- --------- --------- --------- --------- Operating income................................................... 2.4 2.9 4.2 4.7 4.6
- ------------------------ (a) Includes amortization of non-compete agreements, goodwill amortization and costs incurred in connection with unsuccessful acquisitions. SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998 REVENUES Revenue increased 34.8% to $145.6 million in for the first six months in 1999 from $108.0 million in 1998. The revenue growth reflects the acquisition of Techmatics as well as continued internal growth from the Company's information technology and engineering technology businesses. Techmatics generated $43.9 million in revenue during the six months ended June 1999 as compared with one month's revenue of $8.2 million in June 1998. The company was also able to significantly increase its contract backlog with several major awards in late 1998 and early 1999 including Answer, ITOP II and Theater Ballistic Missile Defense and began to earn revenue on the startup of those new contracts. Backlog increased from $414 million as of June 30, 1998 to $1.3 billion as of June 30, 1999. COSTS OF REVENUES Costs of revenues, as a percent of revenues, decreased to 88.3% during the first six months in 1999 from 89.1% increasing the gross profit, which grew by 8%, from 10.9% in 1998 to 11.7% in 1999. This favorable result is attributable to several factors. Contributing to the growth was the relatively higher operating profit margin of Techmatics and the improved profitability of the Company's Products and Services business unit. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which consists of corporate management, finance and administration, marketing and contracts, was 5.6% of revenues for the first six months of 1999. This was a 4% increase from the same period in 1998. The growth can be attributed primarily to an investment in infrastructure to support a substantially larger company. In addition, the Company spent more on marketing costs to pursue opportunities created from new contract awards which substantially increased backlog. 38 OPERATING INCOME Operating income continued to grow increasing by 33.3% to $6.8 million in fiscal 1999 from $5.1 million in fiscal 1998. The operating profit growth was attributable to the addition of Techmatics. Operating margins remained steady at 4.7% of revenue. Net interest expense increased 224% to $5.5 million in the first six months of 1999 from $1.7 million in the same period in 1998. This was principally due to the cost of debt incurred to acquire Techmatics and accrued interest expenses for the new senior subordinated notes. This included fees associated with a bridge loan facility. Earnings before taxes decreased 67% to $1.1 million in the first six months of 1999 from $3.4 million in the same period in 1998. This decline was primarily attributable to interest expense on the notes. 1998 COMPARED WITH 1997 REVENUES Revenues increased by $73.5 million or 41.7% to $249.8 million in 1998 from $176.3 million in 1997 due to internal growth and acquisitions. Anteon's internal growth (I.E., excluding acquisitions) of 13.5%, or $23.9 million, was primarily driven by increased licensing revenues from the Product Applications and Services Group of the Enterprise Solutions and Services Group and increased revenues under the TC-AIMS contract. Techmatics generated $49.6 million in revenues subsequent to its acquisition on May 29, 1998. The full year impact from the acquisition of Techmatics increased Anteon's pro forma revenues to $282.5 million. Anteon also significantly increased its contract backlog by winning several major awards in late 1998, including the $25 billion GSA ANSWER contract and the $10 billion Department of Transportation ITOP II contract. Backlog increased during 1998 from $341 million at January 1, 1998 to $1.2 billion at December 31, 1998, $119.2 million of which was attributable to new contract awards and $230 million of which was attributable to the acquisition of Techmatics and the remainder of which was attributable to our ability to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted. COSTS OF REVENUES Costs of revenues increased by $62.1 million or 38.9% to $221.6 million in 1998 from $159.5 million in 1997. As a percentage of revenues, costs of revenues decreased to 88.7% in 1998 from 90.5% in 1997. The improvement in gross margins was attributable to improved reimbursement for indirect overhead expenses, higher gross profit margins of Techmatics and improved profitability of Anteon's Product Applications and Services Group. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by $7.2 million or 88.9% from $15.3 million in 1998 from $8.1 million in 1997. As a percentage of revenues, general and administrative expenses increased to 6.1% in 1998 from 4.6% in 1997. General and administrative expenses consist of corporate management, finance and administration, marketing and contract functions. The increase in general and administrative expense was attributable primarily to the addition of $3.1 million of overhead expenses of Techmatics in 1998 and the expansion of Anteon's personnel and management to meet the increasing demands of its expanding business. Generally, a significant portion of these costs are reimbursable under Anteon's contracts. Additionally, general and administrative expenses were increased by a $0.7 million write-off of unamortized contract start-up costs incurred by our Predecessor Company relating to contracts that were awarded in 1995. 39 OPERATING INCOME Operating income increased by $5.3 million or 103.9% to $10.4 million in 1998 from $5.1 million in 1997. As a percentage of revenues, operating income improved by 45% to 4.2% in 1998 from 2.9% in 1997. Net interest expense increased to $5.6 million in 1998 from $2.4 million in 1997 principally due to increased debt incurred to acquire Techmatics. Income before taxes increased 78% to $4.8 million in 1998 from $2.7 million in 1997. Anteon's effective tax rate increased to 48.8% in 1998 from 39.3% in 1997 principally due to the non-deductibility of goodwill generated by Anteon's acquisition of Vector Data. After-tax income increased 56.3% to $2.5 million in 1998 from $1.6 million in 1997. The large increase in revenue and operating earnings, offset in part by the increase in interest expense and tax rate, contributed to this increase in net income. 1997 COMPARED WITH 1996 REVENUES Revenues increased by $34.5 million or 24.3% to $176.3 million in 1997 from $141.8 million in 1996. Internal growth (I.E., excluding acquisitions) of 20.4% or $28.9 million was driven by increased revenues under the CAPZONE and PACZONE contracts. Vector Data generated $5.6 million in revenues subsequent to its acquisition in August 1997. COSTS OF REVENUES Costs of revenues increased by $29.9 million or 23.1% to $159.5 million in 1997 from $129.6 million in 1996. As a percentage of revenues, costs of revenues decreased to 90.5% in 1997 from 91.4% in 1996. Fiscal 1997 represented the first full fiscal year in which current management operated Anteon. The increase in gross margins was attributable to improved performance on several fixed price contracts. GENERAL AND ADMINISTRATIVE EXPENSES General and adminstrative expenses increased by $1.4 million or 20.9% to $8.1 million in 1997 from $6.7 million in 1996. As a percentage of revenues, general and administrative expenses decreased to 4.6% in 1997 from 4.7% in 1996. The aggregate dollar increase was attributable to the addition of Vector Data's general and administrative charges and the expansion of Anteon's marketing staff in an effort to increase backlog. OPERATING INCOME Operating income increased by $1.7 million or 50.0% to $5.1 million in 1997 from $3.4 million in 1996. Operating margins grew by 21% to 2.9% in 1997 from 2.4% in 1996. This improved operating income was primarily due to certain profitable contracts and improved profits generated by Vector Data. Interest expense increased to $2.4 million in 1997 from $1.5 million in 1996, principally reflecting a full year of debt outstanding in 1997 compared to eight months the prior year (reflecting the date of the original acquisition of the Predecessor Company) as well as increased indebtedness due to the acquisition of Vector Data. Income before taxes increased 35.0% to $2.7 million in 1997 from $2.0 million in 1996 as a result of a higher operating profit margin, offset by increased interest expense. Anteon's effective tax rate increased to 39.3% in 1997 from 36.3% in 1996, principally due to the non-deductibility of goodwill generated from Anteon's acquisition of Vector Data. After-tax income increased 23.1% to $1.6 million in 1997 from $1.3 million in 1996. 40 LIQUIDITY AND CAPITAL RESOURCES SIX MONTHS ENDED JUNE 30, 1999 CASH FLOW For the first six months of 1999, net cash provided from operating activities totaled $9.6 million. The positive cash flow resulted primarily from a $1.9 million decrease in accounts receivable and a $5.8 increase in accounts payable/accrued expenses. The decrease in accounts receivable was driven in large part by the successful collection efforts of invoices that had been backed-up in processing by the Federal government in a number of its payment offices. The overall days sales outstanding ("DSO") for the Company at mid-year ended June 30, 1999 was 76 days. While the Company's core business maintained a DSO in the 55-70 day range during 1998, its acquired subsidiaries, Techmatics and Vector Data, have maintained DSO's of over 100 days during the past year. Processes are being put in place to reduce the DSO to the 60-day range during the second half of 1999. Net cash used in investing activities for the six months totaled $118.7 million. The principal investment was the purchase of Analysis & Technology for approximately $115.4 million, including transaction costs, which closed on June 23. Capital expenditures totaled $1.3 million for the six months. Net cash provided by financing activities for the six months totaled $111.7 million. This was primarily due to $100 million in funds obtained through issuance of the new senior subordinated notes, an equity contribution of $22.5 million, net of a $4.9 million in paydown of deferred obligations associated with the 1998 acquisition of Techmatics, and $8.5 million of fees incurred in connection with the new senior subordinated notes and the new credit facility. 1998 CASH FLOW Net cash used in operating activities for 1998 totaled $8.3 million. The net cash requirements resulted primarily from a $15.6 million increase in accounts receivable. This increase was principally due to a delay in processing of contractor payments by the Federal government in a number of its payment offices due to a reduction of administrative personnel and difficulties in successfully implementing office automation to relieve the congestion. The Federal government is working to correct this problem and we believe these delays should be resolved by the end of 1999. We focus on capital management in order to maximize asset turnover and reduce working capital. At the time its Predecessor Company was acquired, Anteon had days sales oustanding ("DSO") of 119 days. Anteon was able to reduce overall DSO for the years ended December 31, 1996, 1997 and 1998 to 79 days, 59 days and 89 days, respectively. Anteon's DSO increased in 1998 due to the acquisition of Vector Data in late 1997 and Techmatics in May 1998. Prior to the acquisitions of Vector Data and Techmatics, Anteon maintained a 63-day average DSO in 1998. Vector Data and Techmatics each had DSOs of over 100 days during 1998. Anteon has implemented initiatives to reduce Anteon's overall DSO to the 70-day range by the end of June 1999. Net cash used in investing activities for 1998 totaled $37.5 million. The principal investment requirement was $29.7 million for the acquisition of Techmatics. Capital expenditures totaled $2.1 million, approximately 40% of which were attributable to Anteon's capital expenditure for CostPoint, an integrated enterprise-wide information system. Net cash provided by financing activities for 1998 totaled $45.3 million. This included an increase of $46.3 million in senior debt borrowing to $70.4 million at December 31, 1998 from $24.1 million at December 31, 1997. 1997 CASH FLOW Net cash flow from operating activities in 1997 totaled $14.1 million, principally reflecting a $10.1 million reduction in accounts receivable, $5.1 million in depreciation and amortization and $1.6 million in net income. 41 Net cash used in investing activities totaled $18.1 million in 1997. The net cash cost of acquiring Vector Data was $17.2 million. Additionally, Anteon had $0.8 million capital expenditures. Net cash provided from financing activities totaled $4.5 million, reflecting an increase in Anteon's senior debt from $19.6 million at December 31, 1996 to $24.1 million at December 31, 1997. LIQUIDITY In June 1999, the Company entered into a new five-year line of credit with nine major banks totaling $180 million. This line of credit is comprised of a $120 million revolving credit facility subject to availability based on a borrowing base and a $60 million term note. The borrowing base is determined by computing a percentage of Anteon's billed and billable accounts receivable, with availability totaling $54.9 million as of June 30, 1999. Aggregate loans drawn under this revolving line of credit totaled $13.0 million as of June 30, 1999. In addition, Anteon secured advances of $60.0 million against the term note. June 1999 ending cash balance totaled $2.9 million. However, access to the bank line is further restricted by the leverage covenant which is 5.75 times the adjusted, pro forma EBITDA over the past 12 months. Based on the June 30th leverage of just under 5.00, this left approximately $27 million in immediately available liquidity. The Company plans a further improvement in its accounts receivable DSO over the next 6-9 months timeframe, freeing up approximately $12-15 million in cash. This DSO reduction and liquidity improvement would be used to reduce the Company's overall leverage. We intend to meet future capital commitments, which principally involve the execution of additional acquisitions, through additional senior bank debt and the issuance of subordinated debt and equity in the public and private capital markets. YEAR 2000 During fiscal 1998 we implemented a plan which prepared our systems to be Year 2000 compliant. We have completed our inventory phase and, based on this analysis, we believe that our systems and applications will not be adversely affected by any Year 2000 issues. Our aggregate costs incurred in 1998 to assess our Year 2000 readiness were not material and management expects that any future expenditures in 1999 will be similarly immaterial. However, we cannot assure you that this estimate will be correct. In addition, we have addressed the Year 2000 issue with our significant third-party suppliers and customers through inclusion of appropriate contractual provisions in our business dealings with such companies to ensure their Year 2000 readiness. Management has no reason to believe that any such companies will encounter Year 2000 issues. However, we cannot assure you that they will be successful in avoiding any Year 2000 issues or resolving them in a timely manner, or that any failure to do so would not materially and adversely affect our business. 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- ANALYSIS & TECHNOLOGY, INC. YOU SHOULD READ THE FOLLOWING INFORMATION TOGETHER WITH A&T'S CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS IN THIS SECTION ARE "FORWARD-LOOKING STATEMENTS" AND YOU SHOULD READ THE "FORWARD-LOOKING STATEMENTS" SECTION FOR SPECIAL INFORMATION ABOUT OUR PRESENTATION OF FORWARD-LOOKING INFORMATION. RESULTS OF OPERATIONS FISCAL 1999 COMPARED WITH FISCAL 1998 The major factors in the comparison of fiscal 1999 with fiscal 1998 are as follows: - Revenue increased 6.5% to $170.4 million from $160.0 million. - Revenue for the Company's Engineering and Information Technologies ("Engineering/IT") business grew 3.2% - Interactive Media's revenue increased 29.7%, including a 16.4% increase in commercial revenue. - Operating margin increased to 6.0% from 5.0%. -- Operating margin was 6.1% for Engineering/IT and 5.6% for Interactive Media. -- Margins improved due to improved cost controls. Also contributing to the margin improvement in Interactive Media was a decrease of fixed indirect expenses as a percentage of revenue due to revenue growth. -- Operating margin was 5.3% for fiscal 1998 without the effect of a non-recurring software charge. - Net earnings were $4.9 million compared with $4.2 million resulting in an increase of 16.2%. During fiscal 1998, the Company sold its share of a joint venture, Automation Software Incorporated (ASI), and took the software charge previously noted. The joint venture sale increased the Company's effective tax rate. The net effect of these non-recurring items and their tax effects was an after-tax gain of $87 thousand. - Basic earnings per share increased 12.6% to $1.34 from $1.19. On a diluted basis, earnings per share increased 12.1% to $1.20 from $1.07. Revenue increased 6.5% to $170.4 million in fiscal 1999 from $160.0 million in fiscal 1998. The revenue increase is attributable to continued growth in both the Company's Engineering/IT business and its Interactive Media technology-based training business. For fiscal 1999, the Company's Engineering/IT revenue grew 3.2% to $144.2 million from $140.0 million in fiscal 1998. Interactive Media's revenue increased 29.7% to $26.1 million from $20.1 million in fiscal 1998. Its commercial revenue increased 16.4% to $17.1 million from $14.7 million in fiscal 1998. Revenue for the Company's Engineering/IT business was adversely affected by a decrease in work subcontracted to other companies and a decrease in purchased materials. For fiscal 1999, work subcontracted to other companies and purchased materials decreased $5.3 million and $1.9 million, respectively, from fiscal 1998. Subcontracting was down because in some cases A&T is gaining market share, some subcontractors have gotten their own contracts, and some subcontractor's work has not been renewed by the customer. Purchases of materials are down due, in part, to a U.S. Navy mine clearing hardware 43 contract that is nearing completion. Without the effect of subcontracts and materials, Engineering/IT revenue would have been up 10.2% for fiscal 1999. Interactive Media's revenue was favorably affected by the acquisition of UP, Inc. in November of last year and by an expanded sales force. During the year, total backlog varied between $589.4 million and $805.7 million. In fiscal 1999, $56.1 million of backlog expired without being funded, while in fiscal 1998, $50.7 million of backlog expired without being funded. The backlog used during fiscal 1999, plus the unfunded backlog that expired, was more than offset by newly awarded contracts. Backlog as of March 31, 1999 was $775.8 million, a 31.6% increase from $589.4 million at the end of fiscal 1998. Government funding continues to be dependent on congressional approval of program level funding and on contracting agency approval for the Company's work. The extent to which backlog will be funded in the future cannot be determined. Operating earnings increased 29.4% to $10.3 million from $7.9 million in fiscal 1998. Operating margins from continuing operations were 6.0% in fiscal 1999 compared with 5.0% in fiscal 1998. Fiscal 1998 operating earnings were negatively affected by software charges totaling $530 thousand, recorded in the second quarter of fiscal 1998, primarily for capitalized software development costs to support customers in the natural gas business and software development and related costs for image processing products which the Company deemed to be unrecoverable. Without these charges, the operating margin for fiscal 1998 was 5.3%. Operating margin for Engineering/IT, increased from 5.3% in fiscal 1998, without the software charges, to 6.1% in fiscal 1999. The reduction in lower margin subcontract and material revenue plus improved cost controls and good performance on contracts contributed to the Engineering/IT increase. Operating margins for Interactive Media increased from 5.4% in fiscal 1998 to 5.6% in fiscal 1999. The increase was due to a decrease in indirect expenses as a percentage of revenue due to the revenue growth. Total other expenses as a percentage of revenue were 0.9% for fiscal 1999 compared to 0.7% in fiscal 1998, excluding the effect of the sale of the Company's Interest in ASI to the Company's joint venture partner. The sale resulted in a pre-tax gain of $1.6 million in fiscal 1998. For fiscal 1999, both interest expense and amortization of goodwill increased due to the Company's recent acquisitions, including a contingent payment to the former owner of UP, Inc. as discussed more fully in "Liquidity and Capital Resources." Earnings before income taxes increased 4.9% to $8.8 million from $8.3 million in fiscal 1998. The Company's effective tax rate on earnings before income taxes was 44.3% in fiscal 1999 compared with 49.8% in fiscal 1998. The effective tax rate was higher in fiscal 1998, primarily due to the recognition of deferred taxes on undistributed earnings of the Company's joint venture, as a result of the sale. The effective tax rate without the effect of the joint venture sale was 43.9%. The effective tax rate in fiscal 1999, compared to the effective tax rate without the effect of the joint venture sale is fiscal 1998, was higher due to an increase in nondeductible amortization of goodwill associated with the UP acquisition. Net earnings increased 16.2% to $4.9 million from $4.2 million in fiscal 1998. The revenue increase and the operating margin increase both contributed to the net earnings increase. The net effect of the sale of the Company's interest in its joint venture and the software charges noted above was an after-tax gain of $87 thousand for fiscal 1998. Basic earnings per common share increased 12.6% to $1.34 from $1.19 in fiscal 1998. Diluted earnings per common share increased 12.1% to $1.20 from $1.07 in fiscal 1998. The weighed average number of common shares used to compute basic earnings per share increased to 3.6 million in fiscal 1999 from 3.5 million in fiscal 1998. The weighted average number of common shares used to compute diluted earnings per share increased to 4.0 million in fiscal 1999 from 3.9 million in fiscal 1998. The increase was due primarily to an increase in the number of stock options outstanding and a 44 higher average stock price, offset in part by the repurchase of the Company's shares as discussed more fully below in "Liquidity and Capital Resources". FISCAL 1998 COMPARED WITH FISCAL 1997 Revenues increased 12.2% to $160.0 million in fiscal 1998 from $142.5 million in fiscal 1997. The revenue increase is attributable to continued growth in both A&T's Engineering/IT business and in its Interactive Media technology-based training business. In fiscal 1998, A&T's Engineering/IT revenues grew 11.5% to $140.0 million from $125.4 million in fiscal 1997. IMC's revenues increased 17.3% to $20.1 million. Its commercial revenues increased 58.7% to $14.7 million in fiscal 1998 from $9.3 million in fiscal 1997 and its government related revenues decreased 30% to $5.4 million in fiscal 1998 from $7.9 million in fiscal 1997. A&T made five acquisitions during fiscal year 1998. In total, these acquisitions added approximately $6.6 million to A&T's fiscal 1998 revenues. During the year, total backlog varied between $461.7 million and $589.4 million. In fiscal 1998, $50.7 million of backlog expired without being funded, while in fiscal 1997, $19.5 million of backlog expired without being funded. The backlog used during fiscal 1998, plus the unfunded backlog that expired, was more than offset by newly awarded contracts and backlog added as a result of A&T's acquisitions. Backlog as of March 31, 1998 was $589.4 million, a 22.6% increase from $480.7 million as of March 31, 1997, and was well above A&T's benchmark of two and one-half times current revenues. Government funding continues to be dependent on congressional approval of program level funding and on contracting agency approval for A&T's work. The extent to which backlog will be funded in the future cannot be determined. Operating earnings increased 17.4% to $7.9 million in fiscal 1998 from $6.8 million in fiscal 1997. Operating margins were 5.0% in fiscal 1998 compared with 4.7% in fiscal 1997. Fiscal 1998 operating earnings were negatively affected by software charges totaling $530,000, recorded in the second quarter of fiscal 1998, primarily for capitalized software development costs to support customers in the natural gas business and software development and related costs for image processing products which A&T deemed to be unrecoverable. Without these charges, the operating margin for fiscal 1998 was 5.3%. Operating margins for Engineering/IT, without the software charges, increased from 5.0% in fiscal 1997 to 5.3% in fiscal 1998. Operating margins for IMC during these same periods increased from 3.2% to 5.4%. Margins improved overall because of improved cost controls. Also contributing to margin improvement in IMC was a decrease of fixed indirect expenses as a percentage of revenues due to revenue growth. Total other expenses were affected by the sale of A&T's interest in Automation Software Incorporated ("ASI") to A&T's joint venture partner. The sale resulted in a pre-tax gain of $1.6 million in fiscal 1998. In addition, the proceeds from the sale were used to pay down certain of A&T's long-term debt, resulting in decreased interest expense in fiscal 1998. Other net expense increased in fiscal 1998 to 0.6% of revenue compared with 0.5% of revenues in fiscal 1997. The other net expense increase was due, in part, to the amortization of goodwill associated with A&T's fiscal 1998 acquisitions. Earnings before income taxes increased 43.5% to $8.3 million in fiscal 1998 from $5.8 million in fiscal 1997. A&T's effective tax rate on earnings before income taxes was 49.8% in fiscal 1998 compared with 41.9% in fiscal 1997. The effective tax rate was higher in fiscal 1998, primarily due to the recognition of deferred taxes on undistributed earnings of A&T's joint venture as a result of the sale, and due to an increase in nondeductible amortization of goodwill associated with A&T's acquisitions. The effective tax rate without the effect of the joint venture sale was 43.9%. Net earnings increased 24.2% to $4.2 million from $3.4 million in fiscal 1997. The revenue increase and the operating margin increase both contributed to the increase in net earnings. The net effect of the sale of A&T's interest in its joint venture and the software charges noted above and the related tax effects was an after-tax gain of $0.1 million in fiscal 1998. 45 LIQUIDITY AND CAPITAL RESOURCES FISCAL 1999 CASH FLOW For fiscal 1999, net cash provided by operating activities totaled $5.9 million. The net cash increase resulted primarily from net earnings before deducting non-cash charges for depreciation of property and amortization of intangible assets, and a decrease in accounts payable and accrued expenses of $1.3 million, offset in part and an increase in contract, notes, and other receivables of $3.3 million. Contract receivables totaled $28.7 million, $25.6 million and $247.7 million as of March 31, 1999, 1998, and 1997, respectively, and represented approximately 41%, 40%, and 43% of total assets as of those dates. The average period of payment to the Company was 57 days at March 31, 1999, 54 days at March 31, 1998; and 58 days at March 31, 1997. Net cash used in investing activities for fiscal 1999 totaled $5.6 million. The primary use of this cash was for the addition of office equipment, the development of a new management information system, and for acquisitions, including a contingent payment to the former owners of UP, Inc., in accordance with the purchase agreement for the acquisition executed in November 1997. Net cash used in financing activities for fiscal 1999 totaled $1.2 million. The primary source of cash from financing activities was from the exercise of stock options. The primary uses of cash from financing activities were for the payment of dividends and the repurchase of the Company's common shares. On May 30, 1997, the Company announced it had expanded its share repurchase program. The Company's Board of Directors authorized the repurchase of an additional 450,000 shares or a total of up to 750,000 shares in amounts and at times and prices to be determined by the Company's management. Since the program was initiated in March 1996, the Company has repurchased 399,400 shares. Since March 31, 1998 the company has repurchased 42,900 shares under this repurchase program at current market prices on the dates of purchase. There are approximately 3.7 million shares outstanding at March 31, 1999. Any capital needs not satisfied by cash generated from operations, were, and in the future will be, met with money borrowed by the Company under its revolving credit agreement. The total funds available to the Company under its revolving credit agreement at March 31, 1999 were $20.0 million. There was no borrowing under the Company's agreement as of March 31, 1999 or 1998. It is anticipated that the Company's existing cash, together with funds generated from operations and available borrowings under its revolving credit agreements, will be sufficient to meet its normal working capital requirements for the foreseeable future. As of March 31, 1999, the Company does not have any major capital commitments. The Company believes that inflation has not had a material effect on its business. FISCAL 1998 CASH FLOW For fiscal 1998, net cash provided by operating activities totaled $7.8 million. The net cash increase resulted primarily from earnings before deducting non-cash charges for depreciation of property and amortization of intangible assets, and a decrease in contract, notes and other receivables of $1.1 million. The decrease in contract receivables was due primarily to faster payment by the government as a result of electronic processing of selected government invoices and to collection of receivables under firm fixed-price contracts. Contract receivables totaled $25.6 million, $24.7 million and $24.2 million as of March 31, 1998, 1997, and 1996, respectively, and represented approximately 40%, 43% and 43% of total assets as of those dates, respectively. The average period of payment to A&T was 54 days at March 31, 1998, 58 days at March 31, 1997 and 71 days at March 31, 1996. Net cash used in investing activities for fiscal 1998 totaled $9.1 million. Cash provided from the sale of ASI of $3.0 million was more than offset by facility expenditures and by expenditures for A&T's fiscal 1998 46 acquisitions. Payments for the acquisitions were made from existing cash and funds available under A&T's revolving credit agreement. Net cash used in financing activities for fiscal 1998 totaled $670,000. The primary source of cash from financing activities was from the exercise of stock options. The primary uses of cash from financing activities were for the payment of dividends and the repurchase of shares of A&T's common stock. YEAR 2000 A&T established a task force in January 1998 to assess Year 2000 risks, identify and implement solutions to known problems and report the results of the assessment. The task force examined the services and products A&T provides, its internal information technology software, facilities and infrastructure and third-party risks. A&T is approaching its Year 2000 readiness program in three phases: assessment, planning and preparation, and implementation. While A&T has plans in place to address known Year 2000 issues under its control, an infrastructure problem outside of its control could disrupt A&T's operations depending on the nature and severity of the problems. A&T expects that most utilities and service providers would be able to restore service interruptions caused by Year 2000 problems within days. However, more pervasive system problems involving multiple providers could last longer depending on the complexity of the systems and the effectiveness of their contingency plans. Although A&T is dedicating reasonable resources towards attaining Year 2000 readiness, there is no assurance it will be successful in its efforts to identify and address all Year 2000 issues. Even if A&T acts in a timely manner to complete all of its assessments and identifies, develops and implements remediation plans it believes to be adequate, some problems may not be identified or corrected in time to prevent material adverse consequences to A&T. Our statements above regarding estimated completion dates, costs, risks and other forward-looking statements regarding Year 2000 are based on A&T's best estimates given information that is currently available and is subject to change. As A&T continues to progress with its Year 2000 initiatives, it may discover that actual results will differ materially from these estimates. A more detailed explanation of the "Year 2000 Readiness Disclosure" for A&T is available in A&T's Annual Report on Form 10-K for the fiscal year ended March 31, 1998. Please refer to the section entitled "Where You Can Find More Information" which appears later in this prospectus for more information. 47 THE FEDERAL GOVERNMENT INFORMATION TECHNOLOGY SERVICES INDUSTRY OVERVIEW The U.S. Federal government is among the world's largest purchasers of information technology. The Office of Management and Budget ("OMB") projects that total information technology expenditures in fiscal 1999 will exceed $30 billion. These expenditures have grown consistently during the 1990s. According to the OMB, from 1991 to 1998 the Federal government information technology market increased at a consolidated annual growth rate of 4.2%. As shown below, the annual Federal information technology budget for fiscal year 1998 through fiscal year 2002 is expected to grow at a rate of approximately 4.4% annually. Civilian agency information technology budgets are expected to be 60% to 65% of the total Federal information technology budget, or between $18 billion and $20 billion annually, and annual defense information technology budgets are expected to be 35% to 40% of such total budget, or between $11 and $12 billion annually. However, due to projected increased Federal government outsourcing, the amount of information technology services procured from contractors is expected to increase at a faster rate, by approximately 6.9% per annum from 1998 to 2002. The following table sets forth the Federal government's historical and projected expenditures for information technology from 1991 to 2002: EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
TOTAL FEDERAL IT SPENDING LEVELS (1991-2002) $ (BILLIONS) 1991 22.10 1992 23.50 1993 25.00 1994 25.80 1995 27.30 1996 28.00 1997 29.00 1998 29.50 1999 30.30 2000 31.60 2001 33.10 2002 35.10 Source:OMB
TRENDS There are five primary factors that should drive this growth of the Federal information technology services market: (1) increased outsourcing, (2) emphasis on systems modernization, (3) legislative efforts to streamline government procurement procedures, (4) the increasing requirement for integration of commercial and custom information technology applications and (5) increased emphasis on training and simulation. - INCREASED OUTSOURCING. Major forces contributing to the increase in information technology outsourcing are Federal government downsizing, increased procurement efficiency, the declining availability of programming skills among Federal government personnel (and government staffing limits) and the backlog of software maintenance tasks at most government data centers. The GSA anticipates a continuation of the trend toward the use of outside information technology providers. According to the OMB, 78% of the Federal government's information technology spending in 1998, or $23.1 billion, flowed through to contractors. According to OMB, outsourced information technology services are projected to grow at a rate faster than overall Federal government expenditures on information technology, increasing to 86% of projected expenditures in 2002 or $30.2 billion and resulting in a 6.9% growth rate per annum. - EMPHASIS ON SYSTEM MODERNIZATION. As part of their efforts to reduce procurement costs, the Department of Defense and the U.S. Navy, in particular, are emphasizing upgrading existing platforms to next generation technologies rather than procuring completely new systems. For example, the Department of Defense's funding priorities in 1999 emphasize the modernization and upgrading of shipboard systems to maintain the U.S. Navy's superior fighting capabilities. Rather 48 than replace its aging fleet of ships, the U.S. Navy has decided to invest in upgrading its existing fleet with the latest computer and weapons systems. To accomplish this in an environment of reduced Armed Forces personnel, the U.S. Navy is increasingly dependent on highly skilled technical specialists to provide a full spectrum of services to support these activities. After giving effect to the acquisition, we will be deeply involved in virtually every major U.S. Navy platform as well as with many of the strategic Program Executive Offices. Moreover, A&T is among the top-tier U.S. Navy Warfare Center contractors and is the leading contractor based on 1998 revenues for the Naval Undersea Warfare Center ("NUWC"). With a broad-based presence on critical U.S. Navy programs, management believes that Anteon and A&T are well-positioned to benefit from the billions of dollars in modernization and upgrade expenditures anticipated by the U.S. Navy over the next decade. - INFORMATION TECHNOLOGY MANAGEMENT REFORM ACT OF 1996 ("ITMRA"). The ITMRA, through acquisition vehicles such as GSA Schedules and IDIQ contracts, has changed the government's process of procuring information technology by (1) placing increased attention on the cost effectiveness of information technology, the return on the government's investment and resulting contractor performance with respect to such technology and (2) making individual agencies accountable for oversight of information technology budgets. These two trends are expected to result in increased interagency coordination and sharing of expenses, and fewer proprietary or single agency solution systems. Companies such as Anteon and A&T, which are well-positioned across several major governmental agencies, should benefit from these trends. - INCREASED USE OF COMMERCIAL OFF-THE-SHELF HARDWARE AND SOFTWARE. The Federal government has sought to address an increasing portion of its information technology needs through relatively inexpensive, open architecture systems based on commercial off-the-shelf ("COTS") hardware and software, which are rapidly displacing the single purpose, custom systems historically favored by the Federal government. These hardware and software products are, unlike proprietary systems, more open, modular and scaleable, and in some instances even better suited to meet governmental needs. The implementation and usage of COTS products are expected to increase as the government seeks to ensure the compatibility of its systems across agencies. In addition, the continued shortening of software upgrade cycles is expected to increase the demand for new products. These trends will favor system integrators such as Anteon and A&T, who have a deep knowledge of their customers and systems through years of performing contracts, as well as extensive expertise in COTS solutions. - INCREASED MODELING, TRAINING AND SIMULATION. Because of the high cost of weapon systems development, testing and field training, there is increased reliance on modeling and simulations using software applications (from the conceptual design of weapons to their operations and maintenance and the training of personnel), training simulators and other mission rehearsal techniques. Anteon has significant experience in designing and implementing such systems and programs for a variety of customers, such as the Air Force and U.S. Navy. Management believes that this experience will permit Anteon to obtain future new awards. 49 BUSINESS Anteon is a leading provider of advanced information technology and engineering systems and services. We serve hundreds of governmental clients, principally within the U.S. Federal government, from 39 offices worldwide. We have performed work for the U.S. Congress and all 14 Cabinet-level government agencies, designing, maintaining and upgrading critical systems such as defense, intelligence, emergency response, logistics support and financial management systems. For the year ended December 31, 1998, we performed work on approximately 3,000 task orders on more than 500 contracts. In addition, during the past four years, we have increased revenues at a 32.0% compound annual growth rate including a 19.9% compound annual growth rate excluding acquisitions. Pro forma for the acquisition, our 1998 revenues and Adjusted EBITDA were $450.8 million and $35.1 million, respectively. Cash flows used in operating activities on a pro forma basis were $2.3 million for 1998. The Federal government is among the world's largest purchasers of information technology, with total expenditures in fiscal 1999 expected to be in excess of $30 billion and expected to increase by approximately 4.4% per annum from $29.5 billion in 1998 to $35.1 billion in 2002. Due to projected increased Federal government outsourcing, the amount of information technology services procured from contractors is expected to increase at a faster rate, by approximately 6.9% per annum from 1998 to 2002. We believe that the emphasis of the Federal government on downsizing and budget constraints for large new projects will continue to result in the increased use of technology to enhance productivity with expenditures focused on upgrading existing equipment and systems, including many that we designed and are currently supporting. In this environment, contractors like us that are capable of providing complete end-to-end technology services across a number of applications and are well-positioned to take advantage of the opportunities presented by these trends. We have developed over a 22-year period the expertise and capabilities to deliver a broad range of technology solutions. For example, we are currently working with the U.S. Federal Emergency Management Agency to design and integrate the National Emergency Management Information System, a management information system that enables the White House and other governmental offices, to effectively monitor and mobilize multiple agencies and financial resources in response to national emergencies. This program is the largest WindowsNT implementation in the Federal government and we believe it is the most comprehensive emergency management system available. In addition, we believe there is significant potential for generating additional revenues based on the knowledge we have acquired in designing and integrating this system and its wide applicability to other government agencies and projects. Another example of our work is the logistics system we developed for the U.S. Air Force called Cargo Movement Operation System ("CMOS"). CMOS tracks all equipment and cargo movement operations for the Air Force world wide. This system is the first standard U.S. Air Force client/server application to be installed. CMOS is currently installed at air bases worldwide, and was recently chosen by the Office of the Secretary of Defense to be the model transportation system for the Department of Defense. As a result of developing and integrating CMOS, we were recently awarded another major logistics automation contract to develop a model logistics system to manage the transportation requirements of all branches of the U.S. armed forces. On March 7, 1999, we entered into a definitive agreement to acquire A&T. A&T is a market leader in undersea warfare, acoustics, command and control and training support and in many instances is a national repository of acoustical and hydrodynamic technologies. The acquisition will strengthen and broaden our customer and contract base and will complement our extensive presence as a leading supplier to the U.S. Navy, combining Anteon's surface ship systems capabilities with A&T's strength in submarine and undersea warfare. In addition, this acquisition provides vertical integration of our skill set, enhancing our ability to provide services across the complete project life-cycle from concept to implementation to support. A&T's early stage engineering capabilities in design, requirements analysis and technology development will complement Anteon's late stage capabilities and track record of executing and integrating complex technological systems. Finally, the acquisition also expands our presence at key client locations 50 and adds an experienced management team. With the acquisition of A&T, Anteon will increase its 1999 pro forma revenues and Adjusted EBITDA to $450.8 million and $35.1 million, respectively. Cash flows used in operating activities on a pro forma basis were $2.3 million for 1998. COMPETITIVE STRENGTHS We attribute our growth and performance to several factors, including the following: - BROAD ENGINEERING AND INFORMATION TECHNOLOGY CAPABILITIES. We have developed comprehensive information technology and engineering expertise and capabilities over our 22-year history of providing support for critical applications within the Federal government's military and intelligence infrastructure. Our employees are highly trained, enabling us to provide services for many complex governmental systems, including defense, intelligence, emergency response, logistics support and financial management. - LEADING FEDERAL GOVERNMENT SYSTEMS INTEGRATOR AND STRONG REPUTATION. We believe that the Federal government primarily uses three criteria in seeking suppliers of technical systems and services: the ability to deliver a broad range of sophisticated technical capabilities; a track record of excellence in servicing the needs of the Federal government; and the ability to deliver at a competitive price. Based on these criteria, we have developed a reputation as a premier provider to the Federal government and we have received numerous awards for our broad technical expertise and consistently high quality performance. We were recently ranked as the No. 1 systems integrator in a survey of over 1,200 Federal government customers by FEDERAL COMPUTER WEEK, a leading publication in the Federal government information technology sector. We believe that our demonstrated capabilities and reputation for service excellence have allowed us to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted over the past three years. - DIVERSE CUSTOMER AND CONTRACT BASE; STRONG INCUMBENT POSITIONS. We have a diverse customer base with hundreds of governmental clients worldwide, which has included all 14 Cabinet-level agencies and all branches of the military. In 1998 we performed work on approximately 3,000 task orders, and since 1996 we have completed approximately 7,000 task orders for our clients. In executing these orders, we have acquired extensive knowledge of the particular information technology needs of our clients, and we believe that our typical position as the incumbent designer and integrator enables us to anticipate their changing technical requirements. These factors often position us as the preferred provider of ongoing support, upgrades and next generation systems development. As a result of these relationships we have developed a backlog of approximately $1.1 billion (and, after giving pro forma effect to the Acquisition, a backlog of $2.1 billion as of June 30, 1999, providing significant predictability of revenues. For a further discussion of management's calculation of our backlog, see "--Backlog." - STRONG OPERATIONS MANAGEMENT; LOW COST STRUCTURE. Our focus on control of indirect costs and cost center flexibility has permitted us to increase profitability and we believe that we have achieved one of the lowest cost structures in the industry. Management has developed rigorous control procedures to mitigate losses in "at risk" situations where task order performance has commenced but funding or appropriation has not been formally authorized or where contract performance has begun because management considers the award of a contract to be imminent. We also employ management information and resource management systems to maximize operational efficiency and reduce indirect costs. Our indirect costs have been reduced to 15% of revenues in 1998 compared to an industry peer group average estimated by management to be between 18% to 20%, and we have increased EBITDA margins from 1.9% in 1995 to 6.6% in 1998 (after giving pro forma effect to the Techmatics acquistion). 51 - WELL-POSITIONED TO CAPITALIZE ON INDUSTRY GROWTH. Federal government information technology spending will total approximately $30 billion in 1999 according to the OMB and is expected to increase to $35.1 billion in 2002. In addition, the outsourced portion of this spending is expected to increase from 78% in 1998 to 86% in 2002. Due to this increased outsourcing, the amount of information technology services procured from contractors is estimated to increase at 6.9% per year from 1998 to 2002. Anteon believes that growth in Federal government information technology spending will be driven by government downsizing, increased outsourcing and increasing attempts to utilize more efficient means of procurement. We expect a significant portion of this growth to be derived from major government-wide acquisition contract vehicles, such as the $25 billion GSA ANSWER multiple-award contract and the $10 billion Department of Transportation ITOP II multiple-award contract. We are one of a limited number of qualified suppliers under both of these major contract vehicles. We believe that our size, capabilities, reputation and long-standing relationships combined with our position as incumbent supplier to many Federal government agencies, position us to capitalize on the opportunities presented by these industry trends. - STRONG MANAGEMENT AND HIGHLY EXPERIENCED BOARD. Each of the five senior members of Anteon's management team has over 20 years of experience in managing both small and large companies in both the defense and commercial markets. In addition, several members of management and the Board of Directors are former military officers or senior government officials who are familiar with the information technology requirements of government agencies. Dr. Paul Kaminski, a director of Anteon, recently served as Under Secretary of Defense for Acquisition and Technology. Mr. Gilbert Decker, a Director of Anteon, recently served as Assistant Secretary of the U.S. Army for Research, Development and Acquisition, and in that capacity led the Army's acquisition and procurement reform efforts. Our management team is responsible for our growth and improved profitability in the current procurement environment and has a significant equity stake in Anteon through direct investment and equity-based incentives. BUSINESS STRATEGY We believe that a key element of Anteon's success is its high standard of performance and customer service. Past performance is one of the three critical elements the government employs to evaluate information technology suppliers. Our demonstrated performance record and service excellence have enabled us to maintain our position as an incumbent service provider on 100% of our major contracts that have been recompeted over the past three years. We believe that our high-level technical abilities and low cost structure will allow us to further expand our customer base, improve our operating results and continue to grow. Specifically, we will pursue the following business strategies: - BROADEN CAPABILITIES. We continually seek to acquire new expertise and keep pace with developments in technology by acquiring and training our employees and acquiring technologies to complement our skill set. We are aggressively pursuing several new disciplines that complement our existing technology capabilities. Particular areas of expertise we are pursuing include network communications, remote sensor information processing, geographic information systems and information security. We also seek to broaden our technology skills by providing extensive training to new and current employees. For example, we have an extensive in-house, computer-based training program consisting of over 150 courses. These efforts will enable us to remain at the forefront of information technology applications and be more responsive and flexible in servicing the needs of our customers. - LEVERAGE EXPERIENCE AND REPUTATION TO EXPAND MARKET SHARE. We have performed a variety of services for a diverse base of customers, including hundreds of governmental clients worldwide, including all Cabinet-level agencies and all branches of the military. The new Federal government procurement environment has reduced the number of suppliers and favors those companies with experience and broad capabilities. We plan to leverage our comprehensive capabilities and our 52 position as the incumbent provider on critical Federal government applications to provide complete end-to-end services including new systems development, integration, upgrades, maintenance, support and training. To support our plans, we have increased our national and global presence, opening offices in Albuquerque, New Mexico; Colorado Springs, Colorado; Australia and Asia. We have also acquired a comprehensive new business development and bidding software system, known as WinAward, which scans for and targets new programs or task orders which require skills and services particularly suited to Anteon's capabilities. This system provides early identification of prospects, allowing us to mobilize the resources necessary to win the award. - CONTINUE TO IMPROVE OPERATING AND FINANCIAL PERFORMANCE. We believe that a key element of our success in the Federal government market has been our continuous pursuit of cost reductions and focus on working capital management. We have developed and employ integrated management information and resource management systems and policies that have enabled us to maintain indirect cost levels that we believe are among the lowest in the industry. We will continue to leverage our operating efficiency and risk management capabilities to bid aggressively on contracts to further improve our operating and financial performance. - PURSUE STRATEGIC ACQUISITIONS. We believe the changes in the government procurement market will result in continuing consolidation opportunities. We will selectively review acquisition candidates with a focus on companies having complementary skills and established positions in key segments of the marketplace that provide opportunities for revenue enhancement or a reduction in indirect costs. A key element of all acquisitions is the existence of rigorous risk management procedures and strong operational management. ANTEON DIVISIONS We provide our services through five operating divisions (including our subsidiaries): Techmatics, the Federal Information Technology Group, Vector Data, the Enterprise Solutions and Services Group and the GSA Programs Group. The following is a brief description of each of Anteon's divisions and examples of some of the projects and programs Anteon has performed for its government clients. TECHMATICS Techmatics has over 15 years of experience in supporting U.S. Navy technology acquisition programs. The Techmatics Division provides systems engineering and systems development, mission and threat analysis and acquisition management services to most major ship and weapon system acquisition projects currently in progress in the U.S. Navy. Techmatics has been a team member in the development and acquisition of the U.S. Navy's AEGIS cruisers and destroyers, the U.S. Navy's Theater Air Defense strategy and National Missile Defense planning, as well as the latest submarine, aircraft carrier and amphibious designs. The division's client base is predominantly the U.S. Navy and includes approximately 30 customers or agencies within the U.S. Navy. Projects on which Techmatics is engaged include the Ballistic Missile Defense Program, the Cruise Missile Defense Program, the Ship Self Defense Program and the Navy Theater Air Defense program. - NAVY THEATRE BALLISTIC MISSILE DEFENSE PROGRAM. An example of Techmatics' work is the service it performed in connection with the Navy Theater Ballistic Missile Defense Program. In January 1999, Techmatics was awarded a $63 million five-year IDIQ contract to provide professional, technical and management services to support the Navy Theater Ballistic Missile Defense Program. The purpose of the Ballistic Missile Defense Program is to place on each ship in the program a defense system that will use missiles on board to counter and destroy incoming enemy missiles. While the program itself will cost several billions of dollars and will be developed by major government defense prime contractors such as Lockheed Martin and Raytheon, Techmatics supports and advises the U.S. Navy in implementing this program. In 53 this capacity, Techmatics works in close partnership with U.S. Navy departments in evaluating alternatives on systems engineering, systems requirements, software and hardware. Management believes Techmatics, with its long history of technical support on naval projects and large number of experienced former naval officers, is well-positioned to fill this role for the U.S. Navy. Techmatics' extensive experience on earlier U.S. Navy projects allowed us to develop the expertise and establish relationships necessary to bid successfully for the Navy Theater Ballistic Missile Defense Program. Techmatics was solicited to make a bid and, because of our longstanding incumbent position and institutional knowledge, Techmatics was the only contractor to bid for the project. Because of these relationships, Techmatics was also recently selected to provide systems engineering support for the next generation destroyer, the new attack submarine and the aircraft carrier programs. We believe that due to our established relationships and track record with the U.S. Navy, we have a competitive advantage when bidding for similar projects in the future. - U.S. NAVY AEGIS PROGRAM. AEGIS is largely considered to be the world's most advanced air defense system, and is composed of over 50 cruisers and destroyers equipped with a sophisticated computer controlled missile engagement system. The heart of the AEGIS capability is a multifunction, phased array radar system. Due to the solid reputation AEGIS has developed, the AEGIS Combat System has also been installed on four Japanese Maritime Self Defense ships and the Spanish Navy is building AEGIS equipped ships. Techmatics supports all aspects of this program, including ship design, construction and maintenance; AEGIS Combat System engineering and testing; and the engineering and introduction of a Theater Ballistic Missile Defense capability in AEGIS. Recently, the AEGIS programs were merged with all surface ship air defense efforts in the Program Executive Office for Theater Surface Combatants. Techmatics provides engineering and technical support to this consolidated organization. FEDERAL INFORMATION TECHNOLOGY GROUP The Federal Information Technology Group focuses on providing information technology services to the U.S. Army, U.S. Air Force, Defense Finance and Accounting Service, Federal Emergency Management Agency ("FEMA"), Bureau of Indian Affairs and selected additional government and commercial organizations. The division provides system integration and full end-to-end information technology services. The division provides its services through multiple contract vehicles including GSA Schedule, GSA CAPZONE, GSA ANSWER and Department of Transportation ITOP. Within these contract vehicles, we execute our work through hundreds of contracts or task orders. - FEDERAL EMERGENCY MANAGEMENT AGENCY. An example of the services our Federal Information Technology Group provides is our support for FEMA. FEMA works in coordination with state and local government to provide a federal response to emergencies, such as tornadoes, hurricanes, earthquakes or fires). In 1995, FEMA hired Anteon to develop a system to assist it in managing disaster operations on-site at its regional offices and at its headquarters. In response, Anteon developed the National Emergency Management Information System ("NEMIS"). NEMIS is an enterprise-wide Oracle-based client/server management information system that connects several thousand desktop and mobile terminals/handsets and provides FEMA with a fully mobile, nationwide response and disaster management system. Anteon worked with FEMA over a 2 1/2-year period to build NEMIS. Over 100 analysts and software technicians were involved in all major aspects of designing and implementing this project. To date, the Federal government has spent approximately $70 million on the development of NEMIS Version 1. Our work on NEMIS Version 1 was critical to our success in being chosen to develop NEMIS Version 2, a project which is expected to have a budget of approximately $6 million per year. In addition, we continue to provide support and maintenance to NEMIS 54 Version 1 under a five-year $28 million contract. The NEMIS system is the most comprehensive emergency management system available and we believe there are significant opportunities to sell this system to individual states and foreign governments. - CARGO MOVEMENT OPERATIONS SYSTEM FOR THE AIR FORCE. Another example of Anteon's achievements is its work on the U.S. Air Force CMOS project, which began as a systems development and integration contract and has evolved into an end-to-end support relationship. Anteon has been supporting CMOS since 1989 when its started to develop this mission critical system for the U.S. Air Force to automate cargo movement operations. CMOS is one of the largest open systems within the Department of Defense, and the first standard Air Force client server application to be installed at air bases worldwide. The CMOS project involved full systems development, end-to-end support, integration of COTS systems and custom developed software, configuration management, maintenance implementation, and training. Anteon continues to provide support, maintenance and upgrades to CMOS under a multi-year contract. During the past ten years, Anteon's involvement in CMOS has generated approximately $25.6 million in revenues. Because of Anteon's track record as the incumbent services provider for the work performed, Anteon acts as sole supplier for task orders under this contract. - TC-AIMS PROJECT. As a result of our record of performance on CMOS, we have been awarded the Transportation Coordination Automated Information Movement Systems ("TC-AIMS") contract through the Department of Transportation ITOP II contract. TC-AIMS is using the CMOS system as a model to develop a transportation and deployment management system that will coordinate critical logistics requirements throughout the Department of Defense. CMOS was chosen as the model system for TC-AIMS by the Office of the Secretary of Defense. While TC-AIMS is similar in function to CMOS, it will have broader capabilities and will be used in one single combined system with other service systems. TC-AIMS will also be used for the redeployment and recovery of troops and equipment. Anteon currently has approximately 46 people working on the TC-AIMS contract. VECTOR DATA Vector Data provides systems engineering including what is known in the defense industry as command, control, computers, communications, intelligence, surveillance and reconnaissance ("C(4)ISR") services to national and international defense organizations. Vector Data provides services and support worldwide for NATO and other coalition warfare, strategic and tactical communications, imagery exploitation and mission rehearsal from the beginning stages of a program through its entire life. The division's client base includes, among others, the U.S. Department of Defense, NATO and the U.K. Ministry of Defense. Vector Data's support of C(4)ISR systems such as Linked Operations/Intelligence Centers Europe ("LOCE") has been critical in providing a common structure and set of standards that allow for the rapid distribution and exchange of tailored intelligence data to support coalition operations in peace, crisis and war. - LINKED OPERATIONS/INTELLIGENCE CENTERS EUROPE PROGRAM FOR NATO. Vector Data provides on-site maintenance support to the LOCE program. The LOCE program provides a common view of intelligence derived from multiple sources for the United States, NATO and U.N. peacekeeping forces in Europe. Near-real time intelligence is available through such technology as imagery, shared early warning systems, and interfaces with other U.S. and NATO systems. We support the LOCE program by providing software and hardware maintenance, communications engineering, formal classroom and on-site training, and hardware/software configuration management. We also provide responsive, on-site daily customer service from the U.S., Italy, U.K., and Germany. Vector Data is in its third contract on this project and is currently the sole-source provider. 55 ENTERPRISE SOLUTIONS AND SERVICES GROUP The Enterprise Solutions and Services Group is a multifunctional division which includes four groups; the Dayton Operation, the Product Applications and Services Operation, the Business Development Group and the Proposal Development Group. Our Dayton Operation conducts materials science research and development efforts and covers the spectrum of basic research and exploratory and advanced development efforts for the Air Force's Research Laboratory. The Product Applications and Services Operation sells a wide variety of products, such as Oracle's latest database and applications software, and maintenance and other services and training to the Federal government through Anteon's GSA Schedule contract. The Business Development Group is responsible for generating new business for Anteon and the Proposal Development Group is responsible for preparing new proposals for all of Anteon's operating groups. - WRIGHT PATTERSON AIR FORCE BASE. Our Dayton Operation has helped to design, build and operate the largest continuous wave gas laser in the United States, located at Wright Patterson Air Force Base. At the material engineering laboratory, we conduct test and evaluation services. Our expertise includes manufacturing processes, materials, and coating technologies. In the area of program management, we are the lead agent for cooperative efforts between industry and the Federal government. Through our information dissemination and brokering service, we inform prospective users of newly developed technologies and facilitate the establishment of beneficial relationships between government agencies and private industry. We also provide program and acquisition services which include acquisition planning documentation, program management support, specification and standards development, database design and development, participation on electromagnetic compatibility advisory boards and frequency allocation application support. GSA PROGRAMS GROUP The GSA Programs Group consists of more than 500 individuals providing information technology services on approximately 300 task orders to a wide variety of customers in the western U.S. through one or more of our GSA contracts or our GSA Schedules. Our client base includes, among others, the U.S. Navy, Army, Corps of Engineers, Air Force, the Environmental Protection Agency, the GSA and Department of Interior. - GSA ADVANTAGE! The GSA Programs Group developed the GSA ADVANTAGE! system which is an Internet-based electronic ordering system used by government purchasing officials to buy goods and services from GSA Schedules. Anteon is providing the technical support to design, implement and maintain GSA ADVANTAGE!, which provides an automated service procurement system for the GSA schedule program and will support approximately 1,500 vendors and over 1,000,000 schedule line items. - U.S. NAVY'S SITE CHARACTERIZATION AND ANALYSIS PENETROMETER SYSTEM. Another example of the type of services provided by the GSA Programs Group is the engineering and information technology support provided to the U.S. Navy's Site Characterization and Analysis Penetrometer System ("SCAPS") since 1994. The SCAPS is an innovative technology developed by the Naval Command, Control and Ocean Surveillance Center--Research and Development. Anteon geologists use SCAPS to rapidly characterize subsurface conditions at sites for real-time data processing of on-site evaluations. A&T DIVISIONS A&T provides its services through two operating divisions, the Engineering/Information Technology division and Interactive Media Corp. The following is a brief description of each of A&T's divisions and examples of some of the projects and programs A&T has performed for its government customers. 56 E/IT DIVISION The E/IT division consists of three groups, the Systems Technology Group, the Engineering Techology Group and the Information Technology Group, which are primarily organized according to functional capabilities and customer focus. The Systems Technology Group provides expertise in undersea warfare through full end-to-end services, including requirements definition, combat system engineering, test and evaluation, production and support. The Engineering Technology Group and the Information Technology Group each provide technical expertise in key technology areas such as ship signature modeling, signal processing, smart product modeling, and development of tactical decision aids. In 1998, the E/IT division had revenues of approximately $140 million. SYSTEMS TECHNOLOGY GROUP The Systems Technology Group has provided the full spectrum of engineering and analytical services primarily to the Naval Undersea Warfare Center for more than three decades. Over the years, its customer focus has been expanded to include U.S. Navy Systems and Operations commands. Additionally, through A&T's purchase of Command Control, Inc., the Systems Technology Group has leveraged its naval C(4)ISR experience into other branches of the armed forces. While the group has expanded its reach, the NUWC remains a key customer. The Systems Technology Group has the capability to provide end-to-end services to meet customer requirements including (1) requirements definition; (2) systems engineering and integration; (3) testing and evaluation; and (4) support. - NEW ATTACK SUBMARINE'S COMBAT SYSTEM. An example of the work of the Systems Technology Group is the services it provides for detailed mission analysis, translating operational requirements into functional specifications in support of the Combat System for the New Attack Submarine ("NSSN"), the next generation of attack submarine. This subcontract currently generates annual revenues of approximately $3.6 million, and expires in 2002. Management believes A&T is well positioned for a follow-on effort to develop a full-scale mock-up of the NSSN's Combat System, in order to model and evaluate the system's ability to support rapid reconfiguration and the infusion of COTS technology. - C(3)I ENGINEERING SERVICES--NAVAL UNDERSEA WARFARE CENTER. An example of the services provided by A&T is the contract awarded to A&T by NUWC. This contract award continues A&T's longstanding relationship with NUWC in support of the next generation of submarines. Under this award, A&T is providing engineering support services for Seawolf non-propulsion systems and the New Attack Submarine's command, control, communications and intelligence systems ("C(3)I"). A&T's services range from concept development through operational support, including design, development and equipment prototyping. This contract is the latest in the evolution of NUWC's C(3)I initiatives and demonstrates A&T's longstanding support to this program. A&T was awarded this $33 million cost-plus contract in April 1996. The current contract term extends through April 2001. - FLEET TECHNICAL SUPPORT CENTER ATLANTIC ("FTSCA"). Another example of services the Systems Technology Group provides is in-service engineering. This service addresses the end-to-end maintenance and support of deployed systems, including installation support, system modernization, equipment modification and field service repair. The U.S. Navy is increasingly outsourcing these activities and A&T has been awarded a five-year $130 million cost-plus contract with the FTSCA. A&T's contract with the FTSCA is its largest single prime contract. A&T will provide equipment installations, inspections, testing and modernization upgrades, as well as training, for equipment on board both surface ships and submarines of the Atlantic Fleet. Consistent with the U.S. Navy's procurement demands and demonstrative of A&T capabilities, 57 many of the system modernization upgrades will involve the implementation of COTS technologies. The contract strategically positions A&T to obtain significant follow-on work in the growing fleet support area. This IDIQ contract expires in September 2003. - ACOUSTIC SIMULATION AND TACTICS--NAVAL RESEARCH LABORATORY. A&T also provides the Naval Research Laboratory's Stennis Space Center with software development services for gathering, analyzing, classifying and deploying time-sensitive data across the internet using electronic documentation. In addition, the division is developing prototype communication software in support of the U.S. Navy's IT-21 initiative that will incorporate COTS technology to speed solutions to the fleet. Software engineers will code programs to convert scientific papers and publications to digital documents, and then deploy the documents over the internet for easy access by all registered users. A&T was awarded this five-year $21.1 million cost-plus contract in March 1998. ENGINEERING TECHNOLOGY GROUP The E/IT division's Engineering Technology Group strategically combines ship design and engineering and combat systems engineering expertise with acquisition and program management support services to further A&T's strategy of positioning the division as a provider of end-to-end services for technology solutions. This combination of services allows A&T to successfully exploit the knowledge gained from the day-to-day management of high profile U.S. Navy programs to capture high-end ship design and engineering and combat systems engineering work. Management believes that the Engineering Technology Group has a strong reputation in both engineering and support services by U.S. Navy agencies, ship builder and combat system platform prime contractors for its comprehensive abilities. - TECHNOLOGY TRANSFER AND POWER ELECTRONIC BUILDING BLOCK ("PEBB") PROGRAMS--OFFICE OF NAVAL RESEARCH ("ONR"). An example of the work of the Engineering Technology Group is the service it provides to ONR's Technology Transfer and PEBB Programs. The Technology Transfer program's goal is to transition technology developed in U.S. Navy research and development programs to the fleet and to private industry. The objective of the PEBB program is to reduce new ship construction costs as well as maintenance costs by providing a smart multifunction device that interfaces between the ship's machinery, systems and power supply. To facilitate this, A&T's machinery research and development engineers are designing and developing a new class of programmable electronic power modules for shipboard power control and conversion. This includes providing engineering support from requirements definition to design, development, prototyping and device fabrication and installation. The PEBB contract was awarded in April 1997, expires in March 2002 and has a total contract value of $26 million. - ADVANCED SIGNATURE REDUCTION--NAVAL SURFACE WARFARE CENTER ("NSWC"). The Engineering Technology Group has enjoyed a long-standing relationship with the NSWC that spans more than two decades. NSWC is currently one of A&T's top-five customers. A&T's most recent work for NSWC includes a $22.7 million cost-plus contract to perform high level theoretical and applied research to reduce various signatures in combatant ships. Studies will be directed primarily at the New Attack Submarine and the first ship commissioned under the U.S. Navy's SC-21 initiative, the destroyer class DD-21. This contract demonstrates A&T's ship design capabilities. This award will allow the Engineering Technology Group to perform work on passive and active vibration and acoustic control systems for the U.S. Navy, as well as other advanced critical ship signature design issues in the areas of radar cross section and magnetics. The contract was awarded in 1998 and expires in 2003. 58 INFORMATION TECHNOLOGY GROUP A&T has a long history of providing information technology services. The Information Technology Group specializes in developing tactical decision aids primarily for the U.S. Navy. Its attractive capabilities include (1) software development, (2) telecommunications/networking, (3) database systems, (4) COTS product integration, (5) training, (6) simulation and (7) modeling and data fusion. The Information Technology Group helps customers improve the capability, responsiveness, and reliability of their systems through advanced network architectures and user friendly software platforms. - SENSOR PERFORMANCE PREDICTION SUPPORT--THE ADVANCED SYSTEMS TECHNOLOGY OFFICE OF THE NAVAL SEA SYSTEMS COMMAND ("NAVSEA"). A&T is providing COTS solutions to develop a high-technology graphical user interface ("GUI") for the Advanced Systems Technology Office of NAVSEA. A&T has helped to set the standard for GUI, focusing on ways to make an array of complex information easy to interpret. As the U.S. Navy rolls out its information technology for the 21st Century initiative, system operators will be inundated with large quantities of information. A&T's work under this contract helps to assure that this information is instantaneously processed and presented in a readily useable format. This $33 million cost-plus contract currently generates approximately $5 million in revenues per year and expires in March of 2001. - REAL-TIME DISTRIBUTION AND DYNAMIC MANAGEMENT OF METEOROLOGY AND OCEANOGRAPHY ("METOC") DATABASE PRODUCTS--NAVAL RESEARCH LABORATORY. A&T was also selected by the Naval Research Laboratory to perform research and development on the METOC database, a system that reduces event-triggered human decision errors. A&T is working to improve the efficiency of the Naval Research Laboratory's data architecture focusing on information availability and clarity. Under this $14.6 million cost-plus contract, the group has designed proprietary data-mining techniques that enable users to extract data quickly and in an organized fashion. As a result of A&T's work, the METOC system was selected by NATO as the standard for the Allied forces' environmental analysis systems. A&T was awarded this contract in July 1996 and it runs through July 2001. INTERACTIVE MEDIA CORP. IMC has approximately 235 technical specialists providing custom training and performance solutions across all major computer platforms and delivery systems. Capitalizing on its reputation, IMC has established leading positions in telecommunications and financial services as well as in the rapidly growing web-based training market. Currently over 50% of IMC's revenues involve web-based training. IMC has many years of consulting, performance improvement and training services experience. Since 1990, IMC's personnel have developed over 3,500 hours of interactive media courseware. IMC's skilled computer programmers and consultants use web-based delivery systems and multimedia technology, including computer generated graphics, animation, full motion video and high fidelity audio to develop training solutions that are both educational and expedient to the end user. The unit's multimedia technologies are platform and tool independent, allowing them to be easily integrated into any company's computer environment. - US WEST COMMUNICATIONS ("US WEST"). An example of IMC's work is the service it provides to US West. IMC was awarded a fixed-price $1.1 million contract by US West. Under this contract, IMC will develop an intranet-based training program that will distribute 118 hours of interactive media based training to US West's national sales force. An integral part of this initiative is IMC's KNOWLEDGE BANK, a program that focuses on the need for quick reference tools to enhance productivity and facilitate learning. IMC technicians and software engineers have developed an interactive program that catalogs frequently referred to subjects and makes 59 them available over US West's corporate intranet for quick access by all members of the sales staff. - REGIONAL TELEPHONE COMPANY OPERATIONS CURRICULUM: INTERNET-BASED TRAINING. IMC was also recently contracted by a large regional telephone company to provide an effective, multi-platform solution that both reduces classroom time and teaching materials and provides an on-line reference tool in accordance with the telephone company's program. Under this contract, IMC consultants developed a unique model that eliminates redundant course materials and provides trainees with information via three proprietary delivery methods: orientation/ foundation courses; job specific courses; and online reference tools. For this effort, IMC developed a CD-ROM based training program for courses containing general company information and an updatable internet based training system for courses with job specific content. By developing a system that documents job specific content electronically, the student is able to access information on a just-in-time basis, thereby reducing the time spent in training by over 30%. CONTRACT PROFILE ANTEON Anteon is one of a select group of qualified suppliers of information technology services to the Federal government under multiple long-term contract vehicles. Anteon performed work on approximately 7,000 task orders under such contracts in the past three years and we are performing work on approximately 3,000 task orders. No one task order accounted for more than 5% of total 1998 revenues. In 1998, approximately 47%, 34% and 19% of Anteon's revenues were generated by time and materials contracts, cost-plus contracts and fixed price contracts, respectively. Management believes that Anteon has secured a place as a prime contractor or a subcontractor for every major government-wide acquisition contract issued since January 1996. We have been awarded two major contracts as a prime contractor since the second quarter of 1998. The GSA ANSWER contract is a 10-year multiple-award contract with an overall contract value of $25 billion. We were previously the incumbent supplier on task orders under the predecessors to this contract vehicle (GSA PACZONE and CAPZONE). The Department of Transportation ITOP II contract is a 7-year multiple-award contract with an overall contract value of $10 billion. The ITOP II contract was awarded to 14 prime contractors, including Anteon. A&T A&T also maintains a diversified contract base with no one contract accounting for more than 5% of total 1998 revenues. In fiscal year 1999, approximately 71%, 20% and 9% of A&T's revenues were generated by cost-plus contracts, fixed price contracts and time and materials contracts, respectively. However, in October 1998, A&T won a $130 million five-year contract from the FTSCA, its largest win ever, which represents a significant future growth opportunity. Over 80% of A&T's work is performed as a government prime contractor, much of it for the U.S. Navy. Within the E/IT division, approximately 80% of its work is performed on a cost-plus basis. Within IMC, most work, both commercial and government, is done on a fixed price basis. CONTRACTUAL RISK MANAGEMENT At each stage of the contracting process, we attempt to reduce financial and performance risks. At the pre-award stage, we frequently bid through teaming agreements with other contractors having complementary technical strengths that enhance the likelihood of winning the contract, including, in many instances, our main competitors. Sometimes, before a Federal government agency has actually signed or begun funding for services under a contract or task order, our employees will begin providing services. We have 60 internal procedures in place to ensure that such "at risk" provisions of services only occur when funding is delayed due to bureaucratic or other technical reasons and it remains highly probable that we will ultimately receive funding. Once we win a contract or task order, we assign a program manager and, at a lower level, a task leader, to ensure timely and high quality performance of services. Program managers are given access to our financial management information systems to assist them in making sure that our incurred costs do not exceed funded costs under our contracts and task orders. Program managers also constantly interface with our customers to ensure their needs are being satisfied. BACKLOG Anteon and A&T, like most of their competitors, possess a substantial backlog of several hundred contracts that provide multi-year revenues. Most of our contracts are operational over a one to ten-year period. In the past, we have generally been successful in substantially expanding the scope and size of our principal contracts. Pro forma for the acquisition, our estimated total contract backlog as of June 30, 1999 was $2.1 billion with an additional $155 million of bids outstanding and over $1 billion of identified bid opportunities. These backlog amounts consist of "funded" backlog which is based upon amounts actually appropriated by a customer for payment of goods and services and "unfunded" backlog which is based upon management's estimate of the future potential of our existing contracts to generate revenues for Anteon and A&T. Because the Federal government operates under annual appropriations, agencies of the Federal government typically fund contracts on an incremental basis. Accordingly, a significant portion of our total contract backlog is not "funded." Funded backlog generally varies depending on procurement and funding cycles and other factors beyond our control. Accordingly, period-to-period comparisons are difficult and not necessarily indicative of any future trends in revenues. Anteon's and A&T's ability to significantly increase their backlogs during recent years is the result of their successful track records of maintaining their respective positions as the incumbent service providers on their contracts as well as success in winning new business. During 1998, Anteon's and A&T's bid recompete success rates were 100% and 90%, respectively. Set forth in the table below is a summary of the aggregate dollar amount of (1) contracts that Anteon and A&T have retained in competitive rebidding processes and (2) new contracts attained by each of them from 1996 to 1998. RECOMPETE WINS AND NEW BUSINESS WINS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- (IN MILLIONS) RECOMPETE WINS Anteon........................................................................... $ 56.5 $ 232.0 $ 949.6 A&T.............................................................................. 71.1 124.9 85.2 --------- --------- --------- Subtotal......................................................................... $ 127.6 $ 356.9 $ 1,034.8 NEW BUSINESS WINS Anteon........................................................................... $ 85.0 $ 150.5 $ 119.2 A&T.............................................................................. 25.0 222.2 273.4 --------- --------- --------- Subtotal......................................................................... $ 110.0 $ 372.7 $ 392.6 --------- --------- --------- Total........................................................................ $ 237.6 $ 729.6 $ 1,427.4 --------- --------- --------- --------- --------- ---------
61 CUSTOMERS We are one of a select group of qualified suppliers of information technology services to the Federal government. Domestically, Anteon and A&T service more than 60 agencies, bureaus and divisions of the U.S. Federal government, Cabinet-level agencies and all branches of the military services, which customers provide approximately 93% of Anteon's and A&T's aggregate revenues. State and local governments, international clients and the commercial sector provide the remaining 7%. Anteon performed work on approximately 3,000 task orders in 1998 under several hundred contracts. A&T also has a diverse contract base with over 100 contracts. In particular, Anteon and A&T have an established track record of providing quality services to the U.S. Navy. Together, Anteon and A&T maintain contracts with approximately 30 different U.S. Navy organizations. These organizations independently contract for our services and generate, after giving pro forma effect to the acquisition, approximately 51% of Anteon's and A&T's combined 1998 revenues. The GSA, the Environmental Protection Agency and FEMA are Anteon and A&T's largest civil government customers. Approximately 66% of IMC's revenues were generated from commercial customers. These customers include FORTUNE 500 companies primarily in telecommunications, financial services and information technology. IMC has developed training systems for companies such as MCI Worldcom, Ameritech, GTE, Royal Bank of Canada, National City Bank, SmithKline Beecham and Merck. COMPETITION The Federal information technology and engineering services industries are comprised of a large number of enterprises ranging from small, niche-oriented companies to multi-billion dollar corporations with a major presence throughout the Federal government. Because of the diverse requirements of Federal government clients and the highly competitive nature of large Federal contracting initiatives, corporations frequently form teams to pursue contract opportunities. Prime contractors leading large proposal efforts select team members on the basis of their relevant capabilities and experience particular to each opportunity. As a result of these circumstances, companies that are competitors for one opportunity may be team members for another opportunity. Anteon frequently competes against well-known firms in the industry as a prime contractor. Obtaining a position as either a prime contractor or subcontractor on large government-wide contracting vehicles is only the first step to ensuring a secure competitive position. Competition then takes place at the task order level, where knowledge of the client and its procurement requirements and environment is the key to winning the business. We have been highly successful in ensuring our presence on contracts and GSA Schedules, and in competing for work under those contracts. Through the variety of contractual vehicles at our disposal, as either a prime contractor or subcontractor, we have the ability to market our services to any Federal agency. Because of our extensive experience in providing services to a diverse array of Federal departments and agencies, we have first-hand knowledge of our clients and their goals, problems and challenges. We believe this knowledge gives us a competitive advantage in competing for tasks and positions us well for future growth. A&T's core Department of Defense market is comprised of a small number of large players with a diverse portfolio of services from automated data processing services to outsourcing capabilities, as well as a large number of smaller firms with specialized capabilities. Management believes that A&T is well-positioned to remain competitive in this market and to sustain its growth trends. EMPLOYEES Anteon employs approximately 2,200 personnel, representing a highly trained and technically proficient work force. These employees support hundreds of national and international clients from our headquarters in Fairfax, Virginia, and from 39 offices worldwide. Our workforce is highly educated and experienced in the defense and intelligence sectors. Functional areas of expertise include engineering, 62 computer science, business process reengineering, logistics, transportation, materials technologies, C(4)I, avionics, finance and acquisition management. None of Anteon's employees is represented by collective bargaining agreements. Management believes its relationship with its employees is very good. A&T employs approximately 1,700 full-time employees, approximately 1,400 of whom are professional and technical personnel. A&T's highly talented scientists, engineers and technicians are experts in signal processing, acoustics, ship survivability and hydrodynamics. A&T's information technology professionals are experienced in software engineering and development, system integration, networking and training. A&T has invested significant resources assembling a team of respected software engineers specializing in high-level systems architecture, client/server applications and object-oriented programming. None of A&T's employees is represented by collective bargaining agreements. Management of A&T believes its relationship with its employees is very good. FACILITIES Anteon's corporate offices are located in leased facilities in Fairfax, Virginia. Anteon also leases approximately 411,602 square feet of office, shop and warehouse space in 39 facilities across the United States, United Kingdom, South Korea and Australia. A&T owns its corporate headquarters located in North Stonington, Connecticut, which occupies 60,330 square feet of office space. A&T also owns office and shop space in New London, Connecticut and Butler, Pennsylvania. A&T presently subleases to tenants approximately 23,000 square feet of its Butler office space and 20,000 square feet of its New London office space. A&T also leases approximately 357,000 square feet of office, shop and warehouse space in 36 locations across the United States, Australia, and Canada. LEGAL MATTERS Anteon received a demand letter from one of Anteon's subcontractors claiming approximately $3.2 million in damages arising in connection with Anteon's decision to terminate the subcontractor. The termination was a result of certain actions taken by Anteon's customer. Anteon believes there are valid defenses to such claim and that the matter will not have a material adverse affect on Anteon's financial condition, results of operations or cash flow. Neither Anteon nor A&T is involved in any other material legal proceedings except for ordinary routine litigation incidental to its business which is not otherwise material to its business or financial condition. From time to time, we or our competitors file bid protests, as permitted under Federal procurement regulations, in connection with specific contract awards. Historically, these proceedings have not had any material effect on Anteon's financial condition, results of operations or cash flow. Management is not able to assure you that either company will not become involved in material legal proceedings or contract bid protest proceedings in the future. 63 OVERVIEW OF FEDERAL GOVERNMENT CONTRACTING GOVERNMENT BIDDING OVERVIEW There are several different processes through which a Federal government agency will solicit bids. The following is a summary of the typical bidding process which government contractors such as Anteon and A&T encounter. If a Federal government agency has a requirement, such as the upgrade of a management information system, the agency makes a brief announcement of its requirements in the COMMERCE BUSINESS DAILY or on a government electronic bulletin board to which contractors like Anteon and A&T have access. Interested contractors then submit packages expressing their interest and highlighting their qualifications. The agency responds to those contractors it deems preliminarily qualified by providing them with a request for a proposal ("RFP") or similar solicitation. The RFP is an extensive document describing the desired services and terms and conditions that will form the final agency contract. The RFP includes a statement of the criteria according to which bids will be evaluated (usually focusing on price, past performance and quality of technical/management plan). Bidders then submit proposals in response to the RFP. The agency evaluates all the proposals and announces the winner. This process can take up to a year. The competitive process for a multiple award contract procurement is similar to that described above, except that the government awards multiple contracts to a selected group of contractors, rather than a single contract. Federal agencies desiring to procure goods and services through a particular multi-agency contract such as GSA ANSWER, will request the servicing agency (for example, GSA) to initiate a limited competition among the selected awardees, resulting in the issuance of a task order to a single contractor. A task order calls for a specific set of services to be delivered by the contractor to a particular client agency. Competition for task orders among initial awardees can be intense and often focuses on price, because the initial awardees are already qualified to supply the service through the initial award of the government contract vehicle. However, our experience has been that after winning a task order and effectively providing the requested services, we will typically receive successive task orders from the same agency for follow-on services. Our experience has also been that the key factors in bidding successfully for these Federal government contracts are technical capabilities, past performance, competitive prices and reputation, all four of which management believes are factors that strongly favor both Anteon and A&T. TYPES OF CONTRACT VEHICLES The Federal information technology procurement environment has changed dramatically in recent years. Federal government agencies traditionally procured information technology solutions through agency-specific contracts awarded to a single contractor or contractor team. Several statutory and regulatory changes have significantly altered Federal government procurement practices. The number of procurement "vehicles" available to Federal government customers to satisfy their requirements has increased dramatically in recent years. Federal government agencies are now more likely to use flexible contract vehicles that permit multiple sources to compete for specific orders. We believe these trends are likely to continue. IDIQ contracts are essentially umbrella contracts that set forth the basic terms and conditions under which the Federal government may order goods and services from one, and in some cases, more than one, contractor. Such contracts will also specify the labor and other costing rates that will apply to services that may be the subject of task orders under those contracts. IDIQ contracts may be awarded to a single contractor, or to multiple contractors. Multiple-award IDIQ contracts are increasingly being used for large-scale Federal government purchases of services and/or integrated systems that may include a significant service or maintenance component, along with the provision of computer hardware and software. The periods of performance for IDIQ contracts usually span a base year and a number of option years. IDIQ contracts do not obligate the Federal government to purchase goods or services at the maximum levels set forth in the contract. 64 Federal government agencies also frequently purchase information technology services and products through other contract vehicles such as GSA Schedules. GSA awards such indefinite quantity fixed price contracts to companies for stated periods of time through which individual agencies may place orders, receive shipments and make payments directly to contractors. In order for a company to provide services under a GSA contract, the company must be pre-qualified and selected by the GSA. In the information technology service sector the three ratings criteria employed by the GSA for pre-qualification are technical skills, price and a history of excellence in government contract administration. Anteon and A&T both have GSA Schedule contracts. The changed environment for Federal government contractors presents a number of challenges for companies like Anteon. In the case of contracts like GSA Schedule contracts or IDIQ contracts, a substantial amount of marketing must be done after winning the initial contract in order to win subsequent delivery and task orders. Our experience has been that the changed environment for government contractors has on balance been highly favorable to companies like Anteon that have a wide range of technological capabilities, are very focused on cost control and have a high degree of sophistication and experience in government contracting. First, these more flexible forms of contract vehicles provide for very sizable revenue generation opportunities. Some of our IDIQ contracts potentially involve billions of dollars of revenues for awardees. Second, these vehicles permit us to market our services to a much wider range of customers than was possible under more traditional contracting vehicles. Third, the current environment tends to favor entities that have the size and technological breadth to offer a variety of services because the umbrellas provide for broader opportunities. Finally, we have found that this environment encourages building longer term and stable supplier/customer relationships because there are often a number of contract vehicles under which Federal agencies may be able to direct work to preferred contractors. This tends to lessen the risks to customer and supplier of going through recompetes in order to continue to transact business, and provides a reward for suppliers such as Anteon that establish a reputation for quality and integrity. CONTRACT PAYMENT TYPES The contract vehicles described above employ various payment methodologies. Contracts are typically referred to as time and materials contracts, cost-plus contracts and fixed-price contracts. Each of these contract payment types is described below. TIME AND MATERIALS CONTRACTS Some of our largest contracts are negotiated on the basis of time and materials. Under this type of contract, a contractor is paid a fixed hourly rate for direct labor hours expended. Labor costs, overhead and profit are included in the fixed hourly rate. Materials, subcontractors and other direct costs are reimbursed at actual cost-plus general and administrative expenses and, in some instances, an agreed-upon percentage of profit. A contractor makes critical pricing assumptions when proposing fixed labor rates for a time and materials contract and risks loss of profitability on time and materials contracts if its actual costs exceed assumed costs made. In 1998, time and materials contracts accounted for approximately 46.7% of Anteon's revenues, approximately 9.4% of A&T's revenues, and approximately 32.7% of Anteon's revenues pro forma for the acquisition. COST-PLUS CONTRACTS Cost-plus contracts provide for reimbursement of costs, to the extent that such costs are allowable, and the payment of a fixed "fee," which is essentially the profit negotiated between the contractor and the contracting agency. Cost-plus incentive fee and cost-plus award fee contracts provide for increases or decreases in the contract fee, within specified limits, based upon actual results as compared to contractual targets for factors such as cost, quality, schedule and performance. In fiscal 1998, cost-plus contracts 65 accounted for approximately 34.2% of Anteon's revenues, approximately 70.6% of A&T's revenues, and approximately 47.8% of Anteon's revenues pro forma for the Acquisition. FIXED PRICE CONTRACTS Under fixed price contracts, a contractor agrees to perform specified work for a fixed-price and, accordingly, risk of performing the contract. In fiscal 1998, fixed price contracts accounted for approximately 19.2% of Anteon's revenues, approximately 20.0% of A&T's revenues, and approximately 19.5% of Anteon's revenues giving pro forma effect to the acquisition. FEDERAL GOVERNMENT RECEIVABLES Almost all of our accounts receivable is derived from Federal government agencies. An account receivable from a Federal government agency enjoys the overall credit worthiness of the Federal government, even though each such agency is a separate agency with its own budget. Pursuant to the Prompt Payment Act, payments from government agencies must be made within 30 days of final invoice or interest must be paid. REGULATION The passage of the ITMRA in late 1996 resulted in major changes in Federal government procurement rules governing the acquisition of information technology goods and services. The ITMRA changed the government's process for procuring information technology by (1) placing increased attention on the cost-effectiveness of information technology, return on investment and performance and (2) allocating to individual agencies authority and accountability for information technology budgets. These trends are expected to result in increased interagency coordination and sharing of expense and fewer proprietary or single agency solution systems. Companies such as Anteon and A&T which are well-positioned across several major government agencies should benefit from these trends. As a result of the ITMRA, multiple-award IDIQ government-wide contracts as the preferred vehicle for procuring information technology. Accordingly, contractors have a decreased need for large-scale investment in bid and proposal activities and an increased need to commit marketing resources to identify and capture tasks under existing contracts. Federal government contracts are subject to the Federal Acquisition Regulations ("FAR") and other agency FAR supplements. Major contracts are also subject to the Truth in Negotiations Act ("TIN Act") and Cost Accounting Standards ("CAS"). Among other procurement regulations, the FAR contains the cost principles for setting contract prices while the TIN Act requires us to provide current, accurate and complete cost or pricing data in connection with the negotiation of a contract. CAS requires consistency of accounting practices over time and compliance with specific cost accounting criteria. To the extent that a company fails to comply with procurement requirements, the Federal government may adjust contract prices. Additionally, changes in cost accounting practice are subject to a required procedure for negotiation of the cost of the change. The Federal government is protected from paying increased costs resulting from accounting changes. Finally, the Federal government has the right to audit contractors for three years after final payment. Such audits are generally performed by the DCAA. Accordingly, Anteon's revenues are subject to adjustment. 66 THE TRANSACTIONS THE ACQUISITION On March 7, 1999, Anteon entered into an agreement and plan of merger to acquire all of the issued and outstanding shares of A&T common stock at a price of $26.00 per share. Under the merger agreement, Buffalo Acquisition Corporation, a Connecticut corporation and wholly-owned subsidiary of Anteon, merged into A&T and A&T became a wholly-owned subsidiary of Anteon. We completed the acquisition on June 23, 1999. IMC CONTINGENT PAYMENT, STOCK OPTIONS AND RETENTION ARRANGEMENTS IMC, a subsidiary of A&T, acquired all the outstanding stock of UP, Inc. ("UP") under a stock purchase agreement among A&T, IMC and the former stockholders of UP (the "UP Sellers"), dated as of November 14, 1997 (the "UP Stock Purchase Agreement"). The UP Stock Purchase Agreement provided for a contingent payment to be made to the UP Sellers (the "UP Contingent Payment") which became due and payable upon consummation of the merger. The UP Contingent Payment to all of the UP Sellers equals, at their election, either (a) 81,100 shares of common stock of IMC (which would equal 9.1% of the outstanding shares of IMC after issuance but before exercise of options to purchase IMC stock as described below), (b) $2,250,000 in cash or (c) a combination of shares and cash which equals the appraised value of the 81,100 shares of IMC, however, the Sellers may not elect to receive more than $2,250,000 in cash. The management of A&T believes that it is likely that the appraised value of the 81,100 shares of IMC will be less than the cash payment alternative of $2,250,000, and this prospectus assumes that all the UP Sellers elect to receive cash and are not entitled to receive any shares of IMC stock by reason of the UP Contingent Payment. In addition, if the UP Sellers elect to receive cash for the UP Contingent Payment, they will also be granted options to purchase an additional 81,100 shares of common stock of IMC in the aggregate at an exercise price of $27.74 per share. In addition, IMC has issued to certain of its key employees options to purchase an aggregate of 180,000 shares of common stock of IMC which would constitute 18.2% of the outstanding shares of stock, after exercise, assuming that no shares of IMC common stock are issued as part of the UP Contingent Payment. Under the agreements pursuant to which these options were granted, the options fully vested upon the consummation of the merger. IMC and A&T have the right to purchase such options for a purchase price equal to the difference between the exercise price of the options and a formula price, called the Parent Company Change in Control Price under such agreements. The exercise price of the options is $11.78 per share. IMC has also entered into agreements with certain of its employees pursuant to which they will be entitled to receive retention bonuses in the aggregate amount of approximately $800,000 if they are still employed by IMC, A&T or any successor thereof eighteen months following the consummation of the merger, or if their employment is involuntarily terminated prior to that date other than for cause. NEW CREDIT FACILITY Anteon entered into the new credit facility with Credit Suisse First Boston, as administrative agent and advisor and arranger, Mellon Bank N.A., as syndication agent, Deutsche Bank AG, as documentation agent, and a syndicate of financial institutions, including CSFB, Mellon and Deutsche Bank. The new credit facility consists of a $60.0 million term loan facility and a $120.0 million revolving credit facility. At the closing of the acquisition, Anteon borrowed $60.0 million under the term loan facility. The undrawn portion of the revolving credit facility will be available to us for general corporate purposes, including additional permitted acquisitions and investments. See "Description of Other Material Agreements--New Credit Facility" for additional information on the new credit facility. 67 EQUITY CONTRIBUTION Before the acquisition, Azimuth Technologies, Inc., our parent company, an affiliate of Caxton-Iseman Capital, contributed $22.5 million to our equity. The equity contribution was funded by persons who are indirectly existing investors in Azimuth, or their affiliates, through a limited liability company that is indirectly controlled by Mr. Frederick Iseman. 68 MANAGEMENT The directors and executive officers of Anteon and their respective ages as of the date of this prospectus are as follows:
NAME AGE POSITION HELD - ----------------------------------------------------- --- ----------------------------------------------------- Frederick J. Iseman.................................. 46 Chairman of the Board and Director Joseph M. Kampf...................................... 54 President, Chief Executive Officer and Director Noreen Centracchio................................... 54 Group Vice President, GSA Programs Group Thomas M. Cogburn.................................... 55 Executive Vice President and Chief Operating Officer and Director Carlton B. Crenshaw.................................. 54 Senior Vice President, Chief Financial and Administrative Officer Ken Guest............................................ 58 Group Vice President, Federal Information Technology Group Roger A. Gurner...................................... 57 Group Vice President, Enterprise Solutions and Services Group Mark Heilman......................................... 50 Senior Vice President Corporate Development Joseph Maurelli...................................... 57 President of Techmatics and Director Seymour L. Moskowitz................................. 67 Senior Vice President Curtis L. Schehr..................................... 40 Vice President, General Counsel and Secretary Gilbert F. Decker.................................... 61 Director Robert A. Ferris..................................... 56 Director Dr. Paul Kaminski.................................... 56 Director Steven M. Lefkowitz.................................. 34 Director
FREDERICK J. ISEMAN has served as Chairman of Anteon since its formation in April 1996. Mr. Iseman is Chairman and President of Caxton-Iseman Capital, Inc. (a private investment firm) which was founded by Mr. Iseman in 1993. Prior to establishing Caxton-Iseman Capital, Inc., Mr. Iseman founded Hambro-Iseman Capital Partners (a merchant banking firm) in 1990. From 1988 to 1990, Mr. Iseman was a member of Hambro International Venture Fund. Mr. Iseman is a director of the following companies: Leisure Link Holdings, Cremascoli Ortho S.A., Metropolitan T.L.C. Holdings, Inc. and the Advisory Board of Duke Street Capital. He is a former director of: Franklin Hotel and Investments, Ltd., Framleydove Ltd. (Glass's Information Services), Golden Valley LLC, Magnavox Electronic Systems Corporation Holdings, Inc., Electronic Distribution Acquisition Company (Deanco), Geowaste, Inc. and Hambro America, Inc. (the U.S. subsidiary of Hambros PLC). Mr. Iseman received a B.A. from Yale University in 1975. JOSEPH M. KAMPF has served as Anteon's President and Chief Executive Officer and a director since April 1996. From January 1994 to 1996, Mr. Kampf was a Senior Partner of Avenac Corporation, a consulting firm providing advice in change management, strategic planning, corporate finance, and mergers and acquisitions to middle market companies. From 1990 through 1993, Mr. Kampf served as Executive Vice President of Vitro Corporation, a wholly owned subsidiary of The Penn Central Corporation. Prior to his position as Executive Vice President of Vitro Corporation, Mr. Kampf served as the Senior Vice President of Vitro Corporation's parent company, Penn Central Federal Systems Company, and as Chief Liaison Officer for the group with The Penn Central Corporation. Between 1982 and 1986, Mr. Kampf was Vice President of Adena Corporation, an oil and gas exploration and development company. Mr. Kampf received a B.A. from the University of North Carolina in 1966. NOREEN CENTRACCHIO has served as Anteon's Group Vice President, GSA Programs since January 1999. During 1998, she served as Anteon's Vice President, Corporate Communications. From 1996 to 1998, Ms. Centracchio served as Anteon's Vice President, Corporate Development. From 1988 to 1996, Ms. Centracchio served as Vice President and Program Manager for Ogden Professional Services Corporation, the Predecessor Company. Prior to 1988, Ms. Centracchio was a Vice President at Group Operations, Inc. for a period of 10 years. Ms. Centracchio received a B.A. from Adelphi University in 1966. THOMAS M. COGBURN has served as Executive Vice President and Chief Operating Officer and a director since April 1996. From 1992 to 1996, he served in the same capacity at Ogden Professional Services Corporation, the predecessor company to Anteon. From 1988 to 1992, Mr. Cogburn served as Vice 69 President of the Information System Support Division of CACI International, Inc. Mr. Cogburn's experience also includes 21 years in information systems design, operation, program management, and policy formulation for the U.S. Air Force. Mr. Cogburn received a B.B.A. from the University of Texas in 1965 and an M.B.A from Arizona State University in 1971. CARLTON B. CRENSHAW has served as Anteon's Senior Vice President, Chief Financial and Administrative Officer since July 1996. From 1989 to 1996, Mr. Crenshaw was Orbital Sciences Corporation Executive Vice President, Finance and Administration, and Chief Financial Officer of Orbital Sciences Corporation (a commercial technology company). He served in a similar capacity with Software AG Systems, Inc. from 1985 to 1989. From 1971 to 1985, Mr. Crenshaw progressed from financial analyst to Vice President of Strategic Planning for the Sperry Univac division and was Treasurer for Sperry Corporation. Mr. Crenshaw received a B.B.A. from Southern Methodist University in 1966 and an M.B.A. from New York University in 1971. KEN GUEST has served as Anteon's Group Vice President, Federal Information Technology Group since January 1999. From 1997 to January 1999, he served as Anteon's Vice President of Defense Programs and Systems. Prior to joining Anteon, Mr. Guest served 34 years with the U.S. Army, retiring as a Major General in September 1997. Mr. Guest received a B.A. from North Georgia College in 1966 and an M.S. from the University of Georgia in 1971. ROGER A. GURNER has served as Anteon's Group Vice President, Enterprise Solutions and Services Group since January 1999. From July 1997 to December 1998, Mr. Gurner served as Anteon's Vice President and Director, Business Development, from June 1996 to June 1997 as Anteon's Vice President and Director, West Coast Operations, and from January 1996 to June 1996 as Anteon's Vice President and Director, Information Services Center. Prior to joining Anteon, Mr. Gurner worked at Oracle Corporation where he served as principal point of contact for Oracle's Enterprise Engineering Program from 1995 to 1996. From 1993 to 1995, Mr. Gurner was a Government Program Manager with Xerox Corporation. From 1987 to 1992, Mr. Gurner was a Program Manager with CACI International, Inc. Prior to 1987, Mr. Gurner served 23 years with the Air Force where he held numerous assignments in research and development, nuclear weapons development and system acquisition. Mr. Gurner received a B.S. from Allegheny College in 1963 and an M.B.A. from Central Michigan University in 1977. MARK HEILMAN has served as Anteon's Senior Vice President for Corporate Development since October 1998. From 1991 to 1998, Mr. Heilman was a partner and principal of CSP Associates, Inc., where he specialized in strategic planning and mergers and acquisition support for the aerospace, defense and information technology sectors. From 1987 to 1991, Mr. Heilman was Vice President and an Executive Director of Ford Aerospace and Communications Corporation. Mr. Heilman received a B.A. from the University of Iowa in 1970. JOSEPH MAURELLI has served as a director of Anteon since July 1998. Mr. Maurelli currently serves as the President and Chief Executive Officer of Techmatics. Mr. Maurelli joined Techmatics as a Vice President in 1983, and became President and Chief Executive Officer of Techmatics in January 1984. From 1967 to 1983, Mr. Maurelli was a senior civilian professional for the U.S. Navy Department. He has written numerous technical articles and is an active member of the American Society of Naval Engineers and the U.S. Navy League and currently serves on the Board of Directors of the Professional Services Council and the Virginia Opera. Mr. Maurelli received a B.S. from the State University of New York in 1963 and an M.S. from George Washington University in 1971. SEYMOUR L. MOSKOWITZ served as a consultant to Anteon beginning in April 1996 and became Anteon's Senior Vice President in April 1997, and is responsible for strategic planning with an emphasis on current and future technologies. Prior to joining Anteon, Mr. Moskowitz served as Senior Vice President of Technology at Vitro Corporation from 1985 to 1994, where he was responsible for the development and acquisition of technologies and management of Research and Development personnel and laboratory resources. Prior thereto, Mr. Moskowitz served as Director of Research and Development for 70 Curtiss-Wright Corporation for 30 years. Mr. Moskowitz received a B.S. from the City College of New York in 1954. CURTIS L. SCHEHR has served as Anteon's Vice President, General Counsel and Secretary since October 1996. From 1991 to 1996, Mr. Schehr served as Associate General Counsel at Vitro Corporation. During 1990, Mr. Schehr served as Legal Counsel at Information Systems and Networks Corporation. Prior to 1990, Mr. Schehr served for six years in several legal and contract oriented positions at Westinghouse Electric Corporation (Defense Group). Mr. Schehr received a B.A. from Lehigh University in 1980 and a J.D. from George Washington University in 1984. GILBERT F. DECKER has served as a director of Anteon since June 1997. From April 1994 to May 1997, Mr. Decker served as the Assistant Secretary of the U.S. Army for Research, Development and Acquisition. As Assistant Secretary, Mr. Decker led the Army's acquisition and procurement reform efforts, with an emphasis on eliminating excessive government requirements throughout the acquisition process. He also served as the Army Acquisition Executive, the Senior Procurement Executive, the Science Advisor to the Secretary and the Senior Research and Development official for the Army. From 1983 to 1989, Mr. Decker was on the Army Science Board and served as Chairman from March 1987 until the end of his appointment. In the private sector, Mr. Decker has served as President and Chief Executive Officer of three technology companies, including Penn Central Federal Systems Company. Mr. Decker received a B.S. from Johns Hopkins University in 1958 and an M.S. from Stanford University in 1967. ROBERT A. FERRIS has served as a director of Anteon since April 1996. From 1998, Mr. Ferris has been a Managing Director of Caxton-Iseman Capital, Inc. (a private investment firm). From 1981 to 1998, Mr. Ferris was a General Partner of Sequoia Associates (a private investment firm). Prior to founding Sequoia Associates, Mr. Ferris was a Vice President of Arcata Corporation, a New York Stock Exchange-listed company. Mr. Ferris currently is a director of Clayton Group, Inc. and Newell Manufacturing Corporation, as well as several other privately owned corporations. Mr. Ferris received a B.A. from Boston College in 1963, and a J.D. from Fordham University Law School in 1966. DR. PAUL KAMINSKI has served as a director of Anteon since June 1997. From 1994 to May 1997, Dr. Kaminski served as the Under Secretary of Defense for Acquisition and Technology. In this position, Dr. Kaminski was responsible for all matters, relating to Department of Defense acquisition, including research and development, procurement, acquisition reform, dual-use technology and the defense technology and industrial base. Prior to 1994, he served as Chairman of a technology oriented investment banking and consulting firm. Dr. Kaminski also served as Chairman of the Defense Science Board and as a consultant and advisor to many government agencies. Mr. Kaminski received a B.S. from the Air Force Academy in Colorado in 1964, two M.A. degrees from the Massachusetts Institute of Technology in 1966 and a Ph.D. from Stanford University in 1971. STEVEN M. LEFKOWITZ has served as a director of Anteon since April 1996. Mr. Lefkowitz has been a principal of Caxton-Iseman Capital Inc. (a private investment firm) since 1993. From 1988 to 1993, Mr. Lefkowitz was employed by Mancuso & Company (a private investment firm) and served in several positions including Vice President and as a Partner of Mancuso Equity Partners. Mr. Lefkowitz received a B.A. from Northwestern University in 1986 and an M.B.A. from J.L. Kellogg Graduate School of Management in 1987. BOARD OF DIRECTORS There are currently eight members of the Board of Directors of Anteon. COMPENSATION OF DIRECTORS Some directors of Anteon who are not employees of Anteon are paid an annual retainer. In 1998, each of Messrs. Decker and Kaminski received a retainer of $25,250 and Mr. Ferris received a retainer of $25,000. Each director of Anteon is compensated for expenses incurred in connection with serving as a member of the Board of Directors. 71 EXECUTIVE COMPENSATION The following table provides you with information on the compensation awarded to, earned by or paid to the Chief Executive Officer and the four other most highly compensated executive officers of Anteon whose individual compensation exceeded $100,000 during the fiscal year ended December 31, 1998 for services rendered in all capacities to Anteon and its subsidiaries. The persons listed in the table below are referred to as the "Named Executive Officers."
LONG-TERM COMPENSATION ANNUAL AWARDS COMPENSATION ----------------- ------------------------------------------------------ NUMBER OF SHARES OTHER ANNUAL UNDERLYING STOCK NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS - ------------------------------------------------- --------- --------- --------- --------------------- ----------------- Joseph M. Kampf.................................. 1998 $ 235,566 $ 200,000 -- -- President and Chief Executive Officer Thomas M. Cogburn................................ 1998 176,341 82,500 -- 5,000 Executive Vice President and Chief Operating Officer Carlton B. Crenshaw.............................. 1998 183,495 92,750 -- -- Senior Vice President, Chief Financial and Administrative Officer Seymour L. Moskowitz............................. 1998 150,864 82,500 -- -- Senior Vice President Roger A. Gurner.................................. 1998 114,222 -- -- -- Group Vice President, Enterprise Solutions and Services Group
- -------------------------- (1) No Named Executive Officer received Other Annual Compensation in an amount in excess of the lesser of either $50,000 or 10% of the total of salary and bonus reported from him in the two preceding columns. The following table sets forth certain information regarding options granted during fiscal 1998 to each of the Named Executive Officers under Anteon's Omnibus Amended and Restated Stock Option Plan: OPTION GRANTS IN 1998
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(1) ---------------------------------------------------------------------------- -------------------- NUMBER OF SHARES UNDERLYING % OF TOTAL EXERCISE OR OPTIONS OPTIONS GRANTED TO BASE EXPIRATION NAME GRANTED EMPLOYEES IN 1998 PRICE PER SHARE DATE 5% 10% - ------------------------ ----------------- --------------------- ----------------- --------------- --------- --------- Joseph M. Kampf......... -- --% $ -- -- $ -- $ -- Thomas M. Cogburn....... 5,000(2) 3.3 37.30 (2) 51,526 113,860 Carlton B. Crenshaw..... -- -- -- -- -- -- Seymour L. Moskowitz.... -- -- -- -- -- -- Roger A. Gurner......... -- -- -- -- -- --
- -------------------------- (1) The indicated dollar amounts are the result of calculations based on the exercise price of the options and assume five and ten percent appreciation rates and, therefore, are not intended to forecast possible future appreciation, if any, of Anteon's stock price. (2) Represents options granted under Anteon's Amended and Restated Omnibus Stock Option Plan. 72 The following table sets forth certain information with respect to options held at the end of fiscal 1998 by each of the Named Executive Officers: AGGREGATED OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES
INDIVIDUAL GRANTS ------------------------------------------------------------ NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY AT DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998 NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) - ---------------------------------------------------- -------------------------- -------------------------------- Joseph M. Kampf..................................... 11,615/17,425 $354,838/$532,334 Thomas M. Cogburn................................... 0/5,000 0/0 Carlton B. Crenshaw................................. 5,607/8,412 171,294/256,987 Seymour L. Moskowitz................................ 17,623/26,438 538,383/807,681 Roger A. Gurner..................................... 0/0 0/0
- -------------------------- (1) Based on the difference between the latest per share market value calculation on December 8, 1998 for Anteon's common stock, which was $37.30 per share, and the option exercise price. The above valuations may not reflect the actual value of unexercised options, as the value of unexercised options will fluctuate with market activity. OMNIBUS STOCK PLAN In January 1997, the Board of Directors adopted, and Anteon's sole stockholder approved, Anteon's Omnibus Stock Plan and on April 3, 1998 the Board of Directors adopted, and Anteon's sole stockholder approved, Anteon's Amended and Restated Omnibus Stock Plan (as amended, the "Plan") which enables Anteon to make grants of stock-based incentive compensation to officers and other key employees and consultants of Anteon and its subsidiaries. The purposes of the Plan are to promote the long-term growth and profitability of Anteon and its stockholders by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of Anteon and (ii) enabling Anteon to attract, retain and reward the best available persons for positions of substantial responsibility. The principal provisions of the Plan are summarized below. This summary, however, does not purport to be complete and is qualified in its entirety by the terms of the Plan, which may be obtained from Anteon upon request. The Plan is administered by the Board of Directors or, in the alternative, a committee (the "Committee") appointed by the Board of Directors consisting of not less than three members of the Board of Directors to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. The members of the Committee are required to be both "Non-Employee Directors" (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934) and "outside directors" (within the meaning of section 162(m) of the Internal Revenue Code of 1986 (the "Code")) to the extent Rule 16b-3 and Code section 162(m), respectively, are applicable to Anteon and the Plan. The Plan is not subject to the Employee Retirement Income Security Act of 1974, as amended or Section 401(a) of the Code. The Plan became effective upon approval of the stockholders in January, 1997 and will remain in effect until January 30, 2007 unless sooner terminated by the Board. On July 24, 1998, by resolution of the Board of Directors, and with the written consent of the sole stockholder of Anteon, the Plan was amended to increase the number of shares of common stock available for award under the Plan from 250,000 shares to 325,000 shares and on July 23, 1999, by further resolution of the Board of Directors, and with the consent of the stockholders of Anteon, the Plan was amended to increase the number of shares of common stock available for award under the Plan from 325,000 shares to 575,000 shares. The Board of Directors may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that no such action may be taken without stockholder approval if such approval is necessary to comply with 73 any tax or regulatory requirement, or rule of any exchange or Nasdaq system on which the shares of common stock of Anteon may then be listed or quoted, including any stockholder approval required for continued compliance with Rule 16b-3 or to enable the Committee to grant incentive stock options pursuant to the plan. The Committee is authorized to make minor or administrative modifications to the plan including those dictated, authorized or made desirable by requirements of applicable federal or state laws. The Committee may also amend or modify any outstanding award to the extent that it would have had the authority to make such award as so modified or amended. The Committee has full power and authority to administer and interpret the plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the plan and for the conduct of its business as the Committee deems necessary or advisable and to interpret same, all within the Committee's sole and absolute discretion; provided that no such action which would impair the rights of any participant or any holder or beneficiary of any award may be taken without the consent of the affected participant, holder or beneficiary. The plan authorizes the grant of awards to participants with respect to a maximum of 325,000 shares of common stock. Any shares covered by awards which are forfeited, expire or which are terminated or canceled for any reason (other than as a result of the exercise or vesting of the award) will again be available for grant under the plan. In addition, in the event of a reclassification, recapitalization, stock split, stock dividend, combination of shares or other similar event, the maximum number and kind of shares reserved for issuance or with respect to which awards may be granted under the plan are required to be adjusted to reflect such event, and the Committee is required to make such adjustments as it deems appropriate and equitable in the number, kind and price of shares covered by outstanding awards made under the plan, and in any other matters which relate to awards and which are affected by the changes in the common stock referred to above. The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or nonrecurring events affecting Anteon, or the financial statements of Anteon or any subsidiary, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the plan. In the event of any proposed change in control (as defined in the Plan), the Committee is required to take such action as it deems appropriate and equitable to effectuate the purposes of the plan and to protect the grantees of the awards, including, without limitation, the following: (i) acceleration or change of the exercise dates of any award so that the unvested portion of any award shall become fully vested and immediately exercisable; (ii) arrangements with grantees for the payment of appropriate consideration to them for the cancellation and surrender of any award, which shall not be less than consideration paid for other common stock of Anteon which is acquired, sold, transferred, or exchanged because of the proposed change in control; and (iii) in any case where equity securities other than common stock of Anteon are proposed to be delivered in exchange for or with respect to common stock of Anteon, arrangements providing that any award shall become one or more awards with respect to such other equity securities. There is no restriction under the Federal securities laws on the resale of any shares acquired pursuant to the Plan, except that (i) persons who at the time of the resale are considered "affiliates" of Anteon (by reason of being in a "control" relationship with Anteon) may resell such shares only pursuant to Rule 144 under the Securities Act of 1933 or pursuant to a "reoffer prospectus" which may hereinafter be filed by Anteon as part of a registration statement relating to the plan and (ii) purchases and sales by corporate officers and directors of any securities of Anteon are subject to section 16(b) of the Securities Exchange Act of 1934 and the rules promulgated thereunder relating to insider short-swing profits. Anteon may require that a participant, as a condition to exercise of an award, and as a condition to the delivery of any share certificate, provide to Anteon, at the time of each such exercise and each such delivery, a written representation (i) that the shares of common stock being acquired shall be acquired by 74 the participant solely for investment and will not be sold or transferred without registration or the availability of an exemption from registration under the Securities Act of 1933 and applicable state securities laws; and (ii) as to the knowledge and experience in financial and business matters of the participant and the participant's ability to bear the economic risk of such an investment, in compliance with applicable law. Anteon may also require that the participant obtain a "purchaser representative" as that term is defined under applicable law. The stock certificates for any shares of common stock issued pursuant to the plan are required to bear a legend restricting their transferability unless such shares are registered or an exemption from registration is available under the Securities Act of 1933 and applicable state securities laws. Anteon may notify its transfer agent to stop any transfer of shares of common stock not made in compliance with these restrictions. Common stock may not be issued with respect to an award granted under the plan unless the exercise of such award and the issuance and delivery of share certificates for such common stock pursuant thereto comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder and the requirements of any national securities exchange or Nasdaq system on which the common stock may then be listed or quoted, and such compliance to be subject to the approval of counsel for Anteon to the extent such approval is sought by the Committee. Under the plan, the Committee may grant awards in the following forms: non-qualified stock options, incentive stock options, stock appreciation rights (including free standing, tandem and limited stock appreciation rights), restricted stock or unrestricted stock awards, phantom stock, or any combination of the foregoing. The Committee may grant awards alone, in addition to, in tandem with, or in substitution for any other award. Awards may be granted for no cash consideration or for such consideration as may be determined by the Committee. Each award, and each right under any award, may be exercised during the participant's lifetime only by the participant, unless otherwise determined by the Committee or, if permissible under applicable law, by the participant's guardian or legal representative; and may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution provided that the designation of a beneficiary will not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance for purposes of the plan. STOCK OPTIONS A stock option granted under the plan provides a participant the right to purchase, within a specified period of time, a stated number of shares of common stock at the price specified in the option. Non-qualified and incentive stock options granted under the plan will be subject to such terms, including exercise price and the conditions and timing of exercise, as may be determined by the Committee. On and after the date a participant terminates employment with Anteon or any of its affiliates for any reason, Anteon shall have the right to purchase, and the participant shall have the corresponding obligation to sell, upon delivery of written notice to the participant by Anteon, any or all of the participant's vested options and any or all shares then owned by the participant. The purchase price of the shares shall be the fair market value of such shares as of the date Anteon mails or otherwise delivers such written notice to the participant. The purchase price of any vested option shall be the difference between the exercise price per share and the fair market value of one share of common stock, measured as of the date Anteon mails or otherwise delivers such written notice to the participant, multiplied by the number of shares to which the option relates that are being purchased. The Committee may in its sole and absolute discretion deduct from the purchase price payable any and all amounts owed by the grantee to Anteon at the time that payment of the purchase price is due the participant. In the event of the participant's disability or death, the provisions of the plan will apply to the participant's legal representative or guardian, executor, personal representative, or to the person to whom the option and/or shares shall have been transferred by will or the laws of descent and distribution, as though such person is the participant. 75 STOCK APPRECIATION RIGHTS A stock appreciation right provides the participant the right to receive an amount equal to the excess of the fair market value of a share of common stock on the date of exercise of the stock appreciation right over the grant price thereof. Stock appreciation rights granted under the plan will be subject to such terms, including grant price and the conditions and limitations applicable to the exercise thereof, as may be determined by the Committee. Stock appreciation rights may be granted in tandem with another award, in addition to another award, or freestanding and unrelated to another award. The Committee is authorized under the plan to determine whether a stock appreciation right shall be settled in cash, shares of common stock or a combination of cash and shares of common stock. STOCK AWARDS: RESTRICTED STOCK, UNRESTRICTED STOCK AND PHANTOM STOCK Subject to the other applicable provisions of the plan, the Committee may at any time and from time to time grant stock awards to eligible participants in such amount and for such consideration, including no consideration or such minimum consideration as may be required by law, as it determines. A stock award may be denominated in shares of common stock or stock-equivalent units, and may be paid in common stock, in cash, or in a combination of common stock and cash, as determined in the sole and absolute discretion of the Committee from time to time. 76 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CAXTON-ISEMAN ARRANGEMENT Anteon's management and an investor group organized by Caxton-Iseman Capital, through Azimuth, acquired in April 1996 all of the outstanding capital stock of our Predecessor Company, a wholly-owned subsidiary of Ogden Technology Services Corporation and indirectly a wholly-owned subsidiary of Ogden Corporation. Azimuth obtained the funds required for the acquisition of our Predecessor Company by issuing subordinated debt and common stock to Azimuth Technologies, L.P. and to certain directors and executive officers of Anteon. The limited partners of Azimuth LP include, among others, affiliates of Caxton-Iseman Capital, Mr. Steven Lefkowitz, Mr. Robert Ferris and a number of business associates of Caxton-Iseman Capital. The sole general partner of Azimuth LP is Georgica (Azimuth Technologies), L.P., the sole general partner of which is a corporation solely owned by Mr. Frederick Iseman. As a result, Mr. Frederick Iseman controls Azimuth LP, Azimuth and Anteon. Since April 1997, Anteon has been party to an arrangement (the "Caxton-Iseman Capital Arrangement") with Caxton-Iseman Capital, an affiliate of Anteon. The terms of the Caxton-Iseman Capital Arrangement are that Caxton-Iseman Capital will monitor and assist the activities of Anteon in accordance with, and subject to the investment objectives and guidelines established by Anteon. Under the terms of the Caxton-Iseman Arrangement, Anteon paid Caxton-Iseman Capital (1) a $500,000 annual fee, payable annually commencing January 1, 1998, and terminating upon the successful completion of the acquisition, (2) a fee, paid upon the successful completion of the acquisition, of $1.15 million and (3) an annual fee, paid upon the successful completion of the acquisition, equal to 3% of the EBITDA of Anteon. The fees under clauses (1) and (3) were pro-rated for partial years. Anteon expensed and paid $400,000 under this arrangement during 1998. 77 SECURITY OWNERSHIP SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth, as of June 30, 1999, the number of shares of common stock beneficially owned by each of the 5% stockholders of Anteon, each of its directors, the Named Executive Officers and all directors and executive officers as a group.
PERCENTAGE OF NUMBER OF SHARES OF COMMON TOTAL SHARES OF STOCK OF ANTEON COMMON STOCK BENEFICIALLY OWNED(A) OF ANTEON --------------------------- --------------- Azimuth Technologies, Inc. (b)....................................... 3,551,972 99.8% Frederick J. Iseman (b).............................................. 3,551,972 99.8 Gilbert F. Decker (c)................................................ 2,000 * Dr. Paul Kaminski (c)................................................ 2,000 * Joseph M. Kampf (d).................................................. 11,615 * Carlton B. Crenshaw (e).............................................. 5,607 * Seymour L. Moskowitz (f)............................................. 17,623 * All Directors and Executive Officers as a Group(g)................... 99.8
- ------------------------ * Denotes beneficial ownership of less than 1%. (a) Determined in accordance with Rule 13d-3 under the Exchange Act. (b) By virtue of Mr. Frederick Iseman's indirect control of Azimuth through Azimuth LP, the limited partners of which include affiliates of Caxton-Iseman Capital, Mr. Steven Lefkowitz and Mr. Robert Ferris. Mr. Frederick Iseman has sole voting and dispositive power over 3,551,972 shares of Anteon common stock and may be deemed to be the beneficial owner thereof. Mr. Frederick Iseman's address is c/o Caxton-Iseman Capital, Inc., 667 Madison Avenue, New York, New York 10021. (c) Includes 2,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of April 13, 1999. Does not include 4,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of such date. (d) Includes 11,615 shares of common stock issuable pursuant to stock options exercisable within 60 days of April 13, 1999. Does not include 17,425 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of such date. (e) Includes 5,607 shares of common stock issuable pursuant to stock options exercisable within 60 days of April 13, 1999. Does not include 8,412 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of such date. (f) Includes 17,623 shares of common stock issuable pursuant to stock options exercisable within 60 days of April 13, 1999. Does not include 26,438 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of such date. (g) Includes 40,645 shares of common stock issuable pursuant to stock options exercisable within 60 days of April 13, 1999. Does not include 87,075 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of such date. 78 DESCRIPTION OF OTHER MATERIAL AGREEMENTS OGDEN NOTE The consideration paid by Azimuth when it acquired our predecessor company included a note of Azimuth in favor of Ogden Technology Services Corporation ("Ogden"), the parent company of Ogden Professional Services Corporation, in the principal amount of $8.5 million, of which $3.65 million is outstanding. The Ogden note is an adjustable, nonnegotiable, subordinated 9% promissory note due April 22, 2004. Ogden has the right, so long as (1) no defaults under a senior credit agreement have occurred and (2) Ogden, at its sole cost and expense, has delivered a written report of an independent third-party appraiser that Azimuth will be solvent (after giving effect to the guarantee described in this sentence), to cause Azimuth to execute and deliver to Ogden a guarantee of the Ogden note; provided that the terms and conditions of such guarantee must be satisfactory to the senior debt holders in all respects. Such guarantee must be subject to a subordination agreement acceptable to the senior debt holders, and must be secured by a subordinated second lien on the collateral under the senior credit agreement on terms acceptable to the senior debt holders. Interest on the Ogden note is due and payable quarterly in arrears. Azimuth may at any time prepay principal or interest, in whole or in part, without premium or penalty. Azimuth must prepay in full upon a sale, merger or public offering of the capital stock of Anteon. The Ogden note is wholly subordinate and junior in right of payment to Anteon's borrowings under the new credit facility and any amendments, refinancings or replacements thereof. EXISTING INTEREST RATE SWAP AGREEMENTS We have entered into interest rate swap agreements to reduce the impact of changes in interest rates under our new credit agreement. At June 30, 1999, we had outstanding interest rate swap agreements with commercial banks having a total notional principal amount of $35 million. The interest rate swap agreements mature as of December 31, 2002, December 31, 2003, and September 25, 2003, respectively. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements. We expect to repay all our obligations under these interest rate swap agreements and terminate them at the same time as the existing credit agreement. VECTOR DATA CONTINGENT PAYMENTS On August 29, 1997, Anteon acquired all of the outstanding stock of Vector Data, as well as Vector Data's 80% interest in Vector Data Systems (UK) Limited. The consideration to the former stockholders of Vector Data included up to $6 million in cash to be paid by Anteon contingent upon Vector Data meeting certain revenue and gross profit thresholds for fiscal years 1998 and 1999. Vector Data did not meet the revenue and gross profit thresholds for fiscal year 1998, and, accordingly, a maximum of $3 million only can now potentially become payable. TECHMATICS DEFERRED AND CONTINGENT PAYMENTS On May 29, 1998, Anteon acquired all of the outstanding stock of Techmatics. Additional consideration of between $3.75 million and $6.25 million may become due to be paid by Anteon contingent upon Techmatics meeting certain operating profit thresholds for its fiscal year ending June 30, 1999, to be calculated by September 30, 1999. However, if Anteon chooses to modify Techmatics' financial reporting to a calendar year basis, such calculation must be made by April 1, 2000, but interest at a rate of 6% per year will accrue beginning September 30, 1999 and will increase to a rate of 7.5% per year beginning April 1, 2000 on any amount of contingent consideration subsequently determined to have been earned. 79 TECHMATICS NOTES On May 29, 1998, as part of Anteon's acquisition of Techmatics, Anteon issued subordinated promissory notes due May 31, 2000 in favor of each of the then existing stockholders and option holders of Techmatics, in the aggregate principal amount of $10 million. Under the terms of the Techmatics notes, one-tenth of the aggregate principal amount, $1 million, was paid as of May 31, 1999, and the remaining nine-tenths of the aggregate principal amount, $9 million, together with interest accruing from May 31, 1999 on four-ninths of the principal amount then outstanding, $4 million, at a rate of 6% per annum, is due and payable on May 31, 2000. All overdue amounts of principal will bear interest at a rate of 7.5% per annum. Anteon is entitled to prepay the Techmatics notes, in whole or in part, without penalty or premium. The Techmatics notes are wholly subordinate and junior in right of payment to Anteon's borrowings under the new credit facility and any amendments, refinancings or replacements thereof, and to the Ogden note. Anteon will be in default under any particular Techmatics note upon the occurrence of any of the following events of default: (1) Anteon fails to make any payment of principal or interest under such Techmatics note when due; (2) Anteon defaults under its new credit agreement or any amendments, refinancings or replacements thereof, or under the Ogden note; (3) (a) a consolidation, merger or similar reorganization in which Anteon's stockholders before the reorganization own less than 50% of the voting power of the surviving entity after the reorganization, or (b) any transaction or series of transactions in which more than 50% of Anteon's voting power is transferred except any public offering of Anteon's common stock; (4) a sale, lease, transfer or other disposition in a transaction or series of transactions of all or substantially all of the assets of Anteon; or (5) Anteon is involved in proceedings relating to bankruptcy, insolvency, reorganization or relief of debts. NEW CREDIT FACILITY Simultaneous with the completion of the acquisition, Anteon entered into a new credit facility under a new credit agreement among Anteon, as borrower, CSFB, as administrative agent and lead arranger, Mellon, as co-arranger, collateral agent and syndication agent, Deutsche Bank, as documentation agent, and a syndicate of financial institutions, including CSFB, Deutsche Bank and Mellon. Pursuant to the terms of the new credit agreement, the lenders, subject to certain conditions, provide a credit facility of up to $180.0 million to Anteon consisting of: (1) a $120.0 million six-year senior secured revolving credit facility with a $10.0 million letter of credit sublimit and (2) a $60.0 million six-year senior secured term loan facility. The Techmatics notes are also wholly subordinate and junior in right of payment to any refinancings or replacements of our existing credit facility, including our new credit facility and the Ogden note. The aggregate amount available for borrowing under the revolving credit facility is determined based on a portion of eligible accounts receivable. At June 30, 1999 Anteon had up to $66.4 million of borrowing availability under the revolving credit facility, subject to Anteon's borrowing base and ratio of net debt to EBITDA (as defined in the new credit facility), of which $13.0 million had been drawn. See "Use of Proceeds" included elsewhere in this prospectus. SECURITY AND GUARANTEES All existing and future domestic subsidiaries of Anteon unconditionally guarantee the repayment of the new credit facility. The new credit facility is secured by substantially all of the tangible and intangible assets of Anteon and the credit agreement guarantors. All of the capital stock of Anteon and substantially all of the capital stock of Anteon's subsidiaries, including A&T, is pledged as part of the security for the new credit facility. 80 MATURITY AND AMORTIZATION Loans made under the term loan facility will mature on the sixth anniversary of June 23, 1999, and up to $45 million of the aggregate principal amount under the new credit facility will amortize ratably on a quarterly basis commencing 24 months after June 23, 1999, with up to $15 million due at final maturity. Loans made under the revolving credit facility will mature on the sixth anniversary of June 23, 1999. INTEREST Borrowings under the new credit facility bear interest at a floating rate based upon, at the option of Anteon, LIBOR or the base rate, in each case plus a margin determined based upon Anteon's ratio of net debt to EBITDA (as defined in the new credit facility). Anteon has also agreed to pay administration fees, commitment fees and certain expenses and to provide certain indemnities, all of which Anteon believes are customary for financings of this type. PREPAYMENTS Anteon is required to prepay, subject to exceptions set forth in the new credit agreement, borrowings under the term loan facility with (i) 75% of excess cash flow, (ii) 100% of net cash proceeds of non-ordinary course asset sales or other dispositions of property by Anteon and its subsidiaries, (iii) 100% of net cash proceeds of issuances of debt obligations of Anteon and its subsidiaries and (iv) 50% of net cash proceeds of public issuances of equity securities of Anteon. COVENANTS The new credit agreement contains affirmative and negative covenants customary for such financings. The new credit agreement also contains financial covenants customary for such financings, including, but not limited to: maximum ratio of net debt to EBITDA; maximum ratio of senior debt to EBITDA (as defined in the new credit facility); limitation on capital expenditures; and minimum EBITDA. EVENTS OF DEFAULT The new credit agreement contains events of default customary for such financings, including, but not limited to: nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross default and cross acceleration; change in control; bankruptcy events; material judgments; ERISA; and actual or Anteon-asserted invalidity of the guarantees or security documents. Such events of default allow for certain grace periods. 81 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER We are offering to exchange our exchange notes for a like aggregate principal amount at maturity of our initial notes. The exchange notes that we propose to issue in this exchange offer will be substantially identical to our initial notes except that, unlike our initial notes, the exchange notes will have no transfer restrictions or registration rights. You should read the description of the exchange notes in the section in this prospectus entitled "Description of the Notes." We reserve the right in our sole discretion to purchase or make offers for any initial notes that remain outstanding following the expiration or termination of this exchange offer and, to the extent permitted by applicable law, to purchase initial notes in the open market or privately negotiated transactions, one or more additional tender or exchange offers or otherwise. The terms and prices of these purchases or offers could differ significantly from the terms of this exchange offer. In addition, nothing in this exchange offer will prevent us from exercising our right to discharge our obligations on the initial notes by depositing certain securities with the trustee and otherwise. EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION This exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it in our reasonable discretion. The expiration date of this exchange offer will be at least 20 business days after the commencement of the exchange offer in accordance with Rule 14e-1(a) under the Securities Exchange Act of 1934. We expressly reserve the right to delay acceptance of any initial notes, extend or terminate this exchange offer and not accept any initial notes that we have not previously accepted if any of the conditions described below under "--Conditions to the Exchange Offer" have not been satisfied or waived by us. We will notify the exchange agent of any extension by oral notice promptly confirmed in writing or by written notice. We will also notify the holders of the initial notes by mailing an announcement or by a press release or other public announcement communicated before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date unless applicable laws require us to do otherwise. We also expressly reserve the right to amend the terms of this exchange offer in any manner. If we make any material change, we will promptly disclose this change in a manner reasonably calculated to inform the holders of our initial notes of the change including providing public announcement or giving oral or written notice to these holders. A material change in the terms of this exchange offer could include a change in the timing of the exchange offer, a change in the exchange agent and other similar changes in the terms of this exchange offer. If we make any material change to this exchange offer, we will disclose this change by means of a post-effective amendment to the registration statement which includes this prospectus and will distribute an amended or supplemented prospectus to each registered holder of initial notes. In addition, we will extend this exchange offer for an additional five to ten business days as required by the Exchange Act, depending on the significance of the amendment, if the exchange offer would otherwise expire during that period. We will promptly notify the exchange agent by oral notice, promptly confirmed in writing, or written notice of any delay in acceptance, extension, termination or amendment of this exchange offer. 82 PROCEDURES FOR TENDERING INITIAL NOTES PROPER EXECUTION AND DELIVERY OF LETTERS OF TRANSMITTAL To tender your initial notes in this exchange offer, you must use one of the six alternative procedures described below: (1) REGULAR DELIVERY PROCEDURE: Complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal. Have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal. Mail or otherwise deliver the letter of transmittal or the facsimile together with the certificates representing the initial notes being tendered and any other required documents to the exchange agent on or before 5:00 p.m., New York City time, on the expiration date. (2) BOOK-ENTRY DELIVERY PROCEDURE: Send a timely confirmation of a book-entry transfer of your initial notes, if this procedure is available, into the exchange agent's account at The Depository Trust Company in accordance with the procedures for book-entry transfer described under "--Book-Entry Delivery Procedure" below, on or before 5:00 p.m., New York City time, on the expiration date. (3) GUARANTEED DELIVERY PROCEDURE: If time will not permit you to complete your tender by using the procedures described in (1) or (2) above before the expiration date, comply with the guaranteed delivery procedures described under "--Guaranteed Delivery Procedure" below. The method of delivery of the initial notes, the letter of transmittal and all other required documents is at your election and risk. Instead of delivery by mail, we recommend that you use an overnight or hand-delivery service. If you choose the mail, we recommend that you use registered mail, properly insured, with return receipt requested. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. You should not send any letters of transmittal or initial notes to us. You must deliver all documents to the exchange agent at its address provided below. You may also request your broker, dealer, commercial bank, trust company or nominee to tender your initial notes on your behalf. Only a holder of initial notes may tender initial notes in this exchange offer. A holder is any person in whose name initial notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder. If you are the beneficial owner of initial notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your notes, you must contact that registered holder promptly and instruct that registered holder to tender your notes on your behalf. If you wish to tender your initial notes on your own behalf, you must, before completing and executing the letter of transmittal and delivering your initial notes, either make appropriate arrangements to register the ownership of these notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. You must have any signatures on a letter of transmittal or a notice of withdrawal guaranteed by: (1) a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., (2) a commercial bank or trust company having an office or correspondent in the United States, or (3) an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Exchange Act, UNLESS the initial notes are tendered: (1) by a registered holder or by a participant in The Depository Trust Company whose name appears on a security position listing as the owner, who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal and only if the 83 exchange notes are being issued directly to this registered holder or deposited into this participant's account at The Depository Trust Company, or (2) for the account of a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934. If the letter of transmittal or any bond powers are signed by: (1) The recordholder(s) of the initial notes tendered: the signature must correspond with the name(s) written on the face of the initial notes without alteration, enlargement or any change whatsoever. (2) A participant in The Depository Trust Company: the signature must correspond with the name as it appears on the security position listing as the holder of the initial notes. (3) A person other than the registered holder of any initial notes: these initial notes must be endorsed or accompanied by bond powers and a proxy that authorize this person to tender the initial notes on behalf of the registered holder, in satisfactory form to us as determined in our sole discretion, in each case, as the name of the registered holder or holders appears on the initial notes. (4) Trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity: these persons should so indicate when signing. Unless waived by us, evidence satisfactory to us of their authority to so act must also be submitted with the letter of transmittal. BOOK-ENTRY DELIVERY PROCEDURE Any financial institution that is a participant in The Depository Trust Company's systems may make book-entry deliveries of initial notes by causing The Depository Trust Company to transfer these initial notes into the exchange agent's account at The Depository Trust Company in accordance with The Depository Trust Company's procedures for transfer. To effectively tender notes through The Depository Trust Company, the financial institution that is a participant in The Depository Trust Company will electronically transmit its acceptance through the Automatic Tender Offer Program. The Depository Trust Company will then edit and verify the acceptance and send an agent's message to the exchange agent for its acceptance. An agent's message is a message transmitted by The Depository Trust Company to the exchange agent stating that The Depository Trust Company has received an express acknowledgment from the participant in The Depository Trust Company tendering the notes that this participation has received and agrees to be bound by the terms of the letter of transmittal, and that we may enforce this agreement against this participant. The exchange agent will make a request to establish an account for the initial notes at The Depository Trust Company for purposes of the exchange offer within two business days after the date of this prospectus. A delivery of initial notes through a book-entry transfer into the exchange agent's account at The Depository Trust Company will only be effective if an agent's message or the letter of transmittal or a facsimile of the letter of transmittal with any required signature guarantees and any other required documents is transmitted to and received by the exchange agent at the address indicated below under "--Exchange Agent" on or before the expiration date unless the guaranteed delivery procedures described below are complied with. DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. 84 GUARANTEED DELIVERY PROCEDURE If you are a registered holder of initial notes and desire to tender your notes, and (1) these notes are not immediately available, (2) time will not permit your notes or other required documents to reach the exchange agent before the expiration date or (3) the procedures for book-entry transfer cannot be completed on a timely basis and an agent's message delivered, you may still tender in this exchange offer if: (1) you tender through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Exchange Act, (2) on or before the expiration date, the exchange agent receives a properly completed and duly executed letter of transmittal or facsimile of the letter of transmittal, and a notice of guaranteed delivery, substantially in the form provided by us, with your name and address as holder of the initial notes and the amount of notes tendered, stating that the tender is being made by that letter and notice and guaranteeing that within five business days after the expiration date the certificates for all the initial notes tendered, in proper form for transfer, or a book-entry confirmation with an agent's message, as the case may be, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent, and (3) the certificates for all your tendered initial notes in proper form for transfer or a book-entry confirmation as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within five business days after the expiration date. ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Your tender of initial notes will constitute an agreement between you and us governed by the terms and conditions provided in this prospectus and in the related letter of transmittal. We will be deemed to have received your tender as of the date when your duly signed letter of transmittal accompanied by your initial notes tendered, or a timely confirmation of a book-entry transfer of these notes into the exchange agent's account at The Depository Trust Company with an agent's message, or a notice of guaranteed delivery from an eligible institution is received by the exchange agent. All questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of tenders will be determined by us in our sole discretion. Our determination will be final and binding. We reserve the absolute right to reject any and all initial notes not properly tendered or any initial notes which, if accepted, would, in our opinion or our counsel's opinion, be unlawful. We also reserve the absolute right to waive any conditions of this exchange offer or irregularities or defects in tender as to particular notes. Our interpretation of the terms and conditions of this exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of initial notes must be cured within such time as we shall determine. We, the exchange agent or any other person will be under no duty to give notification of defects or irregularities with respect to tenders of initial notes. We and the exchange agent or any other person will incur no liability for any failure to give notification of these defects or irregularities. Tenders of initial notes will not be deemed to have been made until such irregularities have been cured or waived. The exchange agent will return without cost to their holders any initial notes that are not properly tendered and as to which the defects or irregularities have not been cured or waived as promptly as practicable following the expiration date. If all the conditions to the exchange offer are satisfied or waived on the expiration date, we will accept all initial notes properly tendered and will issue the exchange notes promptly thereafter. Please refer to the section of this prospectus entitled "--Conditions to the Exchange Offer" below. For purposes of this 85 exchange offer, initial notes will be deemed to have been accepted as validly tendered for exchange when, as and if we give oral or written notice of acceptance to the exchange agent. We will issue the exchange notes in exchange for the initial notes tendered pursuant to a notice of guaranteed delivery by an eligible institution only against delivery to the exchange agent of the letter of transmittal, the tendered initial notes and any other required documents, or the receipt by the exchange agent of a timely confirmation of a book-entry transfer of initial notes into the exchange agent's account at The Depository Trust Company with an agent's message, in each case, in form satisfactory to us and the exchange agent. If any tendered initial notes are not accepted for any reason provided by the terms and conditions of this exchange offer or if initial notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged initial notes will be returned without expense to the tendering holder, or, in the case of initial notes tendered by book-entry transfer procedures described above, will be credited to an account maintained with the book-entry transfer facility, as promptly as practicable after withdrawal, rejection of tender or the expiration or termination of the exchange offer. By tendering into this exchange offer, you will irrevocably appoint our designees as your attorney-in-fact and proxy with full power of substitution and resubstitution to the full extent of your rights on the notes tendered. This proxy will be considered coupled with an interest in the tendered notes. This appointment will be effective only when, and to the extent that we accept your notes in this exchange offer. All prior proxies on these notes will then be revoked and you will not be entitled to give any subsequent proxy. Any proxy that you may give subsequently will not be deemed effective. Our designees will be empowered to exercise all voting and other rights of the holders as they may deem proper at any meeting of note holders or otherwise. The initial notes will be validly tendered only if we are able to exercise full voting rights on the notes, including voting at any meeting of the note holders, and full rights to consent to any action taken by the note holders. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, you may withdraw tenders of initial notes at any time before 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, you must send a written or facsimile transmission notice of withdrawal to the exchange agent before 5:00 p.m., New York City time, on the expiration date at the address provided below under "--Exchange Agent" and before acceptance of your tendered notes for exchange by us. Any notice of withdrawal must: (1) specify the name of the person having tendered the initial notes to be withdrawn, (2) identify the notes to be withdrawn, including, if applicable, the registration number or numbers and total principal amount of these notes, (3) be signed by the person having tendered the initial notes to be withdrawn in the same manner as the original signature on the letter of transmittal by which these notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to permit the trustee for the initial notes to register the transfer of these notes into the name of the person having made the original tender and withdrawing the tender, (4) specify the name in which any of these initial notes are to be registered, if this name is different from that of the person having tendered the initial notes to be withdrawn, and 86 (5) if applicable because the initial notes have been tendered though the book-entry procedure, specify the name and number of the participant's account at The Depository Trust Company to be credited, if different than that of the person having tendered the initial notes to be withdrawn. We will determine all questions as to the validity, form and eligibility, including time of receipt, of all notices of withdrawal and our determination will be final and binding on all parties. Initial notes that are withdrawn will be deemed not to have been validly tendered for exchange in this exchange offer. The exchange agent will return without cost to their holders all initial notes that have been tendered for exchange and are not exchanged for any reason, as promptly as practicable after withdrawal, rejection of tender or expiration or termination of this exchange offer. You may retender properly withdrawn initial notes in this exchange offer by following one of the procedures described under "--Procedures for Tendering Initial Notes" above at any time on or before the expiration date. CONDITIONS TO THE EXCHANGE OFFER We will complete this exchange offer only if: (1) there is no action or proceeding instituted or threatened in any court or before any governmental agency or body that in our judgment would reasonably be expected to prohibit, prevent or otherwise impair our ability to proceed with this exchange offer, (2) there is no change in the laws and regulations which, in our judgment, would reasonably be expected to impair our ability to proceed with this exchange offer, (3) there is no change in the current interpretation of the staff of the Commission which permits resales of the exchange notes, (4) there is no stop order issued by the Commission or any state securities authority suspending the effectiveness of the registration statement which includes this prospectus or the qualification of the indenture for our exchange notes under the Trust Indenture Act of 1939 and there are no proceedings initiated or, to our knowledge, threatened for that purpose, and (5) we obtain all governmental approvals that we deem in our sole discretion necessary to complete this exchange offer. These conditions are for our sole benefit. We may assert any one of these conditions regardless of the circumstances giving rise to it and may also waive any one of them, in whole or in part, at any time and from time to time, if we determine in our reasonable discretion that it has not been satisfied, subject to applicable law. We will not be deemed to have waived our rights to assert or waive these conditions if we fail at any time to exercise any of them. Each of these rights will be deemed an ongoing right which we may assert at any time and from time to time. If we determine that we may terminate this exchange offer because any of these conditions is not satisfied, we may: (1) refuse to accept and return to their holders any initial notes that have been tendered, (2) extend the exchange offer and retain all notes tendered before the expiration date, subject to the rights of the holders of these notes to withdraw their tenders, or (3) waive any condition that has not been satisfied and accept all properly tendered notes that have not been withdrawn or otherwise amend the terms of this exchange offer in any respect as provided under the section in this prospectus entitled "--Expiration Date; Extensions; Amendments; Termination." 87 ACCOUNTING TREATMENT We will record the exchange notes at the same carrying value as the initial notes as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. We will amortize the costs of the exchange offer and the unamortized expenses related to the issuance of the exchange notes over the term of the exchange notes. EXCHANGE AGENT We have appointed IBJ Whitehall Bank & Trust Company as exchange agent for this exchange offer. You should direct all questions and requests for assistance on the procedures for tendering and all requests for additional copies of this prospectus or the letter of transmittal to the exchange agent as follows: By mail: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 By hand/overnight delivery: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Facsimile Transmission: (212) 858-2103 Confirm by Telephone: (212) 858-2611 Attention: Ms. Patricia Gallagher FEES AND EXPENSES We will bear the expenses of soliciting tenders in this exchange offer, including fees and expenses of the exchange agent and trustee and accounting, legal, printing and related fees and expenses. We will not make any payments to brokers, dealers or other persons soliciting acceptances of this exchange offer. However, we will pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses in connection with this exchange offer. We will pay all transfer taxes, if any, applicable to the exchange of initial notes in accordance with this exchange offer. However, tendering holders will pay the amount of any transfer taxes, whether imposed on the registered holder or any other persons, if: (1) certificates representing exchange notes or initial notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the notes tendered, (2) tendered initial notes are registered in the name of any person other than the person signing the letter of transmittal, or (3) a transfer tax is payable for any reason other than the exchange of the initial notes in this exchange offer. If you do not submit satisfactory evidence of the payment of any of these taxes or of any exemption from this payment with the letter of transmittal, we will bill you directly the amount of these transfer taxes. 88 YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES The initial notes were not registered under the Securities Act or under the securities laws of any state and you may not resell them, offer them for resale or otherwise transfer them unless they are subsequently registered or resold under an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your initial notes for exchange notes in accordance with this exchange offer, or if you do not properly tender your initial notes in this exchange offer, you will not be able to resell, offer to resell or otherwise transfer the initial notes unless they are registered under the Securities Act or unless you resell them, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, you will not necessarily be able to obligate us to register the initial notes under the Securities Act. 89 DESCRIPTION OF THE NOTES Anteon Corporation issued the notes under an indenture dated as of May 11, 1999 between itself and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), a copy of which is filed as an exhibit to the registration statement relating to this exchange offer. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. Some terms used in this description are defined under the subheading "--Certain Definitions". In this description, the word "Company" refers only to Anteon Corporation and not to any of its subsidiaries. The following description is only a summary of the material provisions of the indenture. We urge you to read the indenture because it, not this description, defines your rights as holders of these notes. You may request copies of the these agreements at our address set forth under the heading "Where You Can Find More Information". BRIEF DESCRIPTION OF THE NOTES These notes: - are unsecured senior subordinated obligations of the Company; - are subordinated in right of payment to all existing and future Senior Indebtedness of the Company; - are senior in right of payment to any future Subordinated Obligations of the Company; and - are subject to registration with the SEC pursuant to the Registration Rights Agreement. PRINCIPAL, MATURITY AND INTEREST The Company issued the notes initially in the principal amount of $100 million. The Company will issue the notes in denominations of $1,000 and any integral multiple of $1,000. The notes mature on May 15, 2009. Subject to our compliance with the covenant described under the subheading "--Certain Covenants--Limitation on Indebtedness", we are permitted to issue more notes under the indenture in an unlimited principal amount. Any such additional notes that are actually issued will be treated as issued and outstanding notes for all purposes of the indenture and this "Description of the Notes" unless the context indicates otherwise. Interest on these notes will accrue at the rate of 12% per annum and will be payable semiannually in arrears on May 15 and November 15, commencing on November 15, 1999. We will make each interest payment to the holders of record of these notes on the immediately preceding May 1 and November 1. We will pay interest on overdue principal at 1% per annum in excess of the above rate and will pay interest on overdue installments of interest at such higher rate to the extent lawful. Interest on these notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION Except as set forth below, we will not be entitled to redeem the notes at our option prior to May 15, 2004. On and after May 15, 2004, we will be entitled at our option to redeem all or a portion of these notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest 90 payment date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:
REDEMPTION PERIOD PRICE - --------------------------------------------------------------------------------- ----------- 2004............................................................................. 106.00% 2005............................................................................. 104.00 2006............................................................................. 102.00 2007 and thereafter.............................................................. 100.00
In addition, before May 15, 2002, we may at our option on one or more occasions redeem notes (which includes additional notes, if any) in an aggregate principal amount not to exceed 25% of the aggregate principal amount of the notes (which includes additional notes, if any) originally issued at a redemption price (expressed as a percentage of principal amount of 112%, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings following which there is a Public Market (PROVIDED that, if the Public Equity Offering is an offering by Parent, a portion of the Net Cash Proceeds thereof equal to the amount required to redeem any such notes is contributed to the equity capital of the Company); PROVIDED that (1) at least 75% of such aggregate principal amount of notes (which includes additional notes, if any) remains outstanding immediately after the occurrence of each such redemption (other than notes held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 60 days after the date of the related Public Equity Offering. SELECTION AND NOTICE OF REDEMPTION If we are redeeming less than all the notes at any time, the Trustee will select notes on a PRO RATA basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. We will redeem notes of $1,000 or less in whole and not in part. We will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. If any note is to be redeemed in part only, the notice of redemption that relates to that note shall state the portion of the principal amount thereof to be redeemed. We will issue a new note in principal amount equal to the unredeemed portion of the original note in the name of the holder thereof upon cancelation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES Subject to the terms described above, we are not required to make any mandatory redemption or sinking fund payments with respect to the notes. However, under certain circumstances, we may be required to offer to purchase the notes as described under the captions "--Change of Control" and "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock". We may at any time and from time to time purchase notes in the open market or otherwise. SUBSIDIARY GUARANTIES The Subsidiary Guarantors will jointly and severally guarantee, on a senior subordinated basis, our obligations under these notes. The obligations of each Subsidiary Guarantor under its Subsidiary Guaranty will be limited as necessary to prevent that Subsidiary Guaranty from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Subordination". 91 Each Subsidiary Guarantor that makes a payment under its Subsidiary Guaranty will be entitled to a contribution from each other Subsidiary Guarantor in an amount equal to such other Subsidiary Guarantor's PRO RATA portion of such payment based on the respective net assets of all the Subsidiary Guarantors at the time of such payment determined in accordance with GAAP. If a Subsidiary Guaranty were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guaranty could be reduced to zero. See "Risk Factors--Subordination". The Subsidiary Guaranty of a Subsidiary Guarantor will be released: (1) upon the sale or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor; (2) upon the sale or disposition of all or substantially all the assets of a Subsidiary Guarantor; or (3) the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary pursuant to the terms of the indenture; in the case of (1) and (2) above, other than to the Company or an Affiliate of the Company and as permitted by the indenture. RANKING SENIOR INDEBTEDNESS VERSUS NOTES The payment of the principal of, premium, if any, and interest on the notes and the payment of any Subsidiary Guaranty will be subordinate in right of payment to the prior payment in full in cash of all Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, as the case may be, including the obligations of the Company and such Subsidiary Guarantor under the Credit Agreement. As of December 31, 1998, after giving pro forma effect to the Transactions: (1) the Company's Senior Indebtedness would have been approximately $78.9 million, all of which was secured indebtedness; and (2) the Senior Indebtedness of the Subsidiary Guarantors would have been approximately $78.9 million. Substantially all of the pro forma Senior Indebtedness of the Subsidiary Guarantors comprises their respective guaranties of Senior Indebtedness of the Company under the Credit Agreement. Although the indenture contains limitations on the amount of additional Indebtedness that the Company and the Subsidiary Guarantors may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness". LIABILITIES OF SUBSIDIARIES VERSUS NOTES A substantial portion of our operations are conducted through our subsidiaries. Some of our subsidiaries are not guaranteeing the notes. Claims of creditors of such non-guarantor subsidiaries, including trade creditors holding indebtedness or guarantees issued by such non-guarantor subsidiaries, and claims of preferred stockholders of such non-guarantor subsidiaries generally will have priority with respect to the assets and earnings of such non-guarantor subsidiaries over the claims of our creditors, including holders of the notes, even if such claims do not constitute Senior Indebtedness. Accordingly, the notes and each Subsidiary Guaranty will be effectively subordinated to creditors (including trade creditors) and preferred stockholders, if any, of such non-guarantor subsidiaries. 92 At March 31, 1999, after giving pro forma effect to the Transactions, the total liabilities of our subsidiaries (other than the Subsidiary Guarantors) would have been approximately $0.9 million, including trade payables. Although the indenture limits the incurrence of Indebtedness and preferred stock of certain of our subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the indenture does not impose any limitation on the incurrence by such subsidiaries of liabilities or obligations that are not considered Indebtedness under the indenture. See "--Certain Covenants-- Limitation on Indebtedness". OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior Indebtedness will rank senior to the notes and the relevant Subsidiary Guaranty in accordance with the provisions of the indenture. The notes and each Subsidiary Guaranty will in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor, respectively. We have agreed in the indenture that we will not Incur, directly or indirectly, any indebtedness that is contractually subordinate or junior in right of payment to our senior Indebtedness, unless such indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to senior Subordinated Indebtedness. The indenture does not treat unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured. PAYMENT OF NOTES We are not permitted to pay principal of, premium, if any, or interest on the notes or make any deposit pursuant to the provisions described under "--Defeasance" below and may not repurchase, redeem or otherwise retire any notes (collectively, "pay the notes") if: (1) any Designated Senior Indebtedness is not paid when due; or (2) any other default on designated Senior Indebtedness occurs and the maturity of such designated Senior Indebtedness is accelerated in accordance with its terms; unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full in cash. Regardless of the foregoing, we are permitted to pay the notes if we and the Trustee receive written notice approving such payment from the Representative of any Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) above has occurred and is continuing. During the continuance of any default (other than a default described in clause (1) or (2) above) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, we are not permitted to pay the notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to us) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter. The Payment Blockage Period will end earlier if such Payment Blockage Period is terminated: (1) by written notice to the Trustee and us from the Person or Persons who gave such Blockage Notice; (2) because no defaults continue in existence which would permit the acceleration of the maturity of any designated Senior Indebtedness at such time; or (3) because such Designated Senior Indebtedness has been discharged or repaid in full in cash. 93 Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, or any payment default described in clause (1) or (2) of the second preceding paragraph exists, we are permitted to resume paying the notes after the end of such Payment Blockage Period. The notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period, except that if any Blockage Notice is delivered to the Trustee by or on behalf of holders of Designated Senior Indebtedness (other than holders of the Bank Indebtedness), a Representative of holders of Bank Indebtedness may give another Blockage Notice within such period. However, in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period, and there must be 181 days during any 360-day consecutive period during which no Payment Blockage Period is in effect. Upon any payment or distribution of the assets of the Company upon any liquidation or dissolution or reorganization of or similar proceeding relating to the Company or its property: (1) the holders of Senior Indebtedness will be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness before the holders of the notes are entitled to receive any payment; (2) until all Obligations with respect to Senior Indebtedness are paid in full in cash, any payment or distribution to which holders of the notes would be entitled but for the subordination provisions of the indenture will be made to holders of such Senior Indebtedness as their interests may appear, except that holders of notes may receive certain Capital Stock and subordinated debt obligations; and (3) if a distribution is made to holders of the notes that, due to the subordination provisions, should not have been made to them, such holders of the notes are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the notes is accelerated because of an Event of Default, the Company or the Trustee must promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. If any Designated Senior Indebtedness is outstanding, neither the Company nor any Subsidiary Guarantor may pay the notes until five Business Days after the Representatives of all the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the notes only if the indenture otherwise permits payment at that time. A Subsidiary Guarantor's obligations under its Subsidiary Guaranty are senior subordinated obligations. As such, the rights of Noteholders to receive payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be subordinated in right of payment to the rights of holders of Senior Indebtedness of such Subsidiary Guarantor. The terms of the subordination provisions described above with respect to the Company's obligations under the notes apply equally to a Subsidiary Guarantor and the obligations of such Subsidiary Guarantor under its Subsidiary Guaranty. By reason of the subordination provisions contained in the indenture, in the event of a liquidation or insolvency proceeding, creditors of the Company or a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the holders of the notes, and creditors of ours who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the holders of the notes. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Notes pursuant to the provisions described under "--Defeasance", if the foregoing subordination provisions were not violated at the time the respective amounts were deposited pursuant to such defeasance provisions. 94 CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each Holder shall have the right to require that the Company repurchase such Holder's notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (1) prior to the earlier to occur of (A) the first public offering of common stock of Parent or (B) the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of the Parent or the Company, any merger, consolidation, liquidation or dissolution of the Parent or the Company, any direct or indirect transfer of securities by Parent or otherwise (for purposes of this clause (1) and clause (2) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); (2) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (1) above, except that for purposes of this clause (2) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (2), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person is the beneficial owner (as defined in this clause (2)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (3) individuals who on the Issue Date constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 66 2/3% of the directors of the Company then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; (4) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or 95 exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. Within 30 days following any Change of Control, we will mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such Holder has the right to require us to purchase such Holder's notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions, as determined by us, consistent with the covenant described hereunder, that a Holder must follow in order to have its Notes purchased. If the terms of the Credit Agreement prohibit the Company from making a Change of Control Offer or from purchasing any notes pursuant thereto, prior to the mailing of the notice to Holders described in the preceding paragraph, but in any event within 30 days following any Change of Control, the Company covenants to: (1) repay in full any indebtedness outstanding under the Credit Agreement or offer to repay in full all such indebtedness and repay the Indebtedness of each lender which has accepted such offer; or (2) obtain the requisite consent under the Credit Agreement to permit the purchase of the Notes as described above. The Company must first comply with the covenant described above before it will be required to purchase notes in the event of a Change of Control; PROVIDED, HOWEVER, that the Company's failure to comply with the covenant described in the preceding sentence or to make a Change of Control offer because of any such failure shall constitute a Default described in clause (4) under "--Defaults" below (and not under clause (2) thereof). As a result of the foregoing, a holder of the Notes may not be able to compel the Company to purchase the notes unless the Company is able at the time to refinance all of the Indebtedness outstanding under the Credit Agreement or obtain requisite consents under the Credit Agreement. We will not be required to make a Change of Control Offer following a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by us and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, we will comply with the applicable securities laws and regulations and shall not be deemed to have breached our obligations under the covenant described hereunder by virtue thereof. 96 The Change of Control purchase feature of the notes may in certain circumstances make more difficult or discourage a sale or takeover of the Company and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between the Company and the Initial Purchasers. We have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to Incur additional Indebtedness are contained in the covenant described under "--Certain Covenants--Limitation on Indebtedness". Such restrictions can only be waived with the consent of the holders of a majority in principal amount of the notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford holders of the notes protection in the event of a highly leveraged transaction. The Credit Agreement will prohibit us from purchasing any notes, and will also provide that the occurrence of certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when we are prohibited from purchasing notes, we may seek the consent of our lenders to the purchase of Notes or may attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we will remain prohibited from purchasing notes. In such case, our failure to purchase tendered Notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the indenture would likely restrict payment to the Holders of notes. Future indebtedness that we may incur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require the repurchase of such indebtedness upon a Change of Control. Moreover, the exercise by the holders of their right to require us to repurchase the notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the holders of notes following the occurrence of a Change of Control may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the indenture relative to our obligation to make an offer to repurchase the notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. CERTAIN COVENANTS The indenture contains covenants including, among others, the following: LIMITATION ON INDEBTEDNESS (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto, (1) the Consolidated Coverage Ratio exceeds 2.00 to 1.00 if such Indebtedness is Incurred prior to May 15, 2001 or 2.25 to 1.00 if such Indebtedness is Incurred thereafter and (2) the Consolidated Leverage Ratio would be less than 5.75 to 1.00 if such Indebtedness is Incurred prior to December 31, 2000 or 5.50 to 1.00 if such Indebtedness is Incurred thereafter. 97 (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness of the Company Incurred pursuant to the Revolving Credit Facilities; PROVIDED, HOWEVER, that, immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (1) and then outstanding does not exceed the greater of (A) $110.0 million and (B) 90% of accounts receivable of the Company and its Restricted Subsidiaries; (2) Indebtedness of the Company Incurred pursuant to the Term Loan Facilities; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $60.0 million less the aggregate sum of all principal payments with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock"; (3) Indebtedness of the Company or any Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (4) the notes (other than any additional notes); (5) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3) or (4) of this covenant); (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (4) or (5) or this clause (6); (7) Hedging Obligations under or with respect to Interest Rate Agreements and Currency Agreements required under the Credit Agreement or entered into in the ordinary course of business and not for the purpose of speculation; (8) Indebtedness in respect of performance bonds, bankers' acceptances, letters of credit and surety or appeal bonds provided by the Company and the Restricted Subsidiaries in the ordinary course of their business and which do not secure other Indebtedness of the Company or any Restricted Subsidiary (except Indebtedness permitted under the Indenture); (9) Subsidiary Guaranties of the Subsidiary Guarantors; (10) the Guarantee of any Indebtedness otherwise permitted to be Incurred pursuant to the Indenture; (11) Indebtedness of the Company or any Restricted Subsidiary consisting of indemnification, adjustment of purchase price, earn-out or similar obligations, in each case incurred in connection with the acquisition or disposition of any assets, including shares of Capital Stock or divisions or lines of business, of the Company or any Restricted Subsidiary; and (12) Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (11) above or paragraph (a)) does not exceed $25 million. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be 98 subordinated to the Notes or the relevant Subsidiary Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this covenant, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above at the time of its Incurrence, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses (provided that any Indebtedness classified as Incurred pursuant to clause (b)(12) above may later be reclassified as having been Incurred pursuant to paragraph (a) above to the extent that such reclassified Indebtedness could be Incurred pursuant to paragraph (a) above at the time of such reclassification) and (2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if such Indebtedness is expressly subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the notes or the relevant Subsidiary Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. LIMITATION ON RESTRICTED PAYMENTS (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Issue Date occurs to the end of the most recent fiscal quarter for which financial statements are then available prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus (B) 100% of the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) and the aggregate cash received by the Company as a capital contribution, in each case subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); plus (C) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or such Restricted Subsidiary upon such conversion or exchange); plus 99 (D) an amount equal to the sum of (x) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Person, or from the proceeds received by the Company or any Restricted Subsidiary upon the disposition of any Investment and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or, in the case of any Investment outstanding on the Issue Date (but not to exceed in the aggregate $10 million) an amount not to exceed the lesser of the amount of such net reduction or the amount of such Investment. (b) The preceding provisions will not prohibit: (1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, or capital contribution in respect of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); PROVIDED, HOWEVER, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (3) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that such dividend shall be included in the calculation of the amount of Restricted Payments; (4) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, consultants, directors or former directors of the Company or any of its Subsidiaries or Parent (or permitted transferees of such employees, former employees, consultants, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of such repurchases and other acquisitions shall not exceed the sum of (A) $5 million plus (B) the aggregate Net Cash Proceeds received by the Company from the issuance of such Capital Stock to, or the exercise of options to purchase such Capital Stock by, employees or directors of the Company or any of its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3)(B) of paragraph (a) above or applied pursuant to clause (b)(1) above) plus (C) the Net Cash Proceeds actually received by the Company after the Issue Date from insurance proceeds paid in respect of 100 the death or disability of any employee or director; PROVIDED FURTHER, HOWEVER, that such repurchases and other acquisitions shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends, distributions or advances to Parent to the extent required to pay non-deferrable scheduled cash interest when due on, or the principal amount at final scheduled maturity of, the Ogden Note; provided, however, that (A) no Default shall have occurred and be continuing (or would result therefrom) and (B) Parent shall immediately apply any such dividend to make such cash interest or principal payment; PROVIDED FURTHER, HOWEVER, that such dividends, distributions and advances shall be included in the calculation of the amount of Restricted Payments; (6) dividends, distributions or advances to Parent to be used by Parent to pay Federal, state and local taxes payable by Parent and directly attributable to (or arising as a result of) the operations of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (A) the amount of such dividends shall not exceed the amount that the Company and its Restricted Subsidiaries would be required to pay in respect of such Federal, state and local taxes were the Company to pay such taxes as a stand-alone taxpayer and (B) such dividends pursuant to this clause (6) are used by Parent for such purposes within 20 days of the receipt of such dividends; PROVIDED FURTHER, HOWEVER, that such dividends shall be excluded in the calculation of the amount of Restricted Payments; (7) dividends, distributions or advances to Parent to the extent necessary to pay for general corporate and overhead expenses incurred by Parent in the ordinary course of business; PROVIDED, HOWEVER, that such dividends, shall not exceed $250,000 in any fiscal year of the Company; PROVIDED FURTHER, HOWEVER, that such dividends, distributions or advances shall be included in the calculation of the amount of Restricted Payments; (8) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock"; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (9) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the notes pursuant to the covenant described under "--Change of Control" above (including the purchase of the notes tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus any accrued and unpaid interest; PROVIDED, HOWEVER, that (A) at the time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom), (B) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness" after giving pro forma effect to such Restricted Payment and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments; or (10) payments required pursuant to the terms of the Merger Agreement to consummate the Acquisition by the Company or a Restricted Subsidiary pursuant to the terms of the Merger Agreement; PROVIDED, HOWEVER, that such payments shall be excluded in the calculation of the amount of Restricted Payments; LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the 101 Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or (c) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date, or, in the case of the Credit Agreement, as in effect on the Acquisition Closing Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the Noteholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) any such encumbrance or restriction consisting of customary non-assignment provisions in leases or licenses to the extent such provisions restrict the transfer of the lease or license or the property leased or licensed thereunder; (5) any encumbrance or restriction consisting of any restriction on the sale or other disposition of assets or property securing Indebtedness as a result of a Lien permitted to be Incurred under the indenture on such asset or property; (6) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (7) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (8) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the closing date of the acquisition. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless: (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents (provided that such 75% requirement shall not apply to any Asset Disposition in which the cash or cash equivalents portion of the consideration received therefor is no less than an amount equal to the product of (x) six and (y) the amount of EBITDA directly attributable to the assets or Capital Stock included in such Asset Disposition); and 102 (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be): (A) first, to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Notes (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Notes (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of the indenture; PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceeds $10 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments or used to temporarily reduce loans outstanding under Revolving Credit Facilities. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (1) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and (2) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C) above, the Company will be required to purchase notes tendered pursuant to an offer by the Company for the notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount, without premium, plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in the indenture. If the aggregate purchase price of notes (and any other Senior Subordinated Indebtedness) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be required to apply the remaining Net Available Cash in accordance with clause (a)(3)(D) above. If the aggregate purchase price of the securities tendered exceeds the Net Available Cash allotted to purchase 103 thereof, the Company will select the securities to be purchased on a pro rata basis but in denominations of $1,000 or multiples thereof. The Company shall not be required to make such an offer to purchase notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash available therefor is less than $10 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this clause by virtue thereof. LIMITATION ON AFFILIATE TRANSACTIONS (a) The Company will not, and will not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless: (1) the terms of the Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of the Affiliate Transaction in arm's-length dealings with a Person who is not an Affiliate; (2) if such Affiliate Transaction involves an amount in excess of $1 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in clause (1) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board resolution; and (3) if such Affiliate Transaction involves an amount in excess of $10 million, the Board of Directors shall also have received a written opinion from an investment banking firm of national prominence that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of the preceding paragraph (a) shall not prohibit: (1) any Investment (other than a Permitted Investment) or other Restricted Payment, in each case permitted to be made pursuant to the covenant described under "--Limitation on Restricted Payments"; (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; (3) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors; (4) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $3 million in the aggregate outstanding at any one time; (5) the payment of reasonable compensation or employee benefit arrangements to and indemnity provided for the benefit of directors, officers or employees of the Company or its Restricted Subsidiaries in the ordinary course of business; 104 (6) any employment, noncompetition or confidentiality agreements entered into by the Company or any Restricted Subsidiary with its employees in the ordinary course of business. (7) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries; (8) the payment by the Company of fees to Caxton-Iseman and its Affiliates in connection with any acquisition transaction entered into by the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the aggregate amount of fees paid to Caxton-Iseman and its Affiliates in respect of any acquisition transaction shall not exceed 1% of the total acquisition cost of such transaction; (9) the accrual (and, to the extent provided below, the payment) by the Company of management fees payable to Caxton-Iseman and its Affiliates in an amount not to exceed $1 million in any fiscal year of the Company; PROVIDED, HOWEVER, that the amount of such fees actually paid in any fiscal year does not exeed an amount equal to the sum of (A) in the event the Consolidated Coverage Ratio on the date of any proposed payment is greater than 2.0 to 1.0 but less than or equal to 2.25 to 1.0, $500,000, plus (B) in the event the Consolidated Coverage Ratio on the date of any proposed payment exceeds 2.25 to 1.0, an additional $500,000, in each case together with the amount of unpaid management fees accrued in any prior fiscal year that could have been paid in such prior fiscal year had the Consolidated Coverage Ratio applicable to clause (A) or (B) on the date of such proposed payment been in effect on the date of accrual of such prior year's fee; PROVIDED FURTHER, HOWEVER, that at the time of such accrual or payment, no other Default shall have occurred and be continuing (or result therefrom); (10) any Affiliate Transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries; and (11) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except: (1) to the Company or a Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) the issuance of shares of common stock of Interactive Media Corporation pursuant to the terms of any agreement or option related thereto as in effect on the Acquisition Closing Date; (4) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; or (5) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described under "--Limitation on Restricted Payments" if made on the date of such issuance, sale or other disposition. Notwithstanding the foregoing, the issuance or sale of shares of Capital Stock of any Restricted Subsidiary of the Company will not violate the provisions of the immediately preceding sentence if such shares are issued or sold in connection with (x) the formation or capitalization of a Restricted Subsidiary or (y) a single transaction or a series of substantially contemporaneous transactions whereby such Restricted Subsidiary becomes a Restricted Subsidiary of the Company by reason of the acquisition of securities or assets from another Person. 105 MERGER AND CONSOLIDATION The Company will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the notes and the indenture; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness"; and (4) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the indenture. The Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to any Person unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State thereof or the District of Columbia, and such Person shall expressly assume, by a Guaranty Agreement, in a form satisfactory to the Trustee, all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty; (2) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (3) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such Guaranty Agreement, if any, complies with the indenture; PROVIDED, HOWEVER, that the preceding restrictions will not be applicable if, in connection with such consolidation, merger, conveyance, transfer or lease, the Subsidiary Guarantor will be released from its obligations under the Subsidiary Guaranty as described under "--Guaranties". The Successor Company will be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the indenture, and the predecessor Company, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the notes. FUTURE GUARANTORS The Company will cause each domestic Restricted Subsidiary organized or acquired after the Issue Date and that Incurs Indebtedness (including any Guarantees) to execute and deliver to the Trustee a 106 Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes on the same terms and conditions as those set forth in the indenture. SEC REPORTS Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file (unless the SEC will not accept such filing) with the SEC and provide the Trustee and Noteholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filings of such information, documents and reports under such Sections. In addition, whether or not required by the SEC, we will file a copy of all of the information and reports referred to above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing). DEFAULTS Each of the following is an Event of Default: (1) a default in the payment of interest or any Additional Amounts on the notes when due, continued for 30 days; (2) a default in the payment of principal of any note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise; (3) the failure by the Company to comply with its obligations under "--Certain Covenants--Merger and Consolidation" above; (4) the failure by the Company to comply for 30 days after written notice with any of its obligations in the covenants described above under "Change of Control" (other than a failure to purchase notes) or under "--Certain Covenants" under "--Limitation on Indebtedness", "--Limitation on Restricted Payments", "--Limitation on Restrictions on Distributions from Restricted Subsidiaries", "--Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to purchase notes), "--Limitation on Affiliate Transactions", "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries", "--Future Guarantors" or "--SEC Reports"; (5) the failure by the Company to comply for 60 days after written notice with its other agreements contained in the indenture; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5 million (the "cross acceleration provision"); (7) certain events of bankruptcy, insolvency or reorganization of the Company, a Subsidiary Guarantor or a Significant Subsidiary (the "bankruptcy provisions"); (8) any judgment or decree for the payment of money in excess of $5 million is entered against the Company or a Significant Subsidiary, remains outstanding for a period of 60 consecutive days following such judgment and is not discharged, waived or stayed within 10 days after written notice (the "judgment default provision"); or (9) a Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty. 107 However, a default under clauses (4), (5), (6) and (8) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding notes may declare the principal of and accrued but unpaid interest on all the notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the notes will IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding notes may rescind any such acceleration with respect to the notes and its consequences. Subject to the provisions of the indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders of the notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder of a note may pursue any remedy with respect to the indenture or the notes unless: (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (5) holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a Note or that would involve the Trustee in personal liability. If a Default occurs, is continuing and is known to the Trustee, the Trustee must mail to each holder of the notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the notes. In addition, we are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. We are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action we are taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the indenture may be amended with the consent of the holders of a majority in principal amount of the notes then outstanding (including consents obtained in connection with 108 a tender offer or exchange for the notes) and any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the notes then outstanding. However, without the consent of each holder of an outstanding note affected thereby, an amendment may not, among other things: (1) reduce the amount of notes whose holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any note; (3) reduce the principal of or extend the Stated Maturity of any note; (4) reduce the amount payable upon the redemption of any Note or change the time at which any note may be redeemed as described under "--Optional Redemption" above; (5) make any note payable in money other than that stated in the note; (6) impair the right of any holder of the notes to receive payment of principal of and interest on such holder's notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's notes; (7) make any change in the amendment provisions which require each holder's consent or in the waiver provisions; (8) make any change in the ranking or priority of any Note that would adversely affect the Noteholders; or (9) make any change in any Subsidiary Guaranty that would adversely affect the Noteholders. Notwithstanding the preceding, without the consent of any holder of the Notes, the Company and Trustee may amend the indenture: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to provide for the assumption by a successor corporation of the obligations of the Company under the indenture; (3) to provide for uncertificated notes in addition to or in place of certificated notes (provided that the uncertificated notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated notes are described in Section 163(f)(2)(B) of the Code); (4) to add guarantees with respect to the notes and secure the notes; (5) to add to the covenants of the Company for the benefit of the holders of the notes or to surrender any right or power conferred upon the Company; (6) to make any change that does not adversely affect the rights of any holder of the notes; or (7) to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consents to such change. The consent of the holders of the notes is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. 109 After an amendment under the indenture becomes effective, we are required to mail to holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER The notes will be issued in registered form and will be transferable only upon the surrender of the notes being transferred for registration of transfer. We may require payment of a sum sufficient to cover any tax, assessment or other governmental charge payable in connection with certain transfers and exchanges. DEFEASANCE At any time, we may terminate all our obligations under the notes and the indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a registrar and paying agent in respect of the notes. In addition, at any time we may terminate our obligations under "--Change of Control" and under the covenants described under "--Certain Covenants" (other than the covenant described under "--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries and the judgment default provision described under "--Defaults" above and the limitations contained in clauses (3) under "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option, payment of the notes may not be accelerated because of an Event of Default with respect thereto. If we exercise our covenant defeasance option, payment of the notes may not be accelerated because of an Event of Default specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries) or (8) under "--Defaults" above or because of the failure of the Company to comply with clause (3) under "--Certain Covenants--Merger and Consolidation" above. If we exercise our legal defeasance option or our covenant defeasance option, each Subsidiary Guarantor will be released from all of its obligations with respect to its Subsidiary Guaranty and the Security Agreements. In order to exercise either of our defeasance options, we must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE AND EXCHANGE AGENT IBJ Whitehall Bank & Trust Company is to be the Trustee under the indenture, and we have also appointed it as Registrar, Paying Agent and Exchange Agent with regard to the notes. The indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other 110 transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest it must either eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign. The Holders of a majority in principal amount of the outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. If an Event of Default occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any Holder of notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the indenture. GOVERNING LAW The indenture and the notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "ACQUISITION" means the acquisition of Analysis & Technology, Inc. by the Company "ACQUISITION CLOSING DATE" means the date on which the Company consummates the Acquisition. "ADDITIONAL ASSETS" means any: (1) property, plant or equipment used in a Related Business; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Related Business. "AFFILIATE" of any specified Person means: (1) any other Person, directly or indirectly, controlling or controlled by; or (2) under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the covenants described under "--Certain Covenants--Limitation on Restricted Payments", "--Certain Covenants--Limitation on Affiliate Transactions" and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. 111 "ASSET DISPOSITION" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of: (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary); (2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary; or (3) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of clauses (1) and (2) above and this clause (3): (A) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary; (B) leases of excess space in the ordinary course of business; (C) for purposes of the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under "--Certain Covenants--Limitation on Restricted Payments" or a Permitted Investment; and (D) disposition of assets with a fair market value of less than $200,000). "ATTRIBUTABLE DEBT" in respect of a Sale/ Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/ Leaseback Transaction (including any period for which such lease has been extended). "AVERAGE LIFE" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing: (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of, or redemption or similar payment with respect to, such Indebtedness, multiplied by the amount of such payment by (2) the sum of all such payments. "BANKS" means any obligee under the Credit Agreement. "BANK INDEBTEDNESS" means all Obligations pursuant to the Credit Agreement. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "BUSINESS DAY" means each day which is not a Legal Holiday. "CAPITAL LEASE OBLIGATIONS" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. 112 "CAPITAL STOCK" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "CODE" means the Internal Revenue Code of 1986, as amended. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are then available prior to the date of such determination to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period when such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average balance of such Indebtedness during the period from the date of creation of such facility to the date of the computation), (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness, (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or 113 substantially all of a business or a product line, operating unit or similar portion of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given under clause (4) above, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company, and such pro forma calculations shall include (A)(x) the savings in cost of revenues that would have resulted from using the Company's or its Restricted Subsidiaries', as applicable, actual costs for comparable goods and services during the comparable period and (y) other savings in cost of revenues or eliminations of selling, general and administrative expenses as determined by a responsible financial or accounting Officer of the Company in good faith in connection with the Company's consideration of such transaction and consistent with the Company's experience in similar transactions less (B) the incremental expenses that would be included in cost of revenues and selling, general and administrative expenses that would have been incurred by the Company or its Restricted Subsidiaries, as applicable, in the operation or ownership of such acquired assets during such period. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication: (1) interest expense attributable to capital leases and the interest expense attributable to leases constituting part of a Sale/ Leaseback Transaction; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expenses; (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (6) net costs associated with Hedging Obligations (including amortization of fees); (7) dividends paid in cash or Disqualified Stock in respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of the Company held by Persons other than the Company or a Wholly Owned Subsidiary; (8) interest incurred in connection with Investments in discontinued operations; 114 (9) interest actually paid by the Company or a Restricted Subsidiary under a Guarantee of Indebtedness of any other Person; and (10) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; and LESS, to the extent included in such total interest expense, the amortization during such period of debt issuance costs; PROVIDED, HOWEVER, that the aggregate amount of amortization relating to any such debt issuance costs deducted in calculating Consolidated Interest Expense shall not exceed 5% of the aggregate amount of the financing giving rise to such debt issuance costs. "CONSOLIDATED LEVERAGE RATIO" as of any date means the ratio of (x) the aggregate amount of Indebtedness (net of cash and marketable securities) of the Company and its Restricted Subsidiaries as of such date of determination to (y) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are then available prior to such date of determination, in each case with such pro forma adjustments to consolidated Indebtedness and EBITDA as are appropriate and consistent with the pro forma provisions set forth in the definition of Consolidated Coverage Ratio. "CONSOLIDATED NET INCOME" means, for any period, the net income of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (1) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that: (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that: (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain or loss realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback 115 arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (5) extraordinary gains or losses; and (6) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of the covenant described under "Certain Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "CREDIT AGREEMENT" means (1) prior to the Acquisition Closing Date, the Credit Agreement dated March 18, 1998, by and among the Company and Vector Data Systems, Inc., the lenders referred to therein and Mellon Bank, N.A., as agent, as amended, and (2) on or after the Acquisition Closing Date, the Credit Agreement to be entered into by and among, the Company, certain of its Subsidiaries, the lenders referred to therein, and Credit Suisse First Boston, as agent, together with the related documents thereto (including the term loans and revolving loans thereunder, reimbursement obligations under any letters of credit, any guarantees and security documents), as amended, extended, renewed, replaced, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to Refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "CURRENCY AGREEMENT" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such Person against fluctuations in currency values. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means: (1) the Bank Indebtedness; and (2) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10 million and is specifically designated by the Company in any instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the indenture. "DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part; in each case on or prior to the first anniversary of the Stated Maturity of the notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders 116 thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" shall not constitute Disqualified Stock if: (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the notes and described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--Certain Covenants--Change of Control"; and (2) any such requirement only becomes operative after compliance with such terms applicable to the notes, including the purchase of any notes tendered pursuant thereto. "EBITDA" for any period means the sum of Consolidated Net Income, plus the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries; (2) Consolidated Interest Expense; (3) depreciation and amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period); and (4) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period); in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non- cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE NOTES" means the debt securities of the Company issued pursuant to the indenture in exchange for, and in an aggregate principal amount at maturity equal to, the notes, in compliance with the terms of the Registration Rights Agreement. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in: (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; and (2) statements and pronouncements of the Financial Accounting Standards Board. "GUARANTEE" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or 117 (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof; PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. The Ogden Note will not be deemed to be Guaranteed unless Anteon executes a guaranty thereof. "GUARANTY AGREEMENT" means a supplemental indenture, in a form satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the Company's obligations with respect to the notes on the terms provided for in the Indenture. "HEDGING OBLIGATIONS" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "HOLDER" or "NOTEHOLDER" means the Person in whose name a note is registered on the Registrar's books. "INCUR" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person on any date of determination (without duplication): (1) the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/ Leaseback Transactions entered into by such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; 118 (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; PROVIDED, HOWEVER, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in accordance with GAAP. Notwithstanding the foregoing, Indebtedness shall not include any liability for Federal, state, local or other taxes owed or owing to any governmental entity. "INTEREST RATE AGREEMENT" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "INVESTMENT" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the covenant described under "--Certain Covenants--Limitation on Restricted Payments": (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the Company's "Investment" in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "ISSUE DATE" means the date on which the notes are originally issued. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of March 7, 1999, by and among the Company, Buffalo Acquisition Corporation and Analysis & Technology, Inc. 119 "NET AVAILABLE CASH" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form), in each case net of: (1) all legal, title, recording or transfer tax, accounting, consulting or similar transaction expenses, brokerage or other fees, commissions and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Disposition; and (4) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, printing costs, filing and listing fees, discounts or commissions and brokerage, consultant and other fees or expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "OBLIGATIONS" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. "OGDEN NOTE" means the Amended and Restated, Non Negotiable, Subordinated 9% Promissory Note due April 22, 2004 of Parent in favor of Ogden Technology Services Corporation, dated as of October 1, 1998, in the principal amount of $3,650,000. "PARENT" means Azimuth Technologies, Inc., a Delaware corporation, and any successor corporation. "PERMITTED HOLDERS" means (i) Caxton Corporation, Frederick J. Iseman, Steven Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other Person who is a controlled Affiliate of any of the foregoing and any member of senior management of the Company on the Issue Date and (ii) any Related Party of any of the foregoing. "PERMITTED INVESTMENT" means an Investment by the Company or any Restricted Subsidiary in: (1) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; 120 (3) Temporary Cash Investments; (4) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock"; and (9) additional Investments made after the Issue Date in an aggregate amount which, together with all other Investments made pursuant to this clause (9) that are outstanding, do not exceed $10 million. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "PREFERRED STOCK", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "PRINCIPAL" of a note means the principal of the note plus the premium, if any, payable on the note which is due or overdue or is to become due at the relevant time. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering of common stock of Parent or the Company pursuant to an effective registration statement under the Securities Act. "PUBLIC MARKET" means any time after (x) a Public Equity Offering has been consummated and (y) at least 10% of the total issued and outstanding common stock of Parent or the Company, as applicable, has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both shall not make a rating on the notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as certified by a resolution of the Board of Directors) which shall be substituted for Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be. "REFINANCE" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. 121 "REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that: (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced; (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced; and (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated May 6, 1999, among the Company, Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated. "RELATED BUSINESS" means the business of the Company and its Restricted Subsidiaries on the Issue Date or the Acquisition Closing Date and any business that in the good faith judgment of the Board of Directors is related, ancillary or complementary thereto. "RELATED PARTY" means (1) any controlling stockholder, controlling member, general partner, majority owned Subsidiary, or spouse or immediate family member (in the case of an individual) of any Permitted Holder or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons holding a controlling interest of which consist solely of one or more Permitted Holders and/or such other Persons referred to in the immediately preceding clause (1). "REPRESENTATIVE" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company. "RESTRICTED PAYMENT" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any 122 Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition); or (4) the making of any Investment in any Person (other than a Permitted Investment). "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "REVOLVING CREDIT FACILITIES" means any revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a Lien. "SENIOR INDEBTEDNESS" means, with respect to any Person on any date of determination: (1) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred (including the Indebtedness of such Person under the Credit Agreement or any Guarantee thereof); and (2) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person whether or not post-filing interest is allowed in such proceeding) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the notes; PROVIDED, HOWEVER, that Senior Indebtedness shall not include: (1) any obligation of such Person to any Subsidiary; (2) any liability for Federal, state, local or other taxes owed or owing by such Person; (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities); (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person; (5) the Ogden Note or the Techmatics Notes; or (6) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the indenture. "SENIOR SUBORDINATED INDEBTEDNESS" means (1) with respect to the Company, the notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness of the Company and (2) with respect to each Subsidiary Guarantor, its Subsidiary Guaranty of the notes and any other Indebtedness of such Subsidiary Guarantor that specifically provides that such Indebtedness is to rank PARI PASSU with such 123 Subsidiary Guaranty in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of such Subsidiary Guarantor which is not Senior Indebtedness of such Subsidiary Guarantor. "SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "STATED MATURITY" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "SUBORDINATED OBLIGATION" means any Indebtedness of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate or junior in right of payment to the notes or, in the case of a Subsidiary Guarantor, its Subsidiary Guaranty, in each case pursuant to a written agreement to that effect. "SUBSIDIARY" means, with respect to any Person, any corporation, association, company, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by: (1) such Person; (2) such Person and one or more Subsidiaries of such Person; or (3) one or more Subsidiaries of such Person. "SUBSIDIARY GUARANTOR" means each Subsidiary of the Company that Guarantees the Company's obligations with respect to the notes pursuant to the terms of the indenture. "SUBSIDIARY GUARANTY" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the notes. "TEMPORARY CASH INVESTMENTS" means any of the following: (1) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United 124 States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "TERM LOAN FACILITIES" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "UNRESTRICTED SUBSIDIARY" means: (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated or another Unrestricted Subsidiary; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "--Certain Covenants--Limitation on Restricted Payments". The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (A) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "--Certain Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "VOTING STOCK" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees (or persons performing similar functions) thereof. "WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. BOOK-ENTRY, DELIVERY AND FORM Except as described below, we will initially issue the exchange notes in the form of one or more registered exchange notes in global form without coupons. We will deposit each global note on the date of the closing of this exchange offer with, or on behalf of, The Depository Trust Company in New York, New York, and register the exchange notes in the name of The Depository Trust Company or its nominee, or will leave these notes in the custody of the trustee. 125 THE DEPOSITORY TRUST COMPANY'S PROCEDURES For your convenience, we are providing you with a description of the operations and procedures of The Depository Trust Company. The operations and procedures of The Depository Trust Company are solely within the control of its settlement system however and may change from time to time. We are not responsible for these operations and procedures and urge you to contact The Depository Trust Company or its participants directly to discuss these matters. The Depository Trust Company has advised us that it is a limited-purpose trust company created to hold securities for its participating organizations and to facilitate the clearance and settlement of transactions in those securities between its participants through electronic book entry changes in the accounts of these participants. These direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations. Access to The Depository Trust Company's system is also indirectly available to other entities that clear through or maintain a direct or indirect, custodial relationship with a direct participant. The Depository Trust Company may hold securities beneficially owned by other persons only through its participants and the ownership interests and transfers of ownership interests of these other persons will be recorded only on the records of the participants and not on the records of The Depository Trust Company. The Depository Trust Company has also advised us that, in accordance with its procedures, (1) upon deposit of the global notes, it will credit the accounts of the direct participants with an interest in the global notes, and (2) it will maintain records of the ownership interests of these direct participants in the global notes and the transfer of ownership interests by and between direct participants. The Depository Trust Company will not maintain records of the ownership interests of, or the transfer of ownership interests by and between, indirect participants or other owners of beneficial interests in the global notes. Both direct and indirect participants must maintain their own records of ownership interests of, and the transfer of ownership interests by and between, indirect participants and other owners of beneficial interests in the global notes. Investors in the global notes may hold their interests in the notes directly through The Depository Trust Company if they are direct participants in The Depository Trust Company or indirectly through organizations that are direct participants in The Depository Trust Company. All interests in a global note may be subject to the procedures and requirements of The Depository Trust Company. The laws of some states require that some persons take physical delivery in definitive certificated form of the securities that they own. This may limit or curtail the ability to transfer beneficial interests in a global note to these persons. Because The Depository Trust Company can act only on behalf of direct participants, which in turn act on behalf of indirect participants and others, the ability of a person having a beneficial interest in a global note to pledge its interest to persons or entities that are not direct participants in The Depository Trust Company or to otherwise take actions in respect of its interest, may be affected by the lack of physical certificates evidencing the interests. Except as described below, owners of interests in the global notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders of these notes under the indenture for any purpose. Payments with respect to the principal of and interest on any notes represented by a global note registered in the name of The Depository Trust Company or its nominee on the applicable record date will be payable by the trustee to or at the direction of The Depository Trust Company or its nominee in its capacity as the registered holder of the global note representing these notes under the indenture. Under the terms of the indenture, we and the trustee will treat the person in whose names the notes are registered, including notes represented by global notes, as the owners of the notes for the purpose of receiving payments and for any and all other purposes whatsoever. Payments in respect of the principal and interest on global notes registered in the name of The Depository Trust Company or its nominee will be 126 payable by the trustee to The Depository Trust Company or its nominee as the registered holder under the indenture. Consequently, none of Anteon, the trustee or any of our agents, or the trustee's agents has or will have any responsibility or liability for (1) any aspect of The Depository Trust Company's records or any direct or indirect participant's records relating to, or payments made on account of, beneficial ownership interests in the global notes or for maintaining, supervising or reviewing any of The Depository Trust Company's records or any direct or indirect participant's records relating to the beneficial ownership interests in any global note or (2) any other matter relating to the actions and practices of The Depository Trust Company or any of its direct or indirect participants. The Depository Trust Company has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes, including principal and interest, is to credit the accounts of the relevant participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interest in the security as shown on its records, unless it has reasons to believe that it will not receive payment on the payment date. Payments by the direct and indirect participants to the beneficial owners of interests in the global note will be governed by standing instructions and customary practice and will be the responsibility of the direct or indirect participants and will not be the responsibility of The Depository Trust Company, the trustee or us. Neither Anteon nor the trustee will be liable for any delay by The Depository Trust Company or any direct or indirect participant in identifying the beneficial owners of the notes and Anteon and the trustee may conclusively rely on, and will be protected in relying on, instructions from The Depository Trust Company for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the notes. Transfers between participants in The Depository Trust Company will be effected in accordance with The Depository Trust Company's procedures, and will be settled in same day funds. The Depository Trust Company has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more participants to whose account The Depository Trust Company has credited the interests in the global notes and only in respect of the portion of the aggregate principal amount of the notes as to which the participant or participants has or have given that direction. However, if there is an event of default with respect to the notes, The Depository Trust Company reserves the right to exchange the global notes for legended notes in certificated form and to distribute them to its participants. Although The Depository Trust Company has agreed to these procedures to facilitate transfers of interests in the global notes among participants in The Depository Trust Company, it is under no obligation to perform or to continue to perform these procedures and may discontinue them at any time. None of Anteon, the trustee or any of our or the trustee's respective agents will have any responsibility for the performance by The Depository Trust Company and its direct or indirect participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A global note will be exchangeable for definitive notes in registered certificated form if: (1) The Depository Trust Company notifies us that it is unwilling or unable to continue as depository for the global notes and we fail to appoint a successor depository within 90 days, (2) The Depository Trust Company ceases to be a clearing agency registered under the Exchange Act, (3) we elect to cause the issuance of the certificated notes upon a notice of the trustee, (4) a default or event of default under the indenture for the notes has occurred and is continuing, or 127 (5) a request to that effect is made but only upon prior written notice given to the trustee by or on behalf of The Depository Trust Company in accordance with the indenture. In all cases, certificated notes delivered in exchange for any global note or beneficial interests in a global note will be registered in the name, and issued in any approved denominations, requested by or on behalf of The Depository Trust Company, in accordance with its customary procedures. SAME DAY SETTLEMENT We expect that the interests in the global notes will be eligible to trade in The Depository Trust Company's Same-Day Funds Settlement System. As a result, secondary market trading activity in these interests will settle in immediately available funds, subject in all cases to the rules and procedures of The Depository Trust Company and its participants. We expect that secondary trading in any certificated notes will also be settled in immediately available funds. PAYMENT The indenture requires that payments in respect of the notes represented by global notes, including principal and interest, be made by wire transfer of immediately available funds to the accounts specified by the holder of the global notes. With respect to notes in certificated form, we will make all payments of principal and interest on the notes at our office or agency maintained for that purpose within the city and state of New York. This office will initially be the office of the paying agent maintained for that purpose. At our option however, we may make these installments of interest by (1) check mailed to the holders of notes at their respective addresses provided in the register of holder of notes or (2) transfer to an account located in the United States maintained by the payee. YEAR 2000 The Depository Trust Company has advised us that its management is aware that some computer applications, systems, and the like for processing data that are dependent upon calendar dates, including dates before, on and after January 1, 2000, may encounter year 2000 problems. The Depository Trust Company has informed its participants and other members of the financial community that it has developed and is implementing a program so that its systems, as the same relate to the timely payment of distributions, including principal and interest payments, to security holders, book-entry deliveries and settlement of trades within The Depository Trust Company, continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, The Depository Trust Company's plan includes a testing phase, which is expected to be completed within the appropriate time frame. However, The Depository Trust Company's ability to perform its services properly is also dependent upon other parties, including issuers and their agents, as well as third party vendors from whom The Depository Trust Company licenses software and hardware, and third party vendors on whom The Depository Trust Company relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. The Depository Trust Company has informed its participants and other members of the financial community that it is contacting and will continue to contact third party vendors from whom The Depository Trust Company acquires services to: - impress upon them the importance of these services being year 2000 compliant, and - determine the extent of their efforts for year 2000 remediation and, as appropriate, testing of their services. In addition, The Depository Trust Company is in the process of developing contingency plans as it deems appropriate. According to The Depository Trust Company, the above information with respect to The Depository Trust Company has been provided to its participants and other members of the financial community for informational purposes only and is not intended to serve as a representation, warranty or contract modification of any kind. 128 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS GENERAL The following general discussion summarizes certain of the material U.S. Federal income and estate tax aspects of the exchange of initial notes for exchange notes in accordance with the exchange offer, and the ownership and disposition of the exchange notes. This discussion is a summary for general information only and is limited in the following ways: - The discussion only covers holders of exchange notes that exchange initial notes for exchange notes in accordance with the exchange offer. - The discussion only covers holders of exchange notes that hold the exchange notes as capital assets (that is, for investment purposes), and that do not have a special tax status. - The discussion covers only the general tax consequences to holders of the exchange notes. It does not cover tax consequences that depend upon a holder's individual tax circumstances. - The discussion is based on current law. Changes in the law may change the tax treatment of the exchange notes on a prospective or retroactive basis. - The discussion does not cover state, local or foreign law. - The discussion does not apply to holders owning 10% or more of the voting stock of the Company, or corporate holders that are controlled foreign corporations with respect to the Company. We have not sought and will not seek any rulings or opinions from the Internal Revenue Service or counsel with respect to the matters discussed below. There can be no assurance that the Internal Revenue Service will not take positions about the tax treatment of the exchange notes which are different from those that we discuss. THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. The tax consequences depend upon whether you are a U.S. holder or a non-U.S. holder. A U.S. holder is: - a citizen or resident of the United States; - a corporation, partnership or other entity created or organized under U.S. law (Federal or state); - an estate the income of which is subject to U.S. Federal income taxation regardless of its sources; - a trust if a U.S. court is able to exercise primary jurisdiction over administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; or - any other person whose worldwide income and gain is otherwise subject to U.S. Federal income taxation on a net basis. A non-U.S. holder is a holder that is not a U.S. holder. 129 TAXATION OF HOLDERS ON EXCHANGE The exchange of initial notes for exchange notes in accordance with the exchange offer will not be treated as an exchange or otherwise as a taxable event to holders. Consequently, the tax treatment to the holders on the exchange will be as follows: - no gain or loss will be realized by a holder upon receipt of an exchange note; - the holding period of the exchange note will include the holding period of the initial note exchanged the exchange note; and - the adjusted tax basis of the exchange note will be the same as the adjusted tax basis of the initial note exchanged for the exchange note immediately before the exchange. Further, the U.S. tax consequences of ownership and disposition of any exchange note should be the same as the U.S. tax consequences of ownership and disposition of an initial note. See "Tax Consequences to U.S. Holders; Sale, Exchange or Redemption of the Notes" and "Tax Consequences to Non-U.S. Holders; Sale, Exchange or Redemption of the Notes" below. TAX CONSEQUENCES TO U.S. HOLDERS INTEREST - If you are a cash method taxpayer (including most individual holders), you must report the interest on your income when it is received by you. - If you are an accrual method taxpayer, you must report the interest on your income as it accrues. REGISTERED EXCHANGE OFFER Under certain circumstances described above, we will be required to pay additional interest on the Notes if we fail to comply with certain of our obligations under the Registration Rights Agreement. See "Description of the Notes--Registered Exchange Offer; Registration Rights." Although the matter is not free from doubt, such additional interest should be treated as a payment of additional interest on the exchange notes for U.S. Federal income tax purposes, with the following results: - If you are a cash method taxpayer (including most individual holders), such additional interest will be taxable to you as ordinary income when it is received by you. - If you are an accrual method taxpayer, such additional interest will be taxable to you as ordinary income as it accrues. It is possible, however, that the Internal Revenue Service may take a different position, in which case you might be required to include such additional interest in income as it accrues or becomes fixed (regardless of your regular method of accounting). SALE, EXCHANGE OR REDEMPTION OF THE NOTES On a sale, exchange, retirement or other disposition of an exchange note: - You will have taxable gain or loss equal to the difference between the tax basis of the note and amount received on the sale, exchange, retirement or other disposition. - Any gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the Note was held for more than one year. - If you sell the exchange note between interest payment dates, a portion of the amount you receive reflects interest that has accrued on the exchange note but has not yet been paid by the sale date. That amount is treated as ordinary interest income and not as sale proceeds. 130 - You will not have any taxable gain or loss if the notes are exchanged for exchange notes in the Registered Exchange Offer. You will have the same basis and holding period in the exchange notes as you had in the notes. INFORMATION REPORTING AND BACKUP WITHHOLDING Under the tax rules concerning information reporting to the Internal Revenue Service: - We are required to provide information to the Internal Revenue Service concerning interest and redemption proceeds we pay to you on exchange notes held by you, unless an exemption applies. - Similarly, unless an exemption applies, you are required to provide us with a correct taxpayer identification number for our use in reporting information to the Internal Revenue Service. If you are an individual, this is your social security number. You are also required to comply with other Internal Revenue Service requirements concerning information reporting. - If you are subject to these requirements but do not comply, we are required to withhold 31% of all amounts payable to you on the exchange notes (including principal payments). If we do withhold part of a payment, you may use the withheld amount as a credit against your Federal income tax liability. - All U.S. holders that are individuals are subject to these requirements. Certain U.S. holders, including all corporations, tax-exempt organizations and individual retirement accounts, are exempt from these requirements. TAX CONSEQUENCES TO NON-U.S. HOLDERS WITHHOLDING TAXES If you are a non-U.S. holder, payments of principal and interest on the exchange notes generally will not be subject to U.S. withholding taxes. However, in order for the exemption from withholding taxes to apply, you must meet the following requirements: - As the beneficial owner of an exchange note, you must provide a statement to the effect that you are not a U.S. holder. This statement is generally made on Internal Revenue Service Form W-8. You should consult your own tax advisor about the specific method to satisfy this requirement. - You must not be a bank that is making a loan in the ordinary course of its business. Non-U.S. holders that do not qualify for exemption from withholding generally will be subject to withholding of U.S. Federal income tax at a rate of 30%, or lower applicable treaty rate. New Treasury regulations generally effective for payments made after December 31, 1999 provide alternative methods for satisfying the certification requirements described above. The Internal Revenue Service recently issued a notice announcing the intent of the Treasury Department and the Internal Revenue Service to amend these regulations so that they normally will not apply to payments made before January 1, 2001. These regulations also will require, in the case of notes held by a foreign partnership, that the certification be provided by the partners rather than by the foreign partnership and that the partnership provide specified information, including a U.S. taxpayer identification number. SALE, EXCHANGE OR REDEMPTION OF THE NOTES If you sell an exchange note or it is redeemed, you will not be subject to U.S. Federal income tax on any gain unless either of the following applies: - The gain is connected with a trade or business that you conduct in the U.S. 131 - You are an individual and are present in the U.S. for at least 183 days during the year in which you dispose of the note, and certain other conditions are satisfied. U.S. TRADE OR BUSINESS If you hold an exchange note in connection with a trade or business that you are conducting in the U.S.: - Any interest on the Note, and any gain from disposing of the exchange note, generally will be subject to income tax as if you were a U.S. holder. - Any interest and gain will be exempt from U.S. withholding tax as discussed above as long as you submit to us a proper form, generally Internal Revenue Service Form 4224, that includes certain required information. You should consult your own tax advisor about how to satisfy this requirement. The procedures for satisfying this requirement will change on January 1, 2000. - If you are a corporation, you may be subject to a branch profits tax on your earnings that are connected with your U.S. trade or business, including earnings from the exchange note. This tax is 30%, but may be reduced or eliminated by an applicable income tax treaty. ESTATE TAXES If you are an individual non-U.S. holder, the exchange note will not be subject to U.S. estate tax when you die. However, this rule only applies if, at the time of your death, payments on the exchange note would not have been connected to a trade or business that you were conducting in the U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING U.S. rules concerning information reporting and backup withholding are described above. You automatically avoid these requirements when you provide the tax certifications needed to avoid withholding tax on interest, as described above (unless we know, or an intermediate entity knows, that the certification is false). See "Withholding Taxes" above. Similarly, if you dispose of an exchange note through a broker: - You must provide the broker appropriate certification of your non-U.S. status to avoid information reporting and backup withholding. - If you do not provide such certification, and you use the U.S. office of a broker, you may be subject to information reporting and backup withholding. - If you do not provide such certification, and you use the non-U.S. office of a broker, you will not be subject to backup withholding. However, you may be subject to information reporting depending on whether the broker has certain connections to the U.S. You should consult your tax advisor about the tax rules concerning information reporting requirements and backup withholding. THE ABOVE SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF EXCHANGE NOTES OR INITIAL NOTES IN LIGHT OF THAT HOLDER'S PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. HOLDERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE EXCHANGE OFFER AND THE OWNERSHIP OF THE INITIAL NOTES OR THE EXCHANGE NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT REVISIONS OF THESE TAX LAWS. 132 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for initial notes acquired by such broker-dealer as a result of market making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and, therefore, must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales, offers to resell or other transfers of the exchange notes received by it in connection with the exchange offer. Accordingly, each such broker-dealer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such exchange notes. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for initial notes where such initial notes were acquired as a result of market-making activities or other trading activities. We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 133 LEGAL MATTERS Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, has passed upon specific legal matters, including specific tax matters, with respect to the notes. EXPERTS The consolidated financial statements and schedule of Anteon Corporation and subsidiaries (Successor) as of December 31, 1998 and 1997, and for the years ended December 31, 1998 and 1997, and for the period from April 1, 1996 to December 31, 1996, and the financial statements and schedule of Ogden Professional Services Corporation (Predecessor) for the period from January 1, 1996 to March 31, 1996, have been included herein and in the registration statement in reliance upon the reports of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audited consolidated financial statements of Techmatics, Inc. as of June 30, 1997 included in this registration statement have been audited by Grant Thornton LLP, independent certified public accountants, to the extent and for the period indicated in their report thereon. Such consolidated financial statements have been included in reliance upon the report of Grant Thornton LLP. The audited consolidated financial statements of Techmatics, Inc. as of and for the years ended June 30, 1996 and 1995 included in this registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The consolidated financial statements of Analysis & Technology, Inc. and subsidiaries as of March 31, 1999 and 1998, and for each of the years in the three-year period ended March 31, 1999, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION Until June 23, 1999, A&T was subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, filed reports, proxy statements and other information with the Commission. We are not currently subject to the informational requirements of the Exchange Act. Under the indenture relating to the Notes, we have agreed to file (subject to acceptance) annual, quarterly and special reports and other information with the Commission. You may read and copy any reports or other information filed by us or A&T at the Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may call the Commission at 1-800-SEC-0330 for further information contained in the public reference room. The filings of Anteon and A&T with the Commission will also be available to the public from commercial document retrieval services and at the Commission's Web site at "http://www.sec.gov." The reports, proxy statements and other information concerning A&T through June 23, 1999 also can be inspected and copied at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, which supervises the Nasdaq National Market on which A&T's common stock is traded. In addition, you may request a copy of any of these filings, at no cost, by writing or telephoning us at the following address or telephone number: Anteon Corporation 3211 Jermantown Road, Suite 700 Fairfax, Virginia 22030-2801 (703) 246-0200 Attention: General Counsel 134 GLOSSARY OF TERMS BACKLOG--Backlog represents orders under prime contracts with the Federal government and subcontracts under Federal government prime contracts. Contract backlog is based on management's estimate of future revenues to be derived from existing contracts. There are no assurances that all of such backlog will be recognized as revenue. Funded backlog consists of the aggregate dollar portion of our contracts for which funding has been contractually authorized by the government and earmarked for expenditure under such contracts. CAS--Federal law requires certain government contractors and subcontractors to comply with prescribed Cost Accounting Standards and to disclose in writing and follow consistently their cost accounting practices. The DCAA uses the CAS when auditing costs incurred by contractors in the performance of government contracts. C(4)I--Command, control, computers, communications and intelligence systems. C(4)ISR--Command, control, computers, communications, intelligence, surveillance and reconnaissance services. CMOS--The Cargo Movement Operations System is a logistics system to automate the tracking of all equipment and cargo movement operations for the Air Force. This system is one of the largest open systems within the Department of Defense, and the first standard Air Force client/server application to be installed. COTS--Commercial off-the-shelf hardware and software products which are, unlike customized systems, more open, modular and scaleable, less costly and in some instances better suited to meet the needs of the Federal government. DCAA--The Defense Contract Audit Agency performs all contract auditing for the Department of Defense and provides financial and accounting advice to government contracting officers who execute and administer government contracts. The DCAA is involved in virtually every phase of the procurement process, from the pre-award survey of contractor capability to the audit of final costs claimed on completion of cost-reimbursement contracts. The federal government has the right to audit a company for three years after the final payment for compliance with contract terms. FAR--The Federal Acquisition Regulations, which regulate almost all aspects governing the formation, administration and performance of U.S. Federal government contracts. FEMA--The Federal Emergency Management Agency works in coordination with state and local government to provide a national response to emergencies (I.E., a tornado, hurricane, earthquake or fire). FEMA responds to emergencies and, if required, allocates Federal funds to help repair or replace property damage or assist victims. GSA--The General Services Administration acts as a program administrator and, in order for a company to provide services under a GSA contract, the company must be pre-qualified and selected by the GSA. GSA ADVANTAGE!--GSA ADVANTAGE! is an internet-based electronic ordering system used by government purchasing officials to buy goods and services from GSA Schedules. GSA SCHEDULES--The GSA awards indefinite quantity fixed price contracts to contractors for stated periods of time, through which individual agencies may place orders, receive shipments from and make payments directly to contractors. The contracts are awarded under either the sealed-bid method or the negotiated method of procurement and are placed on "lists," or schedules, according to the product/ service type. These schedules identify the supplies and services available to authorized government agencies by contract and include the names, addresses, and phone numbers of the GSA Schedule 135 contractors. The Automated Data Processing schedule provides for the procurement of mainframe and minicomputers, peripherals, software, supplies, and recently services. Contractors authorized to participate in the GSA Schedule program are eligible to market products and services to a broad range of Federal government customers. IDIQ--Indefinite Delivery, Indefinite Quantity type contracts are generally contracts for which the exact times and/or quantities of future deliveries are not known at the time of contract award. Apart from a small minimum purchase obligation by the government, an IDIQ contract provides no firm commitment of work to be ordered by the government. ITMRA--The Information Technology Management Reform Act of 1996. This statute changed the Federal government's process of procuring information technology by (i) placing increased attention on the cost effectiveness of information technology and return on investment and performance and (ii) making individual agencies accountable and responsible of oversight for information technology budgets. LOCE--The Linked Operations/Intelligence Centers Europe Program is a program which provides a common view of intelligence derived from multiple sources for the United States, NATO and UN peacekeeping forces in Europe. Near-real time intelligence is available through such technology as imagery, shared early warning systems, and interfaces with other U.S. and NATO systems. NEMIS--The National Emergency Management Information System, developed by Anteon for FEMA, is an enterprise-wide management information system that enables the White House to effectively monitor and mobilize multiple agencies and financial resources in response to national emergencies. NUWC--Naval Undersea Warfare Center. RECOMPETE--A recompete is a competitive government procurement for products and/or services for which one or more competing contractors are or were incumbent contractor(s) under an expiring or expired contract that required services substantially similar to those which are the subject of the new procurement. RFP--A Request for Proposal is a detailed document used in the procurement process by government agencies to solicit offers from interested contractors. The RFP typically contains a description of the scope of work to be performed by (or that may be ordered from) the contractor to be awarded the contract and sets forth the terms and conditions that will form part of the resulting contract. The RFP includes a description of the evaluation criteria to be used by the procuring agency, usually focused on price, past performance and technical/management plan. The government may unilaterally accept offers made by contractors pursuant to an RFP without further negotiations. TASK ORDER--is a contract order issued by a government agency under an umbrella contract vehicle such as an IDIQ contract. The task order is separately priced and contains a description of services to be performed and a defined period of performance. TC-AIMS--The Transportation Coordination Automated Information Movement Systems contract, the purpose of which is to reduce the number of duplicative transportation systems within the armed forces. The TC-AIMS system will be based on the CMOS system. 136 INDEX TO FINANCIAL STATEMENTS
PAGE --------- ANTEON CORPORATION Unaudited Condensed Consolidated Balance Sheet as of June 30, 1999......................................... F-3 Unaudited Condensed Consolidated Statements of Income for the six months ended June 30, 1999 and 1998...... F-4 Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998..................................................................................................... F-5 Notes to Unaudited Condensed Consolidated Financial Statements............................................. F-6 Report of KPMG LLP, Independent Auditors................................................................... F-11 Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-12 Consolidated Statements of Income for the successor years ended December 31, 1998 and 1997, the successor period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to March 31, 1996... F-13 Consolidated Statements of Stockholders' Equity for the successor years ended December 31, 1998 and 1997, the successor period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to March 31, 1996........................................................................................... F-14 Consolidated Statements of Cash Flows for the successor years ended December 31, 1998 and 1997, the successor period April 1, 1996 to December 31, 1996 and the predecessor period January 1, 1996 to March 31, 1996................................................................................................. F-15 Notes to Consolidated Financial Statements................................................................. F-17 TECHMATICS, INC. Unaudited Consolidated Balance Sheet as of March 31, 1998.................................................. F-37 Unaudited Consolidated Statements of Earnings for the nine months ended March 31, 1998 and 1997................................................................................................. F-38 Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 1998 and 1997.................................................................................. F-39 Notes to Unaudited Consolidated Financial Statements....................................................... F-40 Report of Grant Thornton LLP, Independent Auditors......................................................... F-41 Consolidated Balance Sheet as of June 30, 1997............................................................. F-42 Consolidated Statement of Earnings for the year ended June 30, 1997........................................ F-43 Consolidated Statement of Changes in Stockholders' Equity for the year ended June 30, 1997................. F-44 Consolidated Statement of Cash Flows for the year ended June 30, 1997...................................... F-45 Notes to Consolidated Financial Statements................................................................. F-46 Report of Arthur Andersen LLP, Independent Auditors........................................................ F-53 Consolidated Balance Sheets as of June 30, 1996 and 1995................................................... F-54 Consolidated Statements of Income for the years ended June 30, 1996 and 1995............................... F-55 Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 1996 and 1995...... F-56 Consolidated Statements of Cash Flows for the years ended June 30, 1996 and 1995........................... F-57 Notes to Consolidated Financial Statements................................................................. F-58
F-1 ANALYSIS & TECHNOLOGY, INC. Report of KPMG LLP, Independent Auditors............................................. F-64 Consolidated Balance Sheets as of March 31, 1999 and 1998............................ F-65 Consolidated Statements of Earnings for each of the the years in the three-year period ended March 31, 1999........................................................ F-66 Consolidated Statements of Shareholders' Equity for each of the years in the three-year period ended March 31, 1999............................................. F-67 Consolidated Statements of Cash Flows for each of the years in the three-year period ended March 31, 1999............................................................... F-68 Notes to Consolidated Financial Statements........................................... F-69
F-2 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1999 (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets Cash and cash equivalents.................. $ 2,764 Accounts receivable, net................... 98,942 Prepaid expenses and other current assets................................... 4,753 -------- Total current assets................... 106,459 -------- Due from parent.............................. 7,017 Property and equipment, net of accumulated depreciation and amortization.............. 19,286 Goodwill, net of accumulated amortization.... 132,532 Investments.................................. 10,533 Other assets, net............................ 11,280 -------- Total assets........................... $ 287,107 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................... $ 17,525 Accrued expenses........................... 33,468 Notes payable.............................. 8,998 Other current liabilities, net............. 2,866 -------- Total current liabilities.............. 62,857 Revolving Credit Facility.................... 13,000 Term Loan Facility........................... 60,000 Senior subordinated notes payable............ 100,000 Mortgage note payable........................ 1,726 Noncurrent deferred tax liabilities, net..... 1,379 Other long-term liabilities.................. 206 -------- Total Liabilities...................... 239,168 -------- Minority interest in subsidiary.............. 53 -------- Stockholders' equity Common stock, $0.05 par value, 4,415,460 shares authorized, 3,557,672 shares issued and outstanding................... 178 Additional paid-in-capital................. 40,751 Accumulated other comprehensive income..... 1,972 Retained earnings.......................... 4,985 -------- Total stockholders' equity............. 47,886 -------- Commitments and contingencies................ Total liabilities and stockholders' equity............................... $ 287,107 -------- --------
See accompanying notes to unaudited condensed consolidated financial statements. F-3 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------------- 1999 1998 ---------- ---------- Revenues............................................................................... $ 145,609 $ 108,196 Costs of revenues...................................................................... 128,576 96,139 ---------- ---------- Gross profit..................................................................... 17,033 12,057 ---------- ---------- Operating expenses: General and administrative expenses.................................................. 8,907 6,203 Amortization of noncompete agreements................................................ 454 76 Goodwill amortization................................................................ 1,024 751 Cost of acquisitions................................................................. -- 18 ---------- ---------- Total operating expenses......................................................... 10,385 7,048 ---------- ---------- Operating income................................................................. 6,648 5,009 ---------- ---------- Interest expense, net of interest income of $812 and $82............................... 5,500 1,736 Minority interest in earnings of subsidiary............................................ 17 14 ---------- ---------- Income before provision for income taxes and extraordinary item........................ 1,131 3,259 Provision for income taxes............................................................. 597 1,310 ---------- ---------- Net income before extraordinary item............................................. 534 1,949 ---------- ---------- Extraordinary item--loss on early extinguishment of debt, net of income taxes of $309................................................................. 463 -- ---------- ---------- Net income............................................................................. $ 71 $ 1,949 ---------- ---------- ---------- ----------
See accompanying notes to unaudited condensed consolidated financial statements. F-4 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 --------- --------- Cash flows from operating activities.......................................................... $ 71 $ 1,949 Net income.................................................................................. Adjustments to reconcile net income to net cash provided by (used for) operating activities: Extraordinary loss........................................................................ 772 -- Depreciation and amortization of property and equipment................................... 996 501 Goodwill amortization..................................................................... 1,024 751 Amortization of noncompete agreements..................................................... 454 76 Amortization of deferred financing and contract costs..................................... 102 683 Deferred income taxes..................................................................... 38 151 Minority interest in earnings (losses) of subsidiary...................................... 17 -- Changes in assets and liabilities, net of acquired assets and liabilities................. 2,203 (13,537) --------- --------- Net cash provided by (used in) operating activities..................................... 9,602 (9,426) --------- --------- Cash flows from investing activities: Purchase of property and equipment.......................................................... (1,255) (1,164) Acquisition of A&T, net of cash acquired.................................................... (115,446) -- Acquisition of Techmatics, net of cash acquired............................................. -- (28,558) Purchases of investments.................................................................... (1,939) -- Other, net.................................................................................. (30) 116 --------- --------- Net cash used in investing activities................................................. (118,670) (29,606) --------- --------- Cash flows from financing activities: Proceeds from bank notes payable............................................................ 212,000 158,104 Principal payments on bank notes payable.................................................... (209,400) (117,100) Proceeds from issuance of common stock...................................................... 22,536 18 Issuance of senior subordinated notes payable............................................... 100,000 -- Principal payments on notes payable......................................................... (4,925) -- Deferred financing costs.................................................................... (8,535) (987) --------- --------- Net cash provided by financing activities............................................. 111,676 40,035 --------- --------- Net increase in cash and cash equivalents............................................. 2,608 1,003 Cash and cash equivalents, beginning of period................................................ 156 652 --------- --------- Cash and cash equivalents, end of period...................................................... $ 2,764 $ 1,655 --------- --------- --------- --------- Supplemental disclosure of cash flow information: Interest paid................................................................................. $ 4,856 $ 2,075 Income taxes paid............................................................................. 25 230
See accompanying notes to unaudited condensed consolidated financial statements. F-5 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (1) BASIS OF PRESENTATION The unaudited interim financial information as of June 30, 1999, and for the six months ended June 30, 1999 and 1998, has been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of such information. The operating results for the six months ended June 30, 1999 may not be indicative of the results of operations for the year ending 1999 or any future period. This financial information should be read in conjunction with the Company's audited consolidated financial statements and footnotes thereto. (2) SENIOR SUBORDINATED NOTES OFFERING AND RELATED TRANSACTIONS On May 11, 1999, the Company completed an offering of $100 million of its 12% Senior Subordinated Notes due 2009 (the "Notes"). The Notes are unsecured and are guaranteed by all of the Company's current and future domestic subsidiaries. The Notes require semi-annual interest payments beginning on November 15, 1999 through maturity on May 15, 2009. The Notes may be redeemed at the option of the Company after May 15, 2004 upon the payment of certain redemption premiums, although up to 25% of the Notes can be redeemed prior to May 15, 2002 with the proceeds of certain equity offerings and upon the payment of certain redemption premiums. The Notes contain various restrictive covenants, including limitations on the incurrence of additional indebtedness, restrictions and limitations on dividends paid to the Company's parent, Azimuth Technologies, Inc., and restrictions and limitations on the sales of certain assets, among others. The Notes also require the maintanence of certain ratios. Concurrent with the offering of the Notes, the Company's parent, Azimuth Technologies, Inc., invested an additional $22.5 million in the Company's common stock (the "Equity Contribution"). During June 1999, the Company obtained a new bank credit facility (the "New Credit Facility") with a syndicate of banks, which includes a revolving line of credit (the "Revolving Credit Facility") and a term loan facility (the "Term Loan Facility"). The Revolving Credit Facility has maximum borrowings of up to $120 million, as determined based on a portion of eligible accounts receivable, and bears interest at varying rates based on LIBOR plus a margin determined using Anteon's ratio of net debt to EBITDA (as defined in the New Credit Facility) and matures on June 23, 2005. As of June 30, 1999, the outstanding balance on the Revolving Credit Facility was $13.0 million. The Term Loan Facility consists of a term loan of $60 million bearing interest at varying rates based on LIBOR plus a margin determined using Anteon's ratio of net debt to EBITDA (as defined in the New Credit Facility). Principal payments on the Term Loan Facility commence on a quarterly basis after June 23, 2001, with $15 million due at maturity on June 23, 2005. The New Credit Facility is secured by substantially all of the tangible and intangible assets of Anteon and the Guarantor Subsidiaries (see note 5). The proceeds from the Notes, the Equity Contribution, and the New Credit Facility were used, along with other available cash to acquire all of the outstanding stock of Analysis & Technology, Inc. and repay all outstanding amounts on the Company's previous bank line of credit. Deferred financing fees of $772 associated with the previous bank line of credit were written off during the six months ended June 30, 1999 and have been recognized as an extraordinary item. F-6 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (3) ACQUISITION OF ANALYSIS & TECHNOLOGY, INC. On June 23, 1999, the Company acquired all of the outstanding stock of Analysis & Technology, Inc. ("A&T"), a provider of system and engineering technologies, technology-based training systems, and information technologies to the U.S. Government and commercial industry. The acquisition was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of combination. These estimates were based on preliminary appraisals and other studies that will be completed during the remainder of 1999. Goodwill resulting from the combination is being amortized on a straight-line basis over thirty years. The total purchase price paid, including transaction costs, of approximately $115.4 million, was preliminarily allocated to the assets and liabilities acquired as follows (in thousands): Accounts receivable............................................... $ 30,910 Prepaid expenses and other current assets......................... 951 Property and equipment............................................ 14,129 Other assets...................................................... 1,606 Goodwill.......................................................... 83,490 Accounts payable and accrued expenses............................. (13,499) Deferred tax liabilities, net..................................... (64) Mortgage note payable............................................. (2,077) --------- Total consideration........................................... $ 115,446 --------- ---------
Transaction costs of approximately $4.4 million were incurred in connection with the acquisition, including approximately $1.1 million to Caxton-Iseman Capital, Inc., the majority shareholder of the Company's parent, Azimuth Technologies, Inc. The following unaudited pro forma summary presents consolidated information as if the acquisition of A&T had occurred as of January 1, 1998. The pro forma summary is provided for informational purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entity:
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 --------- --------- Total revenues $ 235,706 $ 193,093 Total expenses.......................................................... (236,711) (193,185) --------- --------- Net loss before extraordinary items................................... (1,005) (92) --------- --------- Net loss................................................................ (1,005) (555) --------- --------- --------- ---------
(4) COMPREHENSIVE INCOME Comprehensive income for the six months ended June 30, 1999 and 1998 was $1,840,000 and $1,949,000, respectively. F-7 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (5) ARRANGEMENT WITH CAXTON-ISEMAN CAPITAL, INC. Effective June 1, 1999, the Company entered into an arrangement with Caxton-Iseman Capital, Inc., the majority shareholder of the Company's parent, Azimuth Technologies, Inc., whereby the Company is required to pay annual management fees to Caxton-Iseman Capital, Inc. Prior to the completion of the acquisition of A&T, the annual management fee was $500,000 and covered the period beginning January 1, 1999. For periods subsequent to the acquisition of A&T, the annual management fee is $1 million. For the six months ended June 30, 1999, the Company recognized $250,000 of management fee expense under the arrangement. Also under the arrangement, the Company paid Caxton-Iseman Capital, Inc. a transaction fee of approximately $1.1 million in connection with the acquisition of A&T. (6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Under the terms of the Notes, the Company's wholly-owned domestic subsidiaries (the "Subsidiary Guarantors") are guarantors of the Notes. Such guarantees are full, unconditional and joint and several. Separate unaudited condensed financial statements of the Subsidiary Guarantors are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, condensed balance sheets, statements of operations and statements of cash flows information for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries and for the Company.
AS OF JUNE 30, 1999 -------------------------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ----------- --------------- ----------- ------------ Cash....................................... $ 2,572 $ (470) $ 662 $ -- $ 2,764 Receivables................................ 39,920 58,760 262 -- 98,942 Other current assets....................... 2,909 1,680 164 -- 4,753 Property and equipment, net................ 2,316 16,909 61 -- 19,286 Due from parent............................ 7,017 -- -- -- 7,017 Investment in and advances to subsidiaries............................. 48,669 225 (225) (48,669) -- Goodwill, net.............................. 132,532 -- -- -- 132,532 Investments................................ 10,533 -- -- -- 10,533 Other long-term assets..................... 8,168 3,104 8 -- 11,280 ----------- ----------- ------ ----------- ------------ Total assets........................... $ 254,636 $ 80,208 $ 932 $ (48,669) $ 287,107 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------ Indebtedness............................... 181,647 2,077 -- -- 183,724 Accounts payable........................... 13,539 3,691 295 -- 17,525 Accrued expenses........................... 15,059 18,157 252 -- 33,468 Other current liabilities.................. 315 2,324 227 -- 2,866 Other long-term liabilities................ 1,047 463 75 -- 1,585 ----------- ----------- ------ ----------- ------------ Total liabilities...................... 211,607 26,712 849 -- 239,168 Minority interest in subsidiary............ -- -- 53 -- 53 Total stockholders' equity................. 43,029 53,496 30 (48,669) 47,886 ----------- ----------- ------ ----------- ------------ Total liabilities and stockholders' equity................................... $ 254,636 $ 80,208 $ 932 $ (48,669) $ 287,107 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------
F-8 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 -------------------------------------------------------------------- Revenues................................... $ 94,117 $ 50,020 $ 1,775 $ (303) $ 145,609 Cost of revenues........................... 85,518 41,717 1,644 (303) 128,576 ----------- ----------- ------ ----------- ------------ Gross profit............................... 8,599 8,303 131 -- 17,033 Total operating expenses................... 5,513 4,798 74 -- 10,385 ----------- ----------- ------ ----------- ------------ Operating income........................... 3,086 3,505 57 -- 6,648 Interest expense (income), net............. 5,536 (46) 10 -- 5,500 Minority interest.......................... -- -- 17 -- 17 ----------- ----------- ------ ----------- ------------ Income (loss) before provision for income taxes and extraordinary item............. (2,450) 3,551 30 -- 1,131 Provision (benefit) for income taxes....... (574) 1,141 30 -- 597 ----------- ----------- ------ ----------- ------------ Net income before extraordinary item....... (1,876) 2,410 -- -- 534 Extraordinary loss, net of tax............. 463 -- -- -- 463 ----------- ----------- ------ ----------- ------------ Net income (loss).......................... $ (2,339) $ 2,410 $ -- $ -- $ 71 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------
F-9 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON- GUARANTOR ANTEON CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ----------- ------------- ------------ Net income (loss).......................................... $ (2,327) $ 2,382 $ 16 $ 71 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Extraordinary loss..................................... 772 -- -- 772 Depreciation and amortization.......................... 407 576 13 996 Goodwill amortization.................................. 1,024 -- -- 1,024 Amortization of noncompetes............................ 454 -- -- 454 Amortization of deferred financing and contract costs.. 102 -- -- 102 Deferred income taxes.................................. -- -- 38 -- Minority interest in earnings of subsidiary............ -- 17 -- 17 Changes in assets and liabilities, net of acquired assets and liabilities............................... 8,641 (2,918) 405 6,128 ----------- ----------- ------ ------------ Net cash provided by operating activities............ $ 9,073 $ 57 $ 472 $ 9,602 ----------- ----------- ------ ------------ Cash flows from investing activities: Purchases of property and equipment.................... $ (926) $ (294) $ (35) $ (1,255) Acquisition of A&T, net of cash acquired............... (115,446) -- -- (115,446) Purchases of investments............................... (1,930) -- (9) (1,939) Other, net............................................. (30) -- -- (30) ----------- ----------- ------ ------------ Net cash used in investing activities................ $(118,332) $ (294) $ (44) $ (118,670) ----------- ----------- ------ ------------ Cash flow from financing activities Proceeds from bank notes payable....................... $ 212,000 $ -- $ -- (212,000) Principal payments on bank notes payable............... (209,400) -- -- (209,400) Issuance of senior subordinated notes payable.......... 100,000 -- -- 100,000 Principal payments on notes payable.................... (4,925) -- -- (4,925) Proceeds from issuance of common stock................. 22,536 -- -- 22,536 Deferred financing costs............................... (8,535) -- -- (8,535) ----------- ----------- ------ ------------ Net cash provided by financing activities............ $ 111,676 $ -- $ -- $ 111,676 ----------- ----------- ------ ------------ Net increase (decrease) in cash and cash equivalents....... 2,417 (237) 428 2,608 Cash and cash equivalents beginning of year................ 155 (234) 235 156 ----------- ----------- ------ ------------ Cash and cash equivalents end of year...................... $ 2,572 $ (471) $ 663 $ 2,764 ----------- ----------- ------ ------------ ----------- ----------- ------ ------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 ----------------------------------------------------- Revenues................................................... $ 92,836 $ 14,102 $ 1,258 $ 108,196 Cost of revenues........................................... 83,485 11,589 1,065 96,139 ----------- ----------- ------ ------------ Gross profit............................................... 9,351 2,513 193 12,057 Total operating expenses................................... 5,057 1,883 108 7,048 ----------- ----------- ------ ------------ Operating income (loss).................................... 4,294 630 85 5,009 Interest expense (income) net.............................. 1,770 (26) (8) 1,736 Minority interest.......................................... -- -- 14 14 ----------- ----------- ------ ------------ Income before provision for income taxes................... 2,524 656 79 3,259 Provision for income taxes................................. 1,037 252 21 1,310 ----------- ----------- ------ ------------ Net income................................................. $ 1,487 $ 404 $ 58 $ 1,949 ----------- ----------- ------ ------------ ----------- ----------- ------ ------------
F-10 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (6) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 ------------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON- GUARANTOR ANTEON CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ------------- ------------- ------------ Net income................................................. $ 1,471 406 72 1,949 Adjustments to reconcile change in net income to net cash provided by (used in) operations: Depreciation and amortization.......................... 386 69 46 501 Goodwill amortization.................................. 751 -- -- 751 Amortization of noncompete agreements.................. 76 -- -- 76 Amortization of deferred financing and contract costs.. 683 -- -- 683 Deferred income taxes.................................. -- 137 14 151 Changes in assets and liabilities, net of acquired assets and liabilities.......................................... (13,993) (151) 607 (13,537) Net cash provided by (used in) operating activities........ $ (10,626) $ 461 $ 739 $ (9,426) ----------- ----- ----- ------------ Cash flows from investing activities: Purchases of property and equipment.................... (961) (84) (119) (1,164) Acquisition of Techmatics, net of cash................. (28,558) -- -- (28,558) Other.................................................. 116 -- -- 116 ----------- ----- ----- ------------ Net cash used in investing activities...................... $ (29,403) $ (84) $ (119) $ (29,606) Cash flow from financing activities: Proceeds from bank notes payable....................... $ 158,104 $ -- $ -- $ 158,104 Principal payments on bank notes payable............... (117,100) -- -- (117,100) Proceeds from issuance of common stock................. 18 -- -- 18 Deferred financing fees................................ (987) -- -- (987) ----------- ----- ----- ------------ Net cash provided by financing activities.................. $ 40,035 $ -- $ -- $ 40,035 ----------- ----- ----- ------------ Net increase in cash and cash equivalents.................. 6 377 620 1,003 Cash and cash equivalents beginning of year................ 830 (195) 17 652 ----------- ----- ----- ------------ Cash and cash equivalents end of year...................... $ 836 $ 182 $ 637 $ 1,655 ----------- ----- ----- ------------ ----------- ----- ----- ------------
F-11 INDEPENDENT AUDITORS' REPORT The Board of Directors Anteon Corporation and subsidiaries: We have audited the accompanying consolidated balance sheets of Anteon Corporation (a majority-owned subsidiary of Azimuth Technologies, Inc.) and subsidiaries (Successor) as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the years ended December 31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996 (Successor periods), and the statements of income, stockholder's equity and cash flows of Ogden Professional Services Corporation (an indirect wholly owned subsidiary of Ogden Corporation) (Predecessor) for the period from January 1, 1996 to March 31, 1996 (Predecessor period). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned Successor consolidated financial statements present fairly, in all material respects, the financial position of Anteon Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of their operations and their cash flows for the Successor periods, in conformity with generally accepted accounting principles. Further, in our opinion, the aforementioned Predecessor financial statements present fairly, in all material respects, the results of operations and cash flows of Ogden Professional Services Corporation for the Predecessor period, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, effective April 1, 1996, Azimuth Technologies, Inc. acquired all of the outstanding stock of Ogden Professional Services Corporation in a business combination accounted for as a purchase. As a result of the acquisition, the financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable. KPMG LLP McLean, Virginia February 19, 1999, except as to note 13, which is as of April 14, 1999 F-12 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
1998 1997 ---------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................................................. $ 156 652 Accounts receivable, net.................................................................. 68,053 29,405 Income tax receivable..................................................................... 2,138 -- Inventory, net............................................................................ -- 2,759 Prepaid expenses and other current assets................................................. 3,209 1,818 Deferred tax assets, net.................................................................. -- 1,110 ---------- --------- Total current assets.................................................................. 73,556 35,744 Due from parent............................................................................. 6,625 1,045 Property and equipment, at cost, net of accumulated depreciation and amortization of $2,940 and $1,562................................................................................ 4,537 1,585 Goodwill, net of accumulated amortization of $2,909 and $1,088.............................. 50,036 30,034 Investments................................................................................. 5,973 -- Other assets, net........................................................................... 2,441 164 ---------- --------- Total assets.......................................................................... $ 143,168 68,572 ---------- --------- ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................................................... $ 12,582 12,630 Accrued expenses.......................................................................... 23,338 9,347 Bank notes payable, current portion....................................................... -- 2,000 Subordinated notes payable, current portion............................................... 967 -- Deferred tax liabilities, net............................................................. 1,542 -- Other current liabilities................................................................. 966 -- ---------- --------- Total current liabilities............................................................. 39,395 23,977 Bank notes payable, less current portion.................................................... 70,400 22,100 Subordinated notes payable, less current portion............................................ 8,335 -- Noncurrent deferred tax liabilities, net.................................................... 311 462 Other long-term liabilities................................................................. 985 1,205 ---------- --------- Total liabilities..................................................................... 119,426 47,744 ---------- --------- Minority interest in subsidiary............................................................. 37 12 ---------- --------- Stockholders' equity: Common stock, $0.05 par value, 3,415,460 shares authorized, 2,975,009 and 2,973,269 shares issued and outstanding as of December 31, 1998 and 1997, respectively................... 149 149 Additional paid-in capital................................................................ 18,243 18,221 Accumulated other comprehensive income.................................................... 399 -- Retained earnings......................................................................... 4,914 2,446 ---------- --------- Total stockholders' equity............................................................ 23,705 20,816 ---------- --------- Commitments and contingencies Total liabilities and stockholders' equity............................................ $ 143,168 68,572 ---------- --------- ---------- ---------
See accompanying notes to consolidated financial statements. F-13 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF INCOME SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM APRIL 1, 1996 TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996 (IN THOUSANDS)
SUCCESSOR PERIOD FROM PREDECESSOR APRIL 1, PERIOD FROM SUCCESSOR SUCCESSOR 1996 JANUARY 1, YEAR ENDED YEAR ENDED TO 1996 DECEMBER DECEMBER DECEMBER TO 31, 31, 31, MARCH 31, 1998 1997 1996 1996 ----------- ----------- ----------- ------------- Revenues................................... $ 249,776 $ 176,292 $ 109,780 $ 32,046 Costs of revenues.......................... 221,588 159,539 100,426 29,218 ----------- ----------- ----------- ------------- Gross profit......................... 28,188 16,753 9,354 2,828 ----------- ----------- ----------- ------------- Operating expenses: General and administrative expenses...... 15,286 8,061 4,616 2,071 Amortization of noncompete agreements.... 530 2,286 1,714 -- Goodwill amortization.................... 1,814 742 346 -- Costs of acquisitions.................... 115 584 -- -- ----------- ----------- ----------- ------------- Total operating expenses............. 17,745 11,673 6,676 2,071 ----------- ----------- ----------- ------------- Operating income..................... 10,443 5,080 2,678 757 Interest expense, net of interest income of $136, $48, $31,and $0.................... 5,597 2,365 1,455 -- Minority interest in earnings of subsidiary............................... 25 13 -- -- ----------- ----------- ----------- ------------- Income before provision for income taxes... 4,821 2,702 1,223 757 Provision for income taxes................. 2,353 1,063 416 303 ----------- ----------- ----------- ------------- Net income........................... $ 2,468 $ 1,639 $ 807 $ 454 ----------- ----------- ----------- ------------- ----------- ----------- ----------- -------------
See accompanying notes to consolidated financial statements. F-14 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM APRIL 1, 1996 TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996
ACCUMULATED COMMON STOCK ADDITIONAL OTHER ----------------------- PAID-IN COMPREHENSIVE RETAINED SHARES AMOUNT CAPITAL INCOME EARNINGS TOTAL ---------- ----------- ----------- --------------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) PREDECESSOR Balance, January 1, 1996.......................... 2,973,269 $ 149 $ 7,726 -- $ 21,533 $ 29,408 Net income........................................ -- -- -- -- 454 454 ---------- ----- ----------- ----- --------- --------- Balance, March 31,1996............................ 2,973,269 $ 149 $ 7,726 -- $ 21,987 $ 29,862 ---------- ----- ----------- ----- --------- --------- ---------- ----- ----------- ----- --------- --------- SUCCESSOR Initial capitalization by Azimuth Technologies, Inc............................................. 2,973,269 $ 149 $ 18,221 $ -- $ -- $ 18,370 Net income........................................ -- -- -- -- 807 807 ---------- ----- ----------- ----- --------- --------- Balance, December 31, 1996........................ 2,973,269 149 18,221 -- 807 19,177 Net income........................................ -- -- -- -- 1,639 1,639 ---------- ----- ----------- ----- --------- --------- Balance, December 31, 1997........................ 2,973,269 149 18,221 -- 2,446 20,816 Exercise of stock options......................... 1,740 -- 22 -- -- 22 Unrealized gains on investments................... -- -- -- 392 -- 392 Foreign currency translation...................... -- -- -- 7 -- 7 Net income........................................ -- -- -- -- 2,468 2,468 ---------- ----- ----------- ----- --------- --------- Comprehensive income.............................. -- -- -- 399 2,468 2,867 ---------- ----- ----------- ----- --------- --------- Balance, December 31, 1998........................ 2,975,009 $ 149 $ 18,243 $ 399 $ 4,914 $ 23,705 ---------- ----- ----------- ----- --------- --------- ---------- ----- ----------- ----- --------- ---------
See accompanying notes to consolidated financial statements. F-15 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM APRIL 1, 1996 TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996 (IN THOUSANDS)
SUCCESSOR PERIOD FROM PREDECESSOR SUCCESSOR SUCCESSOR APRIL 1, 1996 PERIOD FROM YEAR ENDED YEAR ENDED TO JANUARY 1, 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, TO 1998 1997 1996 MARCH 31, 1996 ------------ ------------- ------------- --------------- Cash flows from operating activities: Net income.......................................... $ 2,468 $ 1,639 $ 807 $ 454 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization of property and equipment..................................... 1,837 895 667 229 Goodwill amortization........................... 1,814 742 346 -- Amortization of noncompete agreements........... 530 2,286 1,714 -- Amortization of deferred financing and contract costs......................................... 1,420 1,209 468 157 Inventory obsolescence reserve.................. 500 -- -- -- Loss on disposal of property and equipment...... -- 21 -- -- Deferred income taxes........................... 2,501 (943) 416 -- Minority interest in earnings (losses) of subsidiary.................................... 25 (13) -- -- Changes in assets and liabilities, net of acquired liabilities: Decrease (increase) in accounts receivables... (15,559) 10,086 2,051 (1,130) Increase in income tax receivable............. (2,138) -- -- -- Decrease (increase) in inventory.............. 2,259 (2,759) -- -- Increase in due from parent................... (730) (531) (514) -- Increase in prepaid expenses and other current assets...................................... (2,088) (518) (318) (671) (Increase) decrease in other assets........... 556 414 732 -- (Decrease) increase in accounts payable and accrued expenses............................ (2,230) 1,566 221 3,024 Increase in other liabilities................. 495 -- 929 161 ------------ ------------- ------------- ------- Net cash provided by (used in) operating activities................................ (8,340) 14,094 7,519 2,224 ------------ ------------- ------------- ------- Cash flows from investing activities: Purchases of property and equipment................. (2,089) (817) (376) (211) Acquisition of the Company, net of cash acquired.... -- -- (35,808) -- Acquisition of Vector Data Systems, net of cash acquired.......................................... -- (17,239) -- -- Acquisition of Techmatics, net of cash acquired..... (27,612) -- -- -- Purchases of investments............................ (5,574) -- -- -- Other, net.......................................... (113) -- -- -- ------------ ------------- ------------- ------- Net cash used in investing activities....... (35,388) (18,056) (36,184) (211) ------------ ------------- ------------- ------- Cash flows from financing activities: Proceeds from bank notes payable.................... 278,500 199,300 29,100 -- Initial capitalization.............................. -- -- 9,869 -- Principal payments on bank notes payable............ (232,200) (194,800) (9,500) -- Principal payments on Techmatics obligations........ (2,075) -- -- -- Proceeds from issuance of common stock.............. 22 -- -- -- Deferred financing costs............................ (1,015) -- (690) -- Transfers to Ogden, net............................. -- -- -- (1,079) ------------ ------------- ------------- ------- Net cash provided by (used in) financing activities................................ 43,232 4,500 28,779 (1,079) ------------ ------------- ------------- ------- Net (decrease) increase in cash and cash equivalents............................... (496) 538 114 934 Cash and cash equivalents, beginning of period........ 652 114 -- 1,785 ------------ ------------- ------------- ------- Cash and cash equivalents, end of period.............. $ 156 $ 652 $ 114 $ 2,719 ------------ ------------- ------------- ------- ------------ ------------- ------------- ------- Supplemental disclosure of cash flow information: Interest paid....................................... $ 5,721 $ 1,684 $ 1,100 $ -- Income taxes paid................................... 1,784 1,154 -- -- ------------ ------------- ------------- ------- ------------ ------------- ------------- -------
F-16 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SUCCESSOR YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE SUCCESSOR PERIOD FROM APRIL 1, 1996 TO DECEMBER 31, 1996; PREDECESSOR PERIOD FROM JANUARY 1, 1996 TO MARCH 31, 1996 (IN THOUSANDS) Supplemental disclosure of noncash investing and financing activities: As of September 30, 1998, the Company reached a settlement on the arbitration proceedings related to the purchase of the Company from Ogden Professional Services Corporation (note 1). The reduction of $4.85 million of the consideration paid for the Company was recognized as a reduction of the Ogden debt at the Azimuth level and the goodwill from the Anteon acquisition. In connection with the Techmatics acquisition (note 3), the Company assumed $10 million of subordinated notes payable discounted as of the date of acquisition to approximately $8,880,000. In May 1998, the Company assumed $4 million of future income tax obligations of the former shareholders of Techmatics discounted to approximately $3.762 million as of the date of acquisition. In addition, the Company entered into two-year noncompete agreements valued at $2.85 million with certain executives of Techmatics discounted to approximately $2.654 million as of the date of acquisition. See accompanying notes to consolidated financial statements. F-17 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (1) ORGANIZATION AND BUSINESS Anteon Corporation ("Anteon" or the "Company") was acquired by Azimuth Technologies, Inc. ("Azimuth") (formerly CIC Technologies, Inc.) effective April 1, 1996. Azimuth acquired all of the outstanding stock of Ogden Professional Services Corporation, a wholly owned subsidiary of Ogden Technology Services Corporation and an indirectly wholly owned subsidiary of Ogden Corporation (collectively, "Ogden"). Upon completion of the acquisition, Ogden Professional Services Corporation was renamed Anteon Corporation. The consideration paid by Azimuth to Ogden was approximately $45.2 million, consisting of approximately $36.7 million cash and a note payable to Ogden from Azimuth for $8.5 million. The acquisition of Anteon was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at estimated fair market value as of the date of the combination. The total purchase price paid, including transaction costs, of approximately $47.1 million was allocated to the assets and liabilities acquired as follows (in thousands): Cash and cash equivalents......................................................... $ 2,719 Accounts receivable............................................................... 38,591 Property and equipment............................................................ 1,633 Noncompete agreement.............................................................. 4,000 Other assets...................................................................... 3,230 Goodwill.......................................................................... 13,907 Accounts payable and accrued expenses............................................. (16,937) --------- Total consideration......................................................... $ 47,143 --------- ---------
Subsequent to the date of the closing of the Anteon acquisition and in accordance with the stock purchase agreement, the Company filed a demand for arbitration against Ogden seeking refund of a portion of the purchase price. As of September 30, 1998, the arbitration proceedings were settled and resulted in a reduction of $4.85 million of the purchase price paid to Ogden in the 1996 acquisition of Anteon. The settlement was recognized as a reduction of the note payable for Azimuth to Ogden and goodwill from the Anteon acquisition. The Company provides professional information technology, systems and software development, high technology research, and engineering services primarily to the U.S. government and its agencies. The Company is subject to all of the risks associated with conducting business with the U.S. federal government, including the risk of contract terminations at the convenience of the government, and including government funding limitations. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements as of and for the years ended December 31, 1998 and 1997 and for the period from April 1, 1996 to December 31, 1996 represent the Company's financial position, results of operations and cash flows subsequent to its acquisition by Azimuth. The financial statements for the period from January 1, 1996 to March 31, 1996 represent the results of operations and cash flows of Ogden F-18 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Professional Services Corporation. The financial information for the period after the acquisition is presented on a different cost basis than that for the period before the acquisition and, therefore, is not comparable. All material intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements as of December 31, 1998 and 1997 also include the assets and liabilities of Vector Data Systems, Inc. and its majority-owned subsidiary, Vector Data Systems (U.K.) Limited, and Anteon's wholly-owned subsidiaries, Anteon VDS-Korea (Korea) Limited and Vector Data Systems Australia Pty. Ltd. (Australia), and their results of operations and cash flows for the year ended December 31, 1998 and for the period August 29, 1997 to December 31, 1997, subsequent to its acquisition by the Company (see note 3). The consolidated financial statements as of December 31, 1998 also include the assets and liabilities of Techmatics, Inc. and its results of operations and cash flows for the period May 29, 1998 to December 31, 1998, subsequent to its acquisition by the Company (see note 3). (B) CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances and highly liquid investments that have original maturities of three months or less. (C) INVENTORY Inventory consists of computer hardware and software products and is stated at the lower of cost or market, on a first-in, first-out basis. The Company established reserves for obsolete inventory of $500,000 and $0 as of December 31, 1998 and 1997, respectively. (D) PROPERTY AND EQUIPMENT Property and equipment is stated at cost, or fair value if acquired through a purchase business combination. For financial reporting purposes, depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets as follows: Computer hardware and software............ 3 to 5 years Furniture and equipment................... 5 to 7 years shorter of estimated useful life or Leasehold improvements.................... lease term
(E) INVESTMENTS The Company accounts for investments in debt and marketable equity securities depending on the purpose of the investment. The Company's only investment as of December 31, 1998 consists entirely of marketable equity securities. Since the Company does not hold this investment principally for the purpose of selling the investment in the near term, the Company classifies the securities as available-for-sale. Accordingly, this investment is recognized at fair market value and any unrealized gains (losses) are recognized as a component of stockholders' equity. As of December 31, 1998, the aggregate fair market value of the investments was $5,978,000, resulting in an unrealized gain of $392,000. F-19 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (F) DEFERRED FINANCING COSTS Costs associated with obtaining the Company's financing arrangements have been deferred and are amortized over the term of the financing arrangements using a method that approximates the effective interest method. (G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company follows the provisions of Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS No. 121"). This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair values of the assets. (H) GOODWILL The excess of the cost over the fair value of net tangible and identifiable intangible assets acquired in purchase business combinations (goodwill) is amortized on a straight-line basis over periods of 20 to 30 years. The Company evaluates the recoverability of its goodwill annually in accordance with the provisions of SFAS No. 121. (I) OTHER INTANGIBLE ASSETS The Company amortizes, on a straight-line basis, the allocated cost of noncompete agreements entered into in connection with business combinations. (J) REVENUE RECOGNITION The Company provides professional services under long-term contracts, primarily with the U.S. government. Revenues for cost-reimbursement contracts are recorded on the basis of direct and indirect costs incurred and a ratable portion of fee. Revenues under time-and-materials contracts are recorded at the contracted rates as the labor hours and other direct costs are incurred. Revenues under fixed-price contracts are recognized using the percentage-of-completion method based on costs incurred in relation to total estimated costs. Anticipated losses on contracts are recognized as soon as they become known. Revenues from sales of products are generally recognized upon acceptance by the customer, which is typically within thirty days of shipment. (K) COSTS OF ACQUISITIONS Costs incurred on successful acquisitions are capitalized as a cost of the acquisition, while costs incurred by the Company for unsuccessful or discontinued acquisition opportunities are expensed as incurred. F-20 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (L) INCOME TAXES The Company is currently included in the consolidated income tax returns of Azimuth. Prior to April 1, 1996, the Company was included in the consolidated income tax returns of Ogden. However, the Company prepares its provisions for income taxes as if it filed its income tax returns separately. The Company calculates its income tax provision using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. (M) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The balance sheets of Vector Data Systems (U.K.) Limited, Anteon VDS (Korea) Limited and Vector Data Systems Australia Pty. Ltd. (Australia) Limited are translated to U.S. dollars for consolidated financial statement purposes using the current exchange rates in effect as of year end. The revenue and expense accounts of foreign subsidiaries are converted using a weighted average exchange rate during the period. Gains and losses resulting from such translations are included in accumulated comprehensive income in stockholders' equity. Gains and losses from transactions denominated in foreign currencies are included in current period income. (N) ACCOUNTING FOR DEFERRED CONTRACT COSTS During 1998, the Company adopted the provisions of Statement of Position No. 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"), which requires costs of start-up activities, including precontract costs, to be expensed as incurred. During 1994 and 1995, the Company capitalized certain precontract costs associated with two of its significant contracts (Capzone/Paczone contracts). The remaining balances of the precontract costs were written-off during 1998 in implementing SOP 98-5. The adoption of SOP 98-5 did not have a material impact on the Company's financial position or results of operations. (O) ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for stock-based compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES; however, the Company discloses the pro forma effect on net income as if the fair value based method of accounting as defined in SFAS No. 123 had been applied. (P) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair market values as of December 31, 1998 and 1997 due to the relatively short duration of these financial instruments. The carrying amounts of the Company's indebtedness approximate their fair values as of December 31, 1998 and 1997 as they bear interest rates that approximate market. F-21 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (Q) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (R) RECLASSIFICATIONS Certain reclassifications have been made to the 1997 and 1996 consolidated financial statements to conform to the 1998 consolidated financial statement presentation. (3) ACQUISITIONS (A) VECTOR DATA SYSTEMS, INC. On August 29, 1997, the Company acquired all of the outstanding stock of Vector Data Systems, Inc., as well as Vector's eighty percent interest in Vector Data Systems (UK) Limited (collectively, "Vector"). The consideration paid by Anteon to the former shareholders of Vector was approximately $19 million in cash financed through borrowings under an existing revolving line of credit with a financial institution (see note 7). Additional consideration of up to $6 million may be paid by the Company and is contingent upon Vector meeting certain revenue and gross profit thresholds for 1998 and 1999. The maximum additional consideration that could be paid to Vector for meeting or exceeding all of the specified thresholds would be up to $3 million per year for 1998 and 1999. Vector did not meet the revenue and gross profit thresholds in 1998. The acquisition of Vector was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values as of the date of the combination. Additional consideration earned by Vector would be accounted for by the Company as an increase of goodwill from the combination. The total purchase price paid, including transaction costs, of approximately $19.5 million, was allocated to the assets and liabilities acquired as follows (in thousands): Cash and cash equivalents.......................................... $ 2,306 Accounts receivable................................................ 2,951 Prepaid expenses and other current assets.......................... 50 Property and equipment............................................. 340 Deferred tax assets, net........................................... 121 Goodwill........................................................... 17,215 Accounts payable and accrued expenses.............................. (3,414) Minority interest.................................................. (24) --------- Total consideration.......................................... $ 19,545 --------- ---------
Vector also provides professional information technology, systems and software development, high technology research, and engineering services primarily to the U.S. government and its agencies. The following unaudited pro forma summary presents consolidated information as if the Vector acquisition had occurred at April 1, 1996, the date of the acquisition of Anteon by Azimuth. The pro forma F-22 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 summary is provided for informational purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entity:
PERIOD FROM APRIL 1, 1996 YEAR ENDED TO DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Total revenues................................................... $ 191,343 133,212 Total expenses................................................... 190,161 132,367 ------------ ------------ Net income................................................. $ 1,182 845 ------------ ------------ ------------ ------------
(B) TECHMATICS, INC. On May 29, 1998, the Company acquired all of the outstanding stock of Techmatics, Inc. ("Techmatics"), a subchapter S corporation. The consideration paid by Anteon to the former shareholders and option holders of Techmatics was approximately $31 million in cash, $27 million due at closing and financed through an existing revolving line of credit with a financial institution (see note 7), $4 million in cash payable in two non-interest bearing installments payable no later than April 1, 1999, and $10 million in subordinated notes payable. Additional consideration of up to $6.25 million may be paid by the Company but is contingent upon Techmatics meeting certain operating profit thresholds for its fiscal year ending June 30, 1999 or the year ending December 31, 1999 depending on the date chosen by Anteon. Interest at rates of 6 percent per year and 7.5 percent per year accrue beginning September 30, 1999 and April 1, 2000, respectively, on the amount of contingent consideration to be paid based on either the June 30, 1999 financial results or the December 31, 1999 financial results, respectively, whichever is chosen as the measurement date by Anteon. The acquisition of Techmatics was accounted for using the purchase method whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market value as of the date of combination. Additional consideration earned by Techmatics would be accounted for by the Company as an increase of goodwill from the combination. The total purchase price paid, including transaction costs, of approximately $40.3 million, was allocated to the assets and liabilities acquired as follows (in thousands): Cash and cash equivalents......................................... $ 845 Accounts receivable............................................... 23,089 Prepaid expenses and other current assets......................... 168 Property and equipment............................................ 2,416 Other long-term assets............................................ 337 Noncompete agreements............................................. 2,850 Goodwill.......................................................... 26,779 Accounts payable and accrued expenses............................. (15,134) Long-term debt.................................................... (786) Other liabilities................................................. (251) --------- Total consideration......................................... $ 40,313 --------- ---------
F-23 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 In conjunction with the purchase agreement, the Company entered into noncompete agreements for approximately $2,850,000, payable over a three-year period and discounted to $2,654,000 as of the date of acquisition, with three employees of Techmatics. In addition, the Company assumed certain tax obligations of the former shareholders of Techmatics amounting to $4,000,000 payable over the two-year period ended May 31, 1999, and discounted to $3,762,000 as of the date of acquisition. Techmatics also provides professional information technology, systems and software development, high technology research, and engineering services primarily to the U.S. government and its agencies. The following unaudited pro forma summary presents consolidated information as if the Techmatics acquisition had occurred at January 1, 1997. The pro forma summary is provided for informational purposes only and is based on historical information that does not necessarily reflect actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined entity:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ Total revenues................................................... $ 282,539 239,284 Total expenses................................................... 279,970 239,073 ------------ ------------ Net income................................................. $ 2,569 211 ------------ ------------ ------------ ------------
(4) ACCOUNTS RECEIVABLE The components of accounts receivable as of December 31, 1998 and 1997, are as follows (in thousands):
1998 1997 --------- --------- Billed and billable...................................................... $ 67,018 27,496 Unbilled................................................................. 3,114 4,896 Retainages due upon contract completion.................................. 1,380 1,007 Allowance for doubtful accounts.......................................... (3,459) (3,994) --------- --------- Total.............................................................. $ 68,053 29,405 --------- --------- --------- ---------
Unbilled costs and fees and retainages billable upon completion of contracts are amounts due primarily within one year and will be billed on the basis of contract terms and delivery schedules. The accuracy and appropriateness of the Company's direct and indirect costs and expenses under its government contracts, and therefore its accounts receivable recorded pursuant to such contracts, are subject to extensive regulation and audit, including by the U.S. Defense Contract Audit Agency ("DCAA") or by other appropriate agencies of the U.S. government. Such agencies have the right to challenge the Company's cost estimates or allocations with respect to any government contract. Additionally, a substantial portion of the payments to the Company under government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. In the opinion of management, any adjustments likely to result from inquiries or audits of its contracts would not have a material adverse impact on the Company's financial condition or results of operations. F-24 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (5) PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 1998 and 1997 (in thousands):
1998 1997 --------- --------- Computer hardware and software............................................. $ 6,165 2,664 Furniture and equipment.................................................... 1,111 356 Leasehold improvements..................................................... 201 127 --------- --------- 7,477 3,147 Less--accumulated depreciation and amortization............................ (2,940) (1,562) --------- --------- $ 4,537 1,585 --------- --------- --------- ---------
(6) ACCRUED EXPENSES The components of accrued expenses as of December 31, 1998 and 1997 are as follows (in thousands):
1998 1997 --------- --------- Accrued payroll and related benefits....................................... $ 10,923 5,758 Accrued subcontractor costs................................................ 4,693 1,823 Accrued additional consideration for Techmatics acqusition................. 2,940 -- Accrued legal.............................................................. 949 691 Accrued interest........................................................... 748 513 Other accrued expenses..................................................... 3,085 562 --------- --------- $ 23,338 9,347 --------- --------- --------- ---------
(7) INDEBTEDNESS (A) BANK LOAN AGREEMENT Concurrent with the Anteon acquisition, the Company entered into a Business Loan and Security Agreement (the "Bank Loan Agreement") with two commercial banks. Under the terms of the Bank Loan Agreement, the Company entered into promissory notes for an aggregate available financing facility of $38 million. Concurrent with the Vector acquisition, the Bank Loan Agreement was amended (the "Amended Bank Loan Agreement") whereby the financial institution increased the promissory notes by $6 million for an aggregate available facility of $44 million. The facility was comprised of revolving promissory notes for aggregate borrowings of up to $22 million based on a portion of eligible billed accounts receivable (Facility A); revolving promissory notes for aggregate borrowings of up to $16 million based on a portion of eligible unbilled accounts receivable (Facility B); and term promissory notes for an aggregate of $6 million (Facility C). The available facility limits on the Facility A and Facility B promissory notes were approximately $17,760,000 and $10,860,000, respectively, as of December 31, 1997. As of March 18, 1998, this Bank Loan Agreement was terminated and replaced by a $125 million Credit Agreement as discussed below. Prior to the Vector acquisition, interest on Facility A accrued at either the prime rate plus 0.25 percent or the LIBOR Rate plus 2.5 percent. Under the Amended Bank Loan Agreement, the interest rate on Facility A varied based on the Company's ratio of debt to earnings before income taxes, depreciation and F-25 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 amortization, calculated quarterly. Interest was payable on a quarterly basis. During the years ended December 31, 1998 and 1997, interest on Facility A ranged from 8.13 percent to 8.75 percent and 7.19 percent to 8.75 percent, respectively. For the period April 1, 1996 through December 31, 1996, the interest rate ranged from 8.03 percent to 8.5 percent. Facility B accrued interest at either the prime rate plus 0.75 percent or the LIBOR rate plus 3 percent and was payable on a quarterly basis. Interest rates charged on Facility B ranged from 9.0 percent to 9.25 percent and 9.0 percent to 9.25 percent, respectively, during the years ended December 31, 1998 and 1997 and from 8.53 percent to 9.0 percent for the period from April 1, 1996 to December 31, 1996. Facility C accrued interest at either the prime rate plus 1.25 percent or the LIBOR rate plus 3.5 percent and was payable on a quarterly basis. Principal amounts were due in equal quarterly installments of $500,000. Beginning in April 1997, additional principal amounts could also be due on the Facility C promissory notes based on certain excess eligible billed accounts receivable and/or excess cash flows, as defined in the Amended Bank Loan Agreement. No such additional principal amounts became due during 1998 or 1997. Interest rates charged on Facility C ranged from 9.22 percent to 9.75 percent and 9.0 percent to 9.25 percent, respectively, during the years ended December 31, 1998 and 1997 and from 9.03 percent to 9.5 percent for the period from April 1, 1996 to December 31, 1996. As of December 31, 1998 and 1997, the outstanding amounts under the Bank Loan Agreement are as follows (in thousands):
1998 1997 --------- --------- Facility A.............................................................. $ -- 14,700 Facility B.............................................................. -- 6,400 Facility C.............................................................. -- 3,000 --------- --------- $ -- 24,100 --------- --------- --------- ---------
Total interest expense incurred on these financial arrangements was approximately $1,079,000 and $1,891,000, respectively, for the years ended December 31, 1998 and 1997 and $1,382,000 for the period from April 1 1996 to December 31, 1996 to December 31, 1996. Upon termination of this Bank Loan Agreement, all principal and interest due on the existing Facilities A, B and C was paid in full. The bank notes were secured by certain assets of the Company and certain assets of Vector. Vector's security interest was limited to its obligations under these bank notes. The terms of the Amended Bank Loan Agreement restricted the ability of the Company to pay dividends, although the Company could have declared dividends payable to Azimuth in order for Azimuth to pay required interest payments on certain of its long-term debt. During 1997, the Company wrote off the remaining balance of deferred financing costs of approximately $522,000 upon the effective date of the Amended Bank Loan Agreement. This amount is recorded in interest expense in the consolidated statement of income for the year ended December 31, 1997. (B) CREDIT AGREEMENT On March 18, 1998, the Company entered into a Credit Agreement (the "Credit Agreement") with six commercial banks. Under the terms of the Credit Agreement, the Company entered into promissory notes for an aggregate available financing facility of $125 million. The new credit facility is comprised of a F-26 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 revolving credit facility for aggregate borrowings of up to $75 million, based on a portion of eligible billed accounts receivable and a portion of eligible unbilled accounts receivable (Revolving Facility); and an acquisition credit facility for aggregate borrowings of up to $50 million (Acquisition Facility). The Revolving Facility and the Acquisition Facility both mature on March 18, 2003. Under the Credit Agreement, the interest rate on the Revolving Facility varies based on Anteon's ratio of debt to earnings before income taxes, depreciation and amortization, calculated quarterly. Interest is payable on a quarterly basis. During the year ended December 31, 1998, interest on the Revolving Facility ranged from 7.8125 percent to 8.75 percent. The interest rate on the Acquisition Facility varies using a performance-based interest rate schedule measured using the Company's ratio of debt-to-earnings before income taxes, depreciation and amortization and is calculated quarterly. Interest is payable on a quarterly basis. Interest rates charged on the Acquisition Facility ranged from 7.5 percent to 9.25 percent during the year ended December 31, 1998. As of December 31, 1998, the outstanding amounts under the Credit Agreement are as follows (in thousands):
1998 --------- Revolving Facility................................................................. $ 35,400 Acquisition Facility............................................................... 35,000 --------- $ 70,400 --------- ---------
The remaining available facility limits on the Revolving Facility and Acquisition Facility promissory notes were approximately $11.8 million and $15 million, respectively, as of December 31, 1998. Total interest expense incurred on the Revolving and Acquisition Facilities arrangements for the year ending December 31, 1998 was approximately $3,475,000. The Revolving Facility is secured by certain assets of the Company and certain assets of its subsidiaries. The subsidiaries' security interest is limited to its obligations under these bank notes. The terms of the Credit Agreement restrict the ability of the Company to pay dividends, although Anteon may declare dividends payable to Azimuth in order to pay required payments on certain of its long-term debt. Deferred financing costs of approximately $874,000 relating to the Credit Agreement are included in other assets in the accompanying consolidated balance sheet as of December 31, 1998. (C) SUBORDINATED NOTES PAYABLE In connection with the purchase of Techmatics, the Company entered into subordinated promissory notes with the Techmatics shareholders and option holders as of the date of acquisition in the principal amount of $10,000,000, discounted as of the date of acquisition to approximately $8,880,000. The notes are to be paid in two installments with one-tenth of the total amount payable due May 31, 1999 and the remaining nine-tenths due May 31, 2000. Interest accrues beginning May 31, 1999 at 6 percent per year on four-ninths of the principal amount outstanding. All overdue amounts accrue interest at 7.5 percent per year. This debt is subordinate to the $125 million Credit Agreement. F-27 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Total interest expense incurred on the subordinated notes payable for the year ended December 31, 1998 was approximately $423,000. (D) FUTURE MATURITIES Scheduled future maturities under the Company's indebtedness are as follows (in thousands): YEAR ENDING DECEMBER 31, 1999....................................................... $ 967 2000....................................................... 8,335 2001....................................................... -- 2002....................................................... -- 2003....................................................... 70,400 Thereafter................................................. -- --------- Total.................................................. $ 79,702 --------- ---------
(E) INTEREST RATE SWAP AGREEMENTS The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on its Credit Agreement. At December 31, 1998, the Company had outstanding interest rate swap agreements with commercial banks having a total notional principal amount of $15 million. Those swap agreements effectively changed the Company's interest rate exposure for $5 million based on a May 1998 swap agreement, $5 million based on a June 1998 swap agreement, and $5 million based on a September 1998 swap agreement on its $125 million Credit Agreement due March 13, 2003 to fixed rates of 5.8 percent, 5.75 percent and 5.02 percent, respectively. The interest rate swap agreements mature as of December 31, 2002, December 31, 2003 and September 25, 2003, respectively. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements; however, the Company does not anticipate nonperformance by the counterparties. F-28 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (8) INCOME TAXES The provisions for income taxes for the years ended December 31, 1998 and 1997, and the periods from April 1, 1996 to December 31, 1996 and January 1, 1996 to March 31, 1996, consist of the following (in thousands):
SUCCESSOR SUCCESSOR SUCCESSOR PERIOD FROM PREDECESSOR YEAR ENDED YEAR ENDED APRIL 1, 1996 PERIOD FROM DECEMBER DECEMBER TO JANUARY 1, 1996 31, 31, DECEMBER 31, TO 1998 1997 1996 MARCH 31, 1996 ----------- ----------- ------------- --------------- Current (benefit) provision: Federal.................. $ (115) $ 1,618 $ -- $ 235 State.................... (16) 290 -- 68 Foreign.................. 68 (19) -- -- ----------- ----------- ----- ----- Total current provision.......... (63) 1,889 -- 303 ----------- ----------- ----- ----- Deferred provision (benefit): Federal.................. 2,067 (708) 360 -- State.................... 380 (118) 56 -- Foreign.................. (31) -- -- -- ----------- ----------- ----- ----- Total current provision (benefit).......... 2,416 (826) 416 -- ----------- ----------- ----- ----- Total income tax provision.......... $ 2,353 $ 1,063 $ 416 $ 303 ----------- ----------- ----- ----- ----------- ----------- ----- -----
The income tax provisions for the years ended December 31, 1998 and 1997, and the periods from April 1, 1996 to December 31, 1996 and January 1, 1996 to March 31, 1996 are different from that computed using the statutory U.S. federal income tax rate of 34 percent as set forth below (in thousands):
SUCCESSOR SUCCESSOR SUCCESSOR PERIOD FROM PREDECESSOR YEAR ENDED YEAR ENDED APRIL 1, 1996 PERIOD FROM DECEMBER DECEMBER TO JANUARY 1, 1996 31, 31, DECEMBER 31, TO 1998 1997 1996 MARCH 31, 1996 ----------- ----------- ------------- --------------- Expected tax expense computed at federal rate..................... $ 1,648 $ 914 $ 416 $ 257 State taxes, net of federal benefit.................. 197 111 37 46 Nondeductible expenses..... 42 9 18 -- Goodwill amortization...... 333 20 -- -- Foreign losses............. 123 9 -- -- Other...................... 10 -- (55) -- ----------- ----------- ----- ----- $ 2,353 $ 1,063 $ 416 $ 303 ----------- ----------- ----- ----- ----------- ----------- ----- -----
F-29 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 The tax effect of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 1998 and 1997, are presented below (in thousands):
1998 1997 --------- --------- Deferred tax assets: Accrued expenses......................................................... $ 1,662 2,812 Intangible assets, due to differences in amortization.................... 2,791 1,581 Accounts receivable allowances........................................... 686 165 Property and equipment, due to differences in depreciation............... -- 142 --------- --------- Total deferred tax assets............................................ 5,139 4,700 --------- --------- Deferred tax liabilities: Deductible goodwill, due to differences in amortization.................. 3,582 2,185 Revenue recognition differences.......................................... 3,332 1,860 Property and equipment, due to differences in depreciation............... 17 -- Other.................................................................... 61 7 --------- --------- Total deferred tax liabilities....................................... 6,992 4,052 --------- --------- Deferred tax assets (liabilities), net............................... $ (1,853) 648 --------- --------- --------- ---------
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income, scheduled reversal of deferred tax liabilities, and projections of future taxable income over the periods in which the temporary differences become deductible based on available tax planning strategies, management presently believes that it is more likely than not that the Company will realize all of the benefits of these deductible differences and, accordingly, has established no valuation allowance against the deferred tax assets as of December 31, 1998 or 1997. (9) EMPLOYEE BENEFIT PLANS Employees of the Company may participate in 401(k) retirement savings plans, whereby employees may elect to make contributions pursuant to a salary reduction agreement upon meeting eligibility requirements. Participants may contribute up to 15 percent of salary in any calendar year to these Plans, provided that amounts in total do not exceed certain statutory limits. The Company matches up to 50 percent of the first 6 percent of a participant's contributions subject to certain limitations. The Company made contributions to these plans of approximately $1,995,000, $1,207,000, $819,000, and $282,000 for the years ended December 31, 1998 and 1997, and the periods from April 1, 1996 to December 31, 1996 and January 1, 1996 to March 31, 1996, respectively. Effective January 1, 1999, a defined contribution plan previously established at the subsidiary level was merged into the Anteon plan. F-30 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 Techmatics sponsors a defined health and welfare plan that provides health, dental and short-term disability benefits for all eligible full-time employees of Techmatics. The plan is self-insured and has specific employee stop-loss coverage insurance of $50,000 and aggregate stop-loss coverage insurance which is calculated based on monthly participation in the plan. Contributions to the plan are made by both Techmatics and the employees and are maintained in a trust fund intended to qualify as a tax-exempt Voluntary Employees' Beneficiary Trust within the meaning of Section 501(c)(9) of the U.S. Internal Revenue Code. Contributions by Techmatics are based upon estimates and on actual amounts of claims processed. From the date of acquisition of Techmatics by the Company to December 31, 1998, Techmatics made contributions to the plan of approximately $879,000. (10) EMPLOYEE STOCK OPTION PLAN In February 1997, the Board of Directors approved the adoption of the Anteon Corporation Omnibus Stock Plan (the Plan). At the discretion of the Board of Directors, the Plan permits the granting of stock options, stock appreciation rights, restricted or unrestricted stock awards, and/or phantom stock to employees or directors of the Company. As of December 31, 1998, an aggregate of 325,000 shares of Anteon's common stock was reserved for issuance under the Plan. The exercise price of stock options granted is determined by the Board of Directors but is not to be less than the fair value of the underlying shares of common stock at the grant date. For stock options granted to employees, 20 percent of the shares subject to the options vest on the first anniversary of the grant date and an additional 20 percent vest on each succeeding anniversary of the grant date. The employees have a period of three years from the vesting date to exercise the option to purchase shares of the Company's common stock. In 1997, the Board of Directors approved that 20 percent of the options issued on the August 1, 1997 grant date vest immediately. For stock options granted to directors of the Company, 33 1/3 percent of the shares subject to the options vest on the first anniversary of the grant date and an additional 33 1/3 percent vest on the two succeeding anniversaries of the grant date. The directors have a period of two years from the vesting date to exercise the option to purchase shares of the Company's common stock. During 1998 and 1997, the Company granted stock options under this Plan for 151,450 and 171,630 shares, respectively, of the Company's common stock at exercise prices ranging from $26.90 per share to F-31 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 $37.30 per share and $6.75 per share to $18.37 per share, respectively. The following tables summarize information regarding options under the Company's stock option plans:
WEIGHTED OUTSTANDING AVERAGE AND NUMBER OPTION PRICE EXERCISE EXERCISABLE OF SHARES PER SHARE PRICE SHARES --------- --------------- ----------- ----------- Outstanding at April 1, 1996 and December 31, 1996............................... -- $ -- $ -- $ -- Granted.............................. 171,630 6.75-$18.37 8.42 -- Exercised............................ -- -- -- -- Cancelled or expired................. (6,200) 6.75-$18.37 11.44 -- --------- --------------- ----------- ----------- Outstanding at December 31, 1997......... 165,430 6.75-$18.37 8.32 19,325 Granted.............................. 151,450 26.90-$37.30 36.80 -- Exercised............................ (1,740) 6.75-$18.37 13.43 -- Cancelled or expired................. (10,600) 6.75-$37.30 14.74 -- --------- --------------- ----------- ----------- Outstanding at December 31, 1998......... 304,540 $ 6.75-$37.30 $ 22.17 52,209 --------- --------------- ----------- ----------- --------- --------------- ----------- -----------
Option and weighted average price information by price group is as follows:
SHARES OUTSTANDING EXERCISABLE SHARES ------------------------------------- ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER EXERCISE REMAINING NUMBER EXERCISE OF SHARES PRICE LIFE OF SHARES PRICE --------- ----------- ------------- ----------- ----------- December 31, 1997: $6.75................................ 143,130 $ 6.75 7.5 19,325 $ 6.75 $18.37............................... 22,300 $ 18.37 7.8 -- -- December 31, 1998: $6.75................................ 139,090 $ 6.75 6.5 49,909 $ 6.75 $18.37 to $26.90..................... 16,500 $ 18.89 6.8 2,300 $ 18.37 $32.17 to $37.30..................... 148,950 $ 36.93 7.7 -- --
The Company applies APB No. 25 and related interpretations in accounting for the Plan. Adoption of the fair market value provisions prescribed in SFAS No. 123 is optional with respect to stock-based compensation to employees; however, pro forma disclosures are required as if the Company adopted the fair value recognition requirements under SFAS No. 123. Had compensation cost for the Company's 1998 and 1997 grants under the Plan been determined consistent with the fair market value provisions prescribed in SFAS No. 123, the Company's pro forma net income for the years ended December 31, 1998 and 1997 would approximate $2,224,000 and $1,586,000, respectively, using an expected option life of 7 years, dividend yield rate and volatility rate of 0 percent, respectively, and a risk-free interest rate of 4.73 and 5.77 percent, respectively. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. F-32 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (11) COMPREHENSIVE INCOME During 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS No. 130"). SFAS No. 130 requires the display of comprehensive income, which includes the Company's unrealized gains (losses) on investments and the accumulated foreign currency translation adjustment. The Company has presented comprehensive income as a component of the accompanying consolidated statements of stockholders' equity. There were no unrealized gains (losses) on investments as of December 31, 1997 or 1996. During the year ended December 31, 1998, $392,000 of unrealized gains on investments was recognized. The amount of accumulated foreign currency translation adjustment was approximately $7,000 and $0 as of December 31, 1998 or 1997, respectively. (12) COMMITMENTS AND CONTINGENCIES (A) LEASES The Company leases facilities under operating leases expiring at various dates through 2010. As of December 31, 1998, the aggregate minimum annual rental commitments under noncancelable operating leases are as follows (in thousands): 1999............................................................... $ 4,047 2000............................................................... 3,280 2001............................................................... 2,203 2002............................................................... 1,876 2003............................................................... 1,900 Thereafter......................................................... 13,172 --------- Total minimum lease payments................................. $ 26,478 --------- ---------
Rent expense under all operating leases for the year ended December 31, 1998 and 1997, and the periods from April 1, 1996 to December 31, 1996 and January 1, 1996 to March 31, 1996 was approximately $5,644,000, $3,368,000, $1,988,000, and $646,000, respectively. (B) LEGAL PROCEEDINGS The Company is involved in various legal proceedings in the ordinary course of business. Management of the Company and its legal counsel cannot currently predict the outcome of these matters, but do not believe that they will have a material impact on the Company's financial position or results of operations. (C) MANAGEMENT FEES During the year ended December 31, 1998, the Company incurred $400,000 of management fees with Caxton-Iseman Capital, Inc., the majority shareholder of Azimuth. No such fees were incurred in 1997 and 1996. Future management fees due to Caxton-Iseman Capital, Inc. will be based upon the level of advisory services provided to the Company. F-33 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997 (13) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION As of April 1999, the Company is contemplating participating in a private debt offering for up to $120,000,000 in Senior Subordinated Notes (the "Notes"). Under the current structure of the Notes, the Company's wholly-owned domestic subsidiaries would be guarantors (the "Subsidiary Guarantors") of the Notes. Such guarantees are full, unconditional and joint and several. Separate financial statements of the Subsidiary Guarantors are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, balance sheets, statements of operations and statements of cash flows information for the Subsidiary Guarantors, the Company's non-guarantor subsidiaries and for the Company.
AS OF DECEMBER 31, 1998 -------------------------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ----------- --------------- ----------- ------------ Cash....................................... $ 154 $ (233) $ 235 $ -- $ 156 Receivables................................ 37,955 29,908 190 -- 68,053 Other current assets....................... 4,558 573 216 -- 5,347 Property and equipment, net................ 2,076 2,422 39 -- 4,537 Due from parent............................ 6,625 -- -- -- 6,625 Investment in and advances to subsidiaries............................. 21,177 (4,009) 222 (17,390) -- Other long-term assets..................... 57,686 752 12 -- 58,450 ----------- ----------- ------ ----------- ------------ Total assets........................... $ 130,231 $ 29,413 $ 914 $ (17,390) $ 143,168 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------ Indebtedness............................... 79,702 -- -- -- 79,702 Accounts payable........................... 9,910 2,394 278 -- 12,582 Accrued expenses........................... 15,904 7,138 296 -- 23,338 Other current liabilities.................. 2,444 64 -- -- 2,508 Other long-term liabilities................ 1,033 226 37 -- 1,296 ----------- ----------- ------ ----------- ------------ Total liabilities...................... 108,993 9,822 611 -- 119,426 Minority interest in subsidiary............ -- 37 -- -- 37 Total stockholders' equity................. 21,238 19,554 303 (17,390) 23,705 ----------- ----------- ------ ----------- ------------ Total liabilities and stockholders' equity................................... $ 130,231 $ 29,413 $ 914 $ (17,390) $ 143,168 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------ CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------------- Revenues................................... $ 186,995 $ 60,534 $ 2,376 $ (129) $ 249,776 Cost of revenues........................... 168,210 51,279 2,007 92 221,588 ----------- ----------- ------ ----------- ------------ Gross profit............................... 18,785 9,255 369 (221) 28,188 Total operating expenses................... 11,748 5,873 345 (221) 17,745 ----------- ----------- ------ ----------- ------------ Operating income........................... 7,037 3,382 24 -- 10,443 Interest expense (income), net............. 5,637 (13) (27) -- 5,597 Minority interest.......................... -- 25 -- -- 25 ----------- ----------- ------ ----------- ------------ Income before provision for income taxes... 1,400 3,370 51 -- 4,821 Provision for income taxes................. 677 1,663 13 -- 2,353 ----------- ----------- ------ ----------- ------------ Net income................................. $ 723 $ 1,707 $ 38 $ -- $ 2,468 ----------- ----------- ------ ----------- ------------ ----------- ----------- ------ ----------- ------------
F-34 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997
FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON- GUARANTOR ANTEON CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ----------- ------------- ------------ Net income................................................. $ 723 $ 1,707 $ 38 $ 2,468 Adjustments to reconcile change in net income to net cash provided by (used for) operations: Depreciation and amortization.......................... 898 877 62 1,837 Goodwill amortization.................................. 1,814 -- -- 1,814 Amortization of noncompetes............................ 530 -- -- 530 Amortization of deferred financing and contract costs.. 1,420 -- -- 1,420 Inventory obsolence reserve............................ 500 -- -- 500 Deferred income taxes.................................. 2,501 -- -- 2,501 Minority interest in earnings of subsidiary............ -- 25 -- 25 Changes in assets and liabilities: Due from parent...................................... (730) -- -- (730) (Increase) decrease in accounts receivable........... (15,996) 673 (236) (15,559) Increase in income tax receivable.................... (2,138) -- -- (2,138) Decrease in inventory................................ 2,259 -- -- 2,259 Increase in prepaid and other assets................. (446) (821) (265) (1,532) Increase (decrease) in accounts payable and accrued expenses........................................... (105) (2,678) 553 (2,230) Increase (decrease) in other term liabilities........ 1,419 (843) (81) 495 ----------- ----------- ----- ------------ Net cash provided by (used in) operating activities.. $ (7,351) $ (1,060) $ 71 $ (8,340) ----------- ----------- ----- ------------ Cash flows from investing activities: Purchases of property and equipment.................... (1,402) (609) (78) (2,089) Acquisition of Techmatics, net of cash acquired........ (30,532) 845 -- (29,687) Purchases of investments............................... (5,574) -- -- (5,574) Other, net............................................. (113) -- -- (113) ----------- ----------- ----- ------------ Net cash provided by (used in) investing activities......................................... $ (37,621) $ 236 $ (78) $ (37,463) ----------- ----------- ----- ------------ Cash flow from financing activities Proceeds from bank notes payable....................... 278,500 -- -- 278,500 Principal payments on bank notes payable............... (232,200) -- -- (232,200) Intial Capitalization of Vecter Korea.................. (195) -- 195 -- Initial Capitalization of Vecter Australia............. (30) -- 30 -- Proceeds from issuance of common stock................. 22 -- -- 22 Deferred financing costs............................... (1,015) -- -- (1,015) ----------- ----------- ----- ------------ Net cash provided by financing activities............ $ 45,082 $ -- $ 225 $ 45,307 ----------- ----------- ----- ------------ Net increase (decrease) in cash............................ 110 (824) 218 (496) Cash, beginning of year.................................... 44 591 17 652 ----------- ----------- ----- ------------ Cash, end of year.......................................... $ 154 $ (233) $ 235 $ 156 ----------- ----------- ----- ------------ ----------- ----------- ----- ------------
F-35 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997
AS OF DECEMBER 31, 1997 ------------------------------------------------------------------------ CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON CONDENSED CONSOLIDATED BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ----------- ------------- ----------------- ----------- ------------ Cash....................................... $ 44 $ 591 $ 17 $ -- $ 652 Receivables................................ 25,764 2,882 175 584 29,405 Other current assets....................... 5,649 44 (5) (1) 5,687 Property and equipment, net................ 1,300 275 10 -- 1,585 Due from parent............................ 1,045 -- -- -- 1,045 Other long-term assets..................... 30,198 -- -- -- 30,198 Investment in subsidiaries................. 3,130 -- -- (3,130) -- ----------- ------ ----- ----------- ------------ Total assets........................... $ 67,130 $ 3,792 $ 197 $ (2,547) $ 68,572 ----------- ------ ----- ----------- ------------ ----------- ------ ----- ----------- ------------ Debt....................................... 24,100 -- -- -- 24,100 Accounts payable........................... 12,028 (110) 10 702 12,630 Accrued expenses........................... 8,860 477 10 -- 9,347 Other long-term liabilities................ 1,637 31 118 (119) 1,667 ----------- ------ ----- ----------- ------------ Total liabilities...................... 46,625 398 138 583 47,744 Minority interest in subsidiary............ -- 12 -- -- 12 Total stockholders' equity................. 20,505 3,382 59 (3,130) 20,816 ----------- ------ ----- ----------- ------------ Total liabilities and stockholders' equity................................... $ 67,130 $ 3,792 $ 197 $ (2,547) $ 68,572 ----------- ------ ----- ----------- ------------ ----------- ------ ----- ----------- ------------ CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------------------------ Revenues................................... $ 170,736 $ 5,330 $ 226 -- $ 176,292 Cost of revenues........................... 154,968 4,263 308 -- 159,539 ----------- ------ ----- ----------- ------------ Gross profit............................... 15,768 1,067 (82) -- 16,753 Total operating expenses................... 11,294 379 -- -- 11,673 ----------- ------ ----- ----------- ------------ Operating income (loss).................... 4,474 688 (82) -- 5,080 Interest expense (income) net.............. 2,372 (6) (1) -- 2,365 Minority interest.......................... -- 13 13 ----------- ------ ----- ----------- ------------ Income before provision for income taxes... 2,102 681 (81) -- 2,702 Provision for income taxes................. 824 271 (32) -- 1,063 ----------- ------ ----- ----------- ------------ Net income................................. $ 1,278 $ 410 $ (49) $ $ 1,639 ----------- ------ ----- ----------- ------------ ----------- ------ ----- ----------- ------------
F-36 ANTEON CORPORATION AND SUBSIDIARIES (A MAJORITY-OWNED SUBSIDIARY OF AZIMUTH TECHNOLOGIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1998 AND 1997
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------------- CONSOLIDATED ANTEON GUARANTOR NON- GUARANTOR ANTEON CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION ----------- ----------- --------------- ------------ Net income (loss).......................................... $ 1,278 410 (49) 1,639 Adjustments to reconcile change in net income (loss) to net cash provided by operations: Minority interest in earnings of subsidiaries.......... -- (13) -- (13) Depreciation and amortization.......................... 843 42 10 895 Goodwill amortization.................................. 742 -- -- 742 Amortization of noncompete agreements.................. 2,286 -- -- 2,286 Amortization of deferred financing and contract costs.. 1,209 -- -- 1,209 Loss on disposal of equipment.......................... 16 5 -- 21 Deferred income taxes.................................. (943) -- -- (943) Changes in assets and liabilities: Due from parent........................................ (531) -- -- (531) (Increase) decrease in accounts receivable............. 8,322 1,939 (175) 10,086 Decrease in inventory.................................. (2,759) -- -- (2,759) (Increase) decrease in prepaid and other assets........ (245) (279) 6 (518) Decrease in other assets............................... 414 -- -- 414 Increase (decrease) in accounts payable and accrued expenses............................................. 3,403 (1,857) 20 1,566 Increase (decrease) in other term liabilities.......... (378) 274 104 -- ----------- ----------- ----- ------------ Net cash provided by operating activities.................. $ 13,657 $ 521 $ (84) $ 14,094 ----------- ----------- ----- ------------ Cash flows from investing activities: Purchases of property and equipment.................... (796) (1) (20) (817) Acquisition of Vector Data, net of cash................ (17,239) -- -- (17,239) ----------- ----------- ----- ------------ Net cash used in investing activities...................... $ (18,035) $ (1) $ (20) $ (18,056) Cash flow from financing activities Proceeds from bank notes payable....................... 199,300 -- -- 199,300 Principal payments on bank notes payable............... (194,800) -- -- (194,800) Initial Capitalization of Vector U.K................... -- (121) 121 -- ----------- ----------- ----- ------------ Net cash provided by financing activities.................. $ 4,500 $ (121) $ 121 $ 4,500 ----------- ----------- ----- ------------ Net increase (decrease) in cash............................ 122 399 17 538 Cash, beginning of year.................................... (78) 192 -- 114 ----------- ----------- ----- ------------ Cash, end of year.......................................... $ 44 $ 591 $ 17 $ 652 ----------- ----------- ----- ------------ ----------- ----------- ----- ------------
F-37 TECHMATICS, INC. UNAUDITED CONSOLIDATED BALANCE SHEET MARCH 31, 1998
ASSETS CURRENT ASSETS Cash................................................................................... $ 691,656 Accounts receivable: Billed............................................................................... 15,321,788 Unbilled............................................................................. 5,323,289 Prepaid expenses and other............................................................. 810,362 Notes receivable from employees........................................................ 302,725 ---------- TOTAL CURRENT ASSETS..................................................................... 22,449,820 PROPERTY AND EQUIPMENT Computer equipment..................................................................... 4,954,820 Furniture and equipment................................................................ 1,907,799 Real property.......................................................................... 155,517 Leasehold improvements................................................................. 251,752 Automobiles............................................................................ 60,529 ---------- 7,330,417 Less accumulated depreciation and amortization......................................... (4,959,689) ---------- PROPERTY AND EQUIPMENT, NET.............................................................. 2,370,728 NONCURRENT ASSETS Other assets........................................................................... 1,191,226 Net assets of discontinued operations.................................................. 430,496 ---------- TOTAL ASSETS............................................................................. $26,442,270 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit......................................................................... $1,856,400 Accounts payable....................................................................... 2,989,550 Accrued expenses....................................................................... 6,779,167 State income taxes payable............................................................. 66,426 ---------- TOTAL CURRENT LIABILITIES................................................................ 11,691,543 ---------- DEFERRED RENT, net of current portion.................................................... 35,932 DEFERRED STATE INCOME TAXES.............................................................. 101,382 OTHER LONG-TERM LIABILITIES.............................................................. 1,273,992 ---------- TOTAL LIABILITIES........................................................................ 13,102,849 COMMITMENTS AND CONTINGENCIES............................................................ STOCKHOLDERS' EQUITY Common stock Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 shares issued and outstanding.............................................................. 14,633 Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 658,066 shares issued and outstanding.............................................................. 6,580 Additional paid-in capital............................................................. 473,924 Retained earnings...................................................................... 12,844,284 ---------- TOTAL STOCKHOLDERS' EQUITY............................................................... 13,339,421 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $26,442,270 ---------- ----------
The accompanying notes are an integral part of these unaudited statements. F-38 TECHMATICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
NINE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ------------- -------------- CONTRACT REVENUES.................................................................. $ 51,389,599 $ 39,683,673 CONTRACT AND ADMINISTRATIVE COSTS.................................................. 48,068,972 37,587,445 ------------- -------------- 3,320,627 2,096,228 INTEREST EXPENSE, net of interest income of $0 and $104,391 for the nine months ended March 31, 1998 and 1997, respectively....................................... (195,505) 98,020 ------------- -------------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES............................ 3,125,122 2,194,248 PROVISION FOR INCOME TAXES......................................................... -- -- ------------- -------------- NET EARNINGS FROM CONTINUING OPERATIONS............................................ 3,125,122 2,194,248 DISCONTINUED OPERATIONS: Loss from operations of TIAC..................................................... -- (1,509,885) ------------- -------------- NET EARNINGS....................................................................... $ 3,125,122 $ 684,363 ------------- -------------- ------------- --------------
The accompanying notes are an integral part of these unaudited statements. F-39 TECHMATICS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings from continuing operations........................................... $ 3,125,122 $ 2,194,248 Loss from operations of discontinued subsidiary................................... -- (1,509,885) ------------- ------------- Net earnings...................................................................... 3,125,122 684,363 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization................................................... 866,245 956,723 Changes in assets and liabilities Increase in accounts receivable............................................... (4,761,127) (602,742) Decrease (increase) in prepaid expenses and other assets...................... (78,980) 659,034 Decrease in other assets...................................................... 140,460 102,164 Decrease in net assets of discontinued operations............................. 130,933 -- Decrease in accounts payable.................................................. (599,228) (1,302,419) Increase in accrued expenses.................................................. 1,902,047 837,009 (Decrease) increase in state income taxes payable............................. 36 (35,000) Decrease in long-term deferred rent........................................... (8,185) (58,205) Increase in other long-term liabilities....................................... 148,575 179,286 ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES........................................... 865,898 1,420,213 ------------- ------------- CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of property and equipment............................................... (544,322) (1,472,244) Distributions on note receivable.................................................. (302,725) -- Proceeds from sale of investments................................................. -- 2,287,484 Purchases of investments, net..................................................... -- -- ------------- ------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES................................. (847,047) 815,240 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under line-of-credit agreement........................ 329,600 1,665,100 Proceeds from exercise of stock options........................................... -- 38,171 Repurchase of common stock........................................................ -- (69,723) Distribution to shareholders...................................................... -- (2,545,000) Dividends paid to shareholders.................................................... -- (1,250,000) ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................................. 329,600 (2,161,452) ------------- ------------- NET INCREASE IN CASH................................................................ 348,451 74,001 CASH AT BEGINNING OF PERIOD......................................................... 343,205 117,730 ------------- ------------- CASH AT END OF PERIOD............................................................... $ 691,656 $ 191,731 ------------- ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for-- Income taxes.................................................................... $ -- $ 35,000 ------------- ------------- ------------- ------------- Interest........................................................................ $ 195,277 $ 29,901 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these unaudited statements. F-40 TECHMATICS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1--UNAUDITED INTERIM FINANCIAL INFORMATION The unaudited consolidated balance sheet, statements of earnings and cash flows as of March 31, 1998 and for the nine months ended March 31, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for any future period, including the year ending June 30, 1998. NOTE 2--INCOME TAXES Through March 31, 1998, the Company continued its election to be treated as an S Corporation for federal and certain state income tax purposes. Accordingly, the accompanying unaudited consolidated statements of earnings show no provision for federal income taxes. State income taxes in those states that do not recognize the Company's S Corporation status were not significant. NOTE 3--SUBSEQUENT EVENT--DISCONTINUED OPERATIONS OF TECHMATICS INFORMATION ALLIANCE AND COMMUNICATIONS (TIAC) On July 1, 1997, the Company adopted a formal plan to discontinue the operations of Techmatics Information Alliance and Communications (TIAC). TIAC was a provider of information services to commercial customers, principally related to the Internet. Certain assets were sold for cash to an unrelated third party. Other assets were liquidated in the ordinary course of business. Assets disposed of consisted primarily of accounts receivable, supplies and equipment. The results of operations of TIAC for the nine months ended March 31, 1997 have been reported as discontinued operations. Net sales for TIAC for the nine months ended March 31, 1998 and 1997 were $0 and approximately $690,000, respectively. NOTE 4--SUBSEQUENT EVENT Effective May 29, 1998, all of the Company's outstanding common stock was acquired by Anteon Corporation, a privately-held company that provides professional services primarily to the U.S. Government and its agencies. F-41 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors TECHMATICS, Inc. We have audited the accompanying consolidated balance sheet of TECHMATICS, Inc., and subsidiary as of June 30, 1997, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of TECHMATICS, Inc., and subsidiary as of June 30, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Grant Thornton LLP Vienna, Virginia August 8, 1997 (except for Note C, as to which the date is August 31, 1997) F-42 TECHMATICS, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 1997 ASSETS CURRENT ASSETS Cash................................................................................... $ 343,205 Accounts receivable Billed............................................................................... 12,598,142 Unbilled............................................................................. 3,285,808 Prepaid expenses and other............................................................. 617,653 Notes receivable from employees........................................................ 113,729 ---------- TOTAL CURRENT ASSETS..................................................................... 16,958,537 PROPERTY AND EQUIPMENT Computer equipment..................................................................... 4,539,084 Furniture and equipment................................................................ 1,809,120 Real property.......................................................................... 155,517 Leasehold improvements................................................................. 375,952 ---------- 6,879,673 Less accumulated depreciation and amortization......................................... (4,187,022) ---------- PROPERTY AND EQUIPMENT, NET.............................................................. 2,692,651 NONCURRENT ASSETS Other assets........................................................................... 1,331,686 Net assets of discontinued operations.................................................. 708,324 ---------- TOTAL ASSETS............................................................................. $21,691,198 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit......................................................................... $1,526,800 Accounts payable....................................................................... 3,588,778 Accrued expenses....................................................................... 4,877,120 State income taxes payable............................................................. 66,390 ---------- TOTAL CURRENT LIABILITIES................................................................ 10,059,088 DEFERRED RENT, net of current portion.................................................... 44,117 DEFERRED STATE INCOME TAXES.............................................................. 101,382 OTHER LONG-TERM LIABILITIES.............................................................. 1,125,417 ---------- TOTAL LIABILITIES........................................................................ 11,330,004 COMMITMENTS AND CONTINGENCIES............................................................ STOCKHOLDERS' EQUITY Common stock Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 shares issued and outstanding.............................................................. 14,633 Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 658,066 shares issued and outstanding.............................................................. 6,580 Additional paid-in capital........................................................... 473,924 Retained earnings.................................................................... 9,866,057 ---------- TOTAL STOCKHOLDERS' EQUITY............................................................... 10,361,194 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................... $21,691,198 ---------- ----------
The accompanying notes are an integral part of these statements. F-43 TECHMATICS, INC. CONSOLIDATED STATEMENT OF EARNINGS YEAR ENDED JUNE 30, 1997 CONTRACT REVENUE............................................................... $56,676,949 CONTRACT AND ADMINISTRATIVE COSTS.............................................. 52,882,124 ---------- 3,794,825 INTEREST INCOME, net of interest expense of $29,901............................ 78,300 OTHER EXPENSES................................................................. (308,594) ---------- EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES........................ 3,564,531 PROVISION FOR INCOME TAXES..................................................... 29,278 ---------- NET EARNINGS FROM CONTINUING OPERATIONS........................................ 3,535,253 DISCONTINUED OPERATIONS Loss from operations of TIAC, net of income taxes of $27,235................. (2,231,731) Loss on disposal of TIAC, including provision of operating losses of $149,459 during phase-out period, net of income tax benefit of $9,385............... (786,596) ---------- NET EARNINGS................................................................... $ 516,926 ---------- ----------
The accompanying notes are an integral part of these statements. F-44 TECHMATICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEAR ENDED JUNE 30, 1997
COMMON STOCK ------------------------------------------- VOTING NONVOTING ADDITIONAL --------------------- -------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- --------- --------- --------- ----------- ------------- ------------- Balance at June 30, 1996.................... 1,463,334 $ 14,633 616,526 $ 6,165 $ 384,630 $ 13,189,301 $ 13,594,729 Exercise of Stock Options................. -- -- 60,540 605 114,424 -- 115,029 Stock Repurchased and Canceled................ -- -- (19,000) (190) (25,130) (45,170) (70,490) Distributions to Shareholders............ -- -- -- -- -- (2,545,000) (2,545,000) Dividends Paid........... -- -- -- -- -- (1,250,000) (1,250,000) Net Income............... -- -- -- -- -- 516,926 516,926 ---------- --------- --------- --------- ----------- ------------- ------------- Balance at June 30, 1997.................... 1,463,334 $ 14,633 658,066 $ 6,580 $ 473,924 $ 9,866,057 $ 10,361,194 ---------- --------- --------- --------- ----------- ------------- ------------- ---------- --------- --------- --------- ----------- ------------- -------------
The accompanying notes are an integral part of these statements. F-45 TECHMATICS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings from continuing operations....................................... $3,535,253 Loss from operations of discontinued subsidiary, TIAC......................... (2,231,731) Loss on disposal of subsidiary................................................ (786,596) ---------- Net earnings.................................................................. 516,926 ---------- Adjustments to reconcile net earnings to net cash provided by operating activities Loss on disposal of property and equipment.................................. 7,274 Depreciation and amortization............................................... 1,200,685 Provision for deferred state income taxes................................... (4,990) Changes in assets and liabilities Increase in accounts receivable........................................... (2,238,902) Decrease in prepaid expenses and other assets............................. 386,059 Decrease in other assets.................................................. 3,552 Increase in net assets of discontinued operations......................... (53,398) Increase in accounts payable.............................................. 1,327,301 Increase in accrued expenses.............................................. 1,054,482 Decrease in state income taxes payable.................................... (732) Decrease in long-term deferred rent....................................... (14,088) Increase in other long-term liabilities................................... 230,625 ---------- Total Adjustments............................................................... 1,897,868 ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... 2,414,794 ---------- CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of property and equipment........................................... (2,322,816) Repayments on note receivable................................................. (7,193) Proceeds from sale of investments............................................. 2,351,093 ---------- NET CASH USED IN INVESTING ACTIVITIES........................................... 21,084 ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under line-of-credit agreement................................. $1,526,800 Proceeds from exercise of stock options....................................... 151,654 Repurchase of common stock.................................................... (70,490) Distribution to shareholders.................................................. (2,545,000) Dividends paid to shareholders................................................ (1,250,000) ---------- NET CASH USED IN FINANCING ACTIVITIES........................................... (2,187,036) ---------- NET INCREASE IN CASH............................................................ 248,842 CASH AT BEGINNING OF YEAR....................................................... 94,363 ---------- CASH AT END OF YEAR............................................................. $ 343,205 ---------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for-- Income taxes................................................................ $ 35,000 ---------- Interest.................................................................... $ 29,901 ---------- ----------
The accompanying notes are an integral part of these statements. F-46 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS TECHMATICS, Inc. (the Company), was incorporated March 15, 1982, under the laws of the Commonwealth of Virginia for the purpose of engaging in a consulting business. The Company specializes in engineering, management, and information technology services primarily for agencies of the U.S. government. Services are also provided to commercial enterprises. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of TECHMATICS, Inc., and its wholly owned subsidiary. Material intercompany accounts and transactions have been eliminated. REVENUE FROM CONTRACTS Most of the Company's revenue is generated from cost-plus fixed fee level of effort contracts, which require the Company to perform agreed-upon amounts of labor hours within specified categories and skill levels. In return, the Company receives reimbursement of its direct and indirect costs of contract performance, within stipulated limits, plus a negotiated fixed fee representing the Company's gross profit. Revenue derived from this type of contract totaled 86% of revenue for fiscal year 1997 and is recognized on the basis of reimbursable costs incurred plus a pro rata portion of fees earned. Revenue on time-and-materials contracts totaled 6% of revenue for fiscal year 1997 and is recognized on the basis of direct-labor hours and reimbursable materials costs incurred. Revenue on fixed-price contracts totaled 8% of revenue for fiscal year 1997 and is recorded on the percentage-of-completion method based upon costs incurred in relation to total estimated costs. Losses are recorded in full when determinable. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Expenditures for maintenance, repairs, and improvements which do not materially extend the useful lives of assets are expensed as incurred. The Company depreciates its property and equipment using primarily the straight-line method based on estimated useful lives of assets. Certain computer equipment is depreciated using accelerated methods. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated useful lives. Estimated useful lives of property and equipment and leasehold improvements are as follows: Computer equipment.......................... 3-5 years Furniture and equipment..................... 4-5 years Lesser of lease term or useful Leasehold improvements...................... life Real property............................... 30 years
INCOME TAXES The accompanying consolidated financial statements are presented on the accrual basis of accounting, which recognizes income when earned and recognizes costs and expenses when incurred, as required by generally accepted accounting principles. However, for tax reporting purposes, the Company computes its F-47 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) income or loss on the cash basis, wherein income is recognized when collected in cash, and costs and expenses are recognized as cash is paid. The Company has elected S corporation status for federal and certain state income tax purposes. Under such election, the taxable income or loss of the Company is apportioned among the Company's stockholders, based upon their percentage of ownership during the year, and included in the individual tax returns of the stockholders. Therefore, the accompanying consolidated statement of earnings shows no provision by the Company for federal income taxes. For the year ended June 30, 1997, the Company has recorded a provision of $29,278, for income taxes, in certain states that do not recognize the Company's S status or in which the Company chose not to elect S status. The Company intends to terminate its S election effective January 1, 1998. If the Company had elected to terminate the S status at June 30, 1997, the Company would have recorded a one-time charge against income from continuing operations of approximately $4,000,000. The charge will reflect a deferred income tax liability arising as a result of cumulative differences between financial statement and income tax reporting, principally relating to the adjustments from the accrual method to the cash method of accounting. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Loss on discontinued operations of the subsidiary (see Note C) includes estimated costs to dispose of the subsidiary during the phase-out period, net of any income tax benefits resulting from the discontinuance of operations. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1997, the Company's carrying value of financial instruments approximated fair value. Carrying amounts for accounts receivable, notes receivable, accounts payable, line of credit and deferred income taxes approximate fair value because of the short maturity of such instruments. NOTE B--UNBILLED ACCOUNTS RECEIVABLE Unbilled accounts receivable represent revenue recognized for work performed but not billed at year-end. Unbilled amounts at June 30, 1997, are expected to be billed in 1997 and thereafter. Amounts F-48 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE B--UNBILLED ACCOUNTS RECEIVABLE (CONTINUED) expected to be collected after 1997 have been classified as current assets in accordance with industry practice. Unbilled amounts consist of the following as of June 30, 1997: Billings in progress............................................ $1,324,107 Fee retentions.................................................. 974,222 Costs in excess of provisional billing rates.................... 450,284 Costs incurred and fees recorded on existing contracts prior to execution of contract modification............................ 1,248,994 --------- 3,997,607 Less allowance for doubtful accounts............................ (711,799) --------- $3,285,808 --------- ---------
Certain unbilled receivables are not billable until a review of costs incurred is performed by the Defense Contract Audit Agency (DCAA). Amounts included in unbilled accounts receivable expected to be collected within one year totaled $2,573,101 at June 30, 1997. NOTE C--INVESTMENT IN AFFILIATE In May 1995, the Company formed TECHMATICS Information Alliance and Communications (TIAC), a Virginia limited liability company. TIAC provides customers with information services, principally related to the Internet. The Company invested $100,000 in the purchase of a 78% interest in TIAC, and agreed to advance working capital funds as required by TIAC. In accordance with generally accepted accounting principles, a minority interest in TIAC is not recorded, as losses related to the minority interest exceed its equity in TIAC. On July 1, 1997, the Company adopted a formal plan to discontinue the operations of TIAC. On August 31, 1997, the Company disposed of TIAC. Assets disposed of consisted primarily of accounts receivable; supplies; and property, plant and equipment. As of August 8, 1997, the operations are in the process of termination. Certain assets were sold for cash to an unrelated third party. The remaining assets and liabilities are being liquidated in the normal course of business. The Company had guaranteed a lease for space in which TIAC conducted its operations. The remaining obligations under the original terms of the lease are approximately $478,000, payable monthly through February 28, 2001. The Company has entered into a sublease for the space and has recognized a loss of approximately $118,000, representing the difference between the Company's obligation on the lease and the estimated future income from the sublease. Additionally, in connection with the discontinuation of operations and resulting employment terminations, the Company has accrued $155,000 of severance pay. The loss arising from the discontinued operations is $786,596 (net of income tax benefit of $9,385) representing the loss on sale and liquidation of assets of TIAC, and a provision of $149,459 for operating losses during the phase-out period from July 1, 1997, through August 31, 1997. F-49 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE C--INVESTMENT IN AFFILIATE (CONTINUED) Operating results of TIAC for the year ended June 30, 1997, are shown separately in the accompanying statements of earnings. Net sales of TIAC for 1997 were $812,239. The amounts are not included in net sales in the accompanying income statements. Assets and liabilities of TIAC consisted of the following at June 30, 1997: Cash.............................................................. $ 63,147 Accounts receivable............................................... 264,366 Prepaids and other................................................ 56,882 Deferred tax benefit.............................................. 29,616 Net property, plant and equipment................................. 390,284 Other noncurrent assets........................................... 11,177 --------- Total assets.................................................. 815,472 --------- Accounts payable.................................................. 30,147 Accrued expenses.................................................. 20,102 Other noncurrent liabilities...................................... 56,899 --------- Total liabilities............................................. 107,148 --------- Net assets disposed of............................................ $ 708,324 --------- ---------
Assets are shown at their expected net realizable values; short-term notes payable are shown at their face amounts. Net assets to be disposed of, at expected net realizable values, have been separately classified in the accompanying balance sheet at June 30, 1997. F-50 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE D--STOCKHOLDERS' EQUITY AND STOCK OPTIONS STOCK OPTIONS The Company has an employee stock option plan for key employees. The plan was adopted in 1993, replacing a similar plan previously in effect since 1989. Shares optioned under both the 1989 and 1993 plans are nonvoting common stock, par value of $0.01 each. The 1993 plan provides for the issuance of a maximum of 1,300,000 shares. The Company values options at book value which approximates market.
SHARES UNDER EXERCISE OPTION PRICE ------------- ------------- Balance, June 30, 1996.......................................... 467,190 $ 1.90 - 4.00 Granted....................................................... -- -- Exercised..................................................... (60,540) 1.90 - 1.90 Canceled...................................................... (33,200) 1.90 - 4.00 ------------- Balance, June 30, 1997.......................................... 373,450 $ 2.59 - 4.00 ------------- ------------- ------------- -------------
As of June 30, 1997, 140,330 options are exercisable. STOCK REPURCHASE AGREEMENT Common stock is subject to a stock repurchase agreement whereby the Company has the right of first refusal for any stock offered for sale by a stockholder or upon termination of employment or death of a stockholder. NOTE E--LINE OF CREDIT AND BANKING ARRANGEMENTS The Company maintains a line of credit for borrowings of up to $8,000,000. Principal is payable upon demand and interest is calculated using the 30-day LIBOR rate plus 225 basis points. The LIBOR rate was 7.94% at June 30, 1997. Borrowings are collateralized by accounts receivable. As of June 30, 1997, the Company had drawn $1,526,800 on the line of credit, net of repayments. The Company's principal disbursing accounts are maintained on a zero-balance basis, wherein the bank invests any balances on hand daily in short-term securities. In the event that checks presented for payment exceed available balances, the bank advances necessary funds pursuant to the line-of-credit agreement. As of June 30, 1997 the Company had issued checks in the aggregate amounts of approximately $1,446,000 which amounts are classified as accounts payable in the accompanying consolidated balance sheets. F-51 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE F--ACCRUED EXPENSES Accrued expenses consist of the following at June 30, 1997: Salaries and related expenses................................... $1,466,614 Accrued vacation................................................ 1,469,536 Accrued 401(k) contribution expenses............................ 281,456 Accrued subcontractor costs..................................... 664,700 Health claims................................................... 106,852 Deferred rent, current portion.................................. 5,000 Estimated expenses on disposal of discontinued operations....... 587,050 Other accrued expenses.......................................... 295,912 --------- $4,877,120 --------- ---------
NOTE G--COMMITMENTS AND CONTINGENCIES CONTRACTS Substantially all payments to the Company under cost-reimbursable contracts and subcontracts are provisional reimbursements of claimed cost and the pro rata portion of the fixed fee thereon. Eligibility of the costs for reimbursement is subject to annual audits by the DCAA. Audits of fiscal years 1994 through 1996 have not been finalized, and the audit of fiscal year 1997 has not yet begun. Management believes resolution of the audits will have no material effect upon the financial position of the Company or the results of future operations. LEASE COMMITMENTS The Company is obligated as lessee under certain noncancelable operating leases, primarily for office space required by its Northern Virginia headquarters and principal operating locations. Future minimum rent payments under the leases consist of the following:
CONTINUING DISCONTINUED YEAR ENDING JUNE 30, OPERATIONS OPERATIONS - ----------------------------------------------------------------- ------------- ------------ 1998............................................................. $ 3,288,378 $ 22,670 1999............................................................. 3,246,829 -- 2000............................................................. 3,133,822 -- 2001............................................................. 3,037,693 -- 2002............................................................. 2,918,882 -- Thereafter....................................................... 153,001 -- ------------- ------------ $ 15,778,605 $ 22,670 ------------- ------------ ------------- ------------
The leases for office space allow for annual rent adjustments based on the change in the U.S. Consumer Price Index and additional rent assessments as specified in the lease terms. F-52 TECHMATICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1997 NOTE G--COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company subleases part of its office space to a related party under a sublease agreement. Rent expense totaled $2,742,228 for 1997. NOTE H--BENEFIT PLANS Eligible employees of the Company may participate in a 401(k) savings plan whereby employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age and length-of-service requirements. The directors, at their discretion, elected to contribute to the 401(k) savings plan approximately $436,000 for the plan year ended December 31, 1996. The Company accrued a liability of approximately $281,000 for the period from January 1, 1997, through June 30, 1997. The Company has adopted a deferred compensation plan which provides retirement and death benefits to certain officers of the Company. The plan is funded by split-dollar life insurance policies for which the Company makes the payments. In return, the officer, who is the owner of the policy, assigns certain rights in the policy to secure the payments made by the Company, and the Company is to receive a return of its funds before other benefits are paid. Accordingly, the Company has recorded deposits of $1,115,000 at June 30, 1997. The Company expects to pay out the amount of the deposits, when returned by the insurance company in the future, to the officers covered as deferred compensation, and intends to fund the plan for the required number of years. In the event the Company were to discontinue funding the plan, some or all the deposit may not be realized, depending on the cash surrender value of the policies. The cash surrender value of the policies at June 30, 1997, was $664,800. The plan premium paid by the Company is recorded as a deposit with a corresponding deferred compensation liability recorded at the present value of the future benefits to be paid by the Company. In computing the present value of the future benefits, the discount rate used is equal to the interest rate as determined by the Secretary of the Treasury at fiscal year-end. At the end of the plan period, the aggregate amount accrued will be equal to the present value of the benefits expected to be provided to the employees. The plan premiums of $228,000 were paid for the year ended June 30, 1997. The deferred compensation liability accrued was $1,115,000 for the year ended June 30, 1997. NOTE I--RELATED PARTY TRANSACTIONS The Company leases office space to a corporation, the owner of which is a director of the Company. Total lease payments received under the lease amounted to approximately $44,000 in 1997. Sublease income received by the Company is recorded as a reduction to rent expense. The Company also has various contracts and subcontracts with the same corporation. Costs paid to the related party totaled approximately $372,200 in 1997. The Company has a computer purchase program under which it makes noninterest-bearing loans between $500 and $3,000 to employees for the purchase of computer equipment and related items. The loans are repayable through payroll deduction over a maximum of three years. As of June 30, 1997, aggregate outstanding balances of such loans totaled approximately $231,600. The amount currently due is included in "notes receivable from employees" and the long-term portion is included in "other assets" in the accompanying balance sheet. F-53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of TECHMATICS, Inc.: We have audited the accompanying consolidated balance sheets of TECHMATICS, Inc. (a Virginia corporation), and subsidiary as of June 30, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TECHMATICS, Inc., and subsidiary as of June 30, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Washington, D.C. August 6, 1996 (except with respect to the matter discussed in Note 10, as to which the date is July 1, 1997) F-54 TECHMATICS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND 1995
1996 1995 ------------- ------------- ASSETS CURRENT ASSETS: Cash............................................................................. $ 94,363 $ 62,254 Investments...................................................................... 2,351,093 -- Accounts receivable- Billed......................................................................... 12,802,214 15,265,709 Unbilled (Note 2).............................................................. 842,834 1,431,288 Prepaid expenses and other....................................................... 1,003,712 434,867 Notes receivable from employees (Note 9)......................................... 106,536 127,565 ------------- ------------- Total current assets......................................................... 17,200,752 17,321,683 ------------- ------------- PROPERTY AND EQUIPMENT: Computer equipment............................................................... 2,846,234 2,372,709 Furniture and equipment.......................................................... 1,351,250 1,197,900 Real property.................................................................... 155,517 155,517 Leasehold improvements........................................................... 172,102 163,809 Automobiles...................................................................... 39,028 -- ------------- ------------- Total cost................................................................... 4,564,131 3,889,935 Less- Accumulated depreciation and amortization.................................. (2,986,337) (2,117,093) ------------- ------------- Net property and equipment................................................... 1,577,794 1,772,842 ------------- ------------- OTHER ASSETS....................................................................... 1,335,238 1,132,242 Net assets of discontinued operations (Note 10).................................... 654,926 -- ------------- ------------- TOTAL ASSETS....................................................................... $ 20,768,710 $ 20,226,767 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................................................. $ 2,261,477 $ 2,740,239 Accrued expenses (Note 4)........................................................ 3,786,013 1,874,834 Line of credit (Note 5).......................................................... -- 1,260,000 Deferred revenue................................................................. -- 21,104 Deferred state income taxes...................................................... 67,122 -- ------------- ------------- Total current liabilities.................................................... 6,114,612 5,896,177 ------------- ------------- Deferred state income taxes........................................................ 106,372 162,940 Deferred rent, net of current portion.............................................. 58,205 131,615 Other long-term liabilities........................................................ 894,792 690,329 ------------- ------------- Total liabilities............................................................ 7,173,981 6,881,061 ------------- ------------- Commitments and contingencies (Note 6) STOCKHOLDERS' EQUITY: Common stock (Note 7): Class A, voting, $0.01 par value, 2,500,000 shares authorized, 1,463,334 and 1,530,000 shares issued and outstanding, respectively........................ 14,633 15,300 Class A, nonvoting, $0.01 par value, 7,500,000 shares authorized, 616,526 and 574,186 shares issued and outstanding, respectively.......................... 6,165 5,742 Additional paid-in capital..................................................... 384,630 587,701 Retained earnings.............................................................. 13,189,301 12,736,963 ------------- ------------- Total stockholders' equity................................................... 13,594,729 13,345,706 ------------- ------------- Total liabilities and stockholders' equity................................... $ 20,768,710 $ 20,226,767 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of this statement. F-55 TECHMATICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995 ------------- ------------- Contract revenues.................................................................. $ 47,022,093 $ 45,235,967 Contract and administrative costs.................................................. 44,652,528 42,951,736 ------------- ------------- Income from continuing operations............................................ 2,369,565 2,284,231 Interest income, net of interest expense of $8,504 and $1,486 in 1996 and 1995..... 187,052 188,250 Other expenses..................................................................... -- (40,955) ------------- ------------- Income from continuing operations before state income taxes.................. 2,556,617 2,431,526 Provision for state income taxes, deferred......................................... (35,797) (32,484) ------------- ------------- Net income from continuing operations........................................ $ 2,520,820 $ 2,399,042 Discontinued Operations (Note 10) Loss from operations of TIAC, net of income tax benefit of $25,243........... (2,068,482) -- ------------- ------------- Net income......................................................................... $ 452,338 $ 2,399,042 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of this statement. F-56 TECHMATICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
COMMON STOCK ------------------------------------------- VOTING NONVOTING ADDITIONAL --------------------- -------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL ---------- --------- --------- --------- ---------- ------------- ------------- Balance, June 30, 1994.............. 1,530,000 $ 15,300 455,356 $ 4,554 $ 505,780 $ 10,913,238 $ 11,438,872 Exercise of stock options......... -- -- 127,780 1,278 91,402 -- 92,680 Stock repurchased and canceled.... -- -- (8,950) (90) (9,481) (18,085) (27,656) Dividends paid.................... -- -- -- -- -- (557,232) (557,232) Net income........................ -- -- -- -- -- 2,399,042 2,399,042 ---------- --------- --------- --------- ---------- ------------- ------------- Balance, June 30, 1995.............. 1,530,000 15,300 574,186 5,742 587,701 12,736,963 13,345,706 ---------- --------- --------- --------- ---------- ------------- ------------- Exercise of stock options......... -- -- 51,040 510 65,878 -- 66,388 Stock repurchased and canceled.... (66,666) (667) (8,700) (87) (268,949) -- (269,703) Net income........................ -- -- -- -- -- 452,338 452,338 ---------- --------- --------- --------- ---------- ------------- ------------- Balance, June 30, 1996.............. 1,463,334 $ 14,633 616,526 $ 6,165 $ 384,630 $ 13,189,301 $ 13,594,729 ---------- --------- --------- --------- ---------- ------------- ------------- ---------- --------- --------- --------- ---------- ------------- -------------
The accompanying notes are an integral part of this statement. F-57 TECHMATICS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations............................................. $ 2,546,063 $ -- Loss from operations of discontinued subsidiary, TIAC (Note 10)................... (2,093,725) -- ------------- ------------- Net income........................................................................ 452,338 2,399,042 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization................................................. 875,277 687,961 Provision for deferred state income taxes..................................... 10,554 32,484 Loss on disposal of property and equipment.................................... 1,691 -- Decrease (increase) in accounts receivable.................................... 3,051,949 (2,431,156) Increase in prepaid expenses and other current assets......................... (697,625) (44,625) Increase in other assets...................................................... (84,188) (595,340) Increase in net assets of discontinued operations............................. (601,277) -- Increase in accounts payable and accrued expenses............................. 1,499,896 257,563 Increase (decrease) in deferred rent.......................................... 58,205 (90,857) (Decrease) increase in deferred revenue....................................... (21,104) 21,104 Increase in other long-term liabilities....................................... 72,849 226,544 ------------- ------------- Net cash provided by operating activities................................... 4,618,565 462,720 ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment............................................... $ (733,879) $ (1,150,789) Repayments (loans) on note receivable............................................. 7,486 (30,677) Purchases of investments, net..................................................... (2,351,093) -- ------------- ------------- Net cash used in investing activities....................................... $ (3,077,486) $ (1,181,466) ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings under line of credit.................................. ($ 1,260,000) 1,260,000 Proceeds from issuance of common stock............................................ 66,388 92,680 Repurchase of common stock........................................................ (269,703) (27,656) Dividends paid to shareholders.................................................... -- (557,232) ------------- ------------- Net cash (used in) provided by financing activities......................... $ (1,463,315) $ 767,792 ------------- ------------- ------------- ------------- NET INCREASE IN CASH................................................................ 77,764 49,046 CASH, BEGINNING OF YEAR............................................................. 16,599 13,208 ------------- ------------- CASH, END OF YEAR................................................................... $ 94,363 $ 62,254 ------------- ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for- Income taxes.................................................................... $ -- $ 628 ------------- ------------- ------------- ------------- Interest........................................................................ $ 8,504 $ 1,486 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of this statement. F-58 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION TECHMATICS, Inc. (the "Company"), was incorporated on March 15, 1982, under the laws of the Commonwealth of Virginia for the purpose of engaging in a consulting business. The Company specializes in engineering, management and information technology services for the United States Navy and other customers. REVENUES FROM CONTRACTS The preponderance of the Company's revenue is generated from cost-plus fixed fee contracts. This type of contract provides for the Company to perform agreed-upon numbers of labor hours within specified categories and skill levels. In return, the Company receives reimbursement of its direct and indirect costs of contract performance, within stipulated limitations, plus a negotiated fixed fee that represents the Company's gross profit. Revenue derived from this type of contract, 89 and 91 percent of total revenue for fiscal years 1996 and 1995, respectively, is recognized on the basis of reimbursable costs incurred plus a pro rata portion of fees earned. Revenue on time-and-material contracts (9 and 8 percent of total revenue for fiscal years 1996 and 1995, respectively) is recognized on the basis of direct-labor hours and reimbursable materials costs incurred. Revenue on fixed-price contracts (2 and 1 percent of total revenue for fiscal years 1996 and 1995, respectively) is recorded on the percentage-of-completion method based upon costs incurred in relation to total estimated costs. Losses are recorded in full when they become determinable. In 1995, one of the Company's U.S. government contracts represented 11 percent of total revenues. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Expenditures for maintenance, repairs and improvements which do not materially extend the useful lives of the assets are expensed as incurred. The Company depreciates its property and equipment primarily using the straight-line method based on the estimated useful lives of the assets. Certain computer equipment is depreciated using accelerated methods. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated useful lives. Estimated useful lives of property and equipment and leasehold improvements are as follows: Computer equipment.................. 3-5 years Furniture and equipment............. 4-5 years Lesser of lease term or useful Leasehold improvements.............. life Real property....................... 30 years Automobiles......................... 5 years
INCOME TAXES The accompanying financial statements are presented on the accrual basis of accounting. This method recognizes income when earned and recognizes costs and expenses when incurred, as is required by generally accepted accounting principles. For tax reporting purposes, however, the Company computes its income or loss on the cash basis, wherein income is recognized when collected in cash and costs and expenses are recognized as cash is paid therefor. F-59 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF JUNE 30, 1996 AND 1995 The Company has elected to be treated as a "Subchapter S" corporation for Federal and state income tax purposes. Under this election, the taxable income or loss of the Company for fiscal year is apportioned among the Company's stockholders, based upon their percentage ownership during the year, and included in the individual tax returns of the stockholders. For this reason, the accompanying Consolidated Statement of Income shows no provision by the Company for Federal income taxes. For fiscal years 1996 and 1995, the Company has recorded a $10,554 and $32,484 provision, respectively, for state income taxes, because certain states do not recognize the Company's "Subchapter S" corporation status. Differences existing between net income for financial reporting purposes and for income tax purposes are caused primarily by the use of the cash versus accrual method of accounting and accelerated depreciation methods for tax purposes. SHORT-TERM INVESTMENTS Short-term investments consist primarily of U.S. Treasury Bills and are stated at market which was identical to cost at June 30, 1996. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the investments are classified as available-for-sale at year-end. There were no significant realized or unrealized gains or losses on these investments during the year. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1996 and 1995, the Company's carrying value of financial instruments approximated fair value. Carrying amounts for accounts receivable, notes receivable, accounts payable, line of credit and deferred income taxes approximated fair value due to the short maturity of these instruments. F-60 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF JUNE 30, 1996 AND 1995 2. UNBILLED ACCOUNTS RECEIVABLE: Unbilled accounts receivable represent revenues recognized for work performed but not billed at year-end. The balances consist of the following as of June 30:
1996 1995 ------------ ------------ Billings in progress.............................................. $ 415,753 $ 900,580 Fee retentions.................................................... 715,710 799,728 Costs in excess of provisional billing rates...................... 362,564 175,980 Costs incurred and fees recorded on existing contracts prior to execution of contract modifications............................. 60,606 129,740 ------------ ------------ 1,554,633 2,006,028 Less- Reserve for uncollectible accounts.......................... (711,799) (574,740) ------------ ------------ Total....................................................... $ 842,834 $ 1,431,288 ------------ ------------ ------------ ------------
Certain unbilled receivables are not billable until a review of costs incurred is performed by the Defense Contract Audit Agency (the "DCAA," see Note 6). The amounts included in unbilled accounts receivable which are expected to be collected within a year equal $476,359 and $1,030,320 at June 30, 1996 and 1995, respectively. 3. INVESTMENT IN AFFILIATE: In May 1995, the Company formed a Virginia Limited Liability Company named "Techmatics Information Alliance and Communications, LLC" (the "LLC"). The LLC was formed to provide its customers with information services, principally related to the Internet. The Company invested $100,000 in the purchase of a 78% interest in the LLC and agreed to advance working capital funds as required by the LLC. In accordance with generally accepted accounting standards, a minority interest in the LLC is not recorded, as losses related to the minority interest exceeded its equity in the LLC. See Note 10 for discontinued operations discussion. 4. ACCRUED EXPENSES: Accrued expenses consist of the following at June 30:
1996 1995 ------------ ------------ Salaries and related expenses..................................... $ 1,396,828 $ 90,804 Accrued vacation.................................................. 1,324,685 1,087,097 Accrued 401(k) contribution expenses.............................. 246,467 257,359 Health claims..................................................... 631,019 290,081 Deferred rent, current portion.................................... 60,000 60,000 Other accrual expenses............................................ 127,104 89,493 ------------ ------------ $ 3,786,013 $ 1,874,834 ------------ ------------ ------------ ------------
F-61 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF JUNE 30, 1996 AND 1995 5. LINE OF CREDIT AND BANKING ARRANGEMENTS: The Company has a $8,000,000 bank line-of-credit agreement. The principal is payable upon demand and interest is calculated using the 30 day LIBOR rate plus 225 basis points and are collateralized by accounts receivable. As of June 30, 1996, the Company had not drawn on the line-of-credit. The Company's principal disbursing accounts are maintained on a zero-balance basis, wherein the bank invests any balances on hand at the close of a business day in short-term securities. In the event that checks presented for payment exceed available balances, the bank advances necessary funds pursuant to the line-of-credit agreement described in the preceding paragraph. As of June 30, 1996, the Company had issued checks in the aggregate amount of approximately $1,676,000, which had not been presented for payment; the corresponding amount as of June 30, 1995, was $2,218,000. These amounts are classified as accounts payable in the accompanying balance sheet for each of the respective dates. 6. COMMITMENTS AND CONTINGENCIES: CONTRACTS Substantially all payments to the Company under cost-reimbursable contracts and subcontracts are provisional reimbursements of claimed cost and the pro rata portion of fixed fee thereon. Eligibility of these costs for reimbursement is subject to annual audits by the DCAA. The audits through June 30, 1989, have been finalized. Audit procedures for fiscal years 1990 through 1993 have been completed by the DCAA and the results thereof are in the process of negotiation and final settlement between the Company and the government. Audits of fiscal years 1994 through 1996 costs have not as yet begun. Management believes that resolution of these audits will not have a material effect upon the financial position of the Company or the results of future operations. LEASE COMMITMENTS The Company is obligated as lessee under certain noncancelable operating leases, primarily for the office space required by its Northern Virginia headquarters and principal operating locations. Future minimum rent payments required under such leases are as follows:
YEAR ENDING JUNE 30, 1997........................................................................... $ 2,409,539 1998........................................................................... 2,160,098 1999........................................................................... 2,132,118 2000........................................................................... 2,125,829 2001........................................................................... 2,106,061 Thereafter..................................................................... 1,953,392 ------------- $ 12,887,037 ------------- -------------
The leases for office space allow for annual rent adjustments based on the change in the U.S. Consumer Price Index and additional rent assessments as specified in the lease terms. The Company subleases part of its office space to a related party under a sublease agreement. See Note 9 for sublease income received by the Company for 1996 and 1995. F-62 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF JUNE 30, 1996 AND 1995 Rent expense for all operating leases, net of sublease payments, totaled $2,442,844 and $2,338,829 in 1996 and 1995, respectively. 7. STOCKHOLDERS' EQUITY AND STOCK OPTIONS: STOCK OPTIONS The Company has an employee stock option plan for key employees. It was adopted in 1993, replacing a similar plan that had previously been in effect since 1989. The shares optioned under both the 1989 and the 1993 plan are nonvoting common stock, par value of $0.01 each. The 1993 plan provides for the issuance of a maximum of 1,300,000 shares.
SHARES UNDER EXERCISE OPTION PRICE ------------- ----------- Balance, June 30, 1994................................................................ 343,980 $ 0.10-2.85 Granted............................................................................. 179,800 3.09-3.40 Exercised........................................................................... (127,780) 0.10-1.90 Canceled............................................................................ (3,020) 2.59-3.09 ------------- ----------- Balance, June 30, 1995................................................................ 392,980 $ 1.35-3.40 Granted............................................................................. 151,000 3.63-4.00 Exercised........................................................................... (51,040) 1.35-1.90 Canceled............................................................................ (25,750) 2.59-3.63 ------------- ----------- Balance, June 30, 1996................................................................ 467,190 $ 1.90-4.00 ------------- ----------- ------------- -----------
As of June 30, 1996, 46,840 options under the plan are exercisable. STOCK REPURCHASE AGREEMENT Common stock is subject to a stock repurchase agreement, whereby the Company has a right of first refusal for any stock offered for sale by a stockholder or upon termination of employment or death of a stockholder. The Company will be reimbursed for premiums paid for certain life insurance policies covering five of its stockholders. 8. 401(K) SAVINGS PLAN: Eligible employees of the Company may participate in a 401(k) savings plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement upon meeting age and length-of-service requirements. The directors, at their discretion, elected to contribute to the 401(k) savings plan approximately $342,000 for the plan year ending December 31, 1995. The Company accrued a liability of approximately $246,000 for the period from January 1, 1996 through June 30, 1996. 9. RELATED-PARTY TRANSACTIONS: The Company leases office space to a corporation, the owner of which is a director of the Company. Total lease payments received under this lease amounted to approximately $55,000 in 1996 and 1995. Sublease income received by the Company is recorded as a reduction to rent expense. The Company also F-63 TECHMATICS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF JUNE 30, 1996 AND 1995 has various contracts and subcontracts with this same corporation. Costs paid to this related party were approximately $225,370 and $736,000 in 1996 and 1995, respectively. The Company has a computer purchase program, under which it makes noninterest bearing loans of between $500 and $3,000 to employees for the purchase of computer equipment and related items. These loans are repayable through payroll deduction over a maximum of three years. As of June 30, 1996, the aggregate outstanding balance of such loans was approximately $207,000 and at June 30, 1995, it was approximately $230,000. The amount currently due is included in "notes receivable from employees" and the long-term portion is included in "other assets" in the accompanying balance sheet. 10. SUBSEQUENT EVENT: On July 1, 1997, the Company adopted a formal plan to discontinue the operations of the LLC. The LLC is a provider of information services to commercial customers (not governmental contractors) and constitutes a separate business segment of the Company. Certain assets were sold for cash to an unrelated party. Other assets were liquidated in the ordinary course of business. Assets disposed of consisted primarily of accounts receivable, supplies and equipment. Net sales for the LLC for fiscal years 1996 and 1995 were approximately $300,000 and $0, respectively. The accompanying consolidated statement of income reflects the discontinued operations for fiscal year 1996 in order to be comparable to the fiscal year 1997 presentation. F-64 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Analysis & Technology, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Analysis & Technology, Inc. and Subsidiaries as of March 31, 1999 and 1998, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Analysis & Technology, Inc. and Subsidiaries as of March 31, 1999 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1999 in conformity with generally accepted accounting principles. KPMG LLP Providence, Rhode Island April 30, 1999 F-65 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, ---------------------------- ASSETS 1999 1998 ------------- ------------- Current assets: Cash and cash equivalents........................................................ $ -- $ 953,677 Contract receivables (note 3).................................................... 28,776,154 25,637,041 Notes and other receivables...................................................... 1,014,563 665,497 Prepaid expenses................................................................. 1,319,468 831,928 ------------- ------------- Total current assets........................................................... 31,110,185 28,088,143 ------------- ------------- Property, buildings and equipment, net (notes 4 and 5)............................. 15,010,949 14,886,072 ------------- ------------- Other assets: Goodwill, net of accumulated amortization (note 4)............................... 17,042,357 15,401,697 Product development costs, net of accumulated amortization (note 4).............. 399,976 301,993 Deferred Compensation Plan investments (note 2).................................. 7,407,832 3,467,388 Notes receivable................................................................. 361,855 538,933 Deposits and other assets........................................................ 913,658 504,508 Deferred income taxes (note 6)................................................... 1,498,984 420,480 ------------- ------------- 27,624,662 20,634,999 ------------- ------------- Total assets................................................................... $ 73,745,796 $ 63,609,214 ------------- ------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (note 5).................................. $ 345,338 $ 328,646 Accounts payable................................................................. 994,716 439,209 Accrued expenses (note 9)........................................................ 12,538,505 11,350,703 Dividends payable................................................................ -- 765,668 Deferred income taxes (note 6)................................................... 1,306,246 749,238 ------------- ------------- Total current liabilities...................................................... 15,184,805 13,633,464 Long-term debt, excluding current installments (note 5)............................ 1,816,488 2,161,083 Other long-term liabilities (note 2)............................................... 8,523,091 3,467,513 ------------- ------------- Total liabilities.............................................................. 25,524,384 19,262,060 ------------- ------------- Commitments and contingencies (notes 3, 8, and 10) Shareholders' equity (notes 7 and 8): Common stock, $.083 stated value. Authorized 11,250,000 shares; issued and outstanding 3,673,114 shares in 1999 and 3,614,537 shares in 1998.............. 306,093 301,212 Treasury stock held by deferred compensation plan, 45,867 shares and 0 shares in 1999 and 1998, respectively, at cost........................................... (459,229) -- Accumulated other comprehensive loss............................................. (8,592) -- Additional paid-in capital....................................................... 8,393,463 8,927,905 Retained earnings................................................................ 39,989,677 35,118,037 ------------- ------------- Total shareholders' equity..................................................... 48,221,412 44,347,154 ------------- ------------- Total liabilities and shareholders' equity..................................... $ 73,745,796 $ 63,609,214 ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. F-66 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED MARCH 31, ---------------------------------------------- 1999 1998 1997 -------------- -------------- -------------- Revenue......................................................... $ 170,354,893 $ 159,956,294 $ 142,547,174 Costs and expenses.............................................. 160,074,537 152,011,128 135,777,206 -------------- -------------- -------------- Operating earnings........................................ 10,280,356 7,945,166 6,769,968 -------------- -------------- -------------- Other expense (income): Interest expense.............................................. 488,987 296,209 397,417 Interest income............................................... (138,803) (125,200) (77,803) Equity in income of joint venture............................. -- (16,969) (90,445) Gain on sale of joint venture................................. -- (1,591,483) -- Other, net.................................................... 1,179,470 1,038,798 728,281 -------------- -------------- -------------- 1,529,654 (398,645) 957,450 -------------- -------------- -------------- Earnings before income taxes.............................. 8,750,702 8,343,811 5,812,518 Income taxes (note 6)........................................... 3,879,062 4,152,247 2,436,982 -------------- -------------- -------------- Net earnings................................................ $ 4,871,640 $ 4,191,564 $ 3,375,536 -------------- -------------- -------------- -------------- -------------- -------------- Basic earnings per common share............................. $ 1.34 $ 1.19 $ 0.96 -------------- -------------- -------------- -------------- -------------- -------------- Diluted earnings per common share........................... $ 1.20 $ 1.07 $ 0.93 -------------- -------------- -------------- -------------- -------------- -------------- Weighted average shares outstanding (notes 2 and 7) Basic......................................................... 3,633,115 3,530,006 3,499,742 -------------- -------------- -------------- -------------- -------------- -------------- Diluted....................................................... 4,023,837 3,849,242 3,609,210 -------------- -------------- -------------- -------------- -------------- --------------
See accompanying notes to consolidated financial statements. F-67 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED MARCH 31, 1999, 1998, AND 1997
ACCUMULATED COMMON STOCK OTHER ---------------------- ADDITIONAL COMPREHENSIVE TOTAL STATED PAID-IN RETAINED TREASURY EARNINGS SHAREHOLDERS' SHARES VALUE CAPITAL EARNINGS STOCK (LOSS) EQUITY ---------- ---------- ------------ ------------- ----------- -------------- ------------- Balances at March 31, 1996................... 3,660,455 305,038 9,964,210 29,010,141 -- -- 39,279,389 Proceeds from sale of common stock........... 46,776 3,898 290,912 -- -- -- 294,810 Repurchase and retirement of common stock........ (263,550) (21,962) (2,297,238) -- -- -- (2,319,200) Net earnings............. -- -- -- 3,375,536 -- -- 3,375,536 Tax benefit of stock options exercised...... -- -- 51,502 -- -- -- 51,502 Cash dividends declared-- $.20 per share......... -- -- -- (693,536) -- -- (693,536) ---------- ---------- ------------ ------------- ----------- -------------- ------------- Balances at March 31, 1997................... 3,443,681 286,974 8,009,386 31,692,141 -- -- 39,988,501 Proceeds from sale of common stock........... 263,806 21,984 1,651,832 -- -- -- 1,673,816 Repurchase and retirement of common stock........ (92,950) (7,746) (1,329,812) -- -- -- (1,337,558) Net earnings............. -- -- -- 4,191,564 -- -- 4,191,564 Tax benefit of stock options exercised...... -- -- 596,499 -- -- -- 596,499 Cash dividends declared-- $.21 per share......... -- -- -- (765,668) -- -- (765,668) ---------- ---------- ------------ ------------- ----------- -------------- ------------- Balances at March 31, 1998................... 3,614,537 301,212 8,927,905 35,118,037 -- -- 44,347,154 Proceeds from sale of common stock........... 101,477 8,456 437,968 -- -- -- 446,424 Repurchase and retirement of common stock........ (42,900) (3,575) (832,365) -- -- -- (835,940) Deferred compensation plan transition differential net of tax benefit................ -- -- (398,700) -- -- -- (398,700) Treasury stock held by deferred compensation plan................... -- -- -- -- (459,229) -- (459,229) Net earnings............. -- -- -- 4,871,640 -- -- 4,871,640 Currency translation adjustment............. -- -- -- -- -- (8,592) (8,592) ---------- ---------- ------------ ------------- ----------- -------------- ------------- Comprehensive earnings... -- -- -- 4,871,640 -- (8,592) 4,863,048 ---------- ---------- ------------ ------------- ----------- -------------- ------------- Tax benefit of stock options exercised...... -- -- 258,655 -- -- -- 258,655 ---------- ---------- ------------ ------------- ----------- -------------- ------------- Balances at March 31, 1999................... 3,673,114 $ 306,093 $ 8,393,463 $ 39,989,677 $ (459,229) (8,592) $ 48,221,412 ---------- ---------- ------------ ------------- ----------- -------------- ------------- ---------- ---------- ------------ ------------- ----------- -------------- -------------
See accompanying notes to consolidated financial statements. F-68 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- Operating activities: Net earnings.............................................................. $4,871,640 $4,191,564 $3,375,536 Adjustments to reconcile net earnings to net cash provided by continuing operations: Gain on sale of joint venture......................................... -- (1,591,483) -- Equity in income of joint venture..................................... -- (16,969) (90,445) Write-off of product development costs................................ -- 280,555 -- Currency translation adjustment....................................... (8,592) -- -- Depreciation and amortization of property, buildings, and equipment... 2,337,947 2,379,912 2,528,929 Amortization of goodwill.............................................. 1,006,553 724,003 562,257 Amortization of product development costs............................. 174,773 162,447 113,908 Provision for deferred income taxes................................... (264,301) (537,216) (744,685) Loss on sale of equipment............................................. 82,846 108,563 243,832 Gain on sale of marketable securities................................. -- -- (35,268) Decrease (increase) in: Contract, notes and other receivables............................... (3,311,101) 1,054,340 3,535,670 Prepaid expenses.................................................... (487,540) 405,847 858,565 Other assets........................................................ (868,870) (472,760) (526,977) Increase (decrease) in: Accounts payable and accrued expenses............................... 2,002,096 661,164 173,527 Other long-term liabilities......................................... 594,726 424,037 (486,839) ---------- ---------- ---------- Net cash provided by continuing operations.......................... 6,130,177 7,774,004 9,508,010 Net cash used for discontinued operations........................... -- -- (400,000) ---------- ---------- ---------- Net cash provided by operating activities........................... 6,130,177 7,774,004 9,108,010 ---------- ---------- ---------- Investing activities: Additions to property, buildings, and equipment........................... (2,507,668) (3,030,794) (2,327,142) Product development costs................................................. (272,756) (130,668) (315,866) Proceeds from sale of equipment........................................... 14,888 10,695 20,991 Proceeds from sale of joint venture....................................... -- 3,000,000 -- Proceeds from sale of marketable securities............................... -- -- 205,603 Acquisition of business units (net of cash acquired)...................... (2,835,234) (8,976,384) (4,932,757) ---------- ---------- ---------- Net cash used for investing activities.............................. (5,600,770) (9,127,151) (7,349,171) ---------- ---------- ---------- Financing activities: Repayments of long-term borrowings........................................ (327,903) (312,956) (278,009) Repurchase of common stock................................................ (835,940) (1,337,558) (2,319,200) Proceeds from sale of common stock........................................ 446,427 1,673,816 294,810 Dividends paid............................................................ (765,668) (693,536) (658,881) ---------- ---------- ---------- Net cash used for financing activities.............................. (1,483,084) (670,234) (2,961,280) ---------- ---------- ---------- Decrease in cash and cash equivalents..................................... (953,677) (2,023,381) (1,202,441) Cash and cash equivalents: Beginning of year....................................................... 953,677 2,977,058 4,179,499 ---------- ---------- ---------- End of year............................................................. $ -- $ 953,677 $2,977,058 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. F-69 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DIVESTITURES Analysis & Technology, Inc. (A&T) initially provided tactical analysis to the Office of Naval Research and sonar analysis to the Naval Underwater Systems Center, now known as the Naval Undersea Warfare Center. During the past 30 years, A&T and Subsidiaries (the Company) have grown to provide system and engineering technologies, technology-based training systems, and information technologies for the military, civil government agencies, and private industry. The Company has the following wholly-owned subsidiaries: - Interactive Media Corp. (Interactive Media) which designs and implements training programs for commercial and government customers; - Analysis & Technology Australia Pty. Ltd. which provides training systems and software development services in Australia. Analysis & Technology International Corporation and Numerical Decisions, Inc. are subsidiaries formed by the Company to perform international work but are not currently operational. The Company typically performs its Department of Defense services under cost reimbursement contracts whereby the U.S. Government reimburses the Company for contracted costs and pays a fee. In fiscal 1999, 1998, and 1997, the amount of the Company's non-defense revenue was $34.6 million, $30.1 million, and $23.7 million, respectively. The Company has made the following acquisitions accounted for as purchases: On September 30, 1998, the Company acquired certain assets of Information Technology Solutions, Inc. of Virginia for $775,000. Total goodwill of $598,000 was recorded in connection with this acquisition and is being amortized over 20 years. On November 14, 1997, the Company acquired all of the stock of UP, Inc. ("UP") of Herndon, Virginia, for $5.3 million in cash plus related expenses. UP provides technology-based interactive multimedia training to clients in telecommunications, financial services and other industries. UP was merged into Interactive Media upon acquisition. During fiscal 1999, under the terms of the UP purchase agreement, the Company made a contingent payment to the former owners of UP of $1.6 million. Goodwill totaling $6.3 million was recorded in connection with this acquisition and is being amortized over 20 years. In connection with the acquisition of UP, assets acquired and liabilities assumed were as follows: Assets: $2,457,020 Goodwill: $6,276,601 Liabilities: $1,702,566
In fiscal 1998, the Company also acquired: certain assets of Command Control, Inc. ("CCI") related to CCI's command, control, computers, communications and intelligence ("C(4)I") service business; Interactive Media Solutions, Inc. ("IAM"), a northern California-based interactive multimedia training supplier; Cambridge Acoustical Associates, Inc. ("CAA") of Medford, Massachusetts, which specializes in dynamics of submerged structures, acoustic analysis, and passive and active noise control; and the assets and rights relating to the overhauling and repairing surface and electronic warfare business of Dalco Electronics Corporation, of Virginia Beach, Virginia. Total goodwill of $2.0 million was recorded in connection with these acquisitions and is being amortized over 20 years. On July 26, 1996, the Company acquired all of the stock of Vector Research Company, Inc. (Vector) of Rockville, Maryland for approximately $6.5 million in cash plus related expenses and assumption of tax F-70 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DIVESTITURES (CONTINUED) liabilities. Vector provides engineering and technical services to U.S. Navy customers. Goodwill totaling approximately $3.5 million was recorded in connection with this acquisition and is being amortized over 20 years. In connection with the acquisition of Vector Research Company, Inc., assets acquired and liabilities assumed were as follows: Assets: $4,472,752 Goodwill: $3,480,220 Liabilities: $1,541,835
On July 18, 1997, the company sold its interest in Automation Software, Incorporated to its joint venture partner, Brown & Sharpe Manufacturing Co. (NYSE:BNS) of Kingston, Rhode Island for $3.0 million. Net cash proceeds from the sale were $1.8 million, and as a result of the company's investment of approximately $1.4 million in the joint venture as of the date of the sale, a net after-tax gain of $405 thousand was recognized in the quarter ended September 30, 1997. On March 8, 1999, the Company and Anteon Corporation (Anteon) entered into a definitive merger agreement under which Anteon will acquire all the outstanding shares of the Company for $26.00 a share and the Company will become a wholly owned subsidiary of Anteon. Anteon, based in Fairfax, Virginia, is a privately held corporation that provides information technology, systems engineering and technology solutions to customers throughout the United States and internationally. The transaction is conditioned on the approval of the holders of two-thirds of the Company's common stock as well as on customary regulatory approvals and other closing conditions. The merger is expected to close by June 30, 1999. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies of the Company: - PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of A&T and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. - CASH EQUIVALENTS--For financial statement purposes, the Company considers all investments with original maturities of three months or less at the time of purchase to be cash equivalents. - FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's financial instruments including cash, accounts receivable, accounts payable, accrued expenses and dividends payable approximate fair value due to the short term nature of these instruments. The carrying value of notes and other receivables and long term debt approximate fair value based on the instruments' interest rate, terms, maturity date, and collateral, if any, in comparison to the Company's incremental borrowing rate for similar financial instruments. - DEPRECIATION AND AMORTIZATION--Property, buildings, and equipment are stated at cost. Depreciation of buildings and equipment is provided over the estimated useful lives of the respective assets using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or the life of the asset. - LONG-LIVED ASSETS--Long-lived assets and certain identifiable intangibles are reviewed for impairment, based upon undiscounted future cash flows, and appropriate losses are recognized whenever the carrying amount of an asset may not be recovered in accordance with Statement of Financial F-71 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. - GOODWILL--Goodwill relating to the Company's acquisitions represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over periods ranging from two to thirty years. Determination of the straight-line period is dependent on the nature of the operations acquired. The Company evaluates the recoverability of goodwill on a periodic basis to assure that changes in facts and circumstances do not suggest that recoverability has been impaired. This analysis relies on a number of factors, including operating results, business plans, budgets, economic projections, and changes in management's strategic direction or market emphasis. The test of recoverability for goodwill is a comparison of the unamortized balance to expected cumulative (undiscounted) operating income of the acquired business or enterprise over the remaining portion of the amortization period. If the book value of goodwill exceeds undiscounted future operating income, the writedown is computed as the excess of the unamortized balance of the asset over the present value of operating income discounted at the Company's weighted average cost of capital over the remaining amortization period. - PRODUCT DEVELOPMENT COSTS--Product development costs represent expenditures for the development of software products that have been capitalized in accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. Amortization is computed on an individual product basis and is the greater of (a) the ratio of current gross revenues for a product to the total of current and anticipated future gross revenues for that product or (b) the amount computed using the straight-line method over the remaining economic useful life of the product. The Company is currently using economic lives ranging from two to five years for all capitalized product development costs. Amortization of product development costs begins when the software product is available for general release to customers. - ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company applies APB Opinion No. 25 and related Interpretations in accounting for its stock option plans. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement 123 addresses the accounting for the cost of stock-based compensation, such as stock options, and permits either expensing the cost of stock-based compensation over the vesting period or disclosing in the financial statement footnotes what this expense would have been. This cost would be measured at the grant date based upon estimated fair values, using option pricing models. The Company adopted the disclosure alternative of Statement 123. - REVENUE RECOGNITION--Revenue from contract services is earned under cost-reimbursement, time and material, and fixed-price contracts. Revenue under cost-reimbursement contracts is recognized as costs are incurred and under time and materials contracts as time is spent and as materials costs are incurred. Revenue under fixed price contracts is recognized on the percentage of completion basis. The majority of the Company's cost-reimbursement contracts are either cost-plus-fixed-fee or cost-plus-hourly-fee contracts. The contracts may either require the Company to work on defined tasks or deliver a specific number of hours of service. In either case, costs are reimbursed up to the contract- authorized cost ceiling as they are incurred. If a contracted task has not been completed or the specific number of hours of service has not been delivered at the time the authorized cost is expended, the Company may be required to complete the work or provide additional hours. The F-72 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Company will be reimbursed for the additional costs but may not receive an additional fee or the fee may be prorated proportionately to the number of hours actually provided. Revenue under fixed price contracts, including applicable fees and estimated profits, is recorded on the percentage of completion basis. If estimates indicate a probable ultimate loss on a contract, provision is made immediately for the entire amount of the estimated future loss. Profit and losses accrued include the cumulative effect of changes in prior periods' cost estimates. - EARNINGS PER SHARE--The Company calculates earnings per share (EPS) in accordance with the provisions of Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128 requires the disclosure of basic EPS, which is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding at the end of the period. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. The following table reconciles net earnings to net earnings available to common shareholders and basic weighted average number of shares to diluted weighted average shares outstanding for the years ending March 31, 1999, 1998, and 1997. Net earnings attributable to subsidiary stock options represents the allocation of Integrated Performance Decisions (IPD), a former subsidiary of the Company through August 1998, and Interactive Media Corp. (IMC) earnings to holders of potentially dilutive options on IPD stock and IMC stock held by IPD and IMC employees (see footnote 7).
1999 1998 1997 ------------ ------------ ------------ Weighted average shares outstanding..................................... 3,633,115 3,530,006 3,499,742 Net effect of dilutive stock options based on the treasury stock method using the average market price........................................ 390,722 319,236 109,468 ------------ ------------ ------------ Total................................................................... 4,023,837 3,849,242 3,609,210 ------------ ------------ ------------ ------------ ------------ ------------ Net earnings............................................................ $ 4,871,640 $ 4,191,564 $ 3,375,536 Net effect of earnings attributable to subsidiary stock options......... (42,708) (85,050) (33,407) ------------ ------------ ------------ Net earnings available to common shareholders........................... $ 4,828,932 $ 4,106,514 $ 3,342,129 ------------ ------------ ------------ ------------ ------------ ------------
Options to purchase 15,000, 1,000 and 500 shares of common stock at $21.06, $21.88 and $22.00, respectively, per share were outstanding during fiscal 1999 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of common shares. - DEFERRED COMPENSATION PLAN--The Company maintains a deferred compensation plan for certain officers, directors, and salaried employees. The plan is funded primarily through employee pre-tax contributions. The participants in the plan bear the risk of market value fluctuations of the underlying assets. During the year ended March 31, 1999, the Company adopted the provisions of the Emerging Issues Task Force Issue 97-14, ACCOUNTING FOR DEFERRED COMPENSATION ARRANGEMENTS WHERE AMOUNTS EARNED ARE HELD IN A RABBI TRUST AND INVESTED. EITF 97-14 requires deferred compensation plan sponsors to consolidate the accounts of the deferred compensation plan with the accounts of the Company and to account for the assets and liabilities of the deferred compensation plan in accordance with other relevant accounting pronouncements. Accordingly, the company has recorded all non-employer debt and equity F-73 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) securities of the deferred compensation plan in the accompanying March 31, 1999 consolidated balance sheet at fair value, in accordance with Statement of Financial Accounting Standards Statement No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. A&T common stock owned by the deferred compensation plan has been recorded as treasury stock at its historical cost, with the difference between historical cost and fair value as of the implementation date of EITF 97-14 recorded as a transition differential within additional paid-in capital, in accordance with EITF 97-14. The deferred compensation liability is recorded at an amount equal to the fair value of all assets held by the deferred compensation plan. Investment securities held by the deferred compensation plan at March 31, 1999 consist of A&T's common stock and other investments, and are classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the near term. Trading securities are recorded at fair value in the consolidated financial statements, with all unrealized holding gains and losses recorded currently in earnings. - USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. (3) CONTRACT RECEIVABLES Contract receivables are summarized as follows:
1999 1998 ------------- ------------- U.S. Government Customers: Amounts due currently--prime contractor........................................ $ 12,904,485 $ 10,439,279 Amounts due currently--subcontractor........................................... 8,729,701 7,719,819 Retainage...................................................................... 848,303 740,043 ------------- ------------- 22,482,489 18,899,141 ------------- ------------- Commercial customers: Amounts due currently.......................................................... 4,493,374 4,950,970 ------------- ------------- Unbilled contracts in process: Fixed-price contracts in progress, net of progress billings.................... 320,902 642,060 Revenues recorded on work performed pursuant to customer authorization but prior to execution of contractual documents or modifications................. 1,479,389 1,144,870 ------------- ------------- 1,800,291 1,786,930 ------------- ------------- $ 28,776,154 $ 25,637,041 ------------- ------------- ------------- -------------
The Government retains a portion of the fee earned by the Company (retainage) until contract completion and final audit by the Defense Contract Audit Agency (DCAA). It is estimated that approximately $386,000 of retainage at March 31, 1999 will be collected within one year; the remainder will be collected in later years as DCAA completes its audits. F-74 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) CONTRACT RECEIVABLES (CONTINUED) All unbilled contract receivables, net of retainage, are expected to be billed and collected within one year. (4) NON-CURRENT ASSETS A summary of property, buildings, and equipment follows:
USEFUL LIFE 1999 1998 ------------- ------------- ------------- Land............................................ -- $ 595,869 $ 376,839 Buildings....................................... 31 years 11,525,027 11,554,841 Equipment....................................... 3-12 years 23,374,591 21,780,638 Leasehold improvements.......................... 1-5 years 3,000,134 2,510,210 ------------- ------------- 38,495,621 36,222,528 Less accumulated depreciation and amortization.................................. (23,484,672) (21,336,456) ------------- ------------- $ 15,010,949 $ 14,886,072 ------------- ------------- ------------- -------------
Goodwill as of March 31, 1999 and 1998 was $17,042,357 and $15,401,697, net of accumulated amortization of $4,297,031 and $3,290,478, respectively. The amount of goodwill added in fiscal 1999 and 1998 was $2,647,213 and $6,662,112, respectively. Amortization expense was $1,006,553 in fiscal 1999, $724,003 in fiscal 1998, and $562,257 in fiscal 1997. Product development costs at March 31, 1999 and 1998 were $399,976 and $301,993, net of accumulated amortization of $636,592 and $461,819, respectively. The amount of product development costs capitalized was $272,756 in fiscal 1999, and $130,668 in fiscal 1998. Amortization expense was $174,773 in fiscal 1999, $162,447 in fiscal 1998, and $113,908 in fiscal 1997. In addition, previously capitalized costs totaling $280,555 were written off in fiscal 1998. F-75 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (5) LONG-TERM DEBT Long-term debt consists of the following:
1999 1998 ------------ ------------ Mortgage payable to Fleet Bank bearing interest at 7.97%, due in monthly installments of principal of $11,500 plus associated interest through September1, 2001, secured by certain land and buildings with a depreciated cost of $2,730,846................. $ 353,869 $ 491,865 Mortgage payable to Fleet Bank bearing interest at 8.29%, due in monthly installments of principal and interest of $20,048 through January 1, 2007, secured by certain land and buildings with a depreciated cost of $2,468,231............................ 1,487,327 1,597,058 Mortgage payable to Chelsea Groton Bank bearing interest at 9.25%, due in monthly installments of principal and interest of $4,477 through March 2004, secured by certain land and buildings.......................................................... 200,067 233,588 Small Business Administration loan bearing interest at 8.5%, due in monthly installments of principal and interest of $4,923 through May 2001................... 120,563 167,218 ------------ ------------ Total long-term debt.............................................................. 2,161,826 2,489,729 Less current installments of long-term debt........................................... 345,338 328,646 ------------ ------------ Total long-term debt, excluding current installments.............................. $ 1,816,488 $ 2,161,083 ------------ ------------ ------------ ------------
The Company has a $20,000,000 revolving credit and term loan agreement that expires on June 30, 2000. Amounts drawn against the line of credit may be converted into a term loan at the Company's discretion at any time prior to the expiration of the loan agreement. If converted, the term loan would be payable in 20 substantially equal quarterly installments. The alternate rates of interest for the term loan from which the Company can choose are the bank's base rate, the bank's certificate of deposit rate plus 1%, or LIBOR plus 3/4%. There is a commitment fee of 1/2% per annum on the average daily balance of the unused portion of the first $5,000,000 of the commitment and 1/4% per annum on the remaining unused portion of the commitment, payable quarterly. As of March 31, 1999 and 1998 the Company did not have any funds borrowed under its revolving credit agreement. The revolving credit and term loan agreement places certain restrictions on encumbering the Company's assets, incurring additional debt, and disposing of any significant assets. It also requires that the Company maintain at least $10,000,000 in working capital (excluding deferred income taxes), net worth of at least $42,000,000, a debt-to-net-worth ratio of less than 2.5 to 1.0, an interest coverage ratio of not less than two times interest paid or accrued, and a debt service ratio of not less than 1.2 to 1.0. As of March 31, 1999, the Company was in compliance with these covenants. Under current agreements, principal payments due on long-term debt during each of the five fiscal years subsequent to March 31, 1999 are as follows: $345,338 in 2000, $364,157 in 2001, $278,580 in 2002, $202,862 in 2003 and $970,151 in 2004. The Company paid $488,987, $296,209, and $397,417 in interest on all debts in fiscal 1999, 1998, and 1997, respectively. F-76 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INCOME TAXES Total income tax expense for the years ended March 31, 1999, 1998, and 1997 consisted of the following:
CURRENT DEFERRED TOTAL ------------ ----------- ------------ 1999: Federal............................................ $ 3,351,177 $ (236,914) 3,114,263 State.............................................. 792,186 (30,528) 761,658 Foreign............................................ -- 3,141 3,141 ------------ ----------- ------------ Total.............................................. $ 4,143,363 $ (264,301) $ 3,879,062 ------------ ----------- ------------ ------------ ----------- ------------ 1998: Federal............................................ $ 3,792,827 $ (510,774) $ 3,282,053 State.............................................. 896,636 (34,925) 861,711 Foreign............................................ -- 8,483 8,483 ------------ ----------- ------------ Total.............................................. $ 4,689,463 $ (537,216) $ 4,152,247 ------------ ----------- ------------ ------------ ----------- ------------ 1997: Federal............................................ $ 2,583,180 $ (507,257) $ 2,075,923 State.............................................. 598,487 (157,198) 441,289 Foreign............................................ -- (80,230) (80,230) ------------ ----------- ------------ Total.............................................. $ 3,181,667 $ (744,685) $ 2,436,982 ------------ ----------- ------------ ------------ ----------- ------------
Income tax expense from continuing operations differed from the amount computed by applying the U.S. federal income tax rate of 34% to earnings before income taxes as a result of the following:
1999 1998 1997 ------------ ------------ ------------ Computed expected tax expense from continuing operations........................................ $ 2,975,239 $ 2,836,896 $ 1,976,256 Increase (decrease) in income taxes resulting from: Amortization of goodwill........................ 251,942 178,153 139,220 Gain on sale of joint venture................... -- 478,896 -- Equity in joint venture......................... -- -- (30,751) State income taxes (net of valuation allowance and federal income tax benefit)............... 502,694 568,729 291,251 Change in valuation allowance, exclusive of state tax..................................... -- -- (118,500) Other (net)..................................... 149,187 89,573 179,506 ------------ ------------ ------------ $ 3,879,062 $ 4,152,247 $ 2,436,982 ------------ ------------ ------------ ------------ ------------ ------------
F-77 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 31, 1999 and 1998 are presented below:
1999 1998 ----------- ----------- Deferred tax assets: Uncollected receivables that are not yet deductible for tax purposes............... $ 461,136 $ 520,363 Compensated absences, principally due to accrual for financial reporting purposes......................................................................... 1,251,881 961,786 Deferred compensation.............................................................. 4,068,408 1,267,066 Net operating loss carryforwards................................................... 191,596 203,345 ----------- ----------- Total gross deferred tax assets................................................ 5,973,021 2,952,560 Less valuation allowance........................................................... 80,355 80,355 ----------- ----------- Net deferred tax assets........................................................ 5,892,666 2,872,205 ----------- ----------- Deferred tax liabilities: Tax depreciation in excess of financial statement Depreciation..................... (1,101,723) (800,325) Capitalized software product development costs..................................... (193,982) (101,085) Unbilled contract revenue.......................................................... (2,866,559) (2,027,937) Deferred compensation.............................................................. (1,251,642) -- Other.............................................................................. (286,022) (271,616) ----------- ----------- Total gross deferred tax liabilities........................................... (5,699,928) (3,200,963) ----------- ----------- Net deferred tax asset (liability)............................................. $ 192,738 $ (328,758) ----------- ----------- ----------- -----------
At March 31, 1999, the Company had federal and state net operating loss carryforwards of approximately $206,000 and $1,370,000, respectively. Such carryforwards have various expiration dates and begin to expire in the year ended March 31, 2000. For financial purposes, a valuation allowance of $80,355 has been recognized to offset the deferred tax asset related to the portion of the state net operating losses which the Company believes will more likely than not expire unutilized. Management has evaluated the remaining temporary differences and concluded that it is more likely than not that the Company will have sufficient taxable income, of an appropriate character within the carryback and carryforward period permitted by current tax law, to allow for the utilization of the deductible amounts generating the deferred tax assets and, therefore, no valuation allowance is required as of March 31, 1999 and 1998. The Company made federal and state income tax payments of $3,538,312, $3,568,245, and $2,707,724, during fiscal 1999, 1998, and 1997, respectively. (7) STOCK OPTIONS A&T has granted common stock options to certain key employees under its stock option plans. All plans provide that the fair value upon which option exercise prices are based shall be the average of the high and low sale prices of the Company's common stock as reported on the NASDAQ National Market System on the day the option is granted. Options awarded vest at a rate of 20% annually, commencing on the date of award. F-78 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) STOCK OPTIONS (CONTINUED) The transactions under the Company's stock option plans for the years ended March 31, 1999, 1998, and 1997 are summarized as follows:
1999 1998 1997 ----------------------------- ----------------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- ----------------- ---------- ----------------- --------- ----------------- Outstanding at beginning of year.......................... 869,079 $ 10.39 907,017 $ 8.39 898,820 $ 8.22 Granted......................... 191,209 $ 18.98 299,875 $ 13.31 78,600 $ 9.38 Exercised....................... (111,507) $ 8.54 (317,076) $ 7.48 (51,269) $ 6.63 Canceled or expired............. (24,690) $ 11.71 (20,737) $ 9.66 (19,134) $ 9.51 ---------- ------ ---------- ------ --------- ----- Outstanding at end of year...... 924,091 $ 11.59 869,079 $ 10.39 907,017 $ 8.39 ---------- ------ ---------- ------ --------- ----- ---------- ------ ---------- ------ --------- ----- Exercisable at end of year...... 570,447 476,953 649,008 ---------- ---------- --------- ---------- ---------- --------- Shares reserved at end of year.......................... 1,014,362 975,869 952,370 ---------- ---------- --------- ---------- ---------- ---------
The following table summarizes information about stock options outstanding at March 31, 1999:
WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE - --------------------------------------- ----------- ------------------- ------------- ----------- ------------- $6.50--$9.46........................... 328,066 2.71 $ 7.83 280,087 $ 7.58 $9.67--$10.50.......................... 174,275 3.32 $ 9.86 154,235 $ 9.88 $12.96--$22.00......................... 421,750 5.56 $ 15.23 136,125 $ 14.50 ----------- ----------- $6.50--$22.00.......................... 924,091 4.13 $ 11.59 570,447 $ 9.86 ----------- ----------- ----------- -----------
Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant date for awards under those plans consistent with the requirements of Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ------------ ------------ ------------ Net earnings $ 4,871,640 $ 4,191,564 $ 3,375,536 As reported......................................................... $ 4,320,328 $ 3,721,101 $ 3,151,392 Pro forma........................................................... Basic earnings per share $ 1.34 $ 1.19 $ 0.96 As reported......................................................... $ 1.19 $ 1.05 $ 0.90 Pro forma........................................................... Diluted earnings per share $ 1.20 $ 1.07 $ 0.93 As reported......................................................... $ 1.06 $ 0.94 $ 0.86 Pro forma...........................................................
F-79 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) STOCK OPTIONS (CONTINUED) The fair value of each stock option grant has been estimated on the date of grant using the Black-Scholes option pricing model with the following weighted- average assumptions:
1999 1998 1997 ------------ ------------ ------------ Risk-free interest rate................................................. 5.34% 6.23% 6.26% Expected life (years)................................................... 5.8 5.7 5.1 Expected volatility..................................................... 35.10% 34.52% 32.78% Expected dividend yield................................................. 0.0% 1.0% 2.0%
The weighted-average fair values of options at the date of grant were $7.87, $5.29, and $3.19 during fiscal 1999, 1998, and 1997, respectively. In addition, the Company can grant stock options to certain key employees of Interactive Media Corp., a subsidiary of the Company, to purchase up to 20.2% of IMC's authorized common stock. The price of the options as of the date of award and subsequent valuation is based on a calculation considering book value per share and an earnings factor. Approximately 88% of the available options have been granted to date; none have been exercised. (8) EMPLOYEE BENEFIT PLANS The Company's Savings and Investment Plan is a discretionary contribution plan as defined in the Internal Revenue Code, Section 401(a)(27). The plan covers substantially all of the Company's full-time employees. The Company's contributions are made at the discretion of the Board of Directors for any plan year. For the plan years ended December 31, 1998, 1997, and 1996, the Company matched up to 50% of a participant's contribution of up to a maximum of 6% of the participant's compensation, depending on the business unit to which the participant was assigned. The Company's matching contributions to this plan were $2,907,818 $1,847,496, and $1,767,992 for the years ended March 31, 1999, 1998, and 1997, respectively. One of the investment options available under the Company's Savings and Investment Plan is the purchase of the Company's common stock. The Plan owned 179,896, 151,191, and 126,626 shares of common stock of the Company at March 31, 1999, 1998, and 1997, respectively. The A&T Employee Stock Ownership Plan (ESOP) covers substantially all full-time employees. Contributions to the plan are made at the discretion of the Board of Directors for any plan year. The Company's contributions to the plan amounted to $109,900, $101,600, and $112,000 for fiscal 1999, 1998, and 1997, respectively. The plan owned 521,594, 532,694, and 571,319 shares of common stock of the Company at March 31, 1999, 1998, and 1997, respectively, and all shares are allocated to the participants of the ESOP and are included in outstanding shares of common stock. F-80 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) ACCRUED EXPENSES Accrued expenses consist of the following:
1999 1998 ------------- ------------- Accrued vacation............................................... $ 4,829,431 $ 4,671,092 Accrued compensation and related taxes......................... 4,725,621 3,987,617 Accrued benefits............................................... 2,034,693 1,953,372 Accrued income taxes payable................................... 462,312 190,625 Other.......................................................... 486,448 547,997 ------------- ------------- $ 12,538,505 $ 11,350,703 ------------- ------------- ------------- -------------
(10) COMMITMENTS AND CONTINGENCIES The Company occupies certain office facilities and uses certain equipment under lease agreements with terms that range from two to six years. Many of the leases have renewal options with similar terms. All of these agreements are accounted for as operating leases. Minimum lease payments for which the Company is obligated are as follows (the amounts are net of certain maintenance expenses, insurance, and taxes):
YEARS ENDING MARCH 31: - ------------------------------------------------------------------------------- 2000........................................................................... $ 5,146,021 2001........................................................................... 4,249,620 2002........................................................................... 2,918,974 2003........................................................................... 1,594,740 2004........................................................................... 582,780 ------------- Total minimum lease payments................................................... $ 14,492,135 ------------- -------------
Lease expense amounted to approximately $5,534,000, $5,776,000, and $5,138,000, in fiscal 1999, 1998, and 1997, respectively. The U.S. Government has the right to audit and make retroactive adjustments under certain contracts. Audits through March 31, 1997 have been completed. In the opinion of management, adjustments, if any, resulting from audits for the years ended March 31, 1998 and 1999 will not have a material effect on the Company's consolidated financial statements. In addition, government funding continues to be dependent on congressional approval of program level funding and on contracting agency approval for the Company's work. The extent to which backlog will be funded in the future cannot be determined. Under the terms of the Design Systems & Services, Inc. purchase agreement executed in fiscal 1995, the Company is committed to make contingent payments up to $400,000 to the former owner of the company. Contingent payments are based on 15% of revenues derived from sales of a ship design software product made between the purchase date and April 30, 1999. The Company made contingent payments to the former owner totaling $48,155 and $66,682 during fiscal 1999 and fiscal 1998, respectively. Under the terms of the UP purchase agreement, if the aggregate net profit of Interactive Media for the eight fiscal quarters ending September 30, 1999 ("the Second Determination Date") is greater than F-81 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (10) COMMITMENTS AND CONTINGENCIES (CONTINUED) two times the combined cumulative net profit of Interactive Media and UP for the four quarters ending September 30, 1997, the Company is obligated to pay to the former owners of UP 81,100 shares of Interactive Media stock, or cash of $2,250,000, or a combination of stock and cash which together equal the appraised value of the contingent stock payment at the Second Determination Date. However, the former owners of UP may not elect to receive an aggregate amount of cash in excess of $2,250,000. If at the Second Determination Date, the net profit of Interactive Media for the eight fiscal quarters ending September 30, 1999 is equal to or greater than 75%, but less than or equal to 100%, of two times the combined cumulative net profit of Interactive Media and UP for the four quarters ending September 30, 1997, the Company will be obligated to pay the former owners of UP 40,550 shares of Interactive Media stock, or cash of $1,125,000, or a combination of stock and cash which together equal the appraised value of the contingent stock payment at the determination date. However, the former owners of UP may not elect to receive an aggregate amount of cash in excess of $1,125,000. If the merger with Anteon Corporation is completed, under the terms of the UP purchase agreement the contingent payment due to the former owners of UP, Inc. on September 30, 1999 would be payable upon closing. In fiscal 1997, the Company received $450,000 under the terms of a development agreement with the Connecticut Department of Economic Development to fund technology-based training development. Under the terms of the agreement, the Company is required to pay royalties equal to 3% of gross sales of technology-based training products initiated in Connecticut. Royalty payments will be deemed to be paid in full when royalty payments are equal to a return on investment of 15% and the Company has maintained a Connecticut presence. Under the terms of the agreement, the Company made royalty payments totaling $63,000 in fiscal 1999 and $75,085 in fiscal 1998. In fiscal 1995 and 1996, the Company received $200,000 under the terms of a development agreement executed in October 1994 with a state-financed corporation, Connecticut Innovations, Inc. (CII), to assist in funding the development of commercial imaging processing products and services. Effective November 30, 1998, CII and the Company terminated the Development Agreement. As of the date of termination, CII had advanced to the Company $200,000 in development funds and the Company had reimbursed CII $42,035 under terms of that Development Agreement. Under the termination agreement, the Company assigned all rights related to the commercial imaging products developed under the agreement to CII, and CII released the Company from any further obligation to reimburse CII for any Development Funds advanced by CII to the Company. The Company may from time to time be involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. (11) SEGMENT REPORTING The Company operates principally in two segments, Engineering and Information Technologies (Engineering/IT), and technology-based training, which it develops through its wholly owned subsidiary, Interactive Media Corp. (Interactive Media). The Engineering/IT segment serves primarily the needs of the Department of Defense while the Interactive Media segment targets both government and commercial customers. The Company's management measures performance based upon each segment's operating earnings. Total revenue by segment includes both sales to unaffiliated customers, as reported in the Company's consolidated statements of earnings, and intersegment sales. F-82 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (11) SEGMENT REPORTING (CONTINUED) The following table presents information about the Company's segments for the years ended March 31, 1999 and 1998:
INTERACTIVE MARCH 31, 1999 ENGINEERING/IT MEDIA ELIMINATIONS CONSOLIDATED - ----------------------------------------------- -------------- ---------------- ------------- -------------- Sales to unaffiliated customers................ $ 144,247,951 $ 26,106,942 -- $ 170,354,893 -------------- ---------------- ------------- -------------- Intersegment sales............................. 1,629,664 144,581 (1,774,245) -- -------------- ---------------- ------------- -------------- $ 145,877,615 $ 26,251,523 $ (1,774,245) $ 170,354,893 -------------- ---------------- ------------- -------------- -------------- ---------------- ------------- -------------- Operating earnings............................. $ 8,821,279 $ 1,459,077 $ -- $ 10,280,356 -------------- ---------------- ------------- -------------- Interest expense............................. 488,987 -------------- Interest income.............................. (138,803) -------------- Other, net................................... 1,179,470 -------------- 1,529,654 -------------- Earnings before income taxes................. $ 8,750,702 -------------- Depreciation expense........................... $ 1,774,641 $ 563,306 $ 2,337,947 -------------- ---------------- -------------- -------------- ---------------- -------------- Capital expenditures........................... $ 2,092,883 $ 414,785 $ 2,507,668 -------------- ---------------- -------------- -------------- ---------------- -------------- Amortization expense........................... $ 797,931 $ 383,395 $ 1,181,326 -------------- ---------------- -------------- -------------- ---------------- -------------- Identifiable assets at March 31, 1999.......... $ 59,225,782 $ 14,520,014 -- $ 73,745,796 -------------- ---------------- ------------- -------------- -------------- ---------------- ------------- --------------
INTERACTIVE MARCH 31, 1998 ENGINEERING/IT MEDIA ELIMINATIONS CONSOLIDATED - ----------------------------------------------- -------------- ---------------- ------------- -------------- Sales to unaffiliated customers................ $ 139,823,861 $ 20,132,433 -- $ 159,956,294 Intersegment sales............................. 1,100,771 45,550 (1,146,321) -- -------------- ---------------- ------------- -------------- $ 140,924,632 $ 20,177,983 $ (1,146,321) $ 159,956,294 -------------- ---------------- ------------- -------------- -------------- ---------------- ------------- -------------- Operating earnings............................. $ 6,862,631 $ 1,082,535 -- $ 7,945,166 -------------- ---------------- ------------- -------------- Interest expense............................. 296,209 Interest income.............................. (125,200) Equity in income of joint venture............ (16,969) Gain on sale of joint venture................ (1,591,483) Other, net................................... 1,038,798 -------------- (398,645) -------------- Earnings before income taxes................... $ 8,343,811 -------------- -------------- Depreciation expense........................... $ 1,943,011 $ 436,901 $ 2,379,912 -------------- ---------------- -------------- -------------- ---------------- -------------- Capital expenditures........................... $ 2,545,451 $ 485,343 $ 3,030,794 -------------- ---------------- -------------- -------------- ---------------- -------------- Amortization expense........................... $ 753,332 $ 133,118 $ 886,450 -------------- ---------------- -------------- -------------- ---------------- -------------- Identifiable assets at March 31, 1998.......... $ 50,202,241 $ 13,406,973 -- $ 63,609,214 -------------- ---------------- ------------- -------------- -------------- ---------------- ------------- --------------
F-83 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following summarizes quarterly results of operations for the years ended March 31, 1999 and 1998:
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) -------------------------------------------------------------- QUARTER ENDED: JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 TOTAL - -------------------------------------------------- --------- ------------ ------------ ----------- ---------- FISCAL 1999 Revenues........................................ $ 41,320 $ 41,132 $ 42,219 $ 45,684 $ 170,355 Operating earnings.............................. 2,469 2,402 2,683 2,726 10,280 Net earnings.................................... 1,168 1,158 1,223 1,323 4,872 Earnings per share: Basic......................................... $ 0.32 $ 0.32 $ 0.34 $ 0.36 $ 1.34 Diluted....................................... $ 0.28 $ 0.29 $ 0.31 $ 0.32 $ 1.20 FISCAL 1998 Revenues........................................ $ 37,450 $ 38,157 $ 40,773 $ 43,576 $ 159,956 Operating earnings.............................. 1,843 1,448 2,307 2,347 7,945 Net earnings.................................... 916 1,084 1,071 1,121 4,192 Earnings per share: Basic......................................... $ 0.27 $ 0.31 $ 0.30 $ 0.31 $ 1.19 Diluted....................................... $ 0.25 $ 0.28 $ 0.27 $ 0.27 $ 1.07
F-84 ANTEON CORPORATION EXCHANGE OFFER FOR $100,000,000 OF ITS 12% SENIOR SUBORDINATED NOTES DUE 2009 --------------------- PROSPECTUS , 1999 --------------------- No person has been authorized to give any information or to make any representations other than those contained in this prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Anteon Corporation since the date hereof or that the information contained herein is correct as of any time subsequent to its date. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The laws of the Commonwealth of Virginia pursuant to which the Company is incorporated permit it to indemnify its officers and directors against certain liabilities with the approval of its shareholders. The articles of incorporation of the Company, which have been approved by its shareholders, provide for the indemnification of each director and officer (including former directors and officers and each person who may have served at the request of the Company as a director or officer of any other legal entity and, in all such cases, his or her heirs, executors and administrators) against liabilities (including expenses) reasonably incurred by him or her in connection with any actual or threatened action, suit or proceeding to which he or she may be made party by reason of his or her being or having been a director or officer of the Company, except in relation to any action, suit or proceeding in which he or she has been adjudged liable because of willful misconduct or a knowing violation of the criminal law. The Company has purchased officers' and directors' liability insurance policies. Within the limits of their coverage, the policies insure (1) the directors and officers of the Company against certain losses resulting from claims against them in their capacities as directors and officers to the extent that such losses are not indemnified by the Company and (2) the Company to the extent that it indemnifies such directors and officers for losses as permitted under the laws of Virginia. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The Exhibit Index beginning on page E-1 is hereby incorporated by reference. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-1 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on August 9, 1999. ANTEON CORPORATION BY: /S/ CARLTON B. CRENSHAW ----------------------------------------- Carlton B. Crenshaw Senior Vice President and Chief Financial and Administrative Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Carlton B. Crenshaw or Curtis L. Schehr or either of them his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate in connection therewith, granting unto such agent, proxy and attorney-in-fact full power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all that such agents, proxies and attorneys-in-fact or any of their substitutes may lawfully do or cause to be done by virtue thereof. II-2 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- President and Chief /s/ JOSEPH M. KAMPF Executive Officer and - ------------------------------ Director (Principal August 9, 1999 Joseph M. Kampf Executive Officer) Senior Vice President and /s/ CARLTON B. CRENSHAW Chief Financial and - ------------------------------ Administrative Officer August 9, 1999 Carlton B. Crenshaw (Principal Financial and Accounting Officer) /s/ FREDERICK J. ISEMAN Chairman of the Board and - ------------------------------ Director August 9, 1999 Frederick J. Iseman /s/ THOMAS M. COGBURN Director - ------------------------------ August 9, 1999 Thomas M. Cogburn /s/ GILBERT F. DECKER Director - ------------------------------ August 9, 1999 Gilbert F. Decker Director - ------------------------------ Robert A. Ferris /s/ PAUL KAMINSKI Director - ------------------------------ August 9, 1999 Paul Kaminski /s/ STEVEN M. LEFKOWITZ Director - ------------------------------ August 9, 1999 Steven M. Lefkowitz Director - ------------------------------ Joseph Maurelli II-3 EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- --------- 2.1 Agreement and Plan of Merger, dated as of June 7, 1999, by and among the Company, Buffalo Acquisition Corporation and Analysis & Technology, Inc. (incorporated by reference to Exhibit Z to A&T's Current Report on Form 8-K filed on June 9, 1999 (Commission File No. 0-14161)). 3.1 Articles of Incorporation. 3.2 By-laws. 4.1 Indenture, dated as of May 11, 1999, by and among the Company, Vector Data Systems, Inc., Techmatics, Inc. and IBJ Whitehall Bank & Trust Company, as trustee. 4.2 Registration Rights Agreement, dated May 6, 1999, by and among the Company, Vector Data Systems, Inc., Techmatics, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities, Inc. and Legg Mason Wood Walker, Incorporated. 5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re legality. 8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re tax matters. 10.1 Stock Purchase Agreement, dated August 29, 1997, by and among the Company, Vector Data Systems, Inc. and the shareholders of Vector Data Systems, Inc. signatories thereto. 10.2 Agreement and Plan of Merger, dated May 13, 1998, by and among the Company, TM Acquisition Corp., Techmatics, Inc. and certain shareholders of Techmatics, Inc. signatories thereto. 10.3 Purchase Agreement, dated May 6, 1999, by and among the Company, Vector Data Systems, Inc., Techmatics, Inc., and Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated, as initial purchasers. 10.4 Credit Agreement, dated as of June 23, 1999, among the Company, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein. 10.5 Pledge Agreement, dated as of June 23, 1999, among the Company, Azimuth Technologies, Inc., Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. 10.6 Indemnity, Subrogation and Contribution Agreement, dated as of June 23, 1999, among the Company, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. 10.7 Subsidiary Guarantee Agreement, dated as of June 23, 1999, among Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. 10.8 Security Agreement, dated as of June 23, 1999, among the Company, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. 10.9 Fee Agreement, dated as of June 1, 1999, between the Company and Caxton-Iseman Capital, Inc. 10.10 Company Amended and Restated Omnibus Stock Plan. 12.1 Computation of ratio of earnings to fixed charges. 21.1 Subsidiaries of the Company. 23.1 Consent of KPMG LLP, independent accountants. 23.2 Consent of Arthur Andersen LLP, independent accountants. 23.3 Consent of Grant Thornton LLP, independent accountants. 23.4 Consents of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1 and Exhibit 8.1). 24.1 Power of Attorney (included on signature page).
E-1
EXHIBIT DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- --------- 25.1 Statement of eligibility of IBJ Whitehall Bank & Trust Company. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery.
- ------------------------ * To be filed by amendment. E-2 EX-3.1 2 ARTICLES OF INCORPORATION Exhibit 3.1 ARTICLES OF AMENDMENT OF ANTEON CORPORATION To the State Corporation Commission Commonwealth of Virginia The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named. 1. The name of the corporation (hereinafter referred to as the "corporation") is Anteon Corporation. 2. The Capitalization as set forth in the Articles of Incorporation of the corporation is hereby amended to read as follows: "There shall be one class of stock, Common Stock, and there shall be 4,415,460 shares authorized for issuance at a par value of $0.05 per share. Each share of Common Stock shall have full voting rights. 3. The date of adoption of the amendment herein provided for was June 21, 1999. 4. The amendment herein provided for was adopted by unanimous consent of all of the stockholders of the corporation. Executed on June 21, 1999. ANTEON CORPORATION By: /s/ JOSEPH M. KAMPF ------------------------------------ Name: Joseph M. Kampf Title: President and Chief Executive Officer COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION June 22, 1999 The State Corporation Commission has found the accompanying articles submitted on behalf of Anteon Corporation to comply with the requirements of law, and confirms payment of all related fees. Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective June 22, 1999, at 02:33 p.m. The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. STATE CORPORATION COMMISSION By: /s/ T.V. MORRISON JR. ------------------------ Commissioner ARTICLES OF AMENDMENT OF OGDEN PROFESSIONAL SERVICES CORPORATION To the State Corporation Commission Commonwealth of Virginia The following articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named. 1. The name of the corporation (hereinafter referred to as the "corporation") is Ogden Professional Services Corporation. 2. Article One of the Articles of Incorporation of the corporation is hereby amended to read as follows: "The name of the corporation is "Anteon Corporation." 3. The date of adoption of the amendment herein provided for was April 17, 1996. 4. The amendment herein provided for was adopted by unanimous consent of all of the shareholders of the corporation. Executed on April 17, 1996 OGDEN PROFESSIONAL SERVICES CORPORATION By: /s/ JOSEPH M. BARRY -------------------------- Name: Joseph M. Barry Title: Vice President COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION April 22, 1996 The State Corporation Commission has found the accompanying articles submitted on behalf of ANTEON CORPORATION (FORMERLY OGDEN PROFESSIONAL SERVICES CORPORATION) to comply with the requirements of law, and confirms payment of all related fees. Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective April 22, 1996. The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. STATE CORPORATION COMMISSION By: /s/ T.V. MORRISON JR. ------------------------- Commissioner ARTICLES OF AMENDMENT OF OGDEN GOVERNMENT SERVICES CORPORATION To the State Corporation Commission Commonwealth of Virginia The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named. 1. The name of the corporation (hereinafter referred to as the "corporation") is Ogden Government Services Corporation. 2. Article One of the Articles of Incorporation of the corporation is hereby amended to read as follows: "The name of the corporation is "Ogden Professional Services Corporation." 3. The date of adoption of the amendment herein provided for was May 1, 1995. 4. The amendment herein provided for was adopted by unanimous written consent of all of the shareholders of the corporation pursuant to Section 13.1-657 of the Virginia Stock Corporation Act. Executed on May 1, 1995 OGDEN PROFESSIONAL SERVICES CORPORATION By: /s/ PETER ALLEN ------------------------ Name: Peter Allen Title: Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION May 11, 1995 The State Corporation Commission has found the accompanying articles submitted on behalf of OGDEN PROFESSIONAL SERVICES CORPORATION (FORMERLY OGDEN GOVERNMENT SERVICES CORPORATION) to comply with the requirements of law, and confirms payment of all related fees. Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective May 11, 1995, at 12:45 p.m. The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. STATE CORPORATION COMMISSION By: /s/ T.V. MORRISON JR. ------------------------- Commissioner ARTICLES OF AMENDMENT OF EVALUATION RESEARCH CORPORATION To the State Corporation Commission Commonwealth of Virginia The following Articles of Amendment are hereby submitted pursuant to the provisions of the Virginia Stock Corporation Act on behalf of the corporation hereinafter named. 1. The name of the corporation (hereinafter referred to as the "corporation") is Evaluation Research Corporation. 2. Article One of the Articles of Incorporation of the corporation is hereby amended to read as follows: "The name of the corporation is "Ogden Government Services Corporation." 3. The date of adoption of the amendment herein provided for was March 13, 1992. 4. The amendment herein provided for was adopted by unanimous written consent of all of the shareholders of the corporation pursuant to Section 13.1-657 of the Virginia Stock Corporation Act. Executed on March 13, 1992 EVALUATION RESEARCH CORPORATION By: /s/ PETER ALLEN --------------------------- Name: Peter Allen Title: Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION March 20, 1992 The State Corporation Commission has found the accompanying articles submitted on behalf of OGDEN GOVERNMENT SERVICES CORPORATION (formerly EVALUATION RESEARCH CORPORATION) to comply with the requirements of law, and confirms payment of all related fees. Therefore, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued and admitted to record with the articles of amendment in the Office of the Clerk of the Commission, effective March 20, 1992. The corporation is granted the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. STATE CORPORATION COMMISSION By: /s/ HULLIHEN WILLIAMS MOORE ------------------------------- Commissioner ARTICLE OF MERGER ERC Development Corporation, a Maryland corporation, with its principal office at 3211 Jermantown Road, Fairfax, Virginia ("Dev. Corp."), and Evaluation Research Corporation, a Virginia corporation, with its principal office at 3211 Jermantown Road, Fairfax, Virginia ("ERC"), agree that Dev. Corp., a wholly-owned subsidiary, will be merged into ERC, its parent corporation. ERC was incorporated on July 16, 1976, under the general law of the Commonwealth of Virginia. ERC has been authorized to do business in Maryland since January 31, 1983. Neither corporation owns real property In Maryland. The effective date is December 31, 1987. The terms and conditions of the transactions were advised, authorized and approved by unanimous vote of the board of directors of each corporation in accordance with the Maryland General Corporation Law and the Virginia Stock Corporation Act. No vote of the shareholders was required since Dev. Corp. is a wholly-owned subsidiary of ERC. Both corporations executed an Agreement and Plan of Merger on December 4, 1987, providing that each of the 1,000 shares of common stock, $.01 par value, authorized and outstanding of Dev. Corp. shall be cancelled and only ERC shall remain with all the rights, duties and obligations of ERC and Dev. Corp. ERC has 3,415,460 shares of common stock, $.05 par value authorized. The Articles of Incorporation and officers of the surviving corporation shall be those of ERC, without change. The individuals executing this document acknowledge that it is the act of the corporation for which they are signing. To the best of their knowledge, information and belief, said individuals executing this document verify that the matters and facts with respect to authorization and approval stated herein are true in all material respects and make this statement under the penalties of perjury. ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT --------------------------------- --------------------------------- Name: Jack E. Aalseth Name: Leslie W. Wright Title: President Title: President Attest: /s/ MYRNA E. FRIEDMAN Attest: /s/ MYRNA E. FRIEDMAN ----------------------------- ----------------------------- Name: Myrna E. Friedman Name: Myrna E. Friedman Title: Assistant Secretary Title: Assistant Secretary AGREEMENT AND PLAN OF MERGER THIS AGREEMENT, made this 4th day of December, 1987, by and between Evaluation Research Corporation, a Virginia corporation (hereinafter "ERC"), and ERC Development Corporation, a Maryland corporation (hereinafter "Dev. Corp."), W I T N E S S E T H: WHEREAS, ERC wishes to merge with Dev. Corp.; and WHEREAS, Dev. Corp., a wholly-owned subsidiary of ERC, wishes to merge with ERC; NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: 1. Dev. Corp. shall be merged into ERC. ERC shall be the surviving corporation, with its Certificate of Incorporation and By-laws unchanged by the merger. 2. Each party shall at any time and from time to time after the date hereof at the request of the other party execute, acknowledge, deliver and perform or cause to be executed, acknowledged, delivered and performed all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required to carry out the transaction contemplated hereby. 3. The merger shall become effective on December 31, 1987 (the "Effective Time"). 4. At the Effective Time, each outstanding share of Dev. Corp. shall be cancelled. Only ERC shall remain, with all the rights, duties and obligations of ERC and Dev. Corp. 5. The boards of directors of Dev. Corp. and ERC may amend or abandon the plan of merger at any time prior to the Effective Time. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION 2 By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT --------------------------------- --------------------------------- Name: Jack E. Aalseth Name: Leslie W. Wright Title: President Title: President Attest: /s/ MYRNA E. FRIEDMAN Attest: /s/ MYRNA E. FRIEDMAN ----------------------------- ----------------------------- Name: Myrna E. Friedman Name: Myrna E. Friedman Title: Assistant Secretary Title: Assistant Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION RICHMOND, December 16, 1987 The accompanying articles having been delivered to the State Corporation Commission on behalf of ERC Development Corporation (a Md. corp.) and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF MERGER be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that ERC Development Corporation (a Md. corp.) be merged into EVALUATION RESEARCH CORPORATION the surviving corporation, which shall continue to be a corporation existing under the laws of the State of Virginia with the corporate name EVALUATION RESEARCH CORPORATION and that the separate existence of the corporations parties to the plan of merger, except the surviving corporation, shall cease, effective December 31, 1987. STATE CORPORATION COMMISSION By: /s/ ELIZABETH B. LACY ------------------------- Commissioner ARTICLES OF MERGER Evaluation Research Corporation and Analytic Systems, Inc. hereby merge, effective December 31, 1986, in accordance with an Agreement and Plan of Merger, dated December 16, 1986, whereby Evaluation Research Corporation, a Virginia corporation, shall be the surviving corporation and all the shares of Analytic Systems, Inc., a Virginia corporation shall be cancelled. Analytic Systems, Inc., is a wholly-owned subsidiary of Evaluation Research Corporation. Therefore, the shareholders of the two companies were not required to vote on said Agreement and Plan of Merger. The Board of Directors of each company unanimously approved the merger. ERC DEVELOPMENT CORPORATION EVALUATION RESEARCH CORPORATION By: /s/ JACK E. AALSETH By: /s/ LESLIE W. WRIGHT --------------------------------- --------------------------------- Name: Jack E. Aalseth Name: Leslie W. Wright Title: President Title: President Attest: /s/ WILLIAM L. SARGEANT Attest: /s/ WILLIAM L. SARGEANT ----------------------------- ----------------------------- Name: William L. Sargeant Name: William L. Sargeant Under penalty of perjury, I, William L. Sargeant, swear that I am the Secretary of Evaluation Research Corporation and Analytic Systems, Inc. and that the statements contained herein are true and correct. /s/ WILLIAM L. SARGEANT ----------------------------- William L. Sargeant COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION RICHMOND, February 4, 1987 The accompanying articles having been delivered to the State Corporation Commission on behalf of ANALYTICAL SYSTEMS, INC. and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF MERGER be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that ANALYTIC SYSTEMS, INC. be merged into EVALUATION RESEARCH CORPORATION the surviving corporation, which shall continue to be a corporation existing under the laws of the State of Virginia with the corporate name EVALUATION RESEARCH CORPORATION and that the separate existence of the corporations parties to the plan of merger, except the surviving corporation, shall cease, effective February 4, 1987. STATE CORPORATION COMMISSION By: /s/ ELIZABETH B. LACY ------------------------- Commissioner In the Clerk's Office of the Circuit Court, Fairfax County. ARTICLES OF AMENDMENT of the Articles of Incorporation of EVALUATION RESEARCH CORPORATION (Pursuant to Virginia Stock Corporation Act) 1. In lieu of a meeting of Directors, the Board of Directors of Evaluation Research Corporation, a Virginia Corporation and hereinafter referred to as the "Corporation," acting by unanimous written consent of all the Directors of the Corporation effective December 9, 1985, in accordance with the Virginia Stock Corporation Act, found that the following proposed amendment of the Corporation's Articles of Incorporation were in the best interests of the Corporation and directed that it be submitted to a vote of the sole Stockholder: The Capitalization as set forth in the Articles of Incorporation of Evaluation Research Corporation, is hereby amended to read as follows: "There shall be one class of stock - Class One Common Stock and there shall be 3,415,460 shares authorized for issuance at a par value of $.05 per share. Each share of Common Stock shall have full voting rights." 2. In lieu of a meeting of the sole Stockholder, adoption of this proposed amendment by the sole Stockholder was accomplished by the unanimous written consent of the sole Stockholder of the Corporation, by signing a consent which set forth this proposed amendment, in accordance with Section 13.1-28 of the Virginia Stock Corporation Act. 3. This amendment does not effect any changes in the amount of stated capital of the Corporation. 4. The number of shares outstanding and entitled to vote on the proposed amendment, the number of shares voted for and against such proposed amendment, the number of shares of each class entitled to vote as a class, and the number of shares of each such class voted for or against such amendment were as follows: Shares outstanding all classes, 2,973,916. Shares entitled to vote, all classes, 2,973,916. Shares, all classes, voted on such amendment: FOR: 2,973,916; AGAINST: 0. Shares entitled to vote and voted as a class:
------------------------ ------------------------------- ----------------- ------------ Class Number Outstanding Voted For Voted Against 2 Class One Common Stock 2,973,916 2,973,916 0
Executed in the name of the Corporation by its President and its Secretary, who declare under the penalties of perjury that the facts stated herein are true. Dated this 10th day of December, 1985. EVALUATION RESEARCH CORPORATION By: /s/ LESLIE W. WRIGHT -------------------------------- Name: Leslie W. Wright Title: President By: /s/ WILLIAM L. SARGEANT -------------------------------- Name: William L. Sargeant Title: Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION RICHMOND, December 31, 1985 The accompanying articles having been delivered to the State Corporation Commission on behalf of EVALUATION RESEARCH CORPORATION and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued, and that this order, together with the articles, be admitted to record in this office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. Upon the completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the Clerk of the Circuit Court, Fairfax County. STATE CORPORATION COMMISSION By: /s/ ELIZABETH B. LACY ------------------------- Commissioner ARTICLES OF MERGER OF ELECTROMAGNETIC TECHNOLOGY, INC., (a wholly-owned subsidiary corporation) AND ANALYTICAL DISCIPLINES, INC. (a wholly-owned subsidiary corporation) INTO EVALUATION RESEARCH CORPORATION Pursuant to the provisions of Section 13.1-76 of the Virginia Stock Corporation Act, the undersigned corporation adopts the following Articles of Merger for the purpose of merging each of two subsidiary corporations into the undersigned corporation as the parent corporation of each such subsidiary corporation, and the surviving corporation of each of the mergers which are the subjects hereof. 1. The plan of merger concerning Electromagnetic Technology, Inc. (attached hereto as Exhibit "A"), was duly approved by the Unanimous Written Consent of the Board of Directors of the Surviving Corporation effective December 9, 1985. 2. The attached plan of merger concerning Analytic Disciplines, Inc. (attached hereto as Exhibit "B"), was duly approved by the Unanimous Written Consent of the Board of Directors of the Surviving Corporation effective December 9, 1985. 3. The number of outstanding shares of each class of each such subsidiary corporation and the number of such shares of each class owned immediately prior to the adoption of each such plan of merger by the parent corporation, are:
- --------------------------------------- --------------------------------------- ----------------------------- NUMBER OF SHARES OF EACH NAME OF CORPORATION TOTAL NUMBER OF SHARES OUTSTANDING OF CLASS OWNED BY PARENT EACH CLASS CORPORATION IMMEDIATELY PRIOR TO MERGER Electromagnetic Technology, Inc. 100 Shares of Class A Common Stock 100 Shares of Class A Common Stock Electromagnetic Technology, Inc. 0 Shares of Class B common Stock 0 Shares of Class B Common Stock - --------------------------------------- --------------------------------------- ----------------------------- Analytic Disciplines, Inc. 891 Shares of Common Stock 891 Shares of Common Stock
4. The undersigned parent corporation is the sole stockholder of each of the said subsidiary corporations. There are no minority stockholders of either such subsidiary corporation. 5. Analytic Disciplines, Inc., a foreign corporation, has complied with the applicable provisions of the laws of the State of Delaware, its State of incorporation. Executed in the name of the said parent corporation by its President and its Secretary who declared under the penalties of perjury that the facts stated herein are true. Dated: December 10, 1985. EVALUATION RESEARCH CORPORATION By: /s/ LESLIE W. WRIGHT -------------------------------- Name: Leslie W. Wright Title: President By: /s/ WILLIAM L. SARGEANT -------------------------------- Name: William L. Sargeant Title: Secretary EXHIBIT "A" PLAN OF MERGER OF ELECTROMAGNETIC TECHNOLOGY, INC. INTO EVALUATION RESEARCH CORPORATION The following Plan of Merger has been duly adopted by the Unanimous Written Consent of Directors of Evaluation Research Corporation effective the 9th day of December, 1985. I. The name of the subsidiary corporation is electromagnetic Technology, Inc., and its State of Incorporation is Virginia. II. The name of the surviving corporation is Evaluation Research Corporation, and its State of Incorporation is Virginia. III. The terms and conditions of the merger are as follows: (a) Until altered, amended or repealed, as therein provided, the By-Laws of the surviving corporation, as in effect at the time of the merger shall remain effective and shall be the By-Laws of the surviving corporation. (b) The first annual meeting of the shareholders of the surviving corporation held after the effective date of this merger shall be the next annual meeting provided by the By-Laws of the surviving corporation. (c) The first regular meeting of the Board of Directors of the surviving corporation shall be held as soon as appropriate after the date on which the merger shall become effective and may be called in the manner provided for in the By-Laws of the surviving corporation. (d) The surviving corporation shall pay all expenses of carrying this Plan of Merger into effect and of accomplishing the merger. (e) When the merger shall become effective, the separate existence of Electromagnetic Technology, Inc. shall cease and said corporation shall be 2 merged into the surviving corporation, and the surviving corporation shall possess all the rights, privileges, powers and franchises of a public as well as of a private nature and be subject to all the restrictions, disabilities and duties of each of Electromagnetic Technology, Inc. and Evaluation Research Corporation, and all the singular, the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed, and all debts due to each of the said corporations on whatever account as well as for share subscriptions and all other things in action or belonging to each of such corporations, shall be vested in the surviving corporation; and all property, rights and privileges, powers and franchises and all and every other interest shall be thereafter as effectually the property of the surviving corporation as they were of the said several and respective corporations and the title to any real estate, whether by deed or otherwise, vested in any of the said merging corporations, shall not revert or be in any way impaired by reason of this merger, provided that all rights of creditors and all liens upon the property of any of said merging corporations, shall be preserved unimpaired and all debts, liabilities and duties of Electromagnetic Technology, Inc. shall thenceforth attach to the said surviving corporation and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. (f) If at any time the surviving corporation shall consider or be advised that any further assignments or assurance in law or any things are necessary or desirable to vest in the surviving corporation, according to the terms thereof, the title to any property or rights of Electromagnetic Technology, Inc., the proper officers and directors of Electromagnetic Technology, Inc., shall and will execute and make all such proper assignments and assurances and do all things necessary or proper to vest title in such property or rights in the surviving corporation. IV. If at any time the surviving corporation shall consider or be advised that any further acts are necessary or desirable to carry-out the purposes of this Plan of Merger, the proper officers and directors of Electromagnetic Technology, Inc., shall and will do all things necessary to effectuate said end. V. In that Evaluation Research Corporation is the sole owner and holder of all of the shares of stock of the subsidiary corporation and there are no minority shareholders of the subsidiary corporation, no provision is contained here for converting minority owned shares. VI. No amendment to the Certificate of Incorporation of the surviving corporation, shall be effected by the merger. COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION RICHMOND, December 31, 1985 The accompanying articles having been delivered to the State Corporation Commission on behalf of Electromagnetic Technology, Inc., Analytic Disciplines, Inc. and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this Certificate of Merger be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that Electromagnetic Technology, Inc., Analytic Disciplines, Inc. be merged into Evaluation Research Corporation, the surviving corporation, which shall continue to be a corporation existing under the laws of the State of Virginia with the corporate name Evaluation Research Corporation and that the separate existence of the corporations parties to the plan of merger, except the surviving corporation, shall cease. STATE CORPORATION COMMISSION By: /s/ ELIZABETH B. LACY ------------------------- Commissioner In the Clerk's Office of the Circuit Court, Fairfax County. ARTICLES OF MERGER MERGING ERC MERGER CO., INC. A Delaware Corporation INTO EVALUATION RESEARCH CORPORATION a Virginia Corporation Evaluation Research Corporation ("ERC"), a Virginia corporation, and ERC Merger Co., Inc. ("Merger Company"), a Delaware corporation, desiring to merge pursuant to the provisions of Section 13.1-72 of the Virginia Stock Corporation Act, and ERC International, Inc., a Delaware corporation, do hereby certify as follows: FIRST: That Merger Company shall be merged into ERC pursuant to that certain Agreement and Plan of Merger attached hereto as Exhibit "A" and incorporated herein by reference. SECOND: That the Agreement and Plan of Merger (the "Plan") was duly approved by the Board of Directors of ERC at a regular meeting on March 20, 1984, that on April 10, 1984 notice was given in the manner provided by the Virginia Stock Corporation Act to each Stockholder of Record of ERC and such notice was accompanied by a copy of the Plan; and that the Plan was duly adopted and approved by the stockholders of ERC at its Annual Meeting of Shareholders on May 17, 1984. THIRD: That there were 2,950,572 shares outstanding and entitled to vote on the Agreement and Plan of Merger, and none of such shares were entitled to vote thereon as a separate class. FOURTH: That the number of shares voted for the Agreement and Plan of Merger were 1,970,398 and the number voted against the said Plan were 45,097. FIFTH: That adoption of the Agreement and Plan of Merger, and the performance of its terms have been duly approved by the Boards of Directors of Merger Company and of ERC International, Inc., and in each case all other requisite corporate action has been taken with respect thereto. SIXTH: On the effective date of the Merger, the stated capital of ERC, the surviving corporation, shall be $148,640. SEVENTH: That the within Merger is permitted by the laws of the State of Delaware, and that all conditions required by the laws of said state with respect thereto have been satisfied. EIGHTH: That the surviving corporation is a domestic corporation. NINTH: That ERC International, Inc. guarantees and agrees that it will be jointly severally liable with ERC for prompt payment to the dissenting stockholders of ERC of the amount, if any, to which they may be entitled by the provisions of the Virginia Stock Corporation Act with respect to the rights of dissenting stockholders; that ERC International, Inc. agrees that it may be served with process in the Commonwealth of Virginia in any proceeding for the enforcement of rights of a dissenting stockholder of ERC; and that ERC International, Inc. hereby irrevocably appoints the Clerk of the State Corporation Commission of Virginia as its agent to accept service of process in any such proceeding. IN WITNESS WHEREOF, the within Articles have been duly executed by and on behalf of the constituent corporations this 9th day of January, 1985. - -------------------------------------------------------------------------------- ERC Merger Co., Inc. Evaluation Research Corporation By: /s/ JACK E. AALSETH By: /s/ JACK E. AALSETH Jack E. Aalseth, President ------------------------------- ------------------------------- Jack E. Aalseth, President - -------------------------------------------------------------------------------- By: /s/ WILLIAM L. SARGEANT By: /s/ WILLIAM L. SARGEANT ------------------------------- ------------------------------- William L. Sargeant William L. Sargeant Secretary Secretary - -------------------------------------------------------------------------------- ERC International, Inc. By: /s/ JACK E. AALSETH ------------------------------- Jack E. Aalseth, President - -------------------------------------------------------------------------------- By: /s/ WILLIAM L. SARGEANT ------------------------------- William L. Sargeant Secretary - -------------------------------------------------------------------------------- 3 EXHIBIT A AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of December 20, 1984 by and among Evaluation Research Corporation, a Virginia corporation ("ERC"), ERC Merger Co., Inc., a Delaware corporation ("Merger Company") and ERC International Inc., a Delaware Corporation ("Holding Company"); W I T N E S S E T H : WHEREAS, ERC has an authorized capitalization consisting of (I) 10,000,000 shares of common stock, of the par value of $.05 per share ("Common Stock"), of which on February 29, 1984, 2,941,017 shares are issued and outstanding; WHEREAS, Merger Company has an authorized capitalization consisting of 50 shares of common stock, par value $.05 per share ("Merger Company Common Stock"), of which 10 shares have been issued and are outstanding and owned beneficially and of record by Holding Company; and WHEREAS, Holding Company has an authorized capitalization consisting of (I) 1,000 shares of common stock, of the par value of $.05 per share ("Holding Company Common Stock"), of which 10 shares have been issued and are outstanding and owned by ERC; and (ii) 60 shares of preferred stock, par value $.50 per share, none of which shares are issued or outstanding; and WHEREAS, the Board of Directors of the respective parties hereto deem it advisable to merge Merger Company into ERC ("the Merger") in accordance with the laws of the Commonwealth of Virginia and the State of Delaware, and this Agreement, whereby the holders of shares of ERC Common Stock will receive shares of Holding Company Common Stock; 4 NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements herein contained, the parties hereto agree that Merger Company shall be merged into ERC which shall be the corporation surviving such merger and that the terms and conditions of such merger, the mode of carrying it into effect, and the manner of converting and exchanging shares shall be as follows: ARTICLE I THE MERGER (a) The Merger shall become effective upon the issuance of a Certificate of Merger by the Virginia State Corporations Commission and the filing of all required documents in the State of Delaware, being referred to herein as the "Effective Time". At the Effective Time, the separate existence of Merger Company shall cease and Merger Company shall be merged into ERC (Merger Company and ERC collectively being sometimes referred to herein as the "Constituent Corporations" and ERC, the corporation designated in the Certificate as the surviving corporation, being sometimes referred to herein as the "Surviving Corporation"). (b) Prior to and after the Effective Time, Holding Company, ERC and Merger Company, respectively, shall take all such action as may be necessary or appropriate in order to effectuate the Merger. In this connection, Holding Company shall issue the shares of Holding Company Common Stock which the holders of ERC Common Stock shall be entitled to receive as provided in Article II hereof. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with all rights, privileges, immunities and franchises, of a public as well as of a private nature, and all property, real and personal, of either of the Constituent Corporations, the officers and directors of each of the Constituent Corporations as of the Effective Time shall take all such further action. ARTICLE II TERMS OF CONVERSION AND EXCHANGE OF SHARES At the Effective Time: (a) Each share of ERC Common Stock issued and outstanding immediately prior to the Merger shall be changed and converted into one share of Holding Company Common Stock, which shall thereupon be issued and fully paid and nonassessable; 5 (b) The shares of Merger Company Common Stock issued and outstanding immediately prior to the Merger shall be changed and converted into such number of shares of ERC Common Stock as shall equal the number of shares of ERC Common Stock issued and outstanding immediately prior to the merger, which shares of ERC Common Stock shall thereupon be issued and fully paid and nonassessable; and (c) Each share of Holding Company Common Stock issued and outstanding immediately prior to the Merger shall be cancelled. (d) Holding Company shall succeed to and assume the obligations of ERC under and pursuant to the terms of outstanding options to purchase shares of ERC Common Stock, and shall reserve a sufficient number of shares of Holding Company Common Stock to fulfill such obligations in accord with the terms of such instruments. Each right to purchase a share of ERC Common Stock outstanding immediately prior to the Effective Time pursuant to ERC's Stock Option and other employee benefit plans will be converted into the right to purchase a share of Holding Company Common Stock upon the same terms and conditions as existed immediately prior to the Effective Time. ERC and Holding Company shall have adopted a Plan of Exchange pursuant to which each holder of warrants to purchase Common Stock of ERC shall become entitled to exchange any and all shares of such Common Stock to which such holder may become entitled under the terms of such warrants for a like number of shares of Holding Company Common Stock. ARTICLE III EMPLOYEE PLANS AND BENEFITS (a) All retirement, deferred compensation, death benefit, disability and health care plans of ERC and corporations of which ERC owns, directly or indirectly, 50% or more of the outstanding voting securities, together with any trust agreements and insurance contracts related thereto and which are in force on the date hereof and which remain in effect at the Effective Time, shall not be affected by the Merger. (b) Holding Company will assume the obligations of ERC under ERC's Employee Stock Ownership Plan, and under ERC's Employee Stock Option Plan. Each option outstanding to purchase shares of ERC Common Stock shall, at the Effective Time, become an option to purchase the same number of shares of Holding Company Common Stock. At the Effective Time such Plans shall be deemed amended to include employees of Holding Company among those who are eligible participants. 6 ARTICLE IV CERTIFICATE OF INCORPORATION AND BY-LAWS From and after the Effective Time, and until thereafter further amended as provided by law, the Articles of Incorporation of ERC, as amended and as in effect immediately prior to the Merger shall be and continue to be the Articles of Incorporation of the Surviving Corporation. From and after the Effective Time, the By-Laws of ERC, as amended and as in effect immediately prior to the Merger, shall be and continue to be the By-Laws of the Surviving Corporation until amended in accordance with law. ARTICLE V DIRECTORS AND OFFICERS The persons who are directors and officers of ERC immediately prior to the merger shall become the directors and officers, respectively, of Holding Company at the Effective Time of the Merger, and the persons who are directors and officers of Merger Company immediately prior to the Merger shall become the directors and officers, respectively, of the Surviving Corporation. ARTICLE VI STOCK CERTIFICATES Following the Effective Time, each holder of an outstanding certificate or certificates theretofore representing shares of ERC Common Stock may, but shall not be required to, surrender the same to Holding Company for cancellation or transfer, and such holder or transferee will be entitled to receive a certificate or certificates representing the same number of shares of Holding Company Common Stock as the shares of ERC Common Stock previously represented by the stock certificates surrendered. Until so surrendered or presented for transfer, each outstanding certificate which, prior to the Effective Time, represented ERC Common Stock shall be deemed and treated for all corporate purposes to represent the ownership of the same number of shares of Holding Company Common Stock as though such surrender or transfer and exchange had taken place. The stock transfer books from ERC Common Stock shall be deemed to be closed at the Effective Time and no transfer of shares of ERC Common Stock outstanding prior to the Effective Time, other than shares held by Holding Company, shall thereafter be made on such books. 7 ARTICLE VII CONDITIONS OF THE MERGER Consummation of the Merger is subject to the satisfaction of the following conditions: (a) The Plan shall have received the approval of the holders of common stock of each of the Constituent Corporations. (b) Prior to the Effective Time of the Merger, the Certificate of Incorporation of Holding Company shall have been amended to increase the number of authorized shares of common stock to 10,000,000. Further, if the Shareholders of ERC shall have duly approved an amendment to its Articles of Incorporation providing for the authorization of 600,000 shares of preferred stock, to be issued in series, then the Certificate of Incorporation of Holding Company shall, prior to the Merger, be amended to increase the number of preferred shares authorized therein to 600,000. If the shareholders of ERC shall not have approved an amendment as described in the preceding sentence, then, prior to the Effective Time of the Merger, the Certificate of Incorporation of Holding Company shall be amended to eliminate provisions authorizing preferred stock. (c) There shall have been obtained rulings of the Internal Revenue Service or an opinion of counsel, satisfactory to the Board of Directors of ERC, with respect to the tax consequences of the merger and other transactions incident thereto. ARTICLE VIII AMENDMENT AND TERMINATION The parties hereto by mutual consent of their respective Boards of Directors may amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing, at any time before or after approval of this Agreement by the common shareholders of ERC; provided, however, that no such amendment, modification or supplement shall, in the sole judgment of the Board of Directors of ERC, materially and adversely affect the rights of the shareholders of ERC. This Agreement may be terminated and the Merger and other transactions herein provided for abandoned at any time, whether before or after approval of this Agreement by the shareholders of ERC, if said Board of Directors determines for any 8 reason that the consummation of the transactions provided for herein would be inadvisable or not in the best interests of ERC or its shareholders. ARTICLE IX MISCELLANEOUS This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, ERC, Merger Company and Holding Company, pursuant to approval and authorization duly given by resolutions adopted by their respective Boards of Directors, have each caused this Agreement and Plan of Merger to be executed by its respective President or one of its respective Vice Presidents and attested by its respective Secretary or one of its respective Assistant Secretaries. - -------------------------------------------------------------------------------- ATTEST: EVALUATION RESEARCH CORPORATION /s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH ------------------------- ---------------------------- - -------------------------------------------------------------------------------- ATTEST: ERC MERGER CO., INC. /s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH ------------------------- ---------------------------- - -------------------------------------------------------------------------------- ATTEST: ERC INTERNATIONAL INC. /s/ WILLIAM L. SARGEANT By: /s/ JACK E. AALSETH ------------------------- ---------------------------- - -------------------------------------------------------------------------------- COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION RICHMOND, January 31, 1985 The accompanying articles having been delivered to the State Corporation Commission on behalf of ERC Merger Co., Inc. (a Dela. corp. not domest., in Va.) and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this Certificate of Merger be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that ERC Merger Co., Inc. (a Dela. corp. not domest., in Va.) be merged into Evaluation Research Corporation, the surviving corporation, which shall continue to be a corporation existing under the laws of the State of Virginia with the corporate name Evaluation Research Corporation and that the separate existence of the corporations parties to the plan of merger, except the surviving corporation, shall cease. STATE CORPORATION COMMISSION By: /s/ THOMAS P. HARWOOD, JR. ------------------------------ In the Clerk's Office of the Circuit Court, Fairfax County. AMENDMENT OF THE ARTICLES OF INCORPORATION OF EVALUATION RESEARCH CORPORATION The following is the text of the Articles of Amendment duly adopted by said Corporation in the manner herein below set forth: 1. The Capitalization as set forth in the Articles of Incorporation of Evaluation Research Corporation, as amended, is hereby amended to read as follows: "There shall be one class of stock - Class One Common Stock and there shall be 10,000,000 shares authorized for issuance at a per value of $.05 per share. Each share of Common Stock shall have full voting rights. All Existing issued and outstanding Class A Common Stock of the Company shall be exchanged for Class One Common Stock on the basis of one (1) share of Class One Common Stock for each Two (2) shares of Class A Common Stock. Fractional shares shall not be issued by the Company. Shareholders holding an uneven number of Class A Common Stock shall have the odd shares redeemed by the Company at fair market value thereof as of the effective date of this Amendment as determined by the Board of Directors". On November 1, 1982, the Board of Directors of Evaluation Research Corporation met at a properly called meeting to consider a duly proposed notion to amend the Articles of Incorporation for said Company, the text of which is set out above, and to refer such matters to the Shareholders for approval. After consideration of the notion, the Board found that said motion was in the best interests of the Corporation and adopted it unanimously on November 1, 1982. The Board then directed that notice be given to the Shareholders of record entitled to vote on this matter. There were 2,182,182 shares outstanding of the Corporation and 2,150,698 shares entitled to vote on said matter (there were 31,484 shares held in Treasury of the Corporation). None of the shares were entitled to vote by class. Notice by United States Mail was given on November 1, 1982 to the Shareholders entitled to vote on this matter, accompanied by a copy of the proposed amendment according to the notice provisions of the VA Code stating that the Shareholders meeting to decide this matter would be held at 11:00 a.m. on November 27, 1982. On November 27, 1982, the Shareholders met to vote on the adoption of the amendment as set forth above. Upon properly proposed motion, the text of the amendment set forth above was adopted by the Shareholders as an amendment to the Article of Incorporation. There were 1,689,804 shares represented at the meeting, either in person or by proxy. 1,635,261 shares voted in favor of the amendment and 16,653 shares voted against. Said vote represents 96.7% of the shares represented at the meeting in favor and 76% of the total outstanding shares entitled to vote were in favor. /s/ JACK E. AALSETH ------------------------------- Name: Jack E. Aalseth Title: President /s/ CONWAY CHRISTIANSON ------------------------------- Name: Conway Christianson Title: Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION AT RICHMOND, November 30, 1982 The accompanying articles having been delivered to the State Corporation Commission on behalf of Evaluation Research Corporation and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this Certificate of Amendment be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. Upon the completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Circuit Court, Fairfax County. STATE CORPORATION COMMISSION By: /s/ THOMAS P. HARWOOD, JR. ------------------------------ ARTICLES OF INCORPORATION OF EVALUATION RESEARCH CORPORATION We hereby associate to form a stock corporation under the provisions of Chapter I of Title 13.1 of the Code of Virginia, and to that end, set forth the following: 1. The name of the Corporation is: Evaluation Research Corporation. 2. The purpose or purposes for which the Corporation is organized are: A. To engage in scientific activities, to perform scientific research and analysis, to conduct management and consulting services for government agencies and private industry, with respect to four major areas of specialty, namely: Integrated Logistics Support, Management Systems, Systems Evaluation, and Operations Research. B. To do all things lawful, necessary or incident to the accomplishment of the purposes set forth above; to exercise all lawful powers now possessed by Virginia corporations of similar character; to enter into partnerships or joint ventures, and to engage in any business in which a corporation organized under the laws of Virginia may engage, except any business that is required to be specifically set forth in the Articles of Incorporation. 2 C. The objects, powers and purposes specified in any clause or paragraph hereinbefore contained shall be construed an objects and powers in furtherance and not in limitation of the general powers conferred upon corporations by the laws of the Commonwealth of Virginia; and it is hereby expressly provided that the foregoing enumeration of specific powers shall in no wise limit or restrict any other power, object or purpose of the Corporation or in any manner affect any general powers or authority of the corporation. 3. The aggregate number of shares which the Corporation shall have authority to issue and the par value per share are as follows:
- -------------------------------------------------------------------------------- CLASS NUMBER OF SHARES PAR VALUE PER SHARE - -------------------------------------------------------------------------------- Common Stock 500,000 $.10 - --------------------------------------------------------------------------------
Each share of Common Stock shall have full voting rights. 4. The post office address of the initial registered office is 4031 Chain Bridge Road, Fairfax, Virginia, 22030. The name of the city in which the initial registered office is located is the City of Fairfax. The name of its initial registered agent is Stuart H. Gary, who is a member of the Virginia State Bar, a resident of the Commonwealth of Virginia, and whose business address is the same as that of the Registered office. 5. The number of directors constituting the initial Board of Directors is five (5) and the names and addresses of the persons who are to serve as the initial directors are as follows: 3 1. John A. Scanga 10107 Springlane Terrace Fairfax, Virginia 22030 2. C. James Christianson 11711 Stoney Creek Road Rockville, Maryland 20854 3. Frederick D. Callison 2400 Holt Street Vienna, Virginia 22180 4. Jack Aalseth 2804 Greenway Boulevard Falls Church, Virginia 5. Jim Ziccarelli 9110 Redbridge Road Richmond, Virginia 23235 6. In the absence of actual fraud, no contract or other transaction of the Corporation shall be affected by the fact that any of the directors or officers of the Corporation are in any way interested, in or connected with any other party to such contract or transaction, or are themselves parties to or interested in such contract or transaction. The fact of membership in the Board of Directors shall not disqualify any director from rendering unusual or special services to the Corporation and any director who may be an officer, agent, or employee of the Corporation and who may as such officer, agent, or employee render services to the Corporation otherwise than in his capacity as director shall not be precluded from receiving compensation appropriate to the value of such services; and the Board of Directors may in its discretion cause such compensation to be paid or provided. Any and all directors of the Corporation who are so interested in, or so connected with, such other party or such contract or transaction 4 may be counted in determining the presence of a quorum and may vote at any meeting of the Board of Directors which shall authorize or ratify any such contract or transaction, with like force and effect as if they are not so interested or connected. No ratification by stockholders of any of the aforesaid contracts or transactions shall be necessary to the validity thereof. 7. The Corporation shall indemnify each of its officers and directors, whether or not then in office (and his executor, administrator and heirs) against all reasonable expenses actually and necessarily incurred by him in connection with the defense of any litigation to which he may have been made a party because he is or was a director or officer of the Corporation. He shall have no right to reimbursement, however, in relation to matters as to which he has been adjudged liable to the Corporation for negligence or misconduct in the performance of his duties. The right to indemnity for expenses shall also apply to expenses of suits which are compromised or settled if the court having jurisdiction of the action shall approve such settlement. The foregoing right of indemnification shall be in addition to, and not exclusive of, all other rights to which such director or officer may be entitled. 8. There shall be no preemptive rights of any stockholder to acquire unissued shares of the Corporation. Dated: July 7, 1976. /s/ DIANE B. WOOD ------------------------------ Name: Diane B. Wood Title: Incorporator COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION AT RICHMOND, September 5, 1978 The accompanying articles having been delivered to the State Commission on behalf of Evaluation Research Corporation and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. Upon completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Circuit County, Fairfax County. STATE CORPORATION COMMISSION By: /s/ THOMAS P. HARWOOD, JR. ------------------------------ Commissioner VIRGINIA: In the Clerk's Office of the Circuit Court, Fairfax County The foregoing certificate (including the accompanying articles) has been duly recorded in my office this 15th day of Sept. 1978 and is now returned to the State Corporation Commission by certified mail. By: /s/ LINDA C. CAPO, DEPUTY ----------------------------- Clerk ARTICLES OF AMENDMENT EVALUATION RESEARCH CORPORATION Evaluation Research Corporation hereby adopts the following Amendments to its Articles of Incorporation: 1. The capitalization as set forth in the original Articles of Incorporation is hereby changed as follows: "There shall be one class of stock -- Class A Common Stock, and there shall be 6,000,000 shares authorized for issuance at a par value of $.025 per share. Each share of common stock shall have full voting rights." 2. A new article shall be added to the existing Articles of Incorporation, said new Article to be Article 9 and shall read as follows: "9. Classification of Directors. There shall be two classes of Directors, Class A and Class B. Class A Directors elected in July, 1978, shall serve a two-year (2) term until the annual meeting in July, 1980. Class B Directors elected in July, 1978, shall serve a one-year (1) term until the annual meeting in July, 1979. All Directors elected commencing with the annual meeting in July, 1979, shall be elected for a two-year (2) term. The number of directors shall be the number stated in the by-laws, but shall always exceed three (3)." The Board of Directors of Evaluation Research Corporation approved the above changes as in the best interests of the corporation at a meeting duly called for said purpose on May 4, 1978. Notice was given by United States Mail to all shareholders entitled to vote thereon on June 22, 1978, that the above changes in the Articles would come before the Shareholders at the Annual Meeting and a copy of the proposed changes was included in said Notice. At the annual meeting of the Shareholders held on July 18, 1978, out of a total of 235,285 shares outstanding, 216,595 shares were represented either in person or by proxy and the vote in favor of the above amendments was 216,095, the vote against was 500. The above vote 2 represented 99.76% of shares voted were in favor and 91.84% of all outstanding shares were voted in favor of said amendments. Respectfully submitted, /s/ JACK E. AALSETH ------------------------------- Name: Jack E. Aalseth Title: President /s/ CONWAY CHRISTIANSON ------------------------------- Name: Conway Christianson Title: Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION APPOINTMENT OF REGISTERED AGENT AND ESTABLISHMENT OF REGISTERED OFFICE EXPLANATION OF THIS FORM: Every corporation doing business in Virginia has a registered agent and a registered office. A change can be made only by filing this Form 18. A new Form 18 must be filed whenever there is a change in the name or business address of the agent or whenever the agent dies, resigns or ceases to be qualified. Form 18A must be filed when a corporation changes its name. The registered agent is the person to whom official communications are sent and on whom legal process is served. It is his duty to forward all such papers to the proper offices of the corporation. He should not be appointed without his consent in writing. The agent once appointed remains the agent until his successor is appointed. IT IS IMPORTANT FOR THE CORPORATION TO KNOW AT ALL TIMES WHO ITS REGISTERED AGENT IS. DEFINITION OF WORDS: A new appointment does not become legally effective until this form has been filed by the Clerk of the State Corporation Commission. The word "OLD" will be used to describe the agent who remains the agent until this form has been filed. The word "NEW" will be used to describe the agent who will be the agent after this form has been filed. (OF COURSE THE "OLD" AGENT MAY BE THE SAME PERSON AS THE "NEW" AGENT) The same terminology will apply to the registered office. STATEMENT 1. The name of the corporation is: EVALUATION RESEARCH CORPORATION 2. The corporation is incorporated under the laws of the state of VIRGINIA 3. The name and address of the OLD registered agent and the OLD registered office were: STUART H. GRAY 4031 CHAIN BRIDGE ROAD FAIRFAX, VIRGINIA 22030 4. Its NEW registered agent is a resident of Virginia. His name is: STUART H. GRAY [ITEM 4 MUST BE COMPLETED EVEN IF SAME IS SHOWN IN ITEM 3]. 5. The registered address of its NEW registered office is the same as the address of the Business Office of the NEW registered agent. That address is: 4041 UNIVERSITY DRIVE, SUITE 200, FAIRFAX, VA. 22030 ,VA. ---------------------------------------------- ---------- (Number) (Street) (Post Office) (Zone) 2 6. The NEW registered agent is [ ] an officer of the corporation or [ ] a director of the corporation or [X] a member of the Virginia State Bar. [Check the applicable square or squares] If an officer, his title is: 7. The new agent was appointed and the new office established by a resolution duly adopted by the board of directors of the corporation. 8. Location of OLD and NEW registered offices: [INSTRUCTION FOR ITEM 8: No place in Virginia is located in both a city and a county. (This is not true of any other state in the United States.) For jurisdictional purposes in bringing lawsuits, serving process, filing papers, etc., it is necessary to know which city or county the registered office is in. (If you do not know the name of the city or county, ask your registered agent to inform you.) Be sure to insert the words "city" or, or "county of" because some cities and counties have the same name.) (A) The OLD registered office was located in the CITY of FAIRFAX ---------------- (City or County) (B) The NEW registered office was located in the CITY of FAIRFAX ---------------- (City or County) I declare under the penalties of perjury that the facts stated herein are true. EVALUATION RESEARCH CORPORATION ------------------------------- (Name of Corporation) By ----------------------------- Title This statement must be executed in the name of the corporation by the chairman or vice chairman of the board of directors, the president or a vice-president and NOT BY ANY OTHER OFFICER. The registered agent may sign this statement if he changes his business address, and by signing, certifies that a copy has been mailed to the corporation. FEES: Send one, two or three separate checks for fees of $1.00 each in accordance with the fee schedule on the BACK of this form. COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION AT RICHMOND, November 9, 1979 The accompanying articles having been delivered to the State Commission on behalf of Evaluation Research Corporation and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF AMENDMENT be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. Upon completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Circuit County, Fairfax County. STATE CORPORATION COMMISSION By: /s/ THOMAS P. HARWOOD, JR. ------------------------------ Commissioner VIRGINIA: In the Clerk's Office of the Circuit Court, Fairfax County The foregoing certificate (including the accompanying articles) has been duly recorded in my office this 29th day of November 1979 and is now returned to the State Corporation Commission by certified mail. By: /s/ JAMES E. HOOFNAGLE -------------------------- Clerk AMENDMENT OF THE ARTICLES OF INCORPORATION OF EVALUATION RESEARCH CORPORATION The following is the text of the article of amendment duly adopted by said corporation in the manner herein below set forth: "10. STOCK OPTIONS The Board of Directors shall have the authority to grant and issue options for the purchase of shares of the Company to such individuals and entities, including employees and officers of the company, on such terms and conditions and for such consideration as it deems in the best interest of the Company." On July 11, 1979 the Board of Directors of Evaluation Research Corporation met at a properly called meeting to consider a duly proposed motion to amend the Articles of Incorporation for said company, the text of which is set out above, and to refer such matter to the shareholders to approval. After consideration of the motion, the Board found that said motion was in the best interests of the corporation and adopted it unanimously on July 11, 1979. The Board then directed that notice be given to the shareholders of record entitled to vote on this matter. There were 1,099,298 shares outstanding of the said corporation. 1,099,298 shares were entitled to vote on said matter. None is entitled to vote as a class. Notice was given July 12, 1979 to the shareholders entitled to vote on this matter, accompanied by a copy of the proposed amendment according to the notice provisions of the Va. Code, stating that the shareholders' meeting to decide this matter would be held on August 9, 1979. On August 9, 1979 the shareholders met to vote on the adoption of said languages amending the articles of incorporation. Upon properly proposed motion, said language was adopted by the shareholders as the article of amendment to the Articles of Incorporation. There were 801,026 votes in favour of adoption, 0 votes opposed to adoption of the said amendment. /s/ JACK E. AALSETH ---------------------------- President 2 /s/ CONWAY CHRISTIANSON ---------------------------- Secretary COMMONWEALTH OF VIRGINIA STATE CORPORATION COMMISSION AT RICHMOND, July 16, 1976 The accompanying articles having been delivered to the State Commission on behalf of Evaluation Research Corporation and the Commission having found that the articles comply with the requirements of law and that all required fees have been paid, it is ORDERED that this CERTIFICATE OF INCORPORATION be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law. Upon the completion of such recordation, this order and the articles shall be forwarded for recordation in the office of the clerk of the Circuit County, Fairfax County. STATE CORPORATION COMMISSION By: /s/ THOMAS P. HARWOOD JR. ----------------------------- Commissioner VIRGINIA: In the Clerk's Office of the Circuit Court, Fairfax County The foregoing certificate (including the accompanying articles) has been duly recorded in my office this 23rd day of July 1976 and is now returned to the State Corporation Commission by certified mail. By: /s/ LINDA C. CAPO ----------------------- Clerk Commonwealth of Virginia State Corporation Commission I Certify the Following from the Records of the Commission: The foregoing is a true copy of all documents constituting the charter of Anteon Corporation. Nothing more is hereby certified. Signed and Sealed at Richmond on this Date: July 28, 1999 /s/ JOEL H. PECK -------------------------------------------- Joel H. Peck, Clerk of the Commission EX-3.2 3 BYLAWS OF ANTEON Exhibit 3.2 BYLAWS OF ANTEON CORPORATION ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The principal office of the corporation in the Commonwealth of Virginia shall be located at 3211 Jermantown Road, Fairfax, Virginia 22030. The corporation may have other offices, either within or without the Commonwealth of Virginia, as the board of directors may designate or as the business of the corporation may require from time to time. SECTION 2. REGISTERED OFFICE. The registered office of the corporation required by the Virginia Business Corporation Law to be maintained in the Commonwealth of Virginia shall be Beverly L. Crump, 11 South Twelve Street, Richmond, Virginia 23219. ARTICLE II SHAREHOLDERS' MEETINGS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held at such place on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months subsequent to the last annual meeting of shareholders, not inconsistent with Virginia law, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting is a legal holiday, the meeting will be held on the next succeeding business day. If the election of directors shall not be held on the day designated in this agreement for the annual meeting of the shareholders, or at any adjournment of the meeting, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is convenient. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or the board of directors, or by the president at the request of the holders of not less than fifty (50) percent of all of the outstanding shares of the corporation entitled to vote at the meeting. 1 The special meetings will then be held on a date established by the chairman or president not more than ninety (90) days after the Secretary has notified the board of directors. For all special meetings, the President or the board of directors shall have the power to determine (within the limitations permitted by law) the form, content, means of communication and timing of notice of such meeting. SECTION 3. PLACE OF MEETINGS. All meetings of the shareholders shall be held at the principal office of the corporation except that the president, secretary or board of directors may designate any place, either within or without the Commonwealth of Virginia, as the place for the holding of any meeting, but any meeting may be adjourned to reconvene at any place designated by vote of a majority of the shares represented. SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease, or exchange of all or substantially all of the companies' assets, not less than twenty (20) days nor more then sixty (60) days before the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his, her, or its address as it appears on the stock record books of the corporation, with postage prepaid. If any meeting of the shareholders is adjourned to another time or place, no notice of adjournment need be given other than by announcement at the meeting at which the adjournment is taken. SECTION 5. MEETING OF ALL SHAREHOLDERS If all of the shareholders will meet at any time and place and consent to the holding of a meeting at the time and place, the meeting will be valid without call or notice, and at this meeting any corporate action may be taken. SECTION 6. DIRECTOR NOMINATION PROCESS All nominations for election as director shall be included in the proxy material accompanying the notice of the annual meeting or any special meeting. 2 Nominations for directors proposed by the nominating committee of the Board of Directors shall be made in the proxy material which shall accompany the notice of annual meeting or any special meeting. There shall be no nominations allowed from the floor of any annual meeting or special meeting for individuals to fill vacancies in the Board of Directors. It shall require a petition signed by shareholders representing at least ten percent (10%) of the total issued and outstanding stock of the company to place a name in nomination in addition to those proposed by the nominating committee of the Board for any annual or special meeting at which directors are to be elected. Said petition along with appropriate biographical information of the individual must be submitted to the secretary at least ninety (90) days prior to the date established by the Board for the mailing of such material. The nominating committee shall take such additional steps as are necessary to establish the qualifications of the proposed individual. SECTION 7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors of the corporation may fix in advance a date as the record date for any determination of shareholders, this date in any case not to be more than sixty (60) days, and not less than ten (10) days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease, or exchange of assets, not less than twenty (20) days, immediately preceding the date of this meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring the dividend is adopted, as the case may be, will be the record date for the determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, the determination will apply to any adjournment of the meeting. SECTION 8. VOTING LISTS. The officer or agent having charge of the transfer books or shares of the corporation will make, within twenty (20) days after the record date for a meeting of shareholders or ten (10) days before the meeting, whichever is earlier, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of the shareholder. For ten (10) days before the meeting, the list will be kept on file at the registered office of the corporation and will be open to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. The list will also be produced and kept open at the time and place of the meeting and may be inspected by any shareholder during the whole 3 time of the meeting. The original share ledger or transfer book, or a duplicate kept in Virginia will be prima facie evidence as to the shareholders who are entitled to examine the list, share ledger, or transfer book or to vote at any meeting of shareholders. SECTION 9. QUORUM. Except as otherwise provided by law, a majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders and a majority of votes cast at any meeting at which a quorum is present shall be decisive of any motion or election. Though less than a quorum of the outstanding shares are represented at a meeting, a majority of the shares represented may adjourn the meeting from time to time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote will be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code of Virginia, the articles of incorporation, or these bylaws. At an adjourned meeting at which a quorum is present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Withdrawal of shareholders from any meeting will not cause failure of a duly constituted quorum at that meeting. SECTION 10. MANNER OF ACTING. Except as otherwise provided in the articles of incorporation, in these bylaws, required by the Code of Virginia or in any agreement among shareholders, the act of the holders of a majority of the shares present at a meeting at which a quorum is present shall be the act of the shareholders. SECTION 11. CONDUCT OF MEETINGS. The chairman or president, and in their absence, the executive vice-president, shall call the meeting of the shareholders to order and shall act as chairperson of the meeting, and the secretary of the corporation shall act as secretary of all the meetings of the shareholders. In the absence of the secretary, the presiding officer may appoint any other person to act as secretary of the meeting. SECTION 12. PROXIES. At all meetings of shareholders, a shareholder entitled to vote may vote by proxy appointed in writing by the shareholder or by his or her duly authorized attorney-in-fact. The proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy. The Board of Directors, in advance of any annual or special meeting of the shareholders, may prescribe additional regulations concerning the manner of execution and filing of proxies and the validation of the same, which are intended to be voted at any such meeting. 4 SECTION 13. VOTING OF SHARES. Each shareholder entitled to vote in accordance with the terms and provisions of the Articles of Incorporation and these bylaws shall be entitled to one (1) vote, in person or by proxy, for each share of stock entitled to vote held by such shareholder. Upon the demand of any shareholder, the vote for Directors and upon any questions before the meeting shall be by ballot. SECTION 14. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the corporation held by the corporation in a fiduciary capacity may be voted and will be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another domestic or foreign corporation may be voted by any officer, agent, proxy or other legal representative authorized to vote these shares under the law of incorporation of the corporation. The corporation may treat the president or other person holding the position of chief executive officer of the other corporation as authorized to vote the shares, together with any other person indicated and any other holder of an office indicated by the corporate shareholder to the corporation as a person or an office authorized to vote the shares. The persons and offices indicated will be registered by the corporation on the transfer books for shares and included in any voting list prepared in accordance with Section Seven of this article. Shares registered in the name of a deceased person, a minor ward, or a person under legal disability may be voted by his or her administrator, executor, or court-appointed guardian, either in person or by proxy, without a transfer of the shares into the name of the administrator, executor, or court appointed guardian. Shares registered in the name of a trustee may be voted by the trustee, either in person or by proxy. Shares registered in the name of a receiver may be voted by the receiver, and shares held by or under the control of receiver may be voted by the receiver without the transfer of the shares into his or her name, if authority to do so is contained in an appropriate transfer order of the court by which the receiver was appointed. Shares standing in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the shares stand. If only one such person is present in person or by proxy, he may vote all the shares, and all the shares standing in the names of such persons are represented for the purpose of determining a quorum. This Bylaw applies to the voting of shares by two or more administrators, executors, trustees, or other fiduciaries, unless the instrument or order of court appointing them otherwise directs. 5 A shareholder whose shares are pledged will be entitled to vote the shares until the shares have been transferred into the name of the pledgee, and the pledgee will then be entitled to vote the shares transferred. SECTION 15. INSPECTORS. At any meeting of shareholders, the chairman of the meeting shall, appoint one or more persons as inspectors for the meeting, unless an inspector or inspectors will have been previously appointed for the meeting in the manner provided by the bylaws of the corporation. The inspectors will determine and report the number of shares represented at the meeting, based on their determination of the validity and effect of proxies; count all votes and report the results; and do any other acts that are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector will be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at the meeting. If there is more than one inspector, the report of the majority will be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and results of the voting will be prima facie evidence of the number of shares and results of voting. SECTION 16. WAIVER OF NOTICE OF SHAREHOLDERS. Whenever any notice is required to be given to any shareholder of the corporation under the articles of incorporation or bylaws or any provision of law, a waiver of the notice in writing, signed at any time, whether before or after the time of meeting, by the shareholder entitled to the notice, shall be deemed equivalent to the giving of the notice. The attendance of a shareholder at a meeting shall constitute a waiver of notice of the meeting, except where a shareholder attends a meeting and objects to the transaction of any business because the meeting is not lawfully called or convened. SECTION 17. INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted by the articles of incorporation or bylaws or any provision of law to be taken at any annual or special meeting of the shareholders, may be taken without a meeting and without action by the board of directors, if a consent in writing, setting forth the action taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter of the action. SECTION 18. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer orders or any shareholder demands that voting be by ballot. 6 ARTICLE III BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. Subject to the limitations of the articles of incorporation, these bylaws, and the Code of Virginia concerning corporate action that must by authorized or approved by the shareholders of the corporation, all corporate powers will be exercised by or under the authority of the board of directors, and the business and affairs of the corporation will be controlled by the board of directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The board of directors shall set the number of directors which shall be not less than three (3) nor more than fifteen (15) persons who need not be shareholders of the corporation. The number of directors within the above range may be increased or decreased by the board of directors. Directors of the corporation will be elected at the annual meeting of shareholders, or at a meeting held instead of it as provided in Article II and will serve until the next succeeding annual meeting and until their successors have been elected and qualified. The Board shall annually elect a chairman from its members and the chairman will preside at all meetings of the Corporation, unless the chairman decides to assign this duty to the president. SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without other notice than this bylaw, immediately after, and at the same place as, the annual meeting of shareholders, and each adjourned session of the meeting. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than the resolutions. SECTION 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president, secretary or any director. The person or persons authorized to call special meetings of the board of directors may fix the place for holding any special meeting of the board of directors called by them. SECTION 5. NOTICE. Notice need not be given of regular meetings of the board, nor need notice by given of adjourned meetings. Notice of any special meeting of the board of directors shall be given in writing delivered in person or by first-class mail or telegram or cablegram at 7 least two (2) days before the date of the meeting to each director. Whenever any notice is required to be given to any director of the corporation under the provisions of these bylaws or under the provisions of the articles of incorporation or under the provisions of any statute, a waiver of the notice in writing, signed at any time, whether before or after the time of meeting, by the director entitled to notice, shall be deemed equivalent to the giving of notice. The attendance of a director at a meeting shall constitute a waiver of notice of the meeting, except where a director attends a meeting and objects to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of the meeting. SECTION 6. PARTICIPATION BY TELEPHONE. Members of the board may participate in a meeting of the board by means of a conference telephone or similar communications equipment by which all persons participating can hear each other at the same time, and participation by these means will constitute presence in person at a meeting. SECTION 7. QUORUM. Except as otherwise provided by law or by the articles of incorporation or these bylaws, a majority of the number of directors fixed in accordance with Section Two of this Article III shall constitute a quorum for the transaction of business, and the acts of a majority of directors present at a meeting at which a quorum is present will constitute the acts of the board of directors. If, at any meeting of the board of directors, less than a quorum is present, a majority of those present may adjourn the meeting until a quorum is present. SECTION 8. CONDUCT OF MEETINGS. The chairman or president, and in their absence, an executive vice-president, shall call meetings of the board of directors to order and shall manage the meeting agenda. The secretary of the corporation shall act as secretary of all meetings of the board of directors, but in the absence of the secretary, the presiding officer may appoint any assistant secretary or any director or other person present to act as secretary of the meeting. SECTION 9. REMOVAL. At any regular meeting of shareholders, or at any special meeting called for such a purpose, any director or directors may be removed from office, with or without cause, by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors, except that no director will be removed at a meeting of shareholders unless the notice of meeting will state that a purpose of the meeting is to vote on removal of one or more directors named in the notice, and then only the named director or directors may be removed at that meeting. If a director has been elected by a 8 class or series of shares, he or she may be removed only by the shareholders of that class or series. New directors may be elected by the shareholders for the unexpired terms of directors removed from office at the same meetings at which removal is voted. If the shareholders fail to elect persons to fill the unexpired terms of removed directors; the terms will be considered vacancies to be filled by the remaining directors as provided in Section Twelve (b) of this Article III. SECTION 10. RESIGNATION. A director may resign at any time by giving written notice to the board of directors, the chairman, the president or the secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board of directors or such Officer, and the acceptance of the resignation shall not be necessary to make it effective. SECTION 11. COMPENSATION. The directors may be paid their reasonable expenses of attendance at each meeting of the board of directors or committee thereof and may be paid a fixed sum for attendance at each meeting and/or an annual stipend. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 12. VACANCIES. (a) A vacancy in the board of directors will exist on the happening of any of the following events: (1) A director dies, resigns, or is removed from office; (2) The authorized number of directors is increased without the simultaneous election of a director or directors to fill the newly authorized position. (3) The shareholders at any annual, regular, or special meeting at which directors are to be elected, elect less than the number of directors authorized to be elected at that meeting. (4) The board of directors declares vacant the office of a director who has been adjudicated of unsound mind or has been finally convicted of a felony or who, within 60 days after notice of his or her election to the board, neither accepts the office in writing nor attends any duly convened meeting of the board of directors. A reduction in the authorized number of directors does not remove any director from office before the expiration of his or her term of office. 9 (b) A vacancy in the board of directors, except a vacancy occurring by the removal of a director, may be filled by the vote of a majority of the remaining directors, even though less than a quorum is present. Each director so elected will hold office for the unexpired term of his or her predecessor in office. Any directorship that is to be filled as a result of an increase in the number of directors must be filled by election at an annual or special meeting of shareholders called for that purpose. SECTION 13. INFORMAL ACTION BY DIRECTORS. Any action required or permitted by the articles of incorporation or these bylaws or any provision of law to be taken by the board of directors at a meeting or by resolution may be taken without a meeting, if a consent in writing, setting forth the action taken, shall be signed by all of the directors then in office. SECTION 14. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors or a committee of the board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to the action with the person acting as the secretary of the meeting before adjournment or shall forward the dissent by registered or certified mail to the secretary of the corporation immediately after the adjournment of the meeting at which such minutes are approved. The right to dissent shall not apply to a director who voted in favor of the action. SECTION 15. COMMITTEES. The board of directors by resolution adopted by the affirmative vote of the directors, as required by Section Seven of this Article III, may designate one or more committees and appoint members of the board to serve on any one or more of these committees. The board of directors may also appoint designated officers of the Corporation or its affiliates to serve as non voting ad hoc members of committees for advisory purposes only who will serve at the pleasure of the board. Each committee will have at least two members who will serve at the pleasure of the board. A majority of any committee will constitute a quorum, and a majority of a quorum is necessary for committee action. Each committee, to the extent provided by the board in a resolution, will have and exercise the authority of the board of directors in the management of the corporation. However, a committee may not authorize distributions; approve or recommend to shareholders any act required by statute to be approved by shareholders; fill vacancies on the board or on any of its committees; elect or remove officers or fix the compensation of any member of the committee; adopt, amend, or repeal the bylaws; approve a plan of merger not requiring shareholder approval; authorize or approve the reacquisition of shares, except according to a general formula or method prescribed by the board; authorize or approve the issuance or sale, or contract for sale, of 10 shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the board may direct a committee to fix the specific terms of the issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or amend, alter, repeal, or take action inconsistent with any resolution or action of the board of directors. The board of directors will fill vacancies in the membership of any committee. Any committee may keep a written record of its proceedings and will submit any such record or otherwise make a written or oral report to the whole board at each regular meeting and at any other times that may be requested by the board. However, failure to submit this record, or failure of the board to approve any action indicated will not invalidate any action carried out by the corporation. A committee may act by unanimous consent in writing without a meeting and each committee, by a majority vote of its members, will determine the time and place of meetings and the required notice. The board of directors may elect one or more of its members as alternate members of any committee who may take the place of any absent member or members at any meeting of the committee, upon request by the president or upon request by the chairperson of the meeting. Each committee shall fix its own rules governing the conduct of its activities and shall make reports to the board of directors of its activities as the board of directors may request. ARTICLE IV OFFICERS SECTION 1. ENUMERATION OF OFFICERS. The principal officers of the corporation shall include a chairman, president and a secretary and may include one or more executive vice-presidents, one or more senior vice-presidents, certain elected vice-presidents and a treasurer. Other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. SECTION 2. ELECTION AND TERM OF OFFICE. The principal officers of the corporation to be elected by the board of directors shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers shall not be held at the meeting, the election shall be held as soon thereafter as convenient. Each officer shall hold office until his or her successor shall have been duly elected or until his or her death or until he or she shall resign or shall have been removed in the manner provided below. 11 SECTION 3. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed, with or without cause, by the board of directors but removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create any rights to continued employment or other contract rights. SECTION 4. VACANCIES. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise may be filled by the board of directors for the unexpired portion of the term, if a term has been specified. SECTION 5. PRESIDENT; POWERS AND DUTIES. Subject to any supervisory duties that may be given by the board of directors to any chairman of the board, the president shall be the principal executive officer of the corporation and shall, in general, supervise and control the business and affairs of the corporation. The chairman or president shall, when present, preside at all meetings of the shareholders. In the absence of the chairman of the board, or if the chairman so directs, the president will preside at all meetings of the board of directors at which he or she is present. The president shall have authority to appoint such agents and employees of the corporation as the president shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. The agents and employees shall hold office at the discretion of the president. The president shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business and, except as otherwise provided by law, he or she may authorize any officer, vice-president, or employee of the corporation to sign, execute and acknowledge documents or instruments on behalf of the corporation. The president will also make reports to the board of directors and shareholders and in general, he or she shall perform all duties incident to the office of president and any other duties that may be prescribed by the board of directors. SECTION 6. EXECUTIVE VICE-PRESIDENT AND CHIEF OPERATING OFFICER; POWERS AND DUTIES. In the absence of the president or in the event of the president's death, inability or refusal to act, the executive vice-president and chief operating officer shall, until such time as a new president is duly elected by the board of directors, perform the duties of the 12 president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. SECTION 7. SECRETARY; POWERS AND DUTIES. The secretary shall (a) keep the minutes of the shareholders' and of the board of directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the secretary by the shareholder; (e) sign with the president or vice-president certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (f) certify the bylaws, resolutions of the shareholders and board of directors and committees, and other documents of the corporation as true and correct copies; (g) have general charge of the stock transfer books of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the president or by the board of directors. SECTION 8. TREASURER; POWERS AND DUTIES. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the board of directors shall determine. The treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected from time to time and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to the treasurer by the president or by the board of directors. SECTION 9. OTHER OFFICERS. Other officers, including without limitation an assistant treasurer or treasurers and an assistant secretary or secretaries may be appointed by the board of directors and will exercise any powers and perform any duties that may be delegated to them by the resolutions appointing them, or by subsequent resolutions adopted by the board of directors. SECTION 10. DELEGATION OF DUTIES. In case of the absence or inability to act of any officer of the corporation, the board of directors may delegate the duties of the officer to any other officer or to any director. 13 SECTION 11. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving his or her salary by reason of the fact that he or she is also a director of the corporation and receiving compensation for being a director. ARTICLE V CERTIFICATES FOR SHARES SECTION 1. CERTIFICATES. The issued shares of the corporation will be represented by certificates. The certificates will be in any form determined by the board of directors, and will be numbered and entered in the books of the corporation that they are issued. Each certificate will (a) exhibit the registered holder's name and the number and class of shares, and the designation of any series, that it evidences; (b) state that the corporation is organized under the laws of Virginia, and (c) set forth any other statements that may be required by resolution of the board of directors or statute. Each certificate will be signed by the chief executive officer or a vice-president and by the secretary or an assistant secretary, any of whose signatures may be facsimile if the certificate is countersigned by a transfer agent or registered by a registrar. In case any one or more of officers who have signed or whose facsimile signatures appear on any certificate will cease to be an officer or officers of the corporation, or an officer of the transfer agent or registrar, before the certificate is issued and delivered, it may nonetheless be issued and delivered with the same effect as if the officer or officers had continued in office. No certificate will be issued for any share until the share is fully paid. SECTION 2. SUBSCRIPTIONS FOR STOCK. Unless otherwise provided in the subscription agreement, subscriptions for shares will be paid in full at any time, or in any installments and at any times, that will be determined by the board of directors. In case of default in the payment of any installment or call when payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. SECTION 3. TRANSFERS. Transfers of shares of the corporation will be made only on the books of the corporation by the holder of record or by the holder's legal representative, who will furnish proper evidence of authority to transfer, or by an attorney authorized by power of attorney executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for these shares. The corporation will maintain stock transfer books, and any transfer will by registered only on request and surrender of the stock certificate 14 representing the endorsed transferred shares. Additionally, the board of directors may appoint one or more transfer agents or transfer clerks and one or more registrars as custodians of the transfer books, and may require all transfers to be made with and all share certificates to bear the signatures of any of them. SECTION 4. RESTRICTIONS ON TRANSFER. Transfer of shares may be restricted by agreement among some or all of the shareholders. There shall be clearly printed or typewritten across the face or reverse side of the certificates of stock issued or to be issued by the corporation a legend setting forth any restrictions upon the transfer of the shares. SECTION 5. LOST, DESTROYED OR STOLEN CERTIFICATES. The corporation may provide for the issue of one or more new certificates in lieu of any lost, stolen or destroyed certificates upon such evidence of loss, theft or destruction as the corporation shall require and upon delivery to the corporation of a bond of indemnity in such amount, upon such terms and with such security as the corporation may require. SECTION 6. CONSIDERATION FOR SHARES. The shares of the corporation may be issued for such consideration as shall be fixed from time to time by the board of directors, provided that any shares having a par value shall not be issued for a consideration less than par value. When payment of the consideration for which shares are to be issued shall have been received by the corporation, the shares shall be deemed to be fully paid and nonassessable by the corporation. No certificate shall be issued for any share until such share is fully paid. SECTION 7. OWNERSHIP. The corporation may treat the holder of record of any share or shares as the holder in fact, and shall not be bound to recognize any equitable or other claim to or interest in any share or shares on the part of any other person, whether or not it shall have express or other notice of the claim or interest, save as expressly provided by law. The corporation will have the absolute right to recognize as the owner of any shares of stock issued by it, for all purposes, including, without limitation, the voting of shares and the issuance and payment of dividends on or distributions respecting shares, the person or persons in whose name the certificate representing shares stands on the corporation's stock transfer books. However, if a transfer of shares is made solely for the purpose of furnishing collateral security, and if this fact is made known to the secretary of the corporation, or to the corporation's transfer agent or transfer clerk, the record entry of this transfer will state its limited nature. 15 ARTICLE VI CORPORATE ACTIONS SECTION 1. CONTRACTS. The board of directors may authorize any officer, employee or agent of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances. SECTION 2. LOANS When authorized by resolution of the board of directors, the corporation may make loans of corporate funds to any of its directors, officers, employees, and agents. However, no loan may be made if, after giving it effect; (a) the corporation would be insolvent, or (b) the net assets of the corporation would be less than zero or less than the maximum amount payable at the time of distribution to shareholders having preferential rights in liquidation if the corporation were then to be liquidated. SECTION 3. CHECKS, DRAFTS, OR ORDERS. All checks, drafts, or other orders for the payment of money by or to the corporation, and all notes and other evidence of indebtedness issued in the name of the corporation will be signed by an officer or officers, agent or agents of the corporation and in any manner that will be determined by resolution of the board of directors. SECTION 4. BANK DEPOSITS. All funds of the corporation not otherwise employed will be deposited to the credit of the corporation in any banks, trust companies, or other depositaries that the corporation may select. SECTION 5. VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise ordered by the board of directors, the president, or any vice-president and the secretary or an assistant secretary of the corporation will have authority to vote, represent, and exercise on behalf of the corporation all rights incidental to any shares of any other corporation standing in the name of the corporation. This authority may be exercised by the designated officers in person or by proxy. 16 ARTICLE VII DIVIDENDS The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and its articles of incorporation. ARTICLE VIII CORPORATE SEAL The board of directors will adopt an official seal for the corporation, which will be circular in form and be inscribed with the name of the corporation, and the words "Commonwealth of Virginia" and "Corporate Seal." The majority of the board of directors may alter the corporate seal. The official seal is affixed hereto: ARTICLE IX FISCAL YEAR Unless otherwise determined by the board of directors, the Fiscal year of the corporation will be the calendar year and shall end on December 31 of each year. ARTICLE X AMENDMENTS The power to alter, amend, or repeal the Bylaws and to make new Bylaws shall be vested in the board of directors, but Bylaws made by the board of directors may be repealed or changed, and new Bylaws made, by the shareholders, and the shareholders may prescribe that any Bylaw made by them shall not be altered, amended, or repealed by the directors. ARTICLE XI GOVERNING STATUTE This corporation has been organized pursuant to and is governed by the laws of the Commonwealth of Virginia. Date: December 8, 1998 17 EX-4.1 4 INDENTURE DATE 5/11/99 Exhibit 4.1 ================================================================================ ANTEON CORPORATION Issuer VECTOR DATA SYSTEMS, INC. Guarantor TECHMATICS, INC. Guarantor 12% Senior Subordinated Notes Due 2009 --------------------- INDENTURE Dated as of May 11, 1999 --------------------- IBJ WHITEHALL BANK & TRUST COMPANY Trustee ================================================================================ CROSS-REFERENCE TABLE TIA Indenture Section Section ------- 310 (a)(1) .............................. 7.10 (a)(2) .............................. 7.10 (a)(3) .............................. N.A. (a)(4) .............................. N.A. (b) .............................. 7.10 (c) .............................. N.A. 311 (a) .............................. N.A. (b) .............................. 7.11 (c) .............................. N.A. 312 (a) .............................. 2.05 (b) .............................. 11.03 (c) .............................. 11.03 313 (a) .............................. 7.06 (b)(1) .............................. N.A. (b)(2) .............................. N.A. (c) .............................. N.A. (d) .............................. N.A. 314 (a)(4) .............................. 4.11; 4.11; 11.02 (b) .............................. N.A. (c)(1) .............................. N.A. (c)(2) .............................. N.A. (c)(3) .............................. N.A. (d) .............................. N.A. (e) .............................. N.A. (f) .............................. N.A. 315 (a) .............................. N.A. (b) .............................. N.A. (c) .............................. N.A. (d) .............................. N.A. (e) .............................. N.A. 316 (a)(last sentence) ......................... N.A. (a)(1)(A) .............................. N.A. (a)(1)(B) .............................. N.A. (a)(2) .............................. N.A. (b) .............................. N.A. 317 (a)(1) .............................. N.A. (a)(2) .............................. N.A. (b) .............................. 2.04 318 (a) .............................. N.A. N.A. means Not Applicable. - ---------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS ARTICLE 1 Page ---- DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions......................................... 1 SECTION 1.02. Other Definitions...................................30 SECTION 1.03. Incorporation by Reference of Trust Indenture Act.....................................30 SECTION 1.04. Rules of Construction...............................31 ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating.....................................32 SECTION 2.02. Execution and Authentication........................32 SECTION 2.03. Registrar and Paying Agent..........................33 SECTION 2.04. Paying Agent To Hold Money in Trust.................34 SECTION 2.05. Securityholder Lists................................34 SECTION 2.06. Transfer and Exchange...............................34 SECTION 2.07. Replacement Securities..............................35 SECTION 2.08. Outstanding Securities..............................35 SECTION 2.09. Temporary Securities................................36 SECTION 2.10. Cancellation........................................36 SECTION 2.11. Defaulted Interest..................................36 SECTION 2.12. CUSIP Numbers ......................................37 SECTION 2.13. Issuance of Additional Securities...................37 ARTICLE 3 REDEMPTION SECTION 3.01. Notices to Trustee..................................38 SECTION 3.02. Selection of Securities To Be Redeemed..........................................38 SECTION 3.03. Notice of Redemption................................39 SECTION 3.04. Effect of Notice of Redemption......................40 SECTION 3.05. Deposit of Redemption Price.........................40 SECTION 3.06. Securities Redeemed in Part.........................40 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities...............................40 2 SECTION 4.02. SEC Reports.........................................41 SECTION 4.03. Limitation on Indebtedness..........................41 SECTION 4.04. Limitation on Restricted Payments...................44 SECTION 4.05. Limitation on Restrictions on Dis- tributions from Subsidiaries......................48 SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock..................................50 SECTION 4.07. Limitation on Affiliate Transactions................55 SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries......................................57 SECTION 4.09. Change of Control...................................58 SECTION 4.10. Future Guarantors...................................59 SECTION 4.11 Compliance Certificate..............................60 SECTION 4.12. Further Instruments and Acts........................60 ARTICLE 5 SUCCESSOR COMPANY SECTION 5.01. When Company May Merge or Transfer Assets............................................60 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default...................................62 SECTION 6.02. Acceleration........................................64 SECTION 6.03. Other Remedies......................................65 SECTION 6.04. Waiver of Past Defaults.............................65 SECTION 6.05. Control by Majority.................................65 SECTION 6.06. Limitation on Suits.................................66 SECTION 6.07. Rights of Holders To Receive Payment................66 SECTION 6.08. Collection Suit by Trustee..........................67 SECTION 6.09. Trustee May File Proofs of Claim....................67 SECTION 6.10. Priorities..........................................67 SECTION 6.11. Undertaking for Costs...............................68 SECTION 6.12. Waiver of Stay or Extension Laws....................68 ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee...................................68 SECTION 7.02. Rights of Trustee...................................70 SECTION 7.03. Individual Rights of Trustee........................70 3 SECTION 7.04. Trustee's Disclaimer................................70 SECTION 7.05. Notice of Defaults..................................71 SECTION 7.06. Reports by Trustee to Holders.......................71 SECTION 7.07. Compensation and Indemnity..........................71 SECTION 7.08. Replacement of Trustee..............................72 SECTION 7.09. Successor Trustee by Merger.........................73 SECTION 7.10. Eligibility; Disqualification.......................73 SECTION 7.11. Preferential Collection of Claims Against Company...................................74 ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Discharge of Liability on Securities; Defeasance........................................74 SECTION 8.02. Conditions to Defeasance............................75 SECTION 8.03. Application of Trust Money..........................77 SECTION 8.04. Repayment to Company................................77 SECTION 8.05. Indemnity for Government Obligations.......................................77 SECTION 8.06. Reinstatement.......................................77 ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders..........................78 SECTION 9.02. With Consent of Holders.............................79 SECTION 9.03. Compliance with Trust Indenture.....................80 SECTION 9.04. Revocation and Effect of Consents and Waivers.......................................80 SECTION 9.05. Notation on or Exchange of Securities........................................81 SECTION 9.06. Trustee To Sign Amendments..........................81 SECTION 9.07. Payment for Consent.................................81 ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement To Subordinate..............................81 SECTION 10.02. Liquidation, Dissolution, Bankruptcy.......................................82 SECTION 10.03. Default on Senior Indebtedness........................83 SECTION 10.04. Acceleration of Payment of Securities.......................................84 4 SECTION 10.05. When Distribution Must Be Paid Over.............................................85 SECTION 10.06. Subrogation...........................................85 SECTION 10.07. Relative Rights.......................................85 SECTION 10.08. Subordination May Not Be Impaired by Company.......................................85 SECTION 10.09. Rights of Trustee and Paying Agent............................................85 SECTION 10.10. Distribution or Notice to Representative...................................86 SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate.......................................86 SECTION 10.12. Trust Moneys Not Subordinated.........................86 SECTION 10.13. Trustee Entitled To Rely..............................87 SECTION 10.14. Trustee To Effectuate Subordination....................................87 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness...........................87 SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions.......................................88 ARTICLE 11 SUBSIDIARY GUARANTIES SECTION 11.01. Guaranties............................................88 SECTION 11.02. Limitation on Liability...............................91 SECTION 11.03. Successors and Assigns................................91 SECTION 11.04. No Waiver.............................................91 SECTION 11.05. Modification..........................................91 SECTION 11.06. Release of Subsidiary Guarantor.......................91 ARTICLE 12 SUBORDINATION OF SUBSIDIARY GUARANTIES SECTION 12.01. Agreement to Subordinate .............................92 SECTION 12.02. Liquidation, Dissolution, Bankruptcy ......................................92 SECTION 12.03. Default on Senior Indebtedness of Subsidiary Guarantor..........................93 SECTION 12.04. Demand for Payment....................................94 SECTION 12.05. When Distribution Must Be Paid........................94 SECTION 12.06. Subrogation...........................................94 SECTION 12.07. Relative Rights.......................................95 5 SECTION 12.08. Subordination May Not Be Impaired by Company..............................95 SECTION 12.09. Right of Trustee and Paying Agent.....................95 SECTION 12.10. Distribution or Notice to Representative................................96 SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary Guaranty or Limit Right to Demand Payment....................96 SECTION 12.12. Trustee Entitled To Reply.............................96 SECTION 12.13. Trustee To Effectuate Subordination...................97 SECTION 12.14. Trustee Not Fiduciary for Holders of Senior Indebtedness of Subsidiary Guarantor..........................97 SECTION 12.15. Reliance by Holders of Senior Indebtedness on Subordination Provisions.......................................97 ARTICLE 13 MISCELLANEOUS SECTION 13.01. Trust Indenture Act Controls..........................98 SECTION 13.02. Notices...............................................98 SECTION 13.03. Communication by Holders with Other Holders....................................99 SECTION 13.04. Certificate and Opinion as to Conditions Precedent.............................99 SECTION 13.05. Statements Required in Certificate or Opinion ......................................99 SECTION 13.06. When Securities Disregarded...........................99 SECTION 13.07. Rules by Trustee, Paying Agent and Registrar.......................................100 SECTION 13.08. Legal Holidays.......................................100 SECTION 13.09. Governing Law........................................100 SECTION 13.10. No Recourse Against Others...........................100 SECTION 13.11. Successors...........................................100 SECTION 13.12. Multiple Originals...................................100 SECTION 13.13. Table of Contents; Headings..........................101 Exhibit A - Form of Security Rule 144A/Regulation S Appendix Exhibit 1 to Rule 144A/Regulation S Appendix INDENTURE dated as of May 11, 1999, among ANTEON CORPORATION, a Virginia corporation (the "Company"), VECTOR DATA SYSTEMS, INC., a Virginia corporation, and TECHMATICS, INC., a Virginia corporation, as Guarantors, and IBJ WHITEHALL BANK & TRUST COMPANY, a New York trust corporation (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of (1) the Company's 12% Senior Subordinated Notes Due 2009 (the "Initial Securities"), (2) if and when issued pursuant to a registered exchange for Initial Securities, the Company's 12% Senior Subordinated Notes Due 2009 (the "Exchange Securities"), (3) if and when issued pursuant to a private exchange for Initial Securities, the Company's 12% Senior Subordinated Notes Due 2009 (the "Private Exchange Securities") and (4) if and when issued, any Additional Securities (as defined herein, and together with the Private Exchange Securities, the Exchange Securities and the Initial Securities, the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Acquisition" means the acquisition of Analysis & Technology, Inc. by the Company. "Acquisition Closing Date" means the date on which the Company consummates the Acquisition. "Additional Assets" means any: (1) property, plant or equipment used in a Related Business; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; 2 PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Related Business. "Additional Securities" means, subject to the Company's compliance with Section 4.03, 12% Senior Subordinated Notes Due 2009 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Section 2.06, 2.07, 2.09 or 3.06) and other than Exchange Securities or Private Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture. "Affiliate" of any specified Person means: (1) any other Person, directly or indirectly, controlling or controlled by; or (2) under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 4.04, 4.06 and 4.07 only, "Affiliate" shall also mean any beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition"), of: (1) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary); 3 (2) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary; or (3) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (other than, in the case of clauses (1) and (2) above and this clause (3): (A) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary; (B) leases of excess space in the ordinary course of business; (C) for purposes of Section 4.06 only, a disposition that constitutes a Restricted Payment permitted by Section 4.04 or a Permitted Investment; and (D) disposition of assets with a fair market value of less than $200,000). "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by (2) the sum of all such payments. "Banks" means any obligee under the Credit Agreement. "Bank Indebtedness" means all Obligations pursuant to the Credit Agreement. 4 "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change of Control" means the occurrence of any of the following events: (1) prior to the earlier to occur of (A) the first public offering of common stock of Parent or (B) the first public offering of common stock of the Company, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Voting Stock of the Company, whether as a result of issuance of securities of the Parent or the Company, any merger, consolidation, liquidation or dissolution of the Parent or the Company, any direct or indirect transfer of securities by Parent or otherwise (for purposes of this clause (1) and clause (2) below, the Permitted Holders shall be deemed to beneficially own any Voting Stock of a corporation (the "specified corporation") held by any other corporation (the "parent corporation") so long as the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Voting Stock of the parent corporation); 5 (2) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in clause (1) above, except that for purposes of this clause (2) such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors (for the purposes of this clause (2), such other person shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other person is the beneficial owner (as defined in this clause (2)), directly or indirectly, of more than 35% of the voting power of the Voting Stock of such parent corporation and the Permitted Holders beneficially own (as defined in clause (1) above), directly or indirectly, in the aggregate a lesser percentage of the voting power of the Voting Stock of such parent corporation and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of such parent corporation); (3) individuals who on the Issue Date constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 662/3% of the directors of the Company then still in office who were either directors on the Issue Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; (4) the merger or consolidation of the Company with or into another Person or the merger of another Person with or into the Company, or the sale of 6 all or substantially all the assets of the Company to another Person (other than a Person that is controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and which represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving corporation that represent immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving corporation. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are then available prior to the date of such determination to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period (except that, in making such computation, the amount of 7 Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period when such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average balance of such Indebtedness during the period from the date of creation of such facility to the date of the computation); (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is 8 sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of a business or a product line, operating unit or similar portion of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given under clause (4) above, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company, and such pro forma calculations shall include (A) (x) the savings in cost of revenues that would have resulted from using the Company's or its Restricted Subsidiaries', as applicable, actual costs for comparable goods and services 9 during the comparable period and (y) other savings in cost of revenues or eliminations of selling, general and administrative expenses as determined by a responsible financial or accounting Officer of the Company in good faith in connection with the Company's consideration of such transaction and consistent with the Company's experience in similar transactions less (B) the incremental expenses that would be included in cost of revenues and selling, general and administrative expenses that would have been incurred by the Company or its Restricted Subsidiaries, as applicable, in the operation or ownership of such acquired assets during such period. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication: (1) interest expense attributable to capital leases and the interest expense attributable to leases constituting part of a Sale/ Leaseback Transaction; (2) amortization of debt discount and debt issuance cost; (3) capitalized interest; (4) non-cash interest expenses; (5) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (6) net costs associated with Hedging Obligations (including amortization of fees); (7) dividends paid in cash or Disqualified Stock in respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of the Company 10 held by Persons other than the Company or a Wholly Owned Subsidiary; (8) interest incurred in connection with Investments in discontinued operations; (9) interest actually paid by the Company or a Restricted Subsidiary under a Guarantee of Indebtedness of any other Person; and (10) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust; and less, to the extent included in such total interest expense, the amortization during such period of debt issuance costs; PROVIDED, HOWEVER, that the aggregate amount of amortization relating to any such debt issuance costs deducted in calculating Consolidated Interest Expense shall not exceed 5% of the aggregate amount of the financing giving rise to such debt issuance costs. "Consolidated Leverage Ratio" as of any date means the ratio of (x) the aggregate amount of Indebtedness (net of cash and marketable securities) of the Company and its Restricted Subsidiaries as of such date of determination to (y) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters for which financial statements are then available prior to such date of determination, in each case with such pro forma adjustments to consolidated Indebtedness and EBITDA as are appropriate and consistent with the pro forma provisions set forth in the definition of Consolidated Coverage Ratio. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (1) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that: (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net 11 Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that: (A) subject to the exclusion contained in clause (4) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain or loss realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise 12 disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (5) extraordinary gains or losses; and (6) the cumulative effect of a change in accounting principles. Notwithstanding the foregoing, for the purposes of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "Credit Agreement" means (1) prior to the Acquisition Closing Date, the Credit Agreement dated March 18, 1998, by and among the Company and Vector Data Systems, Inc., the lenders referred to therein and Mellon Bank, N.A., as agent, as amended, and (2) on or after the Acquisition Closing Date, the Credit Agreement to be entered into by and among, the Company, certain of its Subsidiaries, the lenders referred to therein, and Credit Suisse First Boston, as agent, together with the related documents thereto (including the term loans and revolving loans thereunder, reimbursement obligations under any letters of credit, any guarantees and security documents), as amended, extended, renewed, replaced, restated, supplemented or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to Refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Agreement or a successor Credit Agreement, whether by the same or any other lender or group of lenders. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement designed to protect such Person against fluctuations in currency values. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means: 13 (1) the Bank Indebtedness; and (2) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10.0 million and is specifically designated by the Company in any instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event: (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased upon the occurrence of certain events or otherwise, in whole or in part; in each case on or prior to the first anniversary of the Stated Maturity of the Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" shall not constitute Disqualified Stock if: (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Securities and described under Sections 4.06 and 4.09; and (2) any such requirement only becomes operative after compliance with such terms applicable to the Securities, including the purchase of any Securities tendered pursuant thereto. 14 "EBITDA" for any period means the sum of Consolidated Net Income, plus the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries; (2) Consolidated Interest Expense; (3) depreciation and amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period); and (4) all other non-cash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period); in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in: (1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants; and (2) statements and pronouncements of the Financial Accounting Standards Board. 15 "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof; PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. The Ogden Note will not be deemed to be Guaranteed unless Anteon executes a guaranty thereof. "Guaranty Agreement" means a supplemental indenture, in a form satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the Company's obligations with respect to the Securities on the terms provided for in the Indenture. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. 16 "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (2) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, 17 directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; PROVIDED, HOWEVER, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in accordance with GAAP. Notwithstanding the foregoing, Indebtedness shall not include any liability for Federal, state, local or other taxes owed or owing to any governmental entity. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. 18 For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and Section 4.04: (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the Company's "Investment" in such Subsidiary at the time of such redesignation less (B) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Original Securities are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Merger Agreement" means the Agreement and Plan of Merger, dated as of March 7, 1999, by and among the Company, Buffalo Acquisition Corporation and Analysis & Technology, Inc. "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such 19 properties or assets or received in any other noncash form), in each case net of: (1) all legal, title, recording or transfer tax, accounting, consulting or similar transaction expenses, brokerage or other fees, commissions and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Disposition; and (4) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, printing costs, filing and listing fees, discounts or commissions and brokerage, consultant and other fees or expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Obligations" means with respect to any Indebtedness all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, and other amounts payable pursuant to the documentation governing such Indebtedness. 20 "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Ogden Note" means the Amended and Restated, Non Negotiable, Subordinated 9% Promissory Note due April 22, 2004 of Parent in favor of Ogden Technology Services Corporation, dated as of October 1, 1998, in the principal amount of $3,650,000. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Parent" means Azimuth Technologies, Inc., a Delaware corporation, and any successor corporation. "Permitted Holders" means (i) Caxton Corporation, Frederick J. Iseman, Steven Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other Person who is a controlled Affiliate of any of the foregoing and any member of senior management of the Company on the Issue Date and (ii) any Related Party of any of the foregoing. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in: (1) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (2) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; (3) Temporary Cash Investments; (4) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in 21 accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary; (7) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (8) any Person to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to Section 4.06; and (9) additional Investments made after the Issue Date in an aggregate amount which, together with all other Investments made pursuant to this clause (9) that are outstanding, do not exceed $10.0 million. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Secu- 22 rity which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of Parent or the Company pursuant to an effective registration statement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 10% of the total issued and outstanding common stock of Parent or the Company, as applicable, has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "Rating Agency" means Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both shall not make a rating on the Securities publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as certified by a resolution of the Board of Directors) which shall be substituted for Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, replace, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with this Indenture, including Indebtedness that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that: (1) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced; (2) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced; and 23 (3) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include (A) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Registration Rights Agreement" means the Registration Rights Agreement dated May 6, 1999, among the Company, Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated. "Related Business" means the business of the Company and its Restricted Subsidiaries on the Issue Date or the Acquisition Closing Date and any business that in the good faith judgment of the Board of Directors is related, ancillary or complementary thereto. "Related Party" means (1) any controlling stockholder, controlling member, general partner, majority owned Subsidiary, or spouse or immediate family member (in the case of an individual) of any Permitted Holder or (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons holding a controlling interest of which consist solely of one or more Permitted Holders and/or such other Persons referred to in the immediately preceding clause (1). "Representative" means any trustee, agent or representative (if any) for an issue of Senior Indebtedness of the Company. "Restricted Payment" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or 24 indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition); or (4) the making of any Investment in any Person (other than a Permitted Investment). "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Revolving Credit Facilities" means any revolving credit facility contained in the Credit Agreement and any other facility or financing arrangement that Refinances or replaces, in whole or in part, any such revolving credit facility. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. 25 "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Securities issued under this Indenture. "Senior Indebtedness" means, with respect to any Person on any date of determination: (1) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred (including the Indebtedness of such Person under the Credit Agreement or any Guarantee thereof); and (2) accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such Person whether or not post-filing interest is allowed in such proceeding) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the case of clauses (1) and (2), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Securities; PROVIDED, HOWEVER, that Senior Indebtedness shall not include: (1) any obligation of such Person to any Subsidiary; (2) any liability for Federal, state, local or other taxes owed or owing by such Person; (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities); (4) any Indebtedness of such Person (and any accrued and unpaid interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person; 26 (5) the Ogden Note or the Techmatics Notes; or (6) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture. "Senior Subordinated Indebtedness" means (1) with respect to the Company, the Securities and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the Securities in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness of the Company and (2) with respect to each Subsidiary Guarantor, its Subsidiary Guaranty of the Securities and any other Indebtedness of such Subsidiary Guarantor that specifically provides that such Indebtedness is to rank pari passu with such Subsidiary Guaranty in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of such Subsidiary Guarantor which is not Senior Indebtedness of such Subsidiary Guarantor. "Significant Subsidiary" means any Restricted Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company or any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate or junior in right of payment to the Securities or, in the case of a Subsidiary Guarantor, its Subsidiary Guaranty, in each case pursuant to a written agreement to that effect. "Subsidiary" means, with respect to any Person, any corporation, association, company, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard 27 to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by: (1) such Person; (2) such Person and one or more Subsidiaries of such Person; or (3) one or more Subsidiaries of such Person. "Subsidiary Guarantor" means each Subsidiary of the Company that Guarantees the Company's obligations with respect to the Securities pursuant to the terms of the Indenture. "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the Company's obligations with respect to the Securities. "Temporary Cash Investments" means any of the following: (1) any investment in direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money-market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into 28 with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Term Loan Facilities" means the term loan facilities contained in the Credit Agreement and any other facility or financing arrangement that Refinances in whole or in part any such term loan facility. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means: (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted 29 Subsidiary by the Board of Directors in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated or another Unrestricted Subsidiary; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (A) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) and (B) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees (or persons performing similar functions) thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than 30 directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. SECTION 1.02. OTHER DEFINITIONS. Defined in Term Section ---- ----------- "Affiliate Transaction" ................ 4.07 "Appendix" ............................. 2.01 "Bankruptcy Law" ....................... 6.01 "Blockage Notice" ...................... 10.03 "covenant defeasance option" ........... 8.01(b) "Change of Control Offer" .............. 4.09(b) "Custodian" ............................ 6.01 "Event of Default" ..................... 6.01 "legal defeasance option" .............. 8.01(b) "Legal Holiday" ........................ 13.08 "Notice of Default" .................... 6.01 "Obligations" .......................... 11.01 "Offer" ................................ 4.06(b) "Offer Amount" ......................... 4.06(c)(2) "Offer Period" ......................... 4.06(c)(2) "pay the Securities" ................... 10.03 "pay its Subsidiary Guaranty" .......... 12.03 "Paying Agent" ......................... 2.03 "Payment Blockage Period" .............. 10.03 "Purchase Date" ........................ 4.06(c)(1) "Registrar"............................. 2.03 "Successor Company" .................... 5.01 SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and 31 "obligor" on the indenture securities means the Company, each Guarantor and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; (9) all references to the date the Securities were originally issued shall refer to the date the Initial Securities were originally issued; and (10) all references to any amount of interest or any other amount payable on or with respect to any of the Securities shall be deemed to include payment 32 of any additional interest pursuant to the Registration Rights Agreement. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. On the Issue Date, the Trustee shall authenticate and deliver $100.0 million of 12% Senior Subordinated Notes Due 2009 and, at any time and from time to time thereafter, 33 the Trustee shall authenticate and deliver Additional Securities for original issue upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 after the Issue Date, shall certify that such issuance is in compliance with Section 4.03. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. 34 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall immediately notify the Trustee in writing of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-registrar's request. The Company may require the Securityholder to make payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Company shall not be 35 required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. 36 If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and destroy (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Trustee to deliver canceled Securities to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable 37 satisfaction of the Trustee and shall promptly mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall be entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee prior to the Trustee's issuance of the Additional Securities, the following information: (1) the aggregate principal amount and CUSIP number of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (2) the issue price and the issue date of such Additional Securities and the amount of interest payable on the first payment date applicable thereto; PROVIDED, HOWEVER, that no Additional Securities may be issued at a price that would cause such Additional Securities to have "original issue discount" within the meaning of Section 1273 of the Code; and 38 (3) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities as set forth in Exhibit 1 to the Appendix to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit A to the Appendix. ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities or is required to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption will occur. Except as described under the second paragraph of Section 3.03, the Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents in writing to a shorter period. Such notice shall be accompanied by an Officers' Certificate and, in the case of an optional redemption, an Opinion of Counsel from the Company to the effect that such redemption will comply with the conditions herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee in its sole discretion shall deem to be fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. 39 SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. In the event of the Special Mandatory Redemption pursuant to and as defined in paragraph 6 of the Securities, the Company shall prepare and cause to be mailed a notice of such redemption on the first Business Day following the earlier of (i) July 31, 1999, and (ii) the date the Company abandons the Acquisition or terminates the Merger Agreement. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the 40 Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the original Security surrendered. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. 41 The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC REPORTS. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file (unless the SEC will not accept such filing) with the SEC and provide the Trustee and Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filings of such information, documents and reports under such Sections. In addition, whether or not required by the SEC, the Company will file a copy of all of the information and reports referred to above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing). SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto, (1) the Consolidated Coverage Ratio exceeds 2.00 to 1.00 if such Indebtedness is Incurred prior to May 15, 2001 or 2.25 to 1.00 if such Indebtedness is Incurred thereafter and (2) the Consolidated Leverage Ratio would be less than 5.75 to 1.00 if such Indebtedness is Incurred prior to December 31, 2000 or 5.50 to 1.00 if such Indebtedness is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness of the Company Incurred pursuant to the Revolving Credit Facilities; PROVIDED, HOWEVER, that, immediately after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (1) and then outstanding does not exceed the greater of (A) $110.0 million and (B) 90% of accounts 42 receivable of the Company and its Restricted Subsidiaries; (2) Indebtedness of the Company Incurred pursuant to the Term Loan Facilities; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this clause (2) and then outstanding does not exceed $60.0 million less the aggregate sum of all principal payments with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of Section 4.06. (3) Indebtedness of the Company or any Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (4) the Securities (other than any Additional Securities); (5) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3) or (4) of this Section 4.03(b)); (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to Section 4.03(a) or pursuant to clause (4) or (5) or this clause (6) of this Section 4.03(b); (7) Hedging Obligations under or with respect to Interest Rate Agreements and Currency Agreements required under the Credit Agreement or entered into in the ordinary course of business and not for the purpose of speculation; (8) Indebtedness in respect of performance bonds, bankers' acceptances, letters of credit and 43 surety or appeal bonds provided by the Company and the Restricted Subsidiaries in the ordinary course of their business and which do not secure other Indebtedness of the Company or any Restricted Subsidiary (except Indebtedness permitted under the Indenture); (9) Subsidiary Guaranties of the Subsidiary Guarantors; (10) the Guarantee of any Indebtedness otherwise permitted to be Incurred pursuant to the Indenture; (11) Indebtedness of the Company or any Restricted Subsidiary consisting of indemnification, adjustment of purchase price, earn-out or similar obligations, in each case incurred in connection with the acquisition or disposition of any assets, including shares of Capital Stock or divisions or lines of business, of the Company or any Restricted Subsidiary; and (12) Indebtedness of the Company in an aggregate principal amount which, together with all other Indebtedness of the Company outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (11) of this Section 4.03(b) or Section 4.03(a)) does not exceed $25.0 million. (c) Notwithstanding the foregoing, the Company shall not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities or the relevant Subsidiary Guaranty, as applicable, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.03, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above at the time of its Incurrence, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses (provided that any Indebtedness classified 44 as Incurred pursuant to clause (b)(12) above may later be reclassified as having been Incurred pursuant to paragraph (a) above to the extent that such reclassified Indebtedness could be Incurred pursuant to paragraph (a) above at the time of such reclassification) and (2) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. (e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not, and shall not permit any Subsidiary Guarantor to, Incur (1) any Indebtedness if such Indebtedness is expressly subordinate or junior in ranking in any respect to any Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness that is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Securities or the relevant Subsidiary Guaranty, as applicable, equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness under Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Issue Date occurs to the end of the most recent fiscal quarter for which financial statements are then available prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus 45 (B) 100% of the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) and the aggregate cash received by the Company as a capital contribution, in each case subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); plus (C) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company's consolidated balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or such Restricted Subsidiary upon such conversion or exchange); plus (D) an amount equal to the sum of (x) the net reduction in Investments in any Person resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from such Person, or from the proceeds received by the Company or any Restricted Subsidiary upon the disposition of any Investment and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any Person, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Person or, in the case of any Investment outstanding on the Issue Date (but not to exceed in the aggregate $10.0 million) an amount not to exceed the lesser of the amount of such net reduction or the amount of such Investment. (b) The provisions of Section 4.04(a) shall not prohibit: 46 (1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, or capital contribution in respect of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); PROVIDED, HOWEVER, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of Section 4.04(a); (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 4.03; PROVIDED, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (3) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with Section 4.04(a); PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that such dividend shall be included in the calculation of the amount of Restricted Payments; (4) the repurchase or other acquisition of shares of, or options to purchase shares of, common stock of the Company or any of its Subsidiaries from employees, former employees, consultants, directors or former directors of the Company or any of its Subsidiaries or Parent (or permitted transferees of such employees, former employees, consultants, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell or are granted the option to purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the aggregate amount of such repurchases and other acquisitions shall not exceed the sum of (A) $5.0 million plus (B) the aggregate Net Cash Proceeds received by the Company 47 from the issuance of such Capital Stock to, or the exercise of options to purchase such Capital Stock by, employees or directors of the Company or any of its Subsidiaries that occurs after the Issue Date (to the extent the Net Cash Proceeds from the sale of such Capital Stock have not otherwise been applied to the payment of Restricted Payments by virtue of Section 4.04(a)(3)(B) or applied pursuant to Section 4.04(b)(1)) plus (C) the Net Cash Proceeds actually received by the Company after the Issue Date from insurance proceeds paid in respect of the death or disability of any employee or director; PROVIDED FURTHER, HOWEVER, that such repurchases and other acquisitions shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends, distributions or advances to Parent to the extent required to pay non-deferrable scheduled cash interest when due on, or the principal amount at final scheduled maturity of, the Ogden Note; PROVIDED, HOWEVER, that (A) no Default shall have occurred and be continuing (or would result therefrom) and (B) Parent shall immediately apply any such dividend to make such cash interest or principal payment; PROVIDED FURTHER, HOWEVER, that such dividends, distributions and advances shall be included in the calculation of the amount of Restricted Payments; (6) dividends, distributions or advances to Parent to be used by Parent to pay Federal, state and local taxes payable by Parent and directly attributable to (or arising as a result of) the operations of the Company and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (A) the amount of such dividends shall not exceed the amount that the Company and its Restricted Subsidiaries would be required to pay in respect of such Federal, state and local taxes were the Company to pay such taxes as a stand-alone taxpayer and (B) such dividends pursuant to this clause (6) are used by Parent for such purposes within 20 days of the receipt of such dividends; PROVIDED FURTHER, HOWEVER, that such dividends shall be excluded in the calculation of the amount of Restricted Payments; (7) dividends, distributions or advances to Parent to the extent necessary to pay for general corporate and overhead expenses incurred by Parent in the ordinary course of business; PROVIDED, HOWEVER that such dividends, shall not exceed $250,000 in any fiscal year of the Company; PROVIDED FURTHER, HOWEVER, that 48 such dividends, distributions or advances shall be included in the calculation of the amount of Restricted Payments; (8) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted by Section 4.06; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (9) upon the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the Securities pursuant to Section 4.09 (including the purchase of the Securities tendered), any purchase or redemption of Subordinated Obligations required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed the outstanding principal amount thereof, plus any accrued and unpaid interest; PROVIDED, HOWEVER, that (A) at the time of such purchase or redemption no Default shall have occurred and be continuing (or would result therefrom), (B) the Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a) after giving pro forma effect to such Restricted Payment and (C) such purchase or redemption shall be included in the calculation of the amount of Restricted Payments; or (10) payments required pursuant to the terms of the Merger Agreement to consummate the Acquisition by the Company or a Restricted Subsidiary pursuant to the terms of the Merger Agreement; PROVIDED, HOWEVER, that such payments shall be excluded in the calculation of the amount of Restricted Payments. SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the 49 Company or (c) transfer any of its property or assets to the Company, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date or, in the case of the Credit Agreement, as in effect on the Acquisition Closing Date; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (3) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this Section 4.05 or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this Section 4.05 or this clause (3); PROVIDED, HOWEVER, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favor able to the Securityholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) any such encumbrance or restriction consisting of customary non-assignment provisions in leases or licenses to the extent such provisions restrict the transfer of the lease or license or the property leased or licensed thereunder; (5) any encumbrance or restriction consisting of any restriction on the sale or other disposition of assets or property securing Indebtedness as a result of a Lien permitted to be Incurred under the Indenture on such asset or property; (6) in the case of clause (c) above, restrictions contained in security agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the extent 50 such restrictions restrict the transfer of the property subject to such security agreements or mortgages; (7) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (8) any restriction in any agreement that is not more restrictive than the restrictions under the terms of the Credit Agreement as in effect on the closing date of the Acquisition. SECTION 4.06. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless: (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors, of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents (provided that such 75% requirement shall not apply to any Asset Disposition in which the cash or cash equivalents portion of the consideration received therefor is no less than an amount equal to the product of (x) six and (y) the amount of EBITDA directly attributable to the assets or Capital Stock included in such Asset Disposition); and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be): (A) first, to the extent the Company elects (or is required by the terms of any Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Restricted Subsidiary (in each case other 51 than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company elects, to acquire Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Securities (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Securities (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of the Indenture; PROVIDED, HOWEVER, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary shall permanently retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceeds $10.0 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Permitted Investments or used to temporarily reduce loans outstanding under Revolving Credit Facilities. 52 For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (1) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and (2) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of Securities (and other Senior Subordinated Indebtedness) pursuant to Section 4.06(a)(3)(C), the Company shall be required to purchase Securities tendered pursuant to an offer by the Company for the Securities (and other Senior Subordinated Indebtedness) (the "Offer") at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.06(c). If the aggregate purchase price of Securities (and any other Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase thereof, the Company shall be required to apply the remaining Net Available Cash in accordance with Section 4.06(a)(3)(D). If the aggregate purchase price of the securities tendered exceeds the Net Available Cash allotted to purchase thereof, the Company will select the securities to be purchased on a pro rata basis but in denominations of $1,000 or multiples thereof. The Company shall not be required to make an Offer to purchase Securities (and other Senior Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Offer, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice 53 stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed decision (which at a minimum will include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such Reports, and (iii) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Offer, together with the information contained in clause (3). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.06(a). On such date, the Company shall also irrevocably deposit with the Trustee or with the Paying Agent (or, if the Company is acting as its own paying agent, segregate and hold in trust) in Temporary Cash Investments, maturing on the last day prior to the Purchase Date or on the Purchase Date if funds are immediately available by open of business, an amount equal to the Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Offer remains open (the "Offer Period"), the Company shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Offer Amount applicable to the Securities, the 54 Trustee shall deliver the excess to the Company immediately after the expiration of the Offer Period for application in accordance with this Section. (3) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Purchase Date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the Purchase Date, a telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities (and any other Senior Subordinated Indebtedness included in the Offer) surrendered by holders thereof exceeds the Offer Amount, the Company shall select the Securities and the other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities and the other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part shall be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company shall also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.06(d) by virtue thereof. 55 SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with, or for the benefit of, any Affiliate of the Company (an "Affiliate Transaction") unless: (1) the terms of the Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not an Affiliate; (2) if such Affiliate Transaction involves an amount in excess of $1.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in clause (1) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board resolution; and (3) if such Affiliate Transaction involves an amount in excess of $10.0 million, the Board of Directors shall also have received a written opinion from an investment banking firm of national prominence that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of Section 4.07(a) shall not prohibit: (1) any Investment (other than a Permitted Investment) or other Restricted Payment, in each case permitted to be made pursuant to Section 4.04; (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; 56 (3) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors; (4) loans or advances to employees in the ordinary course of business in accordance with the past practices of the Company or its Restricted Subsidiaries, but in any event not to exceed $3.0 million in the aggregate outstanding at any one time; (5) the payment of reasonable compensation or employee benefit arrangements to and indemnity provided for the benefit of directors, officers or employees of the Company or its Restricted Subsidiaries in the ordinary course of business; (6) any employment, noncompetition or confidentiality agreements entered into by the Company or any Restricted Subsidiary with its employees in the ordinary course of business. (7) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries; (8) the payment by the Company of fees to Caxton- Iseman and its Affiliates in connection with any acquisition transaction entered into by the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the aggregate amount of fees paid to Caxton-Iseman and its Affiliates in respect of any acquisition transaction shall not exceed 1% of the total acquisition cost of such transaction; (9) the accrual (and, to the extent provided below, the payment) by the Company of management fees payable to Caxton-Iseman and its Affiliates in an amount not to exceed $1 million in any fiscal year of the Company; PROVIDED, HOWEVER, that the amount of such fees actually paid in any fiscal year does not exceed an amount equal to the sum of (A) in the event the Consolidated Coverage Ratio on the date of any proposed payment is greater than 2.0 to 1.0 but less than or equal to 2.25 to 1.0, $500,000, plus (B) in the event the Consolidated Coverage Ratio on the date of any proposed payment exceeds 2.25 to 1.0, an additional $500,000, in each case together with the amount of unpaid 57 management fees accrued in any prior fiscal year that could have been paid in such prior fiscal year had the Consolidated Coverage Ratio applicable to clause (A) or (B) on the date of such proposed payment been in effect on the date of accrual of such prior year's fee; PROVIDED FURTHER, HOWEVER, that at the time of such accrual or payment, no other Default shall have occurred and be continuing (or result therefrom); (10) any Affiliate Transaction between the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries; and (11) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company. SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except: (1) to the Company or a Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) the issuance of shares of common stock of Interactive Media Corporation pursuant to the terms of any agreement or option related thereto as in effect on the Acquisition Closing Date; (4) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; or (5) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described in Section 4.04 if made on the date of such issuance, sale or other disposition. Notwithstanding the foregoing, the issuance or sale of shares of Capital Stock of any Restricted Subsidiary of the Company will not violate the provisions of the 58 immediately preceding sentence if such shares are issued or sold in connection with (x) the formation or capitalization of a Restricted Subsidiary or (y) a single transaction or a series of substantially contemporaneous transactions whereby such Restricted Subsidiary becomes a Restricted Subsidiary of the Company by reason of the acquisition of securities or assets from another Person. SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.09(b). In the event that at the time of such Change of Control the terms of the Credit Agreement prohibit the Company from making a Change of Control Offer (as defined below) or from purchasing any Securities pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.09(b) below but in any event within 30 days following any Change of Control, the Company shall (1) repay in full any indebtedness outstanding under the Credit Agreement or offer to repay in full all such indebtedness and repay the Indebtedness of each lender which has accepted such offer; or (2) obtain the requisite consent under the Credit Agreement to permit the purchase of the Securities as provided for in Section 4.09(b). (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization, each after giving effect to such Change of Control); 59 (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders will be entitled to withdraw their election if the Company receives not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered by the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (f) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.10. FUTURE GUARANTORS. The Company will cause each domestic Restricted Subsidiary organized or 60 acquired after the Issue Date and that Incurs Indebtedness (including any Guarantees) to execute and deliver to the Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of the Securities on the same terms and conditions as those set forth in the Indenture. SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA ss. 314(a)(4). SECTION 4.12. FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE 5 SUCCESSOR COMPANY SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. (a) The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary as a result of such transaction as having 61 been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); and (4) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, and the predecessor Company, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the Securities. (b) The Company shall not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or series of transactions, all or substantially all of its assets to any Person unless: (1) the resulting, surviving or transferee Person (if not such Subsidiary) shall be a Person organized and existing under the laws of the jurisdiction under which such Subsidiary was organized or under the laws of the United States of America, or any State hereof or the District of Columbia, and such Person shall expressly assume, by an amendment to this Indenture, in a form acceptable to the Trustee, all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty; (2) immediately after giving effect to such transaction or transactions on a pro forma basis (and treating any Indebtedness which becomes an obligation of the resulting, surviving or transferee Person as a result of such transaction as having been issued by such Person at the time of such transaction), no Default shall have occurred and be continuing; and (3) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each 62 stating that such consolidation, merger or transfer and such amendment to this Indenture, if any, complies with this Indenture; PROVIDED, HOWEVER, that the preceding restrictions will not be applicable if, in connection with such consolidation, merger, conveyance, transfer or lease, the Subsidiary Guarantor will be released from its obligations under Section 11.06. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article 10, and such default continues for a period of 30 days; (2) the Company (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon declaration or otherwise, whether or not such payment shall be prohibited by Article 10 or (ii) fails to redeem or purchase Securities when required pursuant to this Indenture or the Securities, whether or not such redemption or purchase shall be prohibited by Article 10; (3) the Company fails to comply with Section 5.01; (4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, or 4.10 (other than a failure to purchase Securities when required under Section 4.06 or 4.09) and such failure continues for 30 days after the notice specified below; (5) the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified below; 63 (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $5.0 million, or its foreign currency equivalent at the time; (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $5.0 million or its foreign currency equivalent at the time is entered against the Company or any Significant Subsidiary, remains outstanding for a period of 60 consecutive days following the entry of such judgment or decree and is not discharged, waived 64 or the execution thereof stayed within 10 days after the notice specified below; or (10) a Subsidiary Guaranty ceases to be in full force and effect (other than in accordance with the terms of such Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (4), (5), (6) or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (6) or (9) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5), (6) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing, the Trustee in its sole discretion and by notice to the Company, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an 65 Event of Default specified in Section 6.01(7) or (8) with respect to the Company occurs and is continuing, the principal of and interest on all the Securities shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee in its sole discretion may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (1) a Default in the payment of the principal of or interest on a Security, (2) a Default arising from the failure to redeem or purchase any Security when required pursuant to this Indenture or (3) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that, in its sole 66 discretion, it believes conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee in its sole discretion determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder previously gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such 67 payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to holders of Senior Indebtedness of the Company to the extent required by Article 10; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall 68 mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, Paying Agent, Registrar or otherwise, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is not cured, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations 69 shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee in its role as Trustee, Paying Agent, Registrar or otherwise, is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 70 (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper per son. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it here under in good faith and in accordance with the advice or opinion of such counsel. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Inden- 71 ture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to June 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its services as Trustee, Paying Agent, Registrar or otherwise. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including attorneys' fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim 72 and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the 73 Trustee under this Indenture. The successor Trustee shall promptly mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); PROVIDED, HOWEVER, that 74 there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are out standing if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Sections 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09, and 4.10 and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Section 5.01(a)(3) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. 75 If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(a)(3). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor, if any, shall be released from all its obligations with respect to its Subsidiary Guaranty and the Security Agreements. Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in 76 Sections 6.01(7) or (8) with respect to the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article 10; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Security holders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. 77 SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article 10. SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. 78 ARTICLE 9 AMENDMENTS SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Security holder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article 5; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; PROVIDED, HOWEVER, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add guarantees with respect to the Securities, including any Subsidiary Guaranties, or to secure the Securities; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; or (7) to make any change that does not adversely affect the rights of any Securityholder. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. 79 SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of each Securityholder affected thereby, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the amount payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article 3; (5) make any Security payable in money other than that stated in the Security; (6) impair the right of any Holder of the Securities to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Securities; (7) make any change in Article 10 that adversely affects the rights of any Securityholder under Article 10; or (8) make any change in Section 6.04 or 6.07 or the second sentence of this Section; (9) make any change in any Subsidiary Guaranty (including the subordination provisions of such Subsidiary Guaranty) that would adversely affect the Securityholders; or (10) make any change in the provisions described under paragraph 6 of the Securities. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of 80 any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Security holder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. 81 SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE 10 SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash of all Senior Indebtedness of the Company and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of the Company 82 and only Indebtedness of the Company which is Senior Indebtedness shall rank senior to the Securities in accordance with the provisions set forth herein. All provisions of this Article 10 shall be subject to Section 10.12. SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment or distribution of the assets of the Company to creditors upon any liquidation or dissolution or winding up of the Company or upon any assignment for the benefit of creditors or marshalling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Indebtedness of the Company shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) before Securityholders shall be entitled to receive any payment or distribution with respect to the Securities; (2) until all Obligations with respect to such Senior Indebtedness are paid in full in cash, any payment or distribution to which Securityholders would be entitled but for this Article 10 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive, in exchange for the Securities in any proceeding of the type described above in this Section 10.02, (x) equity securities of the Company which, in any case, do not provide for any mandatory redemption or similar retirement prior to the maturity of the Securities or (y) unsecured debt securities of the Company which are subordinated to at least the same extent as the Securities to the payment of all Senior Indebtedness of the Company and which, in any case, do not mature or become subject to a mandatory redemption obligation prior to the maturity of the Securities; and (3) if a distribution is made to Securityholders that, due to the subordination provisions of this Article 10, should not have been made to them, such Securityholders are required to hold it in trust for the holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear. 83 SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not pay (in cash, property or other assets) the principal of, premium, if any, or interest on the Securities or make any deposit pursuant to Section 8.01 and may not repurchase, redeem or (except for Securities delivered to the Trustee pursuant to paragraph 6 of the Securities) otherwise retire any Securities (collectively, "pay the Securities") if (1) any Designated Senior Indebtedness is not paid when due or (2) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Designated Senior Indebtedness has been paid in full in cash; PROVIDED, HOWEVER, that the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of any Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) of this sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (1) or (2) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (2) because the default giving rise to such Blockage Notice is no longer continuing or (3) because such Designated Senior Indebtedness has been discharged or repaid in full in cash). Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, or any payment default described in clause (1) or (2) of the first paragraph of this Section exists, the Company may resume payments on the Securities after the end of such Payment Blockage Period. The Securities shall not 84 be subject to more than one Payment Blockage Period in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period; PROVIDED, HOWEVER, that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Blockage Notice within such period; PROVIDED FURTHER, HOWEVER, that in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period, and there must be 181 days during any 360-day consecutive period during which no Payment Blockage Period is in effect. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged and agreed that (x) any default or event of default as a result of a continued failure to meet a financial covenant or test for a period ended subsequent to the commencement of a Payment Blockage Period shall constitute a new default or event of default, as the case may be, and shall be deemed not to be a continuing default or event of default, as the case may be, for purposes of this sentence and (y) any subsequent action which would give rise to a default or an event of default pursuant to any provision under which a default or event of default previously existed or was continuing shall constitute a new default or event of default, as the case my be, for this purpose and shall be deemed not to be a continuing default or event of default, as the case may be, for purposes of this sentence). SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of the acceleration. If any Designated Senior Indebtedness is outstanding at the time of such acceleration, neither the Company nor any Subsidiary Guarantor may pay the Securities until five Business Days after the respective Representatives of each 85 of the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if this Indenture otherwise permits payment at that time. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution is made to Securityholders that because of this Article 10 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness of the Company and pay it over to them as their interests may appear. SECTION 10.06. SUBROGATION. After all Senior Indebtedness of the Company is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A distribution made under this Article 10 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on such Senior Indebtedness. SECTION 10.07. RELATIVE RIGHTS. This Article 10 defines the relative rights of Securityholders and holders of Senior Indebtedness of the Company. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness of the Company to receive distributions otherwise payable to Securityholders. SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Indebtedness of the Company to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding Section 10.03, the Trustee or Paying 86 Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness may give the notice; PROVIDED, HOWEVER, that, if an issue of Senior Indebtedness of the Company has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness of the Company with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness of the Company which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of the Company, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by reason of any provision in this Article 10 shall not be construed as preventing the occurrence of a Default. Nothing in this Article 10 shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article 10, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness of the Company or any other 87 creditor of the Company, so long as the foregoing subordination provisions contained in this Article 10 were not violated at the time the respective amounts were deposited pursuant to the defeasance provisions of Article 8. SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or distribution pursuant to this Article 10, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Security holders or (iii) upon the Representatives for the holders of Senior Indebtedness of the Company for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 10, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 10. SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of the Company as provided in this Article 10 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee shall not be deemed to 88 owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness of the Company shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of the Company, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 11 SUBSIDIARY GUARANTIES SECTION 11.01. GUARANTIES. Each Subsidiary Guarantor hereby unconditionally and irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Obligations"). Each Subsidiary Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under this Article 11 notwithstanding any extension or renewal of any Obligation. Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Obligations. The obligations of each Subsidiary Guarantor hereunder shall not 89 be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of such Subsidiary Guarantor. Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. Each Subsidiary Guaranty is, to the extent and in the manner set forth in Article 12, subordinated and subject in right of payment to the prior payment in full of the principal of and premium, if any, and interest on all Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary Guaranty and each Subsidiary Guaranty is made subject to such provisions of this Indenture. Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Subsidiary Guarantor or would otherwise operate as a 90 discharge of such Subsidiary Guarantor as a matter of law or equity. Each Subsidiary Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Obligation, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Obligations of the Company to the Holders and the Trustee. Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in respect of any Obligations guaranteed hereby until payment in full of all Obligations and all obligations to which the Obligations are subordinated as provided in Article 12. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations Guaranteed hereby may be accelerated as provided in Article 6 for the purposes of such Subsidiary Guarantor's Subsidiary Guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6, such Obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of this Section. Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section. 91 SECTION 11.02. LIMITATION ON LIABILITY. Any term or provision of this Indenture to the contrary notwithstanding, the maximum, aggregate amount of the Obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. SECTION 11.03. SUCCESSORS AND ASSIGNS. This Article 11 shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. SECTION 11.04. NO WAIVER. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 11 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 11 at law, in equity, by statute or otherwise. SECTION 11.05. MODIFICATION. No modification, amendment or waiver of any provision of this Article 11, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances. SECTION 11.06. RELEASE OF SUBSIDIARY GUARANTOR. Upon the sale (including any sale pursuant to any exercise of remedies by a holder of Senior Indebtedness) or other disposition (including by way of consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of all or 92 substantially all the assets of a Subsidiary Guarantor (in each case other than to the Company or an Affiliate of the Company), or the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary pursuant to the terms hereof, such Subsidiary Guarantor shall be deemed released from all obligations under this Article 11 without any further action required on the part of the Trustee or any Holder. At the request of the Company, the Trustee shall execute and deliver an appropriate instrument evidencing such release. ARTICLE 12 SUBORDINATION OF SUBSIDIARY GUARANTIES SECTION 12.01. AGREEMENT TO SUBORDINATE. Each Subsidiary Guarantor agrees, and each Securityholder by accepting a Security agrees, that the Obligations of such Subsidiary Guarantor are subordinated in right of payment, to the extent and in the manner provided in this Article 12, to the prior payment in full in cash of all Senior Indebtedness of such Subsidiary Guarantor and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Obligations of a Subsidiary Guarantor shall in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of such Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary Guarantor (including such Subsidiary Guarantor's Guarantee of Senior Indebtedness of the Company) shall rank senior to the Obligations of such Subsidiary Guarantor in accordance with the provisions set forth herein. SECTION 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment or distribution of the assets of any Subsidiary Guarantor to creditors upon any liquidation or a dissolution or winding up of such Guarantor or upon any assignment for the benefit of creditors or marshalling of assets for such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to such Subsidiary Guarantor or its property: (1) holders of Senior Indebtedness of such Subsidiary Guarantor shall be entitled to receive payment in full in cash of all Obligations with respect to such Senior Indebtedness (including all interest accruing subsequent to the filing of a petition in bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) in 93 cash or cash equivalents before Securityholders shall be entitled to receive any payment or distribution with respect to any Obligations of such Subsidiary Guarantor; (2) until all Obligations with respect to Senior Indebtedness of any Subsidiary Guarantor are paid in full in cash or cash equivalents, any payment or distribution to which Securityholders would be entitled but for this Article 12 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may, in any proceeding of the type described in Section 12.02 with respect to such Guarantor, receive securities of the Company as provided in clause (2) of Section 10.02, which, in the case of debt securities of the Company, may be guaranteed by the Subsidiary Guarantors on substantially the same basis as provided in Article 11, so long as such guarantees are expressly subordinated to all Senior Indebtedness at least to the same extent as provided in this Article 12. Securityholders may receive shares of stock and any debt securities of such Subsidiary Guarantor that are subordinated to Senior Indebtedness, and to any debt securities received by holders of Senior Indebtedness, of such Subsidiary Guarantor to at least the same extent as the Obligations of such Subsidiary Guarantor are subordinated to Senior Indebtedness of such Subsidiary Guarantor to the payment of all Senior Indebtedness of the Company and which, in any case, do not mature or become subject to a mandatory redemption obligation prior to the maturity of the Securities; and (3) if a distribution is made to the Securityholders that, due to the subordination provisions of this Article 12, should not have been made to them, such Securityholders are required to hold it in trust for the holders of Senior Indebtedness of the Subsidiary Guarantors and pay it over to them as their interests may appear. SECTION 12.03. DEFAULT ON SENIOR INDEBTEDNESS OF SUBSIDIARY GUARANTOR. No Subsidiary Guarantor may make any payment (in cash, property or other assets) pursuant to any of its Obligations or repurchase, redeem or otherwise retire or defease any Securities or other Obligations (collectively, "pay its Subsidiary Guaranty") if (1) any Designated Senior Indebtedness of the Company is not paid when due or (2) any other default on Designated Senior Indebtedness of the Company occurs and the maturity of such 94 Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Designated Senior Indebtedness has been discharged or paid in full in cash; PROVIDED, HOWEVER, that any Subsidiary Guarantor may pay its Subsidiary Guaranty without regard to the foregoing if such Subsidiary Guarantor and the Trustee receive written notice approving such payment from the Representatives of the Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) of this sentence has occurred and is continuing. No Subsidiary Guarantor may pay its Subsidiary Guaranty during the continuance of any Payment Blockage Period after receipt by the Company and the Trustee of a Payment Notice under Section 10.03. Notwithstanding the provisions described above, unless the holders of Designated Senior Indebtedness giving such Payment Notice or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, or any payment default described in clause (1) or (2) of this Section exists, any Subsidiary Guarantor may resume payments pursuant to its Subsidiary Guaranty after termination of such Payment Blockage Period. SECTION 12.04. DEMAND FOR PAYMENT. If a demand for payment is made on a Subsidiary Guarantor pursuant to Article 11, the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of such demand. If any Designated Senior Indebtedness is outstanding at the time of such acceleration, neither the Company nor any Subsidiary Guarantor may pay the Securities until five Business Days after the respective Representatives of each of the issues of Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Securities only if this Indenture otherwise permits payment at that time. SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution is made to Securityholders that because of this Article 12 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of the relevant Senior Indebtedness and pay it over to them or their Representatives as their interests may appear. SECTION 12.06. SUBROGATION. After all Senior Indebtedness of a Subsidiary Guarantor is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to Senior 95 Indebtedness. A distribution made under this Article 12 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the relevant Subsidiary Guarantor and Securityholders, a payment by such Subsidiary Guarantor on such Senior Indebtedness. SECTION 12.07. RELATIVE RIGHTS. This Article 12 defines the relative rights of Securityholders and holders of Senior Indebtedness of a Subsidiary Guarantor. Nothing in this Indenture shall: (1) impair, as between a Subsidiary Guarantor and Securityholders, the obligation of such Subsidiary Guarantor, which is absolute and unconditional, to pay the Obligations to the extent set forth in Article 11 or the relevant Subsidiary Guaranty; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a default by such Subsidiary Guarantor under the Obligations, subject to the rights of holders of Senior Indebtedness of such Subsidiary Guarantor to receive distributions otherwise payable to Securityholders. SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Indebtedness of any Subsidiary Guarantor to enforce the subordination of the Obligations of such Subsidiary Guarantor shall be impaired by any act or failure to act by such Subsidiary Guarantor or by its failure to comply with this Indenture. SECTION 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding Section 12.03, the Trustee or Paying Agent may continue to make payments on any Subsidiary Guaranty and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives written notice satisfactory to it that payments may not be made under this Article 12. The Company, the relevant Subsidiary Guarantor, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness of any Subsidiary Guarantor may give the notice; PROVIDED, HOWEVER, that, if an issue of Senior Indebtedness of any Subsidiary Guarantor has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not the Trustee. The Registrar and 96 co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Senior Indebtedness of any Subsidiary Guarantor which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness of any Subsidiary Guarantor, the distribution may be made and the notice given to their Representative (if any). SECTION 12.11. ARTICLE 12 NOT TO PREVENT DEFAULTS UNDER A SUBSIDIARY GUARANTY OR LIMIT RIGHT TO DEMAND PAYMENT. The failure to make a payment pursuant to a Subsidiary Guaranty by reason of any provision in this Article 12 shall not be construed as preventing the occurrence of a default under such Subsidiary Guaranty. Nothing in this Article 12 shall have any effect on the right of the Securityholders or the Trustee to make a demand for payment on any Subsidiary Guarantor pursuant to Article 11 or the relevant Subsidiary Guaranty. SECTION 12.12. TRUSTEE ENTITLED TO RELY. Upon any payment or distribution pursuant to this Article 12, the Trustee and the Securityholders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Security holders or (iii) upon the Representatives for the holders of Senior Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of any Subsidiary Guarantor to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of such Subsidiary 97 Guarantor held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 12, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 12. SECTION 12.13. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness of any Subsidiary Guarantor as provided in this Article 12 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 12.14. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS OF SUBSIDIARY GUARANTOR. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of any Subsidiary Guarantor and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Securityholders or the Company or any other Person, money or assets to which any holders of such Senior Indebtedness shall be entitled by virtue of this Article 12 or otherwise. SECTION 12.15. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. 98 ARTICLE 13 MISCELLANEOUS SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.02. NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company or any Subsidiary Guarantor: Anteon Corporation 3211 Jermantown Road, Suite 700 Fairfax, VA 22030-2801 Attention of: General Counsel if to the Trustee: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attention of: Corporate Trust Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Security holder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 99 SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 13.06. WHEN SECURITIES DISREGARDED. In determining whether the Holders of the required principal 100 amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the fore going, only Securities outstanding at the time shall be considered in any such determination. SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 13.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 13.09. GOVERNING LAW. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 13.10. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 13.11. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.12. MULTIPLE ORIGINALS. The parties may sign any number of copies of this Indenture. Each 101 signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 102 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. ANTEON CORPORATION, by ------------------------ Name: Title: VECTOR DATA SYSTEMS, INC., by ------------------------ Name: Title: TECHMATICS, INC., by ------------------------ Name: Title: IBJ WHITEHALL BANK & TRUST COMPANY, by ------------------------ Name: Title: EX-4.2 5 REGISTRATION RIGHTS AGREEMENT Exhibit 4.2 $100,000,000 ANTEON CORPORATION 12% SENIOR SUBORDINATED NOTES DUE 2009 REGISTRATION RIGHTS AGREEMENT May 6, 1999 Credit Suisse First Boston Corporation Deutsche Bank Securities Inc. Legg Mason Wood Walker, Incorporated c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: Anteon Corporation, a Virginia corporation (the "ISSUER"), proposes to issue and sell to Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated (collectively, the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement of even date herewith (the "PURCHASE AGREEMENT"), $100,000,000 aggregate principal amount of its 12% Senior Subordinated Notes Due 2009 (the "INITIAL SECURITIES") to be unconditionally guaranteed on a senior subordinated basis by each of the Issuer's domestic wholly-owned subsidiaries (the "GUARANTORS" and, together with the Issuer, the "COMPANY"). The Initial Securities will be issued pursuant to an Indenture, dated as of May 11, 1999 (the "INDENTURE"), among the Issuer, the Guarantors and IBJ Whitehall Bank & Trust Company, as trustee (the "TRUSTEE"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively, the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. The Company shall, at its own cost, prepare and, not later than 90 days after (or if the 90th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the "ISSUE DATE"), file with the Securities and Exchange Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933, (the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the "EXCHANGE SECURITIES") of the Company issued under the Indenture and identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; PROVIDED, HOWEVER, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, an Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "PRIVATE EXCHANGE") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the "PRIVATE EXCHANGE SECURITIES"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "SECURITIES". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, the City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all material respects with all applicable laws. 2 As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. No interest shall accrue on any Initial Security surrendered in the Exchange Offer from and after the day that interest begins to accrue on the Exchange Securities issued in exchange therefor. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. SHELF REGISTRATION. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any Initial Purchaser so requests within 10 business days following consummation of the Registered Exchange Offer with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) notifies the Company within 10 business days following consummation of the Registered Exchange Offer that such Holder is not eligible to participate in the Registered Exchange Offer or such Holder may not resell the Exchange Notes acquired by it in the Registered Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate 3 or available for such resales by such Holder; or such Holder is a broker-dealer and holds Notes that are part of an unsold allotment from the original sale of the Notes, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6 hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); PROVIDED, HOWEVER, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) Subject to Section 3 (j), the Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof) or are saleable pursuant to Rule 144k. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, or such amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), 4 represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange 5 Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and (consistent with the provisions of the Indenture) in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus (and shall keep confidential the cause of such notice for so long as such cause is not otherwise publicly known), and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for 6 inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; PROVIDED, HOWEVER, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in Section 4 hereof; PROVIDED FURTHER, HOWEVER, that the conduct of the foregoing inspection and information gathering shall be subject to the execution by all persons party to such inspection and information gathering of a reasonable confidentiality undertaking in customary form with respect to confidential and proprietary information of the Company. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72 (and any other applicable pronouncements). (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion or opinions in the form set forth in Section 6(c) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary 7 form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its best efforts to (a) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "RULES") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. REGISTRATION EXPENSES. The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof, whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. 5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; PROVIDED, HOWEVER, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein 8 and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; PROVIDED FURTHER, HOWEVER, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party (i) will not relieve it from any liability under subsection (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the Indemnifying Party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to any admission of fault, culpability or failure to act by or on behalf of any Indemnified Party. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by 9 applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional interest (the "Additional Interest") with respect to the Initial Securities and the Private Exchange Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "Registration Default"): (i) If, on August 9, 1999 (90 days after the issue date of the Initial Securities), neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) If, on November 8, 1999 (180 days after the issue date of the Initial Securities), neither the Registered Exchange Offer is consummated with respect to all Initial Securities tendered as of such date nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after November 8, 1999, and after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective, except, in the case of the Exchange Offer Registration Statement, following the consummation of the Exchange Offer with respect to all Securities tendered in connection therewith prior to the expiration of the Exchange Offer or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities and the Private Exchange Notes over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE") for the first 90-day period immediately following the occurrence of such Registration Default. The Additional Interest Rate shall increase by an additional 0.50% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum Additional Interest Rate of 2.0% per annum. 10 (b) A Registration Default referred to in Section 6(a)(iii) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; PROVIDED, HOWEVER, that in any case if such Registration Default occurs for a continuous period in excess of 45 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Initial Securities or Private Exchange Notes, as the case may be, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. RULES 144 AND 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities that are "restricted securities" within the meaning of Rule 144 and are not saleable pursuant to Rule 144(k), make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, subject to approval by the Company, which will not unreasonably be withheld or delayed. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, 11 except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers: Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, NY 10019-7475 Fax No.: (212) 474-3700 Attention: Stephen L. Burns, Esq. (3) if to the Company, at its address as follows: Anteon Corporation 3211 Jermantown Road, Suite 700 Fairfax, VA 22030-2801 Fax No.: (703) 246-0629 Attention: Curtis L. Schehr, Esq. with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Fax No.: (212) 757-3990 Attention: Carl L. Reisner, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns. (e) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 12 (g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 13 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Issuer a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Initial Purchasers and the Issuer and the Guarantors in accordance with its terms. Very truly yours, ANTEON CORPORATION, by ------------------------------------- Name: Title: VECTOR DATA SYSTEMS, INC., by ------------------------------------- Name: Title: TECHMATICS, INC., by ------------------------------------- Name: Title: The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION DEUTSCHE BANK SECURITIES INC. LEGG MASON WOOD WALKER, INCORPORATED Acting on behalf of itself and as the Representative of the several Initial Purchasers. by: CREDIT SUISSE FIRST BOSTON CORPORATION by ------------------------------------- Name: Title: 14 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 15 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 16 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _____, 1999, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ---------- (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. 17 ANNEX D |_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ____________________________________ Address: ____________________________________ ____________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 18 EX-5.1 6 OPINION OF PAUL, WEISS RE: LEGALITY EXHIBIT 5.1 PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 (212) 373-3000 August 9, 1999 Anteon Corporation 3211 Jermantown Road Suite 700 Fairfax, VA 22030-2801 REGISTRATION STATEMENT ON FORM S-4 Ladies and Gentlemen: In connection with the referenced Registration Statement on Form S-4 (the "Registration Statement") filed today by Anteon Corporation (the "Issuer"), a Virginia corporation, with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"), and the rules and regulations under the Act (the "Rules"), we have been requested to render our opinion as to the legality of the securities being registered. The Registration Statement registers under the Act the issuance of the Issuer's 12% Senior Subordinated Notes due 2009 (the "Exchange Notes"). The Exchange Notes are to be offered in exchange for the Issuer's outstanding 12% Senior Subordinated Notes due 2009 (the "Initial Notes"), and will be issued under the Indenture (the "Indenture"), dated as of May 11, 1999, between the Issuer, Techmatics, Inc., Vector Data Systems Inc., and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"). Anteon Corporation August 9, 1999 Page -2- Capitalized terms used and not otherwise defined in this letter have the respective meanings given those terms in the Registration Statement. In connection with this opinion, we have examined originals, conformed copies or photocopies, certified or otherwise identified to our satisfaction, of the following documents (collectively, the "Documents"): (i) the Registration Statement (including its exhibits); (ii) the Indenture included as Exhibit 4.1 to the Registration Statement; (iii) the proposed form of the Exchange Notes included as Exhibit A to the Indenture; and (iv) the Registration Rights Agreement, dated as of May 6, 1999, among the Issuer, Vector Data Systems, Inc., Techmatics, Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc. and Legg Mason Wood Walker, Incorporated (the "Registration Rights Agreement"). In addition, we have examined: (i) those corporate records of the Issuer that we have considered appropriate; and (ii) those other certificates, agreements and documents that we deemed relevant and necessary as a basis for the opinion expressed below. In our examination of the documents and in rendering the opinion set forth below, we have assumed, without independent investigation, (i) the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity of the original documents of all documents submitted to us as certified, Anteon Corporation August 9, 1999 Page -3- photostatic, reproduced or conformed copies of validly existing agreements or other documents, the authenticity of all the latter documents and the legal capacity of all individuals who have executed any of the documents which we examined, (ii) that the Exchange Notes will be issued as described in the Registration Statement, (iii) that the Indenture was duly authorized, executed and delivered by the Trustee and is a valid and binding agreement of the Trustee, (iv) that the Registration Rights Agreement was duly authorized, executed and delivered by the Initial Purchasers and is a valid and binding agreement of the Initial Purchasers and (v) that the Exchange Notes will be in substantially the form attached to the Indenture and that any information omitted from them will be properly added. We have also relied upon certificates of public officials and officers of the Issuer. Based on the above, and subject to the stated assumptions, exceptions and qualifications, we are of the opinion that, when the Exchange Notes are duly issued, authenticated and delivered in accordance with the terms of the Indenture and the Registration Rights Agreement, the Exchange Notes will be legal, valid and binding obligations of the Issuer enforceable against it in accordance with their terms. Our opinion is subject to the qualification that the enforceability of the Indenture and the Exchange Notes may be (i) subject to bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and other similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). Anteon Corporation August 9, 1999 Page -4- Our opinion is limited to matters of New York law. Our opinion is rendered only with respect to the laws, and the rules, regulations and orders under them, which are currently in effect. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Legal Matters" in the prospectus included contained in the Registration Statement. In giving this consent, we do not admit that we come within the category of persons whose consent is required by the Act or the Rules. Very truly yours, /s/ Paul, Weiss, Rifkind, Wharton & Garrison PAUL, WEISS, RIFKIND, WHARTON & GARRISON EX-8.1 7 OPINION OF PAUL, WEISS RE: TAX MATTER EXHIBIT 8.1 PAUL, WEISS, RIFKIND, WHARTON & GARRISON 1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 August 9, 1999 Anteon Corporation 3211 Jermantown Road Suite 700 Fairfax, VA 22030-2801 REGISTRATION STATEMENT ON FORM S-4 Ladies and Gentlemen: In connection with the Registration Statement on Form S-4 (the "Registration Statement") filed today by Anteon Corporation (the "Issuer"), a Virginia corporation, with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Act"), and the rules and regulations under the Act (the "Rules"), we have been requested to render this opinion. Capitalized terms used and not otherwise defined shall have the meanings given those terms in the Registration Statement. In this regard, we have reviewed copies of the Registration Statement (including its exhibits) with respect to the offer by the Issuer to exchange up to $100,000,000 in aggregate principal amount of its 12% Exchange Senior Subordinated Notes due 2009 (the "Exchange Notes") for up to $100,000,000 in aggregate principal amount of its outstanding 12% Senior Subordinated Notes due 2009 (the "Initial Notes"). We have also made those other investigations of fact and law and have examined the originals, or copies authenticated to our satisfaction, of those other Anteon Corporation August 9, 1999 Page -2- documents, records, certificates or other instruments as in our judgment are necessary or appropriate to enable us to render our opinion. Our opinion is limited to the Internal Revenue Code of 1986, as amended (the "Code"), administrative rulings, judicial decisions, Treasury regulations and other applicable authorities, all as in effect today. The statutory provisions, regulations and interpretations upon which our opinion is based are subject to change and those changes could apply retroactively. Any change could affect the continuing validity of our opinion. We assume no responsibility to advise you of any subsequent changes in existing law or facts, nor do we assume any responsibility to update this opinion with respect to any matters expressly stated in this letter, and no opinions are to be implied or may be inferred beyond the matters expressly so stated. Based upon and subject to the above, the legal matters and conclusions stated in the Registration Statement under the heading "Certain Federal Income Tax Considerations" constitute our opinion with respect to those matters. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading "Legal Matters" in the Prospectus included in the Registration Statement. In giving this consent, we do not admit that we come within the category of persons whose consent is required by the Act or the Rules. Very truly yours, /s/ Paul, Weiss, Rifkind, Wharton & Garrison PAUL, WEISS, RIFKIND, WHARTON & GARRISON EX-10.1 8 STOCK PURCHASE AGREEMENT DATED 8/29/97 Exhibit 10.1 ================================================================================ STOCK PURCHASE AGREEMENT by and among ANTEON CORPORATION, VECTOR DATA SYSTEMS, INC., THE SHAREHOLDERS OF VECTOR DATA SYSTEMS, INC. SIGNATORIES HERETO, and JOSEPH J. CANE, individually and as Sellers' Representative for all of the outstanding stock of VECTOR DATA SYSTEMS, INC. Dated August 29, 1997 ================================================================================ TABLE OF CONTENTS Page ARTICLE I Purchase and Sale of Shares......................................1 1.1 Purchase and Sale of Shares.............................1 1.2 Payment of Purchase Price...............................2 1.3 Delivery of Shares......................................2 1.4 Closing; Closing Date...................................3 1.5 Purchase Price Adjustment...............................3 1.6 Determination and Payment of Contingent Consideration...4 1.7 Escrow.................................................12 1.8 Arbitration............................................13 ARTICLE II Representations and Warranties..................................13 2.1 Representations and Warranties of the Sellers as to the Company............................................13 (A) Organization and Qualification of the Company....14 (B) Authority to Execute and Perform Agreement.......15 (C) Capital Stock....................................17 (D) Good Title to Shares.............................18 (E) Financial Statements.............................18 (F) Absence of Certain Changes or Events.............19 (G) Litigation and Liabilities.......................22 (H) Title to Properties; Absence of Liens, etc.......23 (I) Licenses and Registrations; Compliance with Laws, etc........................................23 (J) Intangible Property..............................25 (K) Non-Contravention................................26 (L) Consent and Approvals............................28 (M) Employee Benefit Plans; ERISA....................28 (N) Insurance Policies...............................32 (O) Agreements.......................................33 (P) Validity of Agreements...........................35 (Q) Taxes............................................37 (R) Additional Representations.......................44 (S) Accounts and Notes Receivable....................46 (T) Potential Conflicts of Interest..................46 (U) Liabilities......................................47 (V) Real Property....................................48 (W) Labor Matters....................................49 2.2 Representations and Warranties with Respect to the Purchaser..............................................49 (A) Organization of the Purchaser....................49 (B) Authority to Execute and Perform Agreement.......50 (C) Consents and Approvals...........................50 Page ---- ARTICLE III Additional Agreements of the Parties............................51 3.1 No Section 338 Election................................51 3.2 Tax Return Filing......................................52 3.3 Further Assurances.....................................52 3.4 Access to Records......................................52 3.5 Preservation of Records................................54 3.6 Confidentiality........................................54 3.7 Efforts; Consents......................................55 3.8 Return of Information and Confidentiality..............55 3.9 Ordinary Course of Business............................56 3.10 Insurance Proceeds, Litigation Rights..................56 3.11 Benefit Plans..........................................57 3.12 Benefits Disclosure....................................57 3.13 Employee Arrangements..................................58 3.14 Preservation of Business...............................58 3.15 Litigation.............................................59 3.16 Agreements.............................................59 3.17 Continued Effectiveness of Representations and Warranties.............................................59 3.18 Satisfaction of Conditions Precedent...................60 3.19 Exclusivity............................................60 3.20 Certain Covenants of the Purchaser.....................61 ARTICLE IV Conditions to Closing...........................................64 4.1 Conditions to Obligations of the Sellers...............64 (A) Regulatory Authorizations........................64 (B) Representations and Warranties; Covenants........64 (C) Certificate......................................64 (D) Opinion of Counsel to the Purchasers.............65 4.2 Conditions to Obligation of the Purchaser..............65 (A) Regulatory and other Authorizations..............65 (B) Representations and Warranties; Covenants........65 (C) Governmental Permits and Approvals...............66 (D) Third Party Consents.............................66 (E) Opinion of Counsel to the Sellers and the Company..........................................66 (F) Delivery of Stock Certificates...................67 (G) Working Capital..................................67 (H) Cash.............................................67 (I) Vector Data Systems (UK) Limited.................67 (J) Digital Healthcare Solutions, L.L.C..............67 (K) Non-Competition..................................68 (L) Certificate......................................68 (ii) Page ---- ARTICLE V Fees Relating to this Transaction...............................69 ARTICLE VI Termination.....................................................70 6.1 Termination............................................70 6.2 Effect of Termination; Expenses........................71 ARTICLE VII Indemnification.................................................72 7.1 Indemnification by the Sellers.........................72 7.2 Indemnification by the Purchaser.......................73 7.3 ERISA and Contract Supplemental Indemnification by Each Seller............................................73 7.4 Survival of Representations and Warranties of the Sellers................................................75 7.5 Certain Limitations on Indemnification Obligations.....76 7.6 Defense of Claims......................................78 7.7 Non-Third Party Claims.................................80 7.8 Set-off Rights.........................................81 ARTICLE VIII Miscellaneous...................................................82 8.1 Certain Definitions....................................82 8.2 Sellers' Representative................................84 8.3 Expenses...............................................85 8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies...............................86 8.5 Public Disclosure......................................87 8.6 Mediation..............................................87 8.7 Governing Law. .......................................88 8.8 Notices................................................89 8.9 Section Headings.......................................90 8.10 Counterparts...........................................90 8.11 Assignments............................................90 8.12 Entire Agreement, Enforceability and Miscellaneous.....91 8.13 Construction of Agreement..............................91 Schedules Schedule 1.2 Shareholders of the Company Schedule 2.1(A) Organization and Qualification of the Company Schedule 2.1(C) Shareholders of Subsidiaries Schedule 2.1(F) Absence of Certain Changes or Events (iii) Schedule 2.1(G) Litigation and Liabilities Schedule 2.1(I) Compliance with Laws Schedule 2.1(J) Intangible Property Schedule 2.1(K) Non-Contravention Schedule 2.1(L) Consents and Approvals Schedule 2.1(M) Employee Benefit Plans; ERISA Schedule 2.1(O) True Copies of Documents Schedule 2.1(P) Agreements Schedule 2.1(Q) Groups Schedule 2.1(R) Additional Representation Schedule 2.1(T) Potential Conflicts of Interest Schedule 2.1(U) Liabilities Schedule 2.1(V) Real Property Exhibits Exhibit I Form of Escrow Agreement Exhibit II Form of Opinion of Counsel to the Purchaser Exhibit III Form of Opinion of Counsel to the Sellers and the Company Exhibit IV Form of Non-Compete and Non-Disclosure Agreement (iv) STOCK PURCHASE AGREEMENT (this "Agreement"), dated August 29, 1997, by and among Anteon Corporation, a Virginia corporation (the "PURCHASER"), Vector Data Systems, Inc., a Virginia corporation (the "COMPANY"), each of the individuals designated on the signature pages hereof as a Seller (each a "SELLER" and collectively, the "SELLERS") and Joseph J. Cane, an individual who shall serve as the representative of the Sellers (the "Sellers' Representative"). W I T N E S S E T H : WHEREAS, the Sellers are the beneficial and record owners of all of the issued and outstanding shares of common stock, no par value (the "SHARES"), of the Company; WHEREAS, the Sellers desire to sell and transfer to the Purchaser, and the Purchaser desires to purchase from the Sellers, the Shares, all as more specifically provided herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE I Purchase and Sale of Shares 1.1 Purchase and Sale of Shares. The Purchaser agrees to purchase from the Sellers, and the Sellers agree to sell to the Purchaser, the Shares, for an aggregate consideration of (a) Nineteen Million Dollars ($19,000,000), subject to 2 adjustment as set forth in Section 1.5. (the "CLOSING PAYMENT"), plus (b) any sum or sums due hereunder pursuant to Section 1.6, subject to any right of set-off the Purchaser may have pursuant to Section 7.8 (the "Contingent Consideration") (the Closing Payment and the Contingent Consideration being hereinafter referred to collectively as the "Purchase Price"). 1.2 Payment of Purchase Price. The Purchase Price shall be paid by the Purchaser as follows: (a) Subject to the terms of Section 1.5, at the Closing (as defined in Section 1.4), the Purchaser shall pay to the Sellers' Representative (as defined in Section 8.2), cash by wire transfer of federal funds to a bank and for an account to be designated by the Sellers' Representative in the amount of the Closing Payment ($350,000 of which will be paid pursuant to the terms of the Escrow Agreement (as defined in Section 1.7)), such amount to be allocated by the Sellers' Representative amongst the Sellers in accordance with their respective interests in the Shares, as set forth on Schedule 1.2. (b) The Contingent Consideration to be paid pursuant to this Agreement, if any, shall be paid by Purchaser in accordance with the terms of Section 1.6, subject to any set-off right the Purchaser may have pursuant to Section 7.8, such amount to be allocated by the Sellers' Representative amongst the Sellers in accordance with their respective interests in the Shares, as set forth on Schedule 1.2. 1.3 Delivery of Shares. At the Closing, each Seller shall deliver, or cause to be delivered, to the Purchaser stock certificates representing the number of 3 Shares set forth opposite such Seller's name on Schedule 1.2, duly endorsed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer. 1.4 Closing; Closing Date. The closing of the sale and purchase of the Shares (the "CLOSING") shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, NW, Washington, D.C. 20036-5694 at 10:00 A.M. local time on the Business Day next following the satisfaction (or appropriate waiver) of the conditions set forth in Article IV which the parties shall endeavor to cause to occur not later than the fifth Business Day following the date of the parties' execution of this Agreement, or at such other place or such other time or date as the Purchaser and the Sellers' Representative may mutually agree in writing. The time and date upon which the Closing occurs is herein called the "CLOSING DATE." 1.5 Purchase Price Adjustment. (a) Estimated Statement of Cash. The Sellers shall cause a statement of Cash (as defined in Section 8.1) (the "STATEMENT OF CASH") for the Company as of the Closing Date to be prepared and delivered to the Purchaser at Closing, which shall be the basis for determining the adjustment, if any, to the Closing Payment, as described in this Section 1.5. The Statement of Cash shall be prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis. If the amount of Cash as set forth on the Statement of Cash (the "CASH AMOUNT") is less than $2,000,000 and the Purchaser elects, in its sole discretion, to waive the condition set forth in Section 4.2(H), the Closing Payment shall be reduced by the amount by which the Cash Amount is less than $2,000,000; PROVIDED, HOWEVER, if the Seller reasonably demonstrates to the 4 Purchaser that it had Working Capital (as defined in Section 8.1) as of July 31, 1997 of not less than $3,000,000, then the amount set forth in Section 4.2(H) will be deemed to be $1,850,000 and not $2,000,000 and the Closing Payment shall be reduced by the amount by which the Cash Amount at Closing is less than $1,850,000. (b) Vector Data Systems (UK) Limited. If at the Closing the Sellers fail to provide evidence satisfactory to the Purchaser demonstrating that the Company owns at least 80% of the issued and outstanding capital stock of Vector Data Systems (UK) Limited ("VDS (UK)"), and if the Purchaser elects, in its sole discretion, to waive the condition contained in Section 4.2(I), then the Closing Payment shall be reduced by $125,000. An opinion of leading United Kingdom solicitors to the effect that at least 80% of the issued and outstanding capital stock of VDS (UK) is owned by the Company shall be deemed satisfactory evidence. 1.6 Determination and Payment of Contingent Consideration. (a) For each of fiscal years 1998 (October 1, 1997 - September 30, 1998) and 1999 (October 1, 1998 - September 30, 1999), the Purchaser shall, at its sole cost and expense, cause KPMG Peat Marwick, LLP or another nationally recognized firm of independent public accountants (the "ACCOUNTANT") to deliver to the Purchaser and the Sellers' Representative a statement of Revenue (as defined in Section 8.1) and Gross Profit (as defined in Section 8.1) for the Company and VDS (UK) on a stand-alone basis in accordance with GAAP (in the case of VDS (UK), U.K. GAAP) applied on a consistent basis by not later than (i) January 30, 1999, in the case of fiscal year 1998 (the "1998 PERFORMANCE STATEMENT"), and (ii) January 30, 2000, in the case of fiscal year 1999 (the "1999 5 PERFORMANCE STATEMENT"). Concurrent with the delivery of the relevant Performance Statement, the Accountant shall certify to the Purchaser (and the Purchaser shall use its reasonable efforts to cause the Accountant to certify to the Sellers' Representative, if the Sellers' Representative executes and delivers on behalf of himself and the Sellers the Accountant's customary agreement for indemnification and release of liability (an "INDEMNIFICATION AGREEMENT") in a form acceptable to the Accountant) that the relevant Performance Statement was calculated in accordance with the provisions of this Agreement. (b) The Sellers' Representative shall have reasonable access to all personnel of the Company and each Subsidiary (as defined in Section 2.1(A)) and shall have the right to review all books, accounting records and other materials of the Company and the Subsidiaries relevant to the preparation of the 1998 and 1999 Performance Statements that the Sellers' Representative reasonably requests. In addition, the Purchaser shall use its reasonable efforts to cause the Sellers' Representative, after execution and delivery of the Indemnification Agreement with respect to the applicable Performance Statement, to have reasonable access to all personnel of the Accountant involved in the preparation of such Performance Statements and to be permitted to review the Accountant's audit work papers with respect thereto. In the event that the Purchaser and/or the Sellers' Representative disagrees in any respect with either the 1998 or 1999 Performance Statement, the Sellers' Representative and/or the Purchaser shall deliver to the other, within forty-five (45) days after delivery by the Accountant of such Performance Statement, a written notice (the "SECTION 1.6 OBJECTION NOTICE") specifying the matters to which it 6 objects and the basis for such disagreement (together with any authority or documentation supporting its position). Any Section 1.6 Objection Notice may include disagreements with respect to any adjustments in the calculation of Revenue and Gross Profit made pursuant to Section 3.20(A) of this Agreement, such disagreement to be resolved in accordance with the methodology provided in this Section 1.6 of this Agreement. The Purchaser and the Sellers' Representative shall thereupon endeavor in good faith to resolve any disagreement or dispute arising out of the Section 1.6 Objection Notice. In the event such parties do so, such parties shall promptly execute a document which sets forth the resolution of such disagreement or dispute. (c) In the event that the Purchaser or the Sellers' Representative timely receives a Section 1.6 Objection Notice and the Sellers' Representative and the Purchaser are unable to resolve the disagreement specified in the Section 1.6 Objection Notice within ten (10) Business Days after receipt by the Purchaser thereof, the disagreement shall be submitted to a nationally recognized firm of independent public accountants (who shall not be the same accounting firm that certified the relevant Performance Statement) chosen by the Purchaser and the Sellers' Representative (the "SECTION 1.6 ACCOUNTANT"); PROVIDED that if the Purchaser and the Sellers' Representative are unable to agree on such accountants within fourteen (14) days following the end of such ten (10) Business Day period, then the Purchaser and the Sellers' Representative will within seven (7) days following the end of such fourteen (14) day period thereof jointly request that the president of the American Arbitration Association select an accountant, such accountant to be associated with a 7 nationally recognized accounting firm other than the Accountant (such AAA-appointed accountant to be deemed the Section 1.6 Accountant for purposes of this Agreement). Upon delivery to the Purchaser and the Sellers' Representative of a statement in writing setting forth the conclusion of the Section 1.6 Accountant's opinion of the disputed item or items and the effect of such conclusion on the relevant Performance Statement, such determination shall be final and binding upon the Purchaser and the Sellers without any further right of appeal. (d) The Section 1.6 Accountant shall have reasonable access to all personnel of the Company and the Subsidiaries and shall have the right to review all books, accounting records and other materials pertaining to the relevant Performance Statement that the Section 1.6 Accountant shall request. The Section 1.6 Accountant shall render its determination on the disagreement submitted to it within sixty (60) days of submission of the disagreement by the Purchaser and the Sellers' Representative. The respective Performance Statement will be deemed to be final (the "FINAL 1998 PERFORMANCE STATEMENT," in the case of fiscal year 1998; and the "FINAL 1999 PERFORMANCE STATEMENT" in the case of fiscal year 1999) on and as of the first to occur of the following: (i) the expiration of the forty-five (45) day period referred to in Section 1.6(b) without the delivery of a Section 1.6 Objection Notice respecting the respective Performance Statement; (ii) the execution of a document, pursuant to Section 1.6(b), setting forth the resolution of any dispute set forth in any Section 1.6 Objection Notice respecting such Performance Statement by the Sellers' Representative and the Purchaser; and (iii) the date that the Section 1.6 Accountant delivers the relevant determination to the Purchaser pursuant to Section 1.6(c); it 8 being understood that the Final 1998 Performance Statement and the Final 1999 Performance Statement shall mean a Performance Statement as modified by any such resolution or determination. (e) Contingent Consideration A. (i) If the amount of Revenue set forth on the Final 1998 Performance Statement is at least $49.4 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $250,000. If the amount of Gross Profit set forth on the Final 1998 Performance Statement is at least $8.9 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. (ii) If the amount of Revenue set forth on the Final 1999 Performance Statement is at least $52.9 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative , on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $250,000. If the amount of Gross Profit set forth on Final 1999 Performance Statement is at 9 least $10.1 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. (f) Contingent Consideration B. In addition to any amounts payable by the Purchaser to the Sellers pursuant to 1.6(e): (i) If the amount of Revenue set forth on the Final 1998 Performance Statement is at least $59.2 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. If the amount of Gross Profit set forth on the Final 1998 Performance Statement is at least $10.6 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $1 million. (ii) If the amount of Revenue set forth on the Final 1999 Performance Statement is at least $63.5 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on 10 behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. If the amount of Gross Profit set forth on the Final 1999 Performance Statement is at least $12.2 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $1 million. (g) Contingent Consideration C. In addition to any amounts payable by the Purchaser to the Sellers' Representative pursuant to Sections 1.6(e) and/or (f): (i) If the amount of Revenue set forth on the Final 1998 Performance Statement is at least $65.8 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative , cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $250,000. If the amount of Gross Profit set forth on the Final 1998 Performance Statement is at least $11.8 million, then by not later than the fifth (5th) Business Day after the 1998 Performance Statement is deemed to be the Final 1998 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. 11 (ii) If the amount of Revenue set forth on the Final 1999 Performance Statement is at least $70.5 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $250,000. If the amount of Gross Profit set forth on the Final 1999 Performance Statement is at least $13.5 million, then by not later than the fifth (5th) Business Day after the 1999 Performance Statement is deemed to be the Final 1999 Performance Statement, the Purchaser shall pay to the Sellers' Representative, on behalf of the Sellers, cash by wire transfer of Federal funds to a bank and for an account to be designated by the Sellers' Representative, in the amount of $500,000. (h) Fees and expenses, if any, of the Section 1.6 Accountant with respect to each Performance Statement (a) shall be paid by the Sellers if, notwithstanding any modifications made to the relevant Performance Statement by the Section 1.6 Accountant, the Sellers are not entitled to be paid any greater amount under Section 1.6 than they would have received if the disagreement with respect to such Performance Statement had not been submitted to the Section 1.6 Accountant and (b) shall be paid by the Purchaser if, as a result of modifications made to the relevant Performance Statement by the Section 1.6 Accountant, the Sellers are entitled to be paid a greater amount under Section 1.6 than they would have received if the disagreement with respect to such Performance Statement had not been submitted to the Section 1.6 Accountant. 12 (i) All sums payable to the Sellers' Representative pursuant to this Section 1.6, if any, shall be paid in cash by wire transfer of Federal funds to a bank and for an account designated by the Sellers' Representative within five Business Days following the date on which the Final 1998 Performance Statement or Final 1999 Performance Statement, as the case may be, is deemed final pursuant to the terms hereof and shall bear interest from and after the date due (including under the next succeeding sentence) until the date paid in full at a rate which is equal to the prime rate, as announced from time to time by Mellon Bank, N.A., on the basis of a 366-day year and actual days elapsed. Notwithstanding anything to the contrary set forth in this Section 1.6, any amount of Contingent Consideration that would be payable hereunder based upon the amount of Revenue and/or Gross Profit set forth in the relevant Performance Statement as delivered by the Accountant that are not subject to any objection set forth in a Section 1.6 Objection Notice shall be paid by the Purchaser to the Sellers' Representative within five (5) Business Days after the expiration of the forty-five (45) day period referred to in Section 1.6(b) in cash by wire transfer of Federal funds to a bank and for an account designated by the Sellers' Representative, and the balance of any amount that becomes payable by reason of the Performance Statement becoming final in accordance with Section 1.6(d) shall be paid in accordance with the immediately preceding sentence. 1.7 Escrow. Upon execution of this Agreement, the Purchaser shall pay to Norwest Bank Minnesota, National Association, a national association organized and existing under the laws of the United States of America (the "ESCROW AGENT"), cash by wire transfer of Federal funds to a bank and for an account to be 13 designated by the Escrow Agent, in the amount of $350,000, such amount to be held in an escrow account in accordance with the terms of an escrow agreement, substantially in the form of Exhibit I, among the Purchaser, the Escrow Agent, the Sellers' Representative and each of the Sellers (the "ESCROW AGREEMENT"). 1.8 Arbitration. The resolution of disputed items arising under Sections 1.5 or 1.6 shall be determined by arbitration in the Washington, D.C. metropolitan area (including Northern Virginia), in accordance with the applicable rules of the American Arbitration Association by a single arbitrator. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing provisions of this Section 1.8, if the parties select the Section 1.6 Accountant then such resolution shall not be conducted under the auspices of the American Arbitration Association unless the Sellers and the Purchasers otherwise agree in writing. ARTICLE II Representations and Warranties 2.1 Representations and Warranties of the Sellers as to the COMPANY. Each of the Sellers jointly and severally (except as to the matters set forth in Sections 2.1(B)(i), 2.1(D), 2.1(K)(i) and 2(T), as to which each of the Sellers makes such representations and warranties severally but not jointly) represents and warrants, and the Company represents and warrants (except as to the matters set forth in Sections 2.1(B)(i), 2.1(B)(iii), 2.1(D) and 2.1(K)(i), as to which no representation or warranty, is made by the Company), to the Purchaser that: 14 (A) Organization and Qualification of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being or heretofore conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Company Material Adverse Effect (as defined below). "COMPANY MATERIAL ADVERSE EFFECT", as used in this Agreement, shall mean any event, change or effect that is or could reasonably be expected to be materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations, or prospects of the Company and its Subsidiaries taken as a whole. The copies of the Certificates of Incorporation and By-Laws of the Company and each of the Subsidiaries previously delivered to the Purchaser or its counsel, in each case as amended, are complete and correct. Schedule 2.1(A) sets forth the name and jurisdiction of organization of each corporation or other entity in which the Company directly or indirectly owns or has the power to vote shares of the capital stock or other ownership interests (each, a "Subsidiary," and collectively, "Subsidiaries"). The Company does not directly or indirectly own any interest in any other person or entity. Each of the Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate power and authority to own, lease and operate its properties and assets and 15 to carry on its business as now being or heretofore conducted. The respective minute books, or comparable records, of the Company and each of the Subsidiaries are accurate in all material respects. The stock books of the Company and each of the Subsidiaries are true and complete. (B) Authority to Execute and Perform Agreement. (i) Each Seller has all requisite power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party (including the Escrow Agreement and, if applicable, a Non-Compete and Non-Disclosure Agreement) and to perform fully such Seller's obligations hereunder and thereunder. This Agreement has been duly executed and delivered by each Seller, and on the Closing Date, each and every agreement and instrument contemplated hereby to which such Seller is a party on the Closing Date (including the Escrow Agreement and, if applicable, a Non-Compete and Non-Disclosure Agreement) will be duly executed and delivered by such Seller. Assuming due execution and delivery hereof and thereof by the Purchaser, this Agreement and each such other agreement and instrument will be valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (ii) The Company has full right and power and all authority and approvals required to enter into, execute and deliver this Agreement and 16 each and every agreement and instrument contemplated hereby to which it is or will be a party and to perform fully its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by the Company, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Company is a party on the Closing Date will be duly executed and delivered by the Company. Assuming due execution and delivery hereof and thereof by the Purchaser, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (iii) The Sellers' Representative has all requisite power and authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party and to perform fully its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by the Sellers' Representative, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Sellers' Representative is a party on the Closing Date will be duly executed and delivered by the Sellers' Representative. Assuming due execution and delivery hereof and thereof by the Purchaser, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Sellers' Representative enforceable against the Sellers' Representative, in accordance with their respective terms, except that such enforceability may be subject to (i) 17 bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (C) Capital Stock. The authorized capital stock of the Company consists of 1,000,000 shares of common stock, no par value, of which 997,000 shares are duly authorized and validly issued and outstanding, fully paid and nonassessable, and are owned beneficially and of record by the Sellers, in the respective amounts set forth on Schedule 1.2, free and clear of any pledges, liens, charges, encumbrances, voting or transfer restrictions, security interests, restrictions and claims of any kind ("LIENS"). There are 3,000 shares held in the treasury of the Company. The Company has no other authorized, issued or outstanding class of capital stock. All issued and outstanding capital stock of each of the Subsidiaries that is owned by the Company, is owned by the Company in the amounts set forth on Schedule 2.1(C), free and clear of any Liens. There are no existing options, rights, subscriptions, warrants, unsatisfied preemptive rights, calls or commitments of any character relating to (i) the authorized and unissued capital stock of the Company or any of the Subsidiaries, or (ii) any securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire from the Company or any of the Subsidiaries any shares of capital stock of the Company or any of the Subsidiaries, and no such convertible or exchangeable securities or obligations are outstanding. The Sellers are the lawful owners, beneficially and of record, of the Shares, free and clear of all Liens. Except for their status as officers, directors and/or shareholders of the Company and/or Vector Microwave Research Corporation, the Sellers are not, and have not been, affiliates of each other as the 18 term "affiliates" is defined in Section 9.403 of the Federal Acquisition Regulation (48 C.F.R. ss. 9.403). (D) Good Title to Shares. At the Closing, each Seller will deliver to the Purchaser good title to the Shares held by such Seller, free and clear of all Liens. (E) Financial Statements. The consolidated balance sheets of the Company and the Consolidated Subsidiaries as of September 30, 1995, and September 30, 1996, and the related consolidated statements of income, shareholders' equity and changes in financial position for the years then ended, including the footnotes thereto, reviewed by Keller Bruner & Company, P.C., independent certified public accountants, which have been delivered to the Purchaser, fairly present, in all material respects, the consolidated financial position of the Company and the Subsidiaries as at such dates and the consolidated results of operations and changes in financial position, as the case may be, of the Company and the Subsidiaries for such respective periods, in each case in accordance with GAAP (in the case of VDS (UK), U.K. GAAP) consistently applied except as may have been indicated in the notes thereto for the periods covered thereby. (The foregoing consolidated financial statements of the Company and the Subsidiaries as of September 30, 1996, and for the year then ended are sometimes herein called the "REVIEWED FINANCIALS." The foregoing balance sheet included in the Reviewed Financials is sometimes herein called the "BALANCE SHEET.") The unaudited balance sheet of the Company as of May 30, 1997, and the related statement of income for the eight months then ended, including the footnotes thereto, which have been delivered to the Purchaser, fairly 19 present, in all material respects, the financial position of the Company as of such dates and the results of operations of the Company for the eight months then ended, in each case in conformity with GAAP, in all material respects, applied on a basis consistent with that of the Reviewed Financials (subject to the normal year-end audit adjustments). The unaudited balance sheet of VDS (UK) as of April 30, 1997 (the "VDS (UK) BALANCE SHEET") and the related statement of income for the seven months then ended, which have been delivered to the Purchaser, fairly present, in all material respects, the financial position of VDS (UK) as of such date and the results of operations of VDS (UK) for the seven months then ended, in each case in conformity with U.K. GAAP applied on a basis consistent with that of the Reviewed Financials (subject to the normal year-end audit adjustments). (F) Absence of Certain Changes or Events. Except as described herein or in Schedule 2.1(F), from September 30, 1996, there has been no change in the business, properties, assets, prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries which has resulted or will result in or which the Sellers, the Company or any Subsidiary has reason to believe might be expected to result in a Company Material Adverse Effect, and none of the Sellers, the Company or any of the Subsidiaries knows of any such change that is threatened, nor has there been any damage, destruction or loss affecting the assets, properties, business, prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries, whether or not covered by insurance which has resulted or will result in or which the Sellers, the Company or any Subsidiary has reason to believe might be expected to result in a Company Material Adverse Effect. 20 Except as set forth on Schedule 2.1(F), from September 30, 1996, neither the Company nor any of the Subsidiaries has: (i) purchased, agreed to purchase, retired, redeemed or called for redemption any of its outstanding shares, issued or sold or purchased any options, warrants, shares, bonds or other securities, interests or rights to acquire any of its securities or interests, or declared or paid any dividend or distribution on or authorized or effected any split up or recapitalization of any such securities; (ii) made or contracted for any capital expenditures in excess of $10,000 per item and $50,000 in the aggregate, or made any other commitments or disbursement or incurred or paid any liabilities or obligations, except in the usual and ordinary course of business; (iii) sold, leased, abandoned, or otherwise transferred (or contracted to sell, lease or otherwise transfer) any of its assets or properties, except in the usual and ordinary course of business, or mortgaged, pledged or subjected to any Lien or any of its assets; (iv) canceled any debts or claims or waived any rights in excess of $10,000 in the aggregate; (v) transferred or granted any right under any lease, license, agreement, or other valuable asset; (vi) merged with or into or consolidated with any other person, subdivided or in any way reclassified any shares of its capital stock or changed or agreed to change in any manner the rights of its outstanding capital stock or the character of its business; (vii) entered into or amended any employment agreement, entered into or amended any agreement with any labor union or association representing any employee, adopted, entered into, or amended any employee benefit plan, program, agreement or arrangement, or made any change in the actuarial methods or assumptions used in funding any defined benefit pension plan, or made any change in the assumptions or factors used in determining benefit 21 equivalencies thereunder; (viii) except for short-term bank borrowings in the ordinary course of business, incurred any indebtedness for borrowed money; (ix) made any change in its accounting methods or practices or made any change in depreciation or amortization policies or lives adopted by it; (x) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any of its officers, directors, employees, consultants, agents or other representatives, or any accrual for or commitment or agreement to make or pay the same, other than those made in the ordinary course of business consistent with past practice; (xi) made any loan or advance to any of its shareholders, officers, directors, employees, consultants, agents or other representatives (other than travel advances made in the ordinary course of business), or made any other loan or advance otherwise than in the ordinary course of business; (xii) made any payment or commitment to pay any severance or termination pay to any of its officers, directors, employees, consultants, agents or other representatives, other than payments made in the ordinary course of business to persons other than its officers or directors; (xiii) except in the ordinary course of business, entered into or amended any contract or other agreement to which it is a party, or by or to which it or its assets or properties are bound or subject, in each case, calling for an aggregate purchase or sale price or payments of more than $10,000, or pursuant to which it agreed to indemnify any party or to refrain from competing with any party; (xiv) except in the ordinary course of business and in amounts less than $5,000 in each case, incurred, guaranteed or assumed any debt, obligation or liability (whether absolute or contingent and whether or not currently due and payable); (xv) except for inventory or equipment acquired in the ordinary 22 course of business, made any acquisition of all or any part of the assets, properties, capital stock or business of any other person; (xvi) paid, directly or indirectly, any of its material liabilities before the same became due in accordance with its terms or otherwise than in the ordinary course of business; (xvii) terminated or failed to renew, or received any written threat (that was not subsequently withdrawn) to terminate or fail to renew, any contract or other agreement that is or was material to the assets, properties, business, prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries; or (xviii) agreed, whether in writing or otherwise, to take any action described in this Section 2.1(F). (G) Litigation and Liabilities. Except as listed on Schedule 2.1(G) hereto, there are no actions, suits, demands, or claims or legal, administrative or arbitral proceedings, hearings or investigations pending or, to the knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened against or involving the Company or any of the Subsidiaries or any of their respective property or assets. Except as listed on Schedule 2.1(G) hereto, there are no obligations or liabilities, whether or not accrued, contingent or otherwise, or any facts or circumstances of which the Company, any Subsidiary, or any Seller is aware including, without limitation, those relating to environmental and occupational safety and health matters, that, alone or in the aggregate, could result in claims against, obligations of or liabilities to the Company or any of the Subsidiaries which are reasonably likely to have a Company Material Adverse Effect. Except as set forth on Schedule 2.1(G), there are no outstanding orders, judgments, injunctions, awards or 23 decrees of any court, governmental or regulatory body or arbitration tribunal against or involving the Company or any of the Subsidiaries. (H) Title to Properties; Absence of Liens, etc. The Company and each of the Subsidiaries has good and marketable title to all of its properties and assets, free and clear of any Liens, except (i) for Liens for Taxes (as defined herein) not yet due and payable, (ii) as reflected in the Balance Sheet, or (iii) for such properties and assets as may have been sold since the date hereof in the ordinary course of business. All of the Company's and each Subsidiary's properties and assets are, in all material respects, in good operating condition and repair, subject to ordinary wear and tear. (I) Licenses and Registrations; Compliance with Laws, etc. The Company and each of the Subsidiaries has all permits, authorizations, licenses, orders, registrations and approvals of, and has made all required registrations with, any government or political subdivision thereof, whether Federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision, or any insurance company or fire rating and any other similar board or organization or other non-governmental regulating body (to the extent that the rules, regulations or orders of such body have the force of law) or any court or arbitrator (each a "GOVERNMENTAL BODY," and collectively, "GOVERNMENTAL BODIES") which are material to or necessary for the Company and each of the Subsidiaries to carry on their respective business as presently conducted or material to the intended use of any properties of the Company or any of the Subsidiaries (collectively, "PERMITS"). Such Permits are in full force and effect; no violations are or have been recorded in respect 24 of any Permit; and no proceeding is pending or, to the knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened to revoke or limit any Permit. The Company and each of the Subsidiaries is in compliance in all material respects with the terms of such Permits. Except as listed on Schedule 2.1(I) hereto, the businesses of the Company and each Subsidiary are not being conducted in conflict with, violation of or default under any law, rule, decree, regulation, ordinance or order applicable to their businesses, properties, assets and operations (including, without limitation, those relating to wages and hours, occupational health and safety, record keeping, customs, environmental matters, export control, hazardous waste disposal, pollution control, possession of classified information or zoning), except for any conflicts, violations or defaults which, individually or in the aggregate, would not result in a Company Material Adverse Effect or materially impair the ability of the Sellers, the Company and each Subsidiary to perform their respective obligations under this Agreement and the Company has filed with the proper authorities all material statements and reports required by all applicable laws, rules, decrees, regulations, judgments, injunctions, awards, ordinances and orders. The Company and each of the Subsidiaries has at all times complied with the provisions of The Foreign Corrupt Practices Act of 1977, as amended. Neither the Company nor any of the Subsidiaries has made any illegal payment to officers or employees of any governmental or regulatory body, or made any payment to customers for the sharing of fees or to customers or suppliers for rebating of charges, or engaged in any other reciprocal practices, or made any illegal payment or given any other illegal 25 consideration to purchasing agents or other representatives of customers in respect of the sales made or to be made by the Company or any of the Subsidiaries. (J) Intangible Property. The Company owns no patents or patent applications. Schedule 2.1(J) sets forth a list of all trademarks, copyrights, service marks, trade names and franchises, all applications for any of the foregoing, and all permits, grants and licenses or other rights running to or from the Company or any of the Subsidiaries relating to any of the foregoing (collectively, "INTELLECTUAL PROPERTY RIGHTS"). Except as disclosed on Schedule 2.1(J), (i) to the knowledge of the Sellers, the Company and each Subsidiary, the use and registration of such Intellectual Property Rights do not conflict with the intellectual property rights of any other person, firm or corporation and no other person's, firm's or corporation's operations conflict with the use and registration of the Intellectual Property Rights; (ii) there are not now any suits pending or, to the knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened against or by the Company or any of the Subsidiaries claiming a conflict by the Company or any of the Subsidiaries with the Intellectual Property Rights; (iii) none of the Sellers, the Company or any of the Subsidiaries has notice of any adversely held patent, invention, copyright, trademark, service mark or trade name of any other person or notice of any claim of any other person relating to any of the Intellectual Property Rights listed on Schedule 2.1(J), and none of the Company, any of the Subsidiaries or any of the Sellers knows of any valid basis for any such claim, except to the extent that any such conflict, notice or basis therefor has not and could not reasonably be expected to have a Company Material Adverse Effect; and (iv) the Intellectual Property Rights are free and clear of 26 all rights of others and all liens, claims, charges, mortgages, pledges, security interests and other encumbrances of any nature whatsoever, except such as would not have a Company Material Adverse Effect or interfere with the Company's use thereof. (K) Non-Contravention. (i) The execution and delivery of this Agreement by each Seller and the execution of each and every other agreement and instrument contemplated hereby by or on behalf of, and the consummation of the transactions contemplated hereby and thereby and the performance by such Seller of this Agreement and each such other agreement and instrument in accordance with their respective terms will not (a) violate any provision of the Certificate of Incorporation or By-Laws (or comparable instruments) of the Company or any of the Subsidiaries, (b) except as set forth on Schedule 2.1(K), violate, conflict with or result in the breach of any provision of, or result in a material modification of or otherwise entitle any party to terminate, or constitute (whether after the filing of notice or lapse of time or both) a default (by way of substitution, novation or otherwise) under, any contract, agreement, indenture, note, bond, loan, instrument, lease, conditional sales contract, mortgage, license, franchise, commitment or other binding arrangement (collectively, the "CONTRACTS") to which the Company or any of the Subsidiaries is a party or by or to which any of the Company's or any Subsidiary's assets or properties may be bound or subject, (c) result in the creation or imposition of any material Lien upon any of the property or assets of the Company or any of the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) violate any law, regulation, statute, injunction, 27 order, arbitration award, judgment or decree applicable to, against, or binding upon, the Company or any of the Subsidiaries or by which any of the Company's or any Subsidiary's securities, business or property is bound, or (e) violate or result in the revocation or suspension of any Permit. (ii) The execution and delivery of this Agreement by the Company and each and every other agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby and thereby and the performance by the Company of this Agreement and each such other agreement and instrument in accordance with their respective terms will not (a) violate any provision of the Certificate of Incorporation or By-Laws (or comparable instruments) of the Company or any of the Subsidiaries, (b) except as set forth on Schedule 2.1(K), violate, conflict with or result in the breach of any provision of, or result in a material modification of or otherwise entitle any party to terminate, or constitute (whether after the filing of notice or lapse of time or both) a default (by way of substitution, novation or otherwise) under, any Contract to which the Company or any of the Subsidiaries is a party or by or to which any of the Company's or any of the Subsidiaries' assets or properties may be bound or subject, (c) result in the creation or imposition of any material Lien upon any of the property or assets of the Company or any of the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) violate any law, regulation, statute, injunction, order, arbitration award, judgment or decree applicable to, against, or binding upon, such Seller, the Company or any of the Subsidiaries or by which any of such Seller's, the Company's or any Subsidiary's 28 securities, business or property is bound or (e) violate or result in the revocation or suspension of any Permit. (L) Consent and Approvals. Except as set forth on Schedule 2.1(L), none of the execution and delivery of this Agreement and each and every other agreement and instrument contemplated hereby by the Company, the Sellers and/or the Sellers' Representative, the consummation by the Company, the Sellers and/or the Sellers' Representative of the transactions contemplated hereby or thereby or compliance by the Company, any Seller and/or the Sellers' Representative with any of the provisions hereof or thereof will require any consent, approval or action of, or make any filing with or give notice to, any Governmental Body. (M) Employee Benefit Plans; ERISA. Set forth on Schedule 2.1(M) is a true and complete list of each deferred compensation, executive compensation, incentive compensation, stock purchase or other stock-based compensation plan, severance or termination pay, holiday, vacation or other bonus plan or practice, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit sharing, pension, or retirement plan, program, agreement, commitment or arrangement, and each other employee benefit plan, program, agreement or arrangement, including, without limitation, each "employee benefit plan" as such term is defined under Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to or required to be contributed to by the Company or any of the Subsidiaries for the benefit of any employee or terminated employee of the Company or any of the Subsidiaries, or with respect to which the Company or any of the 29 Subsidiaries has any liability, whether direct or indirect, actual or contingent, whether formal or informal, and whether legally binding or not (the "PLANS"). (i) Except as disclosed on Schedule 2.1(M), with respect to each Plan, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations that have not been accounted for by reserves, or otherwise properly footnoted in accordance with generally accepted accounting principles, on the Reviewed Financials. The Company and each of the Subsidiaries is not and has not in the past been a member of a "controlled group" for purposes of Section 414(c) of ERISA, nor does the Company or any of the Subsidiaries have any liability with respect to any collectively-bargained for plans subject to the provisions of ERISA. (ii) Except for the Group Life/Accidental Death and Dismemberment/Medical and Dental Plan for which IRS Form 5500 (and other Plan filings) need to be filed for Plan Year 1996, each Plan is in compliance with all applicable laws, including, without limitation, ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"). Each Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code (a) has been determined by the Internal Revenue Service (the "IRS") to be so qualified (or is based on a prototype plan which has received a favorable determination letter) during the period from its adoption to the date of this Agreement and (b) its related trust has been determined to be exempt from taxation under Code Section 501(a) or the Company or the relevant Subsidiary, as the case may be, has requested an initial favorable IRS determination of qualification and/or exemption, none of the Company nor any of the Subsidiaries 30 or any of the Sellers knows of any fact which would adversely affect the qualified status of such Plans or the exempt status of such trusts, and the Company and each of the Subsidiaries has received a favorable IRS determination as to the qualified status of each such Plan with respect to the Tax Reform Act of 1986 and subsequent amendments to the Code. The preceding sentence does not apply to the Deferred Compensation Plan or the Incentive Compensation Plan, which are not intended to be and are not "qualified" plans. (iii) With respect to each Plan which covers any current or former officer, director, consultant or employee (or beneficiary thereof) of the Company or any of the Subsidiaries, the Sellers have delivered or made available, (or have caused the Company and each of the Subsidiaries heretofore to have delivered or made available) to the Purchaser accurate and complete copies, if applicable, of: (a) all Plan texts and agreements and related trust agreements or annuity contracts, (b) all employee communications (including all summary plan descriptions and material modifications thereto), (c) the most recent annual report, including all schedules thereto, (d) the most recent annual and periodic accounting of plan assets, (e) the most recent determination letter received from the IRS, (f) the most recent actuarial valuation, and (g) all communications with any Governmental Body. (iv) With respect to each Plan: (i) such Plan has been administered and enforced in accordance with its terms; (ii) no breach of fiduciary duty has occurred; (iii) no dispute is pending, or to the knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened; (iv) no prohibited 31 transaction, as defined in Section 406 of ERISA or Section 4975 of the Code, has occurred, excluding transactions effected pursuant to a statutory or administration exemption; (v) all contributions and premiums due through the Closing Date have been made as required under ERISA or have been fully accrued on the Company's and each of the Subsidiary's financial statements; and (vi) all contributions and premiums accrued as of the Closing Date and due from Vector Microwave Research Corporation ("VMRC") with respect to the Plans have been paid in full as of the Closing Date. (v) No Plan is a "defined benefit pension plan" (as defined in Code Section 414(j)), a "multiemployer plan" (as defined in ERISA Section 3(37)) or a "multiple employer plan" (as described in Code Section 413(c)). No Plan will become a multiple employer plan with respect to the Company or any of the Subsidiaries immediately after the Closing Date. (vi) There is no arrangement under any Plan with respect to any employee that would result in the payment of any amount that by operation of Code Section 280(G) or 162(m) would not be deductible by the Company or any of the Subsidiaries. (vii) With respect to each Plan which is a "welfare plan" (as described in ERISA Section 3(1)): (i) no such plan provides medical or death benefits with respect to current or former employees of the Company or any of the Subsidiaries beyond their termination of employment (other than coverage mandated by law), and (ii) there are no reserves, assets, surplus or prepaid premiums under any such plan. 32 (viii) Except as disclosed on Schedule 2.1(M), the consummation of the transactions contemplated by this Agreement (excluding any actions taken or which may be taken by Purchaser, the Company and/or any Subsidiary after the Closing) will not (i) entitle any individual to severance pay, unemployment compensation or other benefits or compensation, (ii) accelerate the time of payment or vesting, or increase the amount of any compensation due, or in respect of, any individual, (iii) result in or satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an "excess parachute payment" within the meaning of Code section 280G(b)(1); or (iv) constitute or involve a prohibited transaction (as defined in ERISA Section 406 or Code Section 4975), constitute or involve a breach of fiduciary responsibility within the meaning of ERISA section 502(l) or otherwise violate Part 4 of Subtitle B of Title I of ERISA. (N) Insurance Policies. True and complete copies of all policies of fire, casualty, liability, product liability, burglary, fidelity, worker's compensation, life, vehicular and other forms of insurance held by or on behalf of the Company or the Subsidiaries have been made available to the Purchaser or its representatives. All premiums due and payable for such insurance have been duly paid, and such policies, or extensions, renewals or replacements (on comparable terms to the extent available) thereof, in such amounts will be outstanding and in full force and effect without interruption up to the Closing Date. Such policies insure against all risks and liabilities to an extent and in a manner customarily insured against by persons operating comparable properties, assets or businesses in the same 33 geographic locations. The Company has made available to the Purchaser a brief description (specifying the insurer and the policy number or covering note number with respect to binders, describing each pending claim thereunder of more than $25,000, setting forth the aggregate amounts paid out under each such policy through the date hereof and the aggregate limit, if any, of the insurer's liability thereunder) of all policies or binders of fire, liability, worker's compensation, vehicular and other insurance held by or on behalf of the Company or any of the Subsidiaries. The Company has made available to the Purchaser with respect to each policy a list and brief description of all claims in excess of $25,000 (exclusive of claims under medical and dental policies) made by the Company or any of the Subsidiaries during the Company's past two fiscal years and the amount paid out under each policy with respect to such claims. None of the Company, any of the Subsidiaries or any of the Sellers has any knowledge of any facts or of the occurrence of any event that is reasonably likely to form the basis for any material claim against the Company or any of the Subsidiaries which will not be fully covered by such policies. Neither the Company nor any of the Subsidiaries has received any written notice from any of its insurance carriers that any insurance premiums will be materially increased in the future. (O) Agreements. Schedule 2.1(O) hereto lists all of the following contracts and other agreements to which the Company or any of the Subsidiaries is a party or by or to which any of them or any of their assets or properties are bound or subject: (i) contracts and other agreements with any current or former officer, director, shareholder, employee, consultant, agent or other 34 representative or with an entity in which any of the foregoing is a contracting person; (ii) contracts and other agreements with any labor union or association representing any employee; (iii) contracts and other agreements, including teaming agreements, that the Company has, or intends to have, with VMRC (or with any Person affiliated or associated with VMRC) for the performance or pursuit of business opportunities of mutual interest; (iv) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $50,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) for the purchase or sale of materials, supplies, equipment, merchandise or services that contain an escalation, renegotiation or redetermination clause; (v) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $5,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) for the sale of any of its assets or properties other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets or properties; (vi) joint venture agreements; (vii) contracts or other agreements under which the Company or any of its Subsidiaries agrees to indemnify any party or to share tax liability of any party; (vii) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $50,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) that cannot be canceled by the Company or any of the Subsidiaries with less than ninety days' notice without incurring liability, premium or penalty; (viii) contracts and other agreements with customers or suppliers for the sharing of fees, the rebating of charges or other similar arrangements; (ix) contracts 35 and other agreements containing obligations or liabilities of any kind to holders of the Company's or any of the Subsidiaries' securities as such (including, without limitation, an obligation to register any of such securities under any federal or state securities laws); (x) contracts and other agreements containing covenants of the Company or any of the Subsidiaries not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the Company or any of the Subsidiaries in any line of business or in any geographical area; (xi) contracts and other agreements relating to the acquisition by the Company or any of the Subsidiaries of any operating business or the capital stock of any other person; (xii) options for the purchase of any asset, tangible or intangible, requiring the payment to any person of a commission or fee; (xiii) contracts and other agreements for the payment of fees or other consideration to any officer or director of the Company or any of the Subsidiaries or to any other entity in which any of the foregoing has an interest; (xiv) contracts and other agreements relating to the borrowing of money, and (xv) contracts with any of the Sellers or any corporation in which any of such Sellers, individually or in the aggregate, owns a controlling interest (other than the Company or any of the Subsidiaries) or in which any Seller is a director, officer or employee thereof. True and complete copies of all of the foregoing, in each case as amended to date, have been delivered to, or, to the extent not requested to be delivered, have been made available for inspection by, the Purchaser. (P) Validity of Agreements. All contracts, leases, commitments and other agreements described or listed in Schedule 2.1(O) constitute 36 legal, valid and binding obligations of the Company and each of the Subsidiaries, as the case may be, are in full force and effect, and are enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, and other similar laws affecting the enforcement of creditors' rights generally and general equitable principles. The Company and each of the Subsidiaries has paid in full all amounts due thereunder which are due and payable or accrued in accordance with GAAP (in the case of VDS (UK), U.K. GAAP) all amounts due to others thereunder (and has properly recognized revenues due from others thereunder) and has satisfied in full or provided for all of its liabilities and obligations thereunder which are due and payable, except amounts or liabilities disputed in good faith by the Company or any of the Subsidiaries for which adequate reserves have been set aside and for amounts related to federal and state income and franchise tax amounts. Neither the Company nor any of the Subsidiaries is in default under any of such contracts or agreements, nor does any condition exist that, with notice or lapse of time or both, would constitute a default thereunder by the Company or any of the Subsidiaries. To the knowledge of each of the Sellers, the Company and each of the Subsidiaries, no other party to any such contract or other agreement is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder by any other person or entity. None of the Company, any of the Subsidiaries or any of the Sellers has knowledge that any person intends to terminate (whether for cause or convenience) or default under any contract or other agreement listed on Schedule 2.1(O) before its stated term, if any. Except as set forth on Schedule 2.1(P), none of the Sellers, the Company or any of the 37 Subsidiaries has any knowledge of a claim, actual or pending, by any Governmental Body under any contract or agreement set forth on Schedule 2.1(O). Except as separately identified on Schedule 2.1(P), no approval or consent of any person is needed in order that the contracts and other agreements set forth on Schedule 2.1(O) or on any other Schedule continue in full force and effect following the consummation of the transactions contemplated by this Agreement. No audit or review of any government contract or agreement will result in the disallowance of, or claim for, any amount paid or payable to the Company or any of the Subsidiaries under such con tract or agreement, whether as a result of excess payments, excess profit recapture or otherwise. (Q) Taxes. (i) All United States federal income Tax Returns (as defined in Section 8.1) of or with respect to the Company and the Subsidiaries, required by law to be filed on or before the Closing date have been duly filed. All such Tax Returns are accurate and complete in all material respects. (ii) All other Tax Returns of or with respect to the Company and the Subsidiaries required to be filed on or before the Closing Date pursuant to applicable federal, foreign, state, local or other law have been filed. All such Tax Returns are true and complete in all material respects. The Company and the Subsidiaries have paid or withheld (or caused to be paid or withheld) all Taxes shown on such Tax Returns as due and payable and all other Taxes due or claimed to be due, whether by proposed assessment or otherwise, by any taxing authority have been timely paid, except for such Taxes, if any, as are being contested in good faith 38 and as to which adequate reserves have been provided in accordance with GAAP (in the case of VDS (UK), U.K. GAAP). (iii) The charges, accruals and reserves on the books of the Company and VDS (UK) in respect of any liability for Taxes (x) based on or measured by net income for any years not finally determined, (y) with respect to which the applicable statute of limitations has not expired or (z) that has been previously deferred, are adequate to satisfy any assessment for such Taxes for any such years. Neither the Company nor VDS (UK) has any liability for Taxes of any person or entity other than the Company and/or VDS (UK). (iv) With respect to any period for which Tax Returns have not yet been filed, or with respect to which Taxes are not yet due or owing, the Company and VDS (UK) have made sufficient current accruals, provisions and reserves for such Taxes in accordance with GAAP (in the case of VDS (UK), U.K. GAAP). (v) The Company and VDS (UK) have made all required estimated Tax payments sufficient to avoid any underpayment penalties. The Tax Returns of the Company and VDS (UK) are not currently under audit or examination by the IRS or Inland Revenue. (vi) Except as set forth on Schedule 2.1(Q), neither the Company nor VDS (UK) is a member of any affiliated, consolidated, combined or unitary group as defined in Section 1504 of the Code, and the Treasury regulations promulgated thereunder. 39 (vii) There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes due from or with respect to the Company or VDS (UK) for any taxable period. (viii) Neither the Company nor any of the Subsidiaries (nor their predecessors) will have any liability on or after the Closing Date under any tax sharing agreement to which it has been a party on or before the Closing Date, and all such tax sharing agreements shall terminate and be of no further force and effect as of the Closing Date. (ix) No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local or foreign law that could affect the Taxes of the Company or VDS (UK), or the taxable income of Digital Healthcare Solutions, L.L.C. ("DIGITAL") for periods ending after the Closing Date has been entered into by or with respect to the Company or any of the Subsidiaries. (x) Except as set forth in Schedule 2.1(Q), no audit or other proceeding by any court, governmental or regulatory authority or similar authority is pending, and none of the Company or any of the Subsidiaries has received any notification that such an audit or proceeding may be commenced, with respect to any Taxes due from the Company or any of the Subsidiaries. (xi) None of the Company or any of the Subsidiaries has agreed to or is required to make any adjustment with respect to taxable periods ending after the Closing Date pursuant to Section 481(a) of the Code (or any 40 predecessor provision) by reason of any change in any accounting method of the Company or any of the Subsidiaries, there is no application pending with any taxing authority requesting permission for any such change in any accounting method of the Company or any of the Subsidiaries and the IRS has not proposed any such adjustment or change in accounting method. (xii) Except as set forth in Section 2.1(Q), neither the Company nor any of the Subsidiaries is, or has received any notice that it is, in violation (or with notice will be in violation) of any applicable law relating to the payment or withholding of Taxes. The Company and each of the Subsidiaries has duly and timely withheld from employee salaries, wages, and other compensation and paid over to the appropriate taxing authorities all material amounts required to be so withheld and paid over for all periods under all applicable laws. (xiii) There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company or any of the Subsidiaries by reason of Section 280G of the Code. (xiv) VDS (UK) has properly operated the Pay As You Earn ("PAYE") and national insurance systems deducting tax as required by law from all payments to or treated as made to or benefits provided for employees, ex-employees or independent contractors of VDS (UK) (including any such payments within Section 134 of the Income and Corporation Taxes Act (the "TA")) and duly accounted to the Inland Revenue for tax so deducted and has complied with all its reporting obligations to the Inland Revenue in connection with any such payments 41 made or benefits provided, and no PAYE audit in respect of VDS (UK) has been made by the Inland Revenue nor has VDS (UK) been notified that any such audit will be made. (xv) No transaction or event has occurred in consequence of which VDS (UK) is or may be held liable for any tax or deprived of relief or allowances otherwise available to it or may otherwise be held liable for or to indemnify any person in respect of any tax for which some other company or person was primarily liable (whether by reason of any such other company being or having been a member of the same group of companies or otherwise). (xvi) (a) Within the period of three years ending with the date hereof there has been no major change in the nature or conduct of any trade or business carried on by VDS (UK) within the meaning of Section 245 or 768 of the TA. (b) There has been no cessation or discontinuance of any trade carried on by VDS (UK) nor has the scale of activities in any trade carried on by VDS (UK) within three years hereof become small or negligible. (c) Prior to the execution of this Agreement, no change of ownership of VDS (UK) has taken place such that either or both of Sections 245 or 768 of the TA has or may be applied to deny relief in respect of a loss or losses of VDS (UK) or surplus advance corporation tax. (xvii) VDS (UK) has not since April 30, 1997, made any payment or incurred any liability to make any payment which could be disallowed 42 as a deduction in computing the taxable profits of VDS (UK) or as a charge to VDS (UK)'s income. (xviii) All transactions entered into by VDS (UK) have been entered into on an arm's length basis and the consideration (if any) charged, received or paid by VDS (UK) on all transactions entered into by it has been equal to the consideration which might have been expected to be charged, received or paid (as appropriate) between independent persons dealing at arm's length and no notice or enquiry pursuant to Section 770 of the TA has been made in connection with any of such transactions. (xix) (a) No balancing charge in respect of any capital allowances claimed or given would arise if any assets of VDS (UK) were to be realized for a consideration equal to the amount of the book value thereof as shown or included in the VDS (UK) Balance Sheet. (b) All necessary conditions for capital allowances (as defined in Section 832(1) of the TA) claimed by VDS (UK) were at all material times satisfied and remain satisfied and VDS (UK) has not since April 30, 1997, become liable for any balancing charge. (xx) No chargeable gain or profit (disregarding the effects of any indexation relief available) would arise if any assets of VDS (UK) (other than trading stock) were to be realized for a consideration equal to the amount of the book value thereof as shown or included in the VDS (UK) Balance Sheet. 43 (xxi) VDS (UK) has not entered into nor been a party to nor otherwise involved in any scheme or arrangement designed wholly or partly for the purpose of avoiding or deferring tax. (xxii) VDS (UK) is not nor has it ever been a close company as defined by Section 414 of the TA. (xxiii) VDS (UK) is not, and will not become, liable to be assessed to capital transfer tax or inheritance tax as donor or donee of any gift or transferor or transferee of value (actual or deemed) nor as a result of any disposition chargeable transfer or transfer of value (actual or deemed) made by or deemed to be made by any other person. (xxiv) There is no unsatisfied liability to capital transfer tax attached or attributable to the shares or any asset of VDS (UK) and in consequence no person has the power to raise the amount of such tax by sale or mortgage of or by a terminable charge on any of the shares or assets of VDS (UK) as mentioned in Section 212 of the Inheritance Tax Act 1984 ("I.H.T.A.") and none of the shares or assets of VDS (UK) are subject to an Inland Revenue charge within Section 237 of the I.H.T.A. (xxv) (a) VDS (UK) is a registered taxable person for the purpose of the VAT legislation (as defined below) and has not at any time been treated as a member of a group of companies for such purpose and has not made any application to be so treated and no circumstances exist whereby VDS (UK) would or might become liable for value added tax as an agent or otherwise by virtue of Section 47 of the Value Added Tax Act 1994 ("V.A.T.A."). 44 (b) VDS (UK) has complied in all respects with the requirements and provisions of the V.A.T.A. and all regulations and orders made thereunder (the "VAT LEGISLATION") and has made and maintained and will continue to make and maintain accurate and up to date records, invoices, financial statements, and other documents required by or necessary for the purposes of the VAT legislation and VDS (UK) has at all times punctually paid and made all payments and returns required thereunder. (c) VDS (UK) has not made any exempt supplies in consequence of which it is or will be unable to obtain credit for all input tax paid by it during any VAT quarter ending after April 30, 1997. (xxvi) VDS (UK) has duly paid all capital duty and loan capital duty for which it is or has at any time been liable and all documents in the enforcement of which VDS (UK) is or may be interested have been duly stamped and since April 30, 1997 VDS (UK) has not been a party to any transaction whereby VDS (UK) was or is or could become liable to stamp duty reserve tax. (R) Additional Representations. (a) No representation or warranty made by the Company or any Seller in this Agreement, and no statement made in any certificate, Seller-prepared or Sellers' Representative-prepared document, Company-prepared document, Subsidiary-prepared document, exhibit or schedule or, to the knowledge of the Company, any of the Subsidiaries, or any Seller, any third-party document furnished or to be furnished in connection with the transactions herein contemplated, contains any untrue statement of a material fact or omits to state, when read in 45 conjunction with all of the information contained in this Agreement and the Schedules, any material fact necessary to make such representation, warranty or statement not misleading. (b) (i) Except as disclosed on Schedule 2.1(R), there are no past or present events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans which have given rise to or will give rise to any liability on the part of the Company or any of the Subsidiaries under any Environmental Law (as defined below) or principles of common law relating to pollution, protection of the environment or health and safety, (ii) no real property currently or formerly owned or operated by the Company or any of the Subsidiaries is contaminated with any Hazardous Substances as defined below to an extent or in a manner or condition now requiring remediation under any Environmental Law; or (iii) no judicial or administrative proceeding is pending or, to the knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened relating to liability for any off-site disposal or contamination; and (iv) neither the Company nor any of the Subsidiaries has received any claims or notices alleging liability under any Environmental Law (as defined below) and none of the Company, any of the Sellers or any of the Subsidiaries has any knowledge of any circumstances that could result in such claims. Schedule 2.1(R) lists all contracts and agreements which involve the use, handling, storage, transport or disposal of any Hazardous Substance. "ENVIRONMENTAL LAW" means any applicable federal, state, foreign or local law, regulation, code, order, decree, judgment, injunction or judicial opinion or other agency requirement having the force and effect of law and relating to pollution, health 46 and safety, noise, odor, Hazardous Substance or the protection of the environment. "HAZARDOUS SUBSTANCE" means any toxic or hazardous substance that is regulated by or under authority of any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls. (S) Accounts and Notes Receivable. All accounts and notes receivable reflected on the Balance Sheet, and all accounts and notes receivable arising subsequent to September 30, 1996, (i) (except those collected since such date) have arisen in the ordinary course of business of the Company or the Subsidiaries and represent valid obligations due to the Company or the Subsidiaries and (ii) subject only to a reserve for bad debts computed in a manner consistent with past practice and reasonably estimated to reflect the probable results of collection, have been collected or are collectible in the ordinary course of business of the Company or the Subsidiaries (as the case may be) in the aggregate recorded amounts thereof in accordance to their terms. (T) Potential Conflicts of Interest. Except as set forth on Schedule 2.1(T), to the knowledge of the Company and the Subsidiaries (a) no Seller, and (b) no officer or director or affiliate of the Company or any of the Subsidiaries, (c) no relative or spouse (or relative of such spouse) of any such officer, director or affiliate or of a Seller, and (d) no entity controlled by any one or more of the foregoing: (i) owns, directly or indirectly, any interest in (excepting not more than 5% stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any person or entity which is, or is engaged in business as, a competitor, lessor, lessee, customer, 47 distributor, sales agent, or supplier of the Company or any of the Subsidiaries; (ii) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of the Subsidiaries uses or the use of which is necessary or desirable for the conduct of their respective business; (iii) has any cause of action or other claim whatsoever against, or owes any amount to, the Company or any of the Subsidiaries, except for claims in the ordinary course of business, such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof; or (iv) on behalf of the Company or any of the Subsidiaries, has made any payment or commitment to pay any commis sion, fee or other amount to, or purchase or obtain or otherwise contract to purchase or obtain any goods or services from, any corporation or other person of which any officer or director of the Company or any of the Subsidiaries, or a relative of any of the foregoing, is a partner or stockholder (excepting stock holdings solely for investment purposes in securities of publicly held and traded companies). (U) Liabilities. As of September 30, 1996, none of the Company or any of the Subsidiaries had any direct or indirect indebtedness, liability, claim, loss, damage, deficiency or obligation or responsibility, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, whether or not of a kind required by GAAP to be set forth on a financial statement or in the notes thereto ("LIABILITIES"), that were not fully and adequately reflected or reserved against on the Balance Sheet or described on any Schedule or in the notes to the Reviewed Financials. None of the Company, any of the Subsidiaries or any of the Sellers has any knowledge of any 48 circumstance, condition, event or arrangement that may hereafter give rise to any Liabilities of the Company or any of the Subsidiaries, or any successor to their respective businesses except in the ordinary course of business or as otherwise set forth on Schedule 2.1(U). (V) Real Property. Neither the Company nor any of the Subsidiaries owns, nor has the Company or any of its Subsidiaries agreed to purchase, any real property. Schedule 2.1(V) identifies all of the real property which the Company or any of the Subsidiaries leases, has agreed to lease or has an obligation to lease in connection with its business. Such leased real property is hereinafter referred to as the "LEASED PROPERTY." There are no adverse parties in possession of the Leased Property or any portion or portions thereof, and on the Closing Date the leasehold interests in the Leased Property will be free and clear of any and all leases, licensees, occupants or tenants except as set forth in Schedule 2.1(V). There are no pending or, to the knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened, condemnation, eminent domain or similar proceedings, affecting the Leased Property, any improvements thereon or any portion thereof. There are no pending or, to the knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened requests, applications or proceedings to alter or restrict any zoning or other use restrictions applicable to the Leased Property or any improvements thereon which would interfere with the conduct of the business of the Company or any of the Subsidiaries or the use of their respective assets consistent with past practice. 49 (W) Labor Matters. The Company and each of the Subsidiaries is not now, and has not been in the last five years, bound by or party to any collective bargaining agreement and, to the knowledge of each of the Sellers, the Company and each of the Subsidiaries, no application for certification of a collective bargaining agent is pending. The Company and each of the Subsidiaries is in compliance with all applicable laws affecting employment practices and terms and conditions of employment. As of the Closing Date neither the Company nor any of the Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act, as it may be amended from time to time, or similar applicable state law; nor has the Company or any of the Subsidiaries taken any action prior to the Closing Date which could result in any such liability or obligation to the Company or any of the Subsidiaries within the six-month period immediately following the Closing Date if, during such six-month period, only terminations of employment in the normal course of operations occur. To the knowledge of the Sellers, the Company, and each of the Subsidiaries, the Company and each of the Subsidiaries does not and has not employed any illegal aliens. 2.2 Representations and Warranties with Respect to the Purchaser. The Purchaser represents and warrants to the Sellers as follows: (A) Organization of the Purchaser. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia, with all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being or heretofore conducted. 50 (B) Authority to Execute and Perform Agreement. The Purchaser has full right and power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party and to perform fully its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by the Purchaser, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Purchaser is a party on the Closing Date will be duly executed and delivered by the Purchaser. Assuming due execution and delivery hereof and thereof by the Company, the Sellers and the Sellers' Representa tive, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (C) Consents and Approvals. None of the execution and delivery of this Agreement and each and every other agreement and instrument contemplated hereby by the Purchaser, the consummation by the Purchaser of the transactions contemplated hereby or thereby or compliance by the Purchaser with any of the provisions hereof or thereof will require any consent, approval or action of, or make any filing with or give notice to, any Governmental Body. (D) Non-Contravention. The execution and delivery of this Agreement by the Purchaser and the execution of each and every other agreement and instrument contemplated hereby by or on behalf of, and the consummation of the 51 transactions contemplated hereby and thereby and the performance by the Purchaser of this Agreement and each such other agreement and instrument in accordance with their respective terms will not (a) violate any provision of the Certificate of Incorporation or By-Laws (or comparable instruments) of the Purchaser, (b) violate any law, regulation, statute, injunction, order, arbitration award, judgment or decree applicable to, against, or binding upon, the Purchaser or by which any of the Purchaser's securities, business or property is bound, or (c) violate or result in the revocation or suspension of any of the Purchaser's permits. (E) Financing. The Purchaser has received oral approval from its bank lenders necessary to finance the transactions contemplated hereby, subject to completion of written amendment documents, reasonably satisfactory drafts of which have been provided to the Purchaser, and payment of required fees. ARTICLE III Additional Agreements of the Parties 3.1 No Section 338 Election. Neither Purchaser nor any affiliate thereof shall (i) make an election under Section 338 of the Code or any similar provision of state or local law in respect of the purchase of stock of the Company or (ii) cause the Company to engage in any transaction that could cause the purchase of stock of the Company to be treated as a purchase or sale of the assets of the Company for federal, state, local or foreign Tax purposes. 3.2 Tax Return Filing. The Sellers shall cause the Company and each of the Subsidiaries to prepare, in a manner consistent with past practices, and 52 timely file all Tax Returns required to be filed by the Company and each of the Subsidiaries, the due date of which (without extensions) occurs on or before the Closing Date and pay all Taxes due with respect to any such Tax Returns. 3.3 Further Assurances. At any time and from time to time after the Closing, each of the parties agree to cooperate with each other and to execute and deliver such other documents, instruments of transfer or assignment, files, books and records and do all such further acts and things as may be reasonably required to carry out the transactions contemplated hereunder. 3.4 Access to Records. Prior to the Closing Date, the Purchaser shall be entitled, through its employees and representatives, including, without limitation, Paul, Weiss, Rifkind, Wharton & Garrison and accountants, to make such investigation of the assets, properties, business and operations of the Company and the Subsidiaries, and such examination of the books, records and financial condition of the Company and the Subsidiaries as the Purchaser wishes. Any such investigation and examination shall be conducted at reasonable times and under reasonable circumstances and each Seller shall, and shall cause the Company and each of the Subsidiaries to, cooperate fully therein. No investigation by the Purchaser shall diminish or obviate any of the representations, warranties, covenants or agreements of each Seller contained in this Agreement. In order that the Purchaser may have full opportunity to make such business, accounting and legal review, examination or investigation as it may wish of the business and affairs of the Company and the Subsidiaries, the Sellers shall furnish and shall cause the Company and the Subsidiaries to furnish the representatives of the Purchaser during such period with all 53 such information and copies of such documents concerning the affairs of the Company and the Subsidiaries as such representatives may reasonably request, shall make available, or cause the Company and the Subsidiaries to make available, such officers and employees of the Company as such representatives reasonably request, and shall cause its officers, employees, consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination and to make full disclosure to the Purchaser of all material facts affecting the financial condition and business operations of the Company and the Subsidiaries. Following the Closing, each party shall afford the other and its authorized represen tatives access, during regular business hours, to any books and records of the Company and the Subsidiaries to the extent they relate to a period prior to the Closing Date that such party shall from time to time reasonably request. From the date hereof, at the Purchaser's request, each Seller shall give the Purchaser and its authorized representatives full access, during regular business hours, to such Seller's records related to the Company and/or the Subsidiaries located other than in the possession of the Company or the Subsidiaries, and shall permit the Purchaser to make a copy of any such documents as the Purchaser shall designate. Notwithstand ing anything to the contrary in this Section 3.4, neither the Company nor any of the Subsidiaries shall be required to disclose any classified information in violation of any applicable law. 3.5 Preservation of Records. The Purchaser agrees that it shall at its sole expense preserve and keep the records of the Sellers, the Company and the Subsidiaries (including any successors thereto) delivered to it hereunder for a period 54 of no less than six years after the close-out of each government contract or for such longer period as may be required by any governmental agency or on account of on-going litigation, but for no less than one year from the Closing Date and shall make such records available to the Sellers as may be reasonably required by the Sellers in connection with any legal proceedings against or governmental investigations of the Sellers or in connection with any tax examination of the Sellers. In the event the Purchaser wishes to destroy such records after that time, it shall first give thirty (30) days prior written notice to the Sellers' Representative and the Sellers' Representative shall have the right at its option, upon prior written notice given to the Purchaser within said thirty (30) day period, to take possession of said records within sixty (60) days after the date of the Sellers' Representative's notice to the Purchaser hereunder. If the Sellers' Representative fails to take possession of said records within such sixty (60) day period, the Purchaser may destroy such records. 3.6 Confidentiality. From and after the date of this Agreement, in the event of the consummation of the transaction contemplated hereby, each Seller shall keep any and all information relating to the Company and the Subsidiaries, their business operations and prospects (including, but not limited to, customer lists and related information), services and know-how confidential and shall not disclose such to any person; PROVIDED, HOWEVER, such Seller may disclose such information that (i) is or becomes publicly available other than by disclosure by any Seller, the Sellers' Representative or any agent thereof or (ii) such Seller is required to disclose by law, government regulation or court order or in order to enforce the terms of this Agreement but such Seller will give the Purchaser adequate advance notice so that the 55 Purchaser may seek a protective order or take other reasonable actions to preserve the confidentiality of such information. 3.7 Efforts; Consents. The Purchaser and each Seller agree to use all reasonable efforts to take or cause to be taken all actions necessary, proper or advisable to consummate the transactions contemplated in this Agreement. Without limiting the generality of the foregoing, each of the parties hereto shall use all reasonable efforts to obtain the authorizations, consents, orders and approvals of federal, state, and local regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this Agreement and the consummation of the transactions contemplated hereby and will cooperate fully in promptly seeking to obtain such authorizations, consents, order and approvals as may be necessary for the performance of their respective obligations pursuant to this Agreement. The Purchaser will not take any action which will have the effect of delaying, impairing or impeding the receipt of any required regulatory approvals and will use its best efforts to secure such approvals as promptly as possible. 3.8 Return of Information and Confidentiality. The confidentiality terms of the Non-Disclosure Agreement, dated April 16, 1997, between the Purchaser and Boles & Company, Inc. for the benefit of the Company, applicable to the Purchaser are herewith incorporated by reference and shall continue in full force and effect until the Closing. In the event the Closing under this Agreement does not occur in accordance with the terms hereof for any reason, the Purchaser shall (a) immediately return to the Sellers all written information (and all copies hereof) regarding the Company and the Subsidiaries, obtained from the Company or VDS 56 (UK) by the Purchaser in the course of investigating its purchase of the Shares, or negotiating this Agreement or delivered to it pursuant to this Agreement and (b) destroy all documents, memoranda, notes and other writings whatsoever prepared by or on behalf of the Purchaser containing any such information. 3.9 Ordinary Course of Business. From the date hereof until the Closing Date, unless otherwise agreed to by the Purchaser, each Seller agrees that it shall cause the Company and each of the Subsidiaries to conduct their business and operations in the ordinary course and in substantially the same manner in which the same have heretofore been conducted and not to undertake any of the actions specified in Section 2.1(F). 3.10 Insurance Proceeds, Litigation Rights. In the event that any property owned or leased by the Company or any of the Subsidiaries suffers any material damage, destruction or other casualty loss, and the Closing occurs in accordance with the terms hereof, the Sellers shall surrender to the Company, the Subsidiaries and the Purchaser (i) all insurance proceeds received by the Sellers with respect to such damage or loss and (ii) all rights of the Sellers with respect to any causes of action, whether or not litigation has commenced on the Closing Date, in connection with such damage or loss. Nothing in this Section 3.10 shall be construed to limit or prejudice the Purchaser's rights and remedies under this Agreement, including, without limitation, the Purchaser's right not to consummate the transactions contemplated hereby if all of the conditions set forth in Section 4.2 are not satisfied or waived, in the sole discretion of the Purchaser. 57 3.11 Benefit Plans. Purchaser hereby agrees that immediately following the Closing the Purchaser will cause the Company and the Subsidiaries to continue in full force and effect, for a period of at least six (6) months after the Closing Date, all of the Plans maintained by the Company and the Subsidiaries as in effect on the Closing Date and as set forth on Schedule 2.1(M) hereto, and will during such period of at least six months contribute (or cause the Company and the Subsidiaries to continue to contribute) all required contributions and pay all required premiums under such Plans which are ERISA Section 3(3) "employee benefit plans"; PROVIDED, HOWEVER, that nothing in this Agreement shall be construed to limit the ability of Purchaser to modify, amend or terminate any benefits to any individual, or terminate the employment of any individual, at any time after the Closing Date. 3.12 Benefits Disclosure. For each of the following employee benefits plans the Sellers shall cause the Company to (i) file all required Form 5500s with the Department of Labor and the Internal Revenue Service for any year preceding the Closing in which the requirements for such filings were met, (ii) file all required Plan Documents and Summary Plan Descriptions with the Department of Labor for any year preceding the Closing in which the requirements for such filings were met, and (iii) distribute to all Plan participants Summary Plan Descriptions and Annual Reports as required for the year preceding the Closing: life insurance; accidental death and dismemberment; medical and dental; short-term disability and long-term disability. 3.13 Employee Arrangements. Subject to Section 3.11 hereof, from and after the Closing Date, the Purchaser shall cause the Company and each of the 58 Subsidiaries to (i) provide all salaried employees of the Company and each of the Subsidiaries as of the Closing Date ("COMPANY EMPLOYEES") with service credit for all periods of employment with the Company or the Subsidiaries prior to the Closing Date for purposes of satisfying any service requirements for early retirement under any defined contribution plan in effect on the date hereof or under any substantially similar replacement plan adopted by Purchaser, the Company, the Subsidiaries or any of their affiliates (or any successor entity to any of the foregoing) with respect to Company Employees and (ii) waive any pre-existing condition of any Company Employee for purposes of determining eligibility for, and the terms upon which they participate in, any welfare plan adopted by Purchaser, the Company, the Subsidiaries or any of their affiliates (or any successor entity to any of the foregoing) with respect to Company Employees (other than conditions that are already in effect with respect to such employees under the Company's or the Subsidiaries' welfare plans that have not been satisfied as of the Closing Date). The foregoing shall not apply to any employees of Digital Healthcare Solutions, L.L.C. 3.14 Preservation of Business. From the date hereof through the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Sellers shall cause the Company and the Subsidiaries to preserve their respective business organizations intact, keep available the services of their respective present officers, employees, consultants and agents, maintain their respective present suppliers and customers and preserve their respective goodwill. 3.15 Litigation. From the date hereof through the Closing Date, the Sellers shall cause the Company to notify promptly the Purchaser of any actions or 59 proceedings of the type described in Section 2.1(G) that from the date hereof are commenced or, to the knowledge of any Seller, the Company or any of the Subsidiaries, threatened against the Company or any of the Subsidiaries, against any officer, director, employee, consultant, agent, shareholder or other representative of the Company or any of the Subsidiaries with respect to their affairs. 3.16 Agreements. From the date hereof through the Closing Date, the Sellers shall cause the Company and the Subsidiaries to notify the Purchaser promptly of any evidence that any party to a contract or other agreement listed in Schedule 2.1(O) has terminated or failed to renew or intends to terminate or fail to renew any such contract or agreement or that any party has asserted or intends to assert any claim under any such contract or agreement. 3.17 Continued Effectiveness of Representations and Warranties. From the date hereof through the Closing Date, the Sellers shall cause the Company and each of the Subsidiaries to conduct its business in such a manner so that the representations and warranties contained in Section 2.1 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and the Purchaser shall conduct its business in such a manner so that the representations and warranties contained in Section 2.2 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and all of the Sellers shall conduct their affairs in such a manner so that the representations and warranties contained in Section 2.1 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and each party shall promptly give notice to the other parties of any event, condition or circumstance occurring from the 60 date hereof through the Closing Date that would constitute a violation or breach by it of this Agreement. 3.18 Satisfaction of Conditions Precedent. During the term of the Agreement, the parties hereto will use all reasonable efforts to satisfy (or cause to be satisfied) all the conditions precedent to their respective obligations. 3.19 Exclusivity. As an inducement to the Purchaser to enter into this Agreement, and in consideration of the time and expense which it has devoted and will devote to the transactions contemplated hereby during such period, subsequent to the execution of this Agreement and until the earlier of the Closing Date or the termination hereof in accordance with Article VI, none of the Sellers nor the Company nor any of their respective representatives (including, without limitation, any investment banker, attorney or accountant retained or acting on behalf of the Company or by any of the Sellers and any director, officer or employee of the Company) will, directly or indirectly, (i) initiate, solicit, encourage or respond to any inquiry or proposal with respect to a merger, consolidation, share exchange, business combination, liquidation, dissolution or sale of all or a portion of the assets of the Company or any of the Subsidiaries outside the ordinary course of business or any purchase of any of the outstanding shares of its capital stock (an "ACQUISITION PROPOSAL"), or (ii) enter into any discussions, negotiations or agreements concerning an Acquisition Proposal with, or disclose any information concerning the Company or any of the Subsidiaries, their businesses or properties or afford any access to their properties, books and records to, or otherwise assist or facilitate any effort relating to an Acquisition Proposal, by any corporation, individual, partnership, company, 61 association, trust, person or other entity or group (a "PERSON"). The Sellers, the Company and the Subsidiaries will immediately cease any existing discussions with any Persons concerning any Acquisition Proposal. 3.20 Certain Covenants of the Purchaser. (A) The Purchaser agrees that from and after the Closing Date until September 30, 1999, the Purchaser shall maintain a consolidated financial reporting system that will be sufficient to permit an independent firm of accountants to determine the Revenue and Gross Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, pursuant to Section 1.6. If after the Closing Date until September 30, 1999, any contracts of the Company or its Subsidiaries are transferred, assigned, or otherwise allocated or attributed, for financial reporting purposes, (including, without limitation, by way of merger or other consolidation or combination of the Company and/or its Subsidiaries with the Purchaser and/or its other subsidiaries) to the Purchaser or any of its other subsidiaries (other than the Company and/or its Subsidiaries), or any contracts are awarded to the Purchaser or any of its subsidiaries (other than the Company and its Subsidiaries) towards which substantial business development costs and/or bid and proposal expenditures have been incurred by the Company and/or its Subsidiaries, then equitable and reasonable adjustments shall be made in calculating the Revenue and Gross Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, to eliminate the effect of any transfer, assignment, allocation or attribution and no such transfer, assignment, allocation or attribution shall be made unless the financial reporting system referred to in the 62 immediately preceding sentence is capable of tracking the performance of distinct contracts in a manner that will permit such determination of Revenue and Gross Profit of the Company and its Subsidiaries, and consequently, of the amount of Contingent Consideration payable pursuant to the terms of this Agreement. If after the Closing Date until September 30, 1999, any contracts of the Purchaser or its subsidiaries (other than the Company and its Subsidiaries) are transferred, assigned, or otherwise allocated or attributed, for financial reporting purposes, (including, without limitation, by way of merger or other consolidation or combination of the Company and/or its Subsidiaries with the Purchaser and/or its other subsidiaries) to the Company or its Subsidiaries (including, without limitation, by way of merger or other consolidation or combination of the Company and/or its Subsidiaries with the Purchaser and/or any of its other subsidiaries), or any contracts are awarded to the Company or any of its Subsidiaries towards which substantial business development costs and/or bid and proposal expenditures have been incurred by the Purchaser or its subsidiaries (other than the Company and its Subsidiaries), then equitable and reasonable adjustments shall be made in calculating the Revenue and Gross Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, to eliminate the effect of any transfer, assignment, allocation or attribution and no such transfer, assignment, allocation or attribution shall be made unless the financial reporting system referred to in the immediately preceding sentence is capable of tracking the performance of distinct contracts in a manner that will permit such determination of Revenue and Gross Profit of the Company and its Subsidiaries, and consequently, of the amount of Contingent Consideration payable pursuant to the 63 terms of this Agreement. All actions taken by the Purchaser during the period covered by this Section 3.20(A) shall be in good faith and not for the purpose of reducing the amount of Contingent Consideration payable pursuant to the terms of this Agreement. (B) The Purchaser shall cause the Company to be operated as a wholly-owned subsidiary until at least the 181st day following the Closing Date. The Purchaser shall offer, or shall cause the Company to offer, to United States-based employees of the Company from the Closing Date until and including the 180th day following the Closing Date the same or reasonably equivalent benefits as provided by the Company on the date hereof. Following such 180-day period, the Purchaser shall offer, or cause the Company to offer, to such employees the same or similar fringe benefit plans that the Purchaser offers its other employees. (C) The Purchaser agrees that from the Closing Date until September 30, 1999, it shall not (i) terminate or permit the Company to terminate the employment of Barrie A. Gillis or Stanley E. Graves unless such termination is made in good faith, or (ii) reduce the base compensation or, except in good faith, scope of responsibility of such individuals as in effect or applicable immediately prior to the Closing. (D) The Purchaser shall develop compensation packages for the senior management team of the Company and VDS-UK to include participation in Purchaser's incentive compensation program. 64 ARTICLE IV Conditions to Closing 4.1 Conditions to Obligations of the Sellers. The obligations of the Sellers to consummate the sale of Shares to be sold hereunder are, at their option, subject to the fulfillment or waiver, prior to or on the Closing Date, of each of the following conditions: (A) Regulatory Authorizations. All authorizations, consents, orders and approvals of federal and state regulatory bodies and officials necessary for the consummation by the Sellers of the sale and purchase of the Shares to be sold hereunder shall have been obtained, and there shall be in effect no preliminary or permanent injunction or other order of a court or governmental or regulatory agency of competent jurisdiction directing that the transaction contemplated herein, or any of them, not be consummated (collectively, an "ORDER"). (B) Representations and Warranties; Covenants. The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all respects at the date hereof and at and as of the Closing Date, with the same force and effect as if made at and as of the Closing Date; and the Purchaser shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (C) Certificate. The Purchaser shall have delivered to the Sellers a certificate, dated the Closing Date, of officers of the Purchaser to the effect 65 that the conditions specified in paragraphs (A) and (B) of this Section 4.1 have been satisfied. (D) Opinion of Counsel to the Purchasers. The Sellers' Representative shall have received the opinion of Curtis L. Schehr and Paul, Weiss, Rifkind, Wharton & Garrison, general counsel and special counsel, respectively, to the Purchaser, dated the date of the Closing, addressed to the Sellers, in the form of Exhibit II. (E) Execution of Escrow Agreement. The Purchaser shall have executed and delivered to the Sellers' Representative the Escrow Agreement. (F) Payment of Closing Payment. The Purchaser shall pay to the Sellers' Representative the Closing Payment simultaneous with the Closing, in accordance with Section 1.2 of this Agreement. 4.2 Conditions to Obligation of the Purchaser. The obligation of the Purchaser to consummate the purchase of the Shares hereunder is subject, at its option, to the fulfillment or waiver, prior to or on the Closing Date, of each of the following conditions: (A) Regulatory and other Authorizations. All authorizations, consents, orders and approvals of federal and state and regulatory bodies and officials necessary for the performance by the Purchaser of this Agreement and the consummation of the sale and purchase of the Shares hereunder shall have been obtained and there shall be no Order in effect. (B) Representations and Warranties; Covenants. The representations and warranties of each Seller contained in this Agreement shall be true 66 and correct in all respects at the date hereof and at and as of the Closing Date, with the same force and effect as if made at and as of the Closing Date, and the Sellers shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (C) Governmental Permits and Approvals. All Permits required for the lawful consummation of the Closing shall have been obtained and be in full force and effect, and the Purchaser shall have been furnished with evidence reasonably satisfactory to it that such Permits have been granted and obtained. (D) Third Party Consents. All consents, permits and approvals from parties to contracts or other agreements with the Company, the Subsidiaries or with any Seller that may be required in connection with the performance by any Seller of its obligations under this Agreement or the continuance of such contracts or other agreements with the Company or the Subsidiaries after the Closing shall have been obtained and be in full force and effect, and the Purchaser shall have been furnished with evidence reasonably satisfactory to it that such consents, permits and approvals have been granted and obtained. (E) Opinion of Counsel to the Sellers and the Company. The Purchaser shall have received the opinion of Holland & Knight, counsel to the Company and the Sellers, and the opinion of Keyworth & Co. Solicitors, counsel to VDS (UK), dated the date of the Closing, addressed to the Purchaser, in the form attached as Exhibit III. 67 (F) Delivery of Stock Certificates. The Sellers shall have delivered to the Purchaser at the Closing stock certificates representing all of the Shares duly endorsed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer. (G) Working Capital. On the Closing Date, the Company shall have at least $2,300,000 of Working Capital. (H) Cash. Either (i) the Company shall have at least $1,850,000 of Cash on the Closing Date and the Sellers shall have reasonably demonstrated to the Purchaser that the Company had not less than $3,000,000 of Working Capital as of July 31, 1997, or (ii) on the Closing Date, the Company shall have at least $2,000,000 of Cash. (I) Vector Data Systems (UK) Limited. On the Closing Date, the Company owns at least 80% of the issued and outstanding capital stock of VDS (UK) on a fully diluted basis and the Sellers shall have provided the Purchaser with evidence satisfactory to the Purchaser to such effect in accordance with Section 1.5(b). (J) Digital Healthcare Solutions, L.L.C. On the Closing Date, (i) the Company shall have been discharged of all liabilities and obligations to Digital Healthcare Solutions, L.L.C., a Virginia limited liability company, John J. Merendino, Sr., a physician licensed to practice medicine in the State of Maryland, John J. Merendino, Sr., M.D., P.A., a professional corporation organized under the laws of the State of Maryland, Medical Rehabilitation Support Services, now known as MRSS, Inc., a health care company organized and existing under the laws of the 68 State of Maryland, John J. Merendino, Jr. and Automated Billing Services, a health care insurance billing company, having its principal place of business in Maryland; (ii) the Company shall have withdrawn as a member of Digital and shall have no further obligations or liabilities under the Operating Agreement of Digital Healthcare Solutions, L.L.C., dated April 3, 1997, among VDS, John J. Merendino, Sr. and John J. Merendino, Jr.; and (iii) the Digital Healthcare Solutions, L.L.C. Contribution Agreement (Vector), dated April 3, 1997 shall have been terminated and be of no further force and effect. (K) Non-Competition. At the Closing, each of the following Sellers shall have executed and delivered a non-compete and non-disclosure agreement in substantially the form attached as Exhibit IV: Leonard H. Perroots, Barrie A. Gillis, Stanley E. Graves, Richard H. Robey, Milferd E. Barnett, Joseph J. Cane and Donald Mayes. (L) Certificate. The Sellers shall have delivered to the Purchaser a certificate, dated the Closing Date, to the effect that the conditions speci fied in paragraphs (A) through (D) and (G) through (J) of this Section 4.2 have been satisfied. (M) Satisfaction of Preemptive Rights. The Sellers shall have delivered documentation satisfactory to the Purchaser evidencing the waiver, release, extinguishment and satisfaction of any and all preemptive or similar rights, including, without limitation, pursuant to Section 651 of the Virginia Stock Corporation Act, that exist or may exist with respect to the capital stock of the Company held by the shareholders identified on Schedule 1.2. 69 ARTICLE V Fees Relating to this Transaction Except for the commission and fees of Boles and Company which will be paid by the Sellers, the Sellers represent and warrant to the Purchaser that no broker, finder, agent or similar intermediary has acted on behalf of the Company, any of the Subsidiaries or any Seller in connection with this Agreement or the transactions contemplated hereby, and that there are no brokerage commissions, finders' fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Company, any of the Subsidiaries or any of the Sellers, or any action taken by the Company, any of the Subsidiaries or any Seller. The Purchaser represents and warrants to the Sellers that no broker, finder, agent or similar intermediary has acted on behalf of the Purchaser in connection with this Agreement or the transactions contemplated hereby, and that there are no brokerage commissions, finders' fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Purchaser or any action taken by the Purchaser. Each such party (the Purchaser on the one hand and each Seller on the other) agrees to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of the Purchaser, on the one hand, or the Company, any of the Subsidiaries or any of the Sellers, on the other, and to bear the cost of legal expenses incurred in defending against any such claim. 70 ARTICLE VI Termination 6.1 Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement may be terminated prior to the Closing as follows: (a) by the mutual written consent of the parties to this Agreement; (b) by the Sellers or the Purchaser, by notice to the other, if, for any reason, the Closing has not occurred prior to 12:01 am on September 17, 1997; (c) at the election of the Sellers, if the Purchaser has breached any representation, warranty, covenant or agreement contained in this Agreement, which breach has not been cured on or prior to ten (10) days following delivery of written notice of such breach by the Sellers' Representative to the Purchaser; (d) at the election of the Purchaser, if any Seller or the Company has breached any representation, warranty, covenant or agreement contained in this Agreement, which breach has not been cured on or prior to ten (10) days following delivery of written notice of such breach by the Purchaser to the Sellers' Representative; (e) at the election of the Purchaser, if any legal proceeding is commenced or threatened by any Governmental Body directed against the consummation of the Closing or any other transaction contemplated under this 71 Agreement and the Purchaser reasonably and in good faith deems it impractical or inadvisable to proceed in view of such legal proceeding or threat thereof. If this Agreement so terminates, it shall become null and void and have no further force or effect except as provided in Section 6.2. 6.2 Effect of Termination; Expenses. In the event of the termination of this Agreement pursuant to Section 6.1, this Agreement shall thereafter become void and have no further force or effect. Except as provided herein, none of the parties hereto shall have any liability in respect of the termination of this Agreement except to the extent that failure to satisfy the conditions of Section 4 results from the violation of the representations, warranties, covenants or agreements of such party under this Agreement, in which case (i) the termination of this Agreement will not prejudice any legal rights of any party whether those rights arise under this Agreement or otherwise and in addition, (ii) the Seller shall be entitled to its rights under the Escrow Agreement; PROVIDED, HOWEVER, that if the Sellers fail to close the transactions contemplated hereunder, in addition to any other rights and remedies the Purchaser may have at law or in equity, the Sellers shall pay to the Purchaser cash, by wire transfer of Federal funds to a bank and for an account to be designated by the Purchaser, in the amount of $350,000, which amount shall be a credit against any damages in excess of such amount to which the Purchaser may be entitled; PROVIDED, HOWEVER, that if the Purchaser fails to seek or prove at least $350,000 in damages as a result of any Seller's failure to close the transactions contemplated by this Agreement, such $350,000 payment shall constitute liquidated damages and shall be the sole property of the Purchaser. 72 ARTICLE VII Indemnification 7.1 Indemnification by the Sellers. The Sellers jointly and severally (but severally and not jointly, to the extent set forth in Section 2.1) agree to indemnify, defend and hold harmless the Purchaser and the Company (and their respective directors, officers, employees, affiliates, successors and assigns) (collectively, the "PURCHASER PARTIES") against and hold the Purchaser Parties harmless from and in respect of any and all losses, liabilities, damages, deficiencies, costs, expenses (including, without limitation, expenses of investigation and defense and reasonable fees, disbursements and expenses of counsel incurred by the Purchaser Parties in any action or proceeding between the Purchaser Parties and the Sellers or between the Purchaser Parties and any third party or otherwise), claims, liens or other obligations of any nature whatsoever (collectively, "LOSSES") (other than Losses to the extent actually recovered by the Purchaser Parties under any applicable insurance policy carried by the Company prior to the date of this Agreement), based upon, arising out of, or otherwise in respect of or which may be incurred by virtue of or result from (a) the inaccuracy in or breach of any representation, warranty, covenant or agreement made by or on behalf of the Sellers or the Company in this Agreement or in any document or instrument delivered at the Closing pursuant hereto, (b) with out limitation to the Sellers' obligations under clause (a), any liability or obligation, known or unknown, contingent or otherwise, of the Company or its Subsidiaries to the extent such liabilities or obligations arise out of or relate to acts, omissions, events or conditions which occurred or existed prior to the Closing, except to the 73 extent (i) incurred in the ordinary course of business of the Company or VDS (UK) after September 30, 1996, or (ii) disclosed in this Agreement (including the Schedules hereto, except for items listed in Schedules 2.1(G), 2.1(I), 2.1(Q) and 2.1(U)), or (c) enforcing the indemnification provided for hereunder. The Sellers shall have no right to seek contribution from the Company or any of the Subsidiaries with respect to all or any part of any of the Sellers' indemnification obligations under this Section 7.1. 7.2 Indemnification by the Purchaser. The Purchaser agrees to indemnify the Sellers against and hold each Seller harmless from and in respect of any and all Losses which may be incurred by virtue of or result from (a) the inaccuracy in or breach of any representation, warranty, covenant or agreement made by or on behalf of the Purchaser in this Agreement or in any document or instrument delivered at the Closing pursuant hereto (b) the conduct of the Company and the Subsidiaries after the Closing or (c) enforcing the indemnification provided for hereunder. 7.3 ERISA and Contract Supplemental Indemnification by Each SELLER. (a) Supplemental ERISA Indemnification. Each Seller, jointly and severally, agrees to indemnify and hold harmless the Purchaser Parties with respect to any Losses incurred by any of the Purchaser Parties arising out of or otherwise in respect of the Company's being affiliated prior to the date hereof, directly or indirectly, under Code Section 414 or ERISA Section 4001 or any similar foreign law, with the Sellers, VMRC, the Subsidiaries or any of their affiliates. In addition, each Seller jointly and severally agrees to indemnify and hold harmless the 74 Purchaser Parties and their Plans with respect to any and all Losses arising out of or otherwise in respect of any of the Company's ERISA reporting and disclosure violations. All indemnification obligations in this Section 7.3(a) shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and shall not be subject to any time or dollar limitation. (b) Supplemental Contract Indemnification. Each Seller, jointly and severally, agrees to indemnify and hold harmless the Purchaser Parties, from and with respect to any and all Losses incurred by any of the Purchaser Parties arising out of, or otherwise in respect of, (i) any U.S. Government disallowance of incurred Direct Contract Costs and/or Indirect Costs, (ii) any matters under investigation by the Grand Jury referred to on Schedule 2.1(G), regardless of whether any Losses for such matters are incurred as a result of action by the Grand Jury or any Governmental Body or otherwise, or (iii) any and all preemptive or similar rights and/or assertions thereof, including, without limitation, pursuant to Section 651 of the Virginia Stock Corporation Act, that exist or may exist with respect to the capital stock of the Company held by the shareholders identified on Schedule 1.2 or previously held by any and all former shareholders of the Company. All indemnification obligations in this Section 7.3(b) shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and in the case of clauses (ii) and (iii) shall not be subject to any time or dollar limitation. 7.4 Survival of Representations and Warranties of the Sellers. Notwithstanding any right of the Purchaser fully to investigate the affairs of the 75 Company and the Subsidiaries and notwithstanding any knowledge of facts determined or determinable by the Purchaser pursuant to such investigation or right of inves tigation, the Purchaser has the right to rely fully upon the representations and warranties of each of the Sellers contained in this Agreement. All representations and warranties of the parties hereto contained in this Agreement shall survive the execution and delivery hereof and the Closing hereunder, and, except for the repre sentations and warranties made in Sections 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M), the last sentence of 2.1(P), 2.1(Q), 2.1(R), 2.2(A) and 2.2(B) which shall survive until the expiration of the applicable statute of limitations with respect to any claim arising from any inaccuracy or breach thereof, and except as otherwise specifically provided in this Agreement, (i) shall thereafter terminate and expire on April 30, 1999, with respect to any General Claim (as hereinafter defined) based upon, arising out of or otherwise in respect of any fact, circumstance, action or proceeding of which the party asserting such claim shall have given no notice on or prior to April 30, 1999, to the party against which such General Claim is asserted, (ii) with respect to any Tax Claim (as herein defined), on the later of (a) the date upon which the liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (b) the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitations and (iii) with respect to any Environmental Claim (as herein defined), on the tenth anniversary of the Closing Date. As used in this Agreement, the following terms have the following meanings: (i) "GENERAL CLAIM" means any claim (other than a Tax Claim or an Environmental Claim) based upon, arising out of or otherwise in respect of any 76 inaccuracy in or any breach of any representation or warranty of any Seller contained in this Agreement, (ii) "TAX CLAIM" means any claim based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of any Seller contained in this Agreement related to Taxes or any Plan (as defined in Section 2.1(M) hereof) and (iii) "ENVIRONMENTAL CLAIM" means any claim based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of any Seller contained in this Agreement concerning Environmental Law or principles of common law relating to pollution, protection of the environment or health and safety. Except as otherwise expressly provided herein, the covenants and agreements contained in this Agreement shall survive the execution and delivery hereof and the consummation of the transactions contemplated hereby. 7.5 Certain Limitations on Indemnification Obligations. (a) The Purchaser shall not be entitled to receive any indemnification payments under Section 7.1, except those based upon, arising out of or otherwise in respect of Sections 1.1, 1.3, 1.5, 1.6, 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M), 2.1(Q), Article III, Article V and Section 7.3 (the "BASKET EXCLUSIONS"), until the aggregate indemnification payments, exclusive of the Basket Exclusions, equal $125,000 (the "BASKET AMOUNT"), whereupon the Purchaser shall be entitled to receive in full indemnity payments in excess of the Basket Amount; PROVIDED, HOWEVER, that solely for purposes of determining whether the amount of the Sellers' indemnification obligations exceed $125,000 in the aggregate, a breach of the Sellers' representations or warranties (other than the representations and warranties contained 77 in Sections 2.1(F) (absence of certain changes or events) and 2.1(R)(a) (Additional Representations)) shall be determined without regard to any limitation or qualification as to materiality set forth in such representation or warranty. Any amount, paid to the Purchaser out of the Indemnification Escrow Fund shall not be included in determining whether the Basket Amount has been reached. (b) The Purchaser shall be entitled to receive any indemnification payments in respect of the Basket Exclusions without regard to the individual or aggregate amounts thereof and without regard to whether the aggregate of all other indemnification payments shall have exceeded, in the aggregate, the Basket Amount. (c) The maximum amount of indemnification payments under Section 7.1 with respect to any breach of a representation or warranty, excluding those based upon, arising out of or otherwise in respect of Sections 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M) or 2.1(Q) and amounts paid to the Purchaser under the Escrow Agreement, shall not exceed $5,000,000. The amount of indemnification payments based upon, arising out of or otherwise in respect of breaches of Sections 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M) or 2.1(Q) shall not exceed the Purchase Price. (d) The indemnification obligations of the parties under Section 7.1 and 7.2 shall terminate on April 30, 1999, except with respect to any claims for indemnification as to which an indemnified person shall have given an indemnifying person written notice setting forth its claim with reasonable specificity (in contradistinction to generalized allegations) as to the nature thereof on or prior to April 30, 1999; PROVIDED, HOWEVER, that the indemnification obligations of the parties 78 under Section 7.1 and 7.2 with respect to Losses that may be incurred by virtue of or result from (i) the inaccuracy or breach of any representation or warranty made in Section 2.1(A), 2.1(B), 2.1(C), 2.1(D), 2.1(M), the last sentence of 2.1(P), 2.1(Q), 2.1(R) or 2.2(A) or 2.2(B), or (ii) the audit of any U.S. government contract with respect to services performed or data submitted on or before the Closing Date, or (iii) the breach of any covenant or agreement made in this Agreement, or (iv) any claim based upon, arising out or otherwise related to any event, condition, occurrence or circumstance occurring on or prior to the Closing Date that is insured against under any insurance policy or arrangement carried by or on behalf of the Company prior to the Closing (or any renewal or extension thereof), shall in each case survive until the expiration of the applicable statutes of limitations with respect to each such item, or (v) any Tax Claim, shall survive until the later of (a) the date upon which the liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (b) the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitations, or (vi) any Environmental Claim, shall survive until the tenth anniversary of the Closing Date. 7.6 Defense of Claims. In the case of any claim for indemnification under Section 7.1, 7.2 or 7.3 arising from a claim of a third party, an indemnified party shall give prompt written notice to the indemnifying party of any claim, suit or demand of which such indemnified party has knowledge and as to which it may request indemnification hereunder. The failure to give such notice shall not, however, relieve the indemnifying party of its indemnification obligations except to the extent that the indemnifying party is actually harmed thereby. The indemnifying 79 party shall have the right to defend and to direct the defense against any such claim, suit or demand, in its name and at its expense, and with counsel selected by the indemnifying party unless such claim, suit or demand seeks an injunction or other equitable relief against the indemnified party; PROVIDED, HOWEVER, the indemnifying party shall not have the right to defend or direct the defense of any such claim, suit or demand if it contests, in whole or in part, its indemnification obligations therefor. If the indemnifying party elects to compromise or defend such claim, it shall within 30 days (or sooner, if the nature of the claim so requires) notify the indemnified party of its intent to do so, and the indemnified party shall, at the expense of the indemnifying party, cooperate in the defense of such claim, suit or demand. If the indemnifying party elects not to compromise or defend such claim, fails to notify the indemnified party of its election as herein provided or contests its obligation to indemnify under this Agreement, the indemnified party may pay, compromise or defend such claim. Except as set forth in the immediately preceding sentence, the indemnifying party shall have no indemnification obligations with respect to any such claim, suit or demand which shall be settled by the indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld); PROVIDED, HOWEVER, that notwithstanding the foregoing, the indemnified party shall not be required to refrain from paying any claim which has matured by a court judgment or decree, unless an appeal is duly taken therefrom and exercise thereof has been stayed, nor shall it be required to refrain from paying any claim where the delay in paying such claim would result in the foreclosure of a lien upon any of the property or assets then held by the indemnified party or where any 80 delay in payment would cause the indemnified party material economic loss. The indemnifying party's right to direct the defense shall include the right to compromise or enter into an agreement settling any claim by a third party; PROVIDED that no such compromise or settlement shall obligate the indemnified party to agree to any settlement which requires the taking of any action by the indemnified party other than the delivery of a release. Notwithstanding the indemnifying party's right to compromise or settle in accordance with the immediately preceding sentence, the indemnifying party may not settle or compromise any claim over the objection of the other; provided, however, that consent to settlement or compromise shall not be unreasonably withheld. The indemnified party shall have the right to participate in the defense of any claim, suit or demand with counsel selected by it subject to the indemnifying party's right to direct the defense. The fees and disbursements of such counsel shall be at the expense of the indemnified party; PROVIDED, HOWEVER, that, in the case of any claim, suit or demand which seeks injunctive or other equitable relief against the indemnified party as to which the indemnifying party shall not in fact have employed counsel to assume the defense of such claim, suit or demand, the fees and disbursements of such counsel shall be at the expense of the indemnifying party. 7.7 Non-Third Party Claims. Any claim which does not result in a third party claim shall be asserted by a written notice to the other party or parties. The recipient of such notice shall have a period of thirty days after receipt of such notice within which to respond thereto. If the recipient does not respond within such thirty days, the recipient shall be deemed to have accepted responsibility for the Losses set forth in such notice and shall have no further right to contest the validity of 81 such notice. If the recipient responds within such thirty days after the receipt of the notice and rejects such claim in whole or in part, the party delivering shall be free to pursue such remedies as may be available to it under contract or applicable law. 7.8 Set-off Rights. Each of the Sellers agrees that the Purchaser shall have the right, but not the obligation, to set-off against its payment obligations under Section 1.6 the full amount of any Losses required to be paid by such Seller pursuant to Section 7.1 or 7.3 if such Losses are not otherwise paid within 30 days after the Purchaser has requested payment. If the Purchaser elects to exercise its set-off rights hereunder against any payment due to the Sellers under Section 1.6, it will give to the Sellers written notice of such election which includes the amount to be set-off, and upon giving of such notice the amount of cash payable by the Purchaser to the Sellers under Sections 1.6(e), 1.6(f) and/or 1.6(g), as the case may be, shall automatically be reduced by the amount set forth in such notice. In the event there is a final determination by a court of competent jurisdiction that the Purchaser was not entitled to indemnification under this Article 7 with respect to the set-off amount, the Purchaser shall promptly thereafter repay to the Sellers all such amounts which are so determined to have been incorrectly set-off plus interest thereon at a rate per annum which is equal to the prime rate, as announced from time to time by Mellon Bank, N.A., on the basis of a 366-day year and actual days elapsed and which shall accrue from the date the Purchaser exercised its right of set-off hereunder to the date of such repayment. For purposes of this Section 7.8, a determination shall be final if any and all appeals therefrom shall have been resolved or if 30 days shall have passed from 82 the rendering of such determination (or of any determination on appeal therefrom) and no party shall have commenced any such appeal therefrom. ARTICLE VIII Miscellaneous 8.1 Certain Definitions. As used herein, the following terms shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): "Business Day" means any day other than Saturday or Sunday or any other day on which banks in the Commonwealth of Virginia are permitted or obligated to be closed for business. "Cash" means, as of the date of determination, the difference of (x) the aggregate amount of cash and cash equivalents held as of 10:00 a.m. (New York City time) in the bank accounts, including money market accounts, of the Company, as verified by such banks to the Purchaser by telephone, MINUS (y) the aggregate balance of all outstanding checks written against such accounts. "Direct Contract Costs" means, with respect to any period, the aggregate amounts of labor, fringe and other direct expenses, including expenses for materials, subcontracts, consultants and travel incurred by the Company and the Consolidated Subsidiaries in providing services under U.S. and/or foreign government contracts and shall exclude general and administrative expenses. "Gross Profit" means, with respect to any period, the difference of (x) Revenue, MINUS (y) Direct Contract Costs. 83 "Indirect Cost" means any cost that is not directly identified with a single final cost objective, but is identified with two or more final cost objectives, or with at least one intermediate cost objective, and includes, but is not limited to, labor, fringe benefits, facility and occupancy costs, training, incentives, outside purchased services and travel. "Revenue" means, with respect to any period, the aggregate amount of Cash paid and/or accounts receivable (whether billed, unbilled or retained) arising from U.S. and/or foreign government contracts. "Tax" or "Taxes" means all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, real or personal property, and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts thereon, imposed by any taxing authority (federal, state, local or foreign) and shall include any transferee liability in respect of Taxes. "Tax Return" means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect to any Taxes. "Working Capital" means the difference of (x) all current assets of the Company and the Subsidiaries, MINUS (y) the current liabilities of the Company and the Subsidiaries, determined in accordance with GAAP applied on a consistent basis. 84 8.2 Sellers' Representative. (i) Each Seller hereby irrevocably appoints Joseph J. Cane to act as such Seller's attorney-in-fact and representative (the "SELLERS' REPRESENTATIVE"), to do any and all things and to execute any and all documents, in such Seller's name, place and stead, in any way which such Seller could do if personally present, in connection with this Agreement, the Escrow Agreement and the transactions contemplated hereby and thereby, including to accept on such Seller's behalf any amount payable to such Seller under this Agreement, the Escrow Agreement, or to amend, cancel or extend, or waive the terms of, this Agreement, or the Escrow Agreement. The Purchaser shall be entitled to rely, as being binding upon such Seller, upon any document or other paper believed by the Purchaser to be genuine and correct and to have been signed by the Sellers' Representative, and the Purchaser shall not be liable to any Seller for any action taken or omitted to be taken by the Purchaser in such reliance. The Sellers' Representative shall have the sole and exclusive right on behalf of the Sellers to take any action or provide any waiver pursuant to Section 4.1, 8.2 or 8.3 or Article VI or VII. (ii) The Sellers' Representative may resign at any time by giving written notice thereof to the Purchaser and the Sellers and may be removed at any time with or without cause by the Sellers who held a majority of the outstanding capital Shares at the time of the Closing. Upon any such resignation or removal, the Sellers shall have the right to appoint, with the consent of the Purchaser, a successor Sellers' Representative. If no successor Sellers' Representative shall have been so appointed by the Sellers, and shall have accepted such appointment, within 30 days 85 after the retiring Sellers' Representative's giving of notice of resignation or the Sellers' removal of the retiring Sellers' Representative, then the retiring Sellers' Representative may, on behalf of the Sellers, appoint a successor Sellers' Representative, which shall be acceptable to the Purchaser (which shall not unreasonably withhold its approval). Upon the acceptance of any appointment as Sellers' Representative thereunder by a successor Sellers' Representative, such successor Sellers' Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Sellers' Representative, and the retiring Sellers' Representative shall be discharged from its duties and obligations under this Agreement. After any retiring Sellers' Representative's resignation or removal hereunder as Sellers' Representative, the provisions of this Section 8.2 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Sellers' Representative. (iii) The grant of authority provided for in this Section 8.2: (a) is coupled with an interest and shall be irrevocable and survive the death, incompetency, bankruptcy or liquidation of any Seller and shall be binding on any successor thereto; and (b) shall survive the delivery of an assignment by a Seller of the whole or any fraction of its interest in any payment due to it under this Agreement. 8.3 Expenses. Unless otherwise specifically provided herein, the parties shall bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement and consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Purchaser 86 agrees that the Company may pay Keller Bruner & Company, P.C. accounting expenses up to $20,000 and Holland & Knight LLP legal expenses up to $150,000, it being agreed by the parties hereto that any accounting, legal and/or other expenses of the Company, any of the Subsidiaries and/or any of the Sellers in excess of such specified amounts shall be paid solely by the Sellers from their respective proceeds of the transaction contemplated hereunder. 8.4 Waivers and Amendments; Non-Contractual Remedies; PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Purchaser and the Sellers or the Sellers' Representative or, in the case of a waiver, by or on behalf of the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement or any document delivered pursuant to this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other 87 representation, warranty, covenant or agreement contained in this Agreement or any document delivered pursuant to this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. 8.5 Public Disclosure. Each of the parties to this Agreement hereby agrees with the other party that, except as may be required to comply with the requirements of applicable law, no press release or similar public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement or the transactions contemplated hereunder unless specifically approved in advance by both parties, such approval not to be unreasonably withheld, conditioned or delayed. If any announcement is required by law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. 8.6 Mediation. Each party agrees that, at least thirty (30) days prior to bringing any legal action to enforce any rights, or seek damages hereunder, such party will notify the other parties that it is requesting non-binding mediation (setting forth in reasonable detail the nature of the dispute to be mediated) and the parties shall within ten (10) days of such notice commence good faith mediation with respect thereto for a period of not less than twenty (20) days. This Section 8.6 shall not apply to disputes under any Non-Compete and Non-Disclosure Agreement or the giving of notice or delivery of any certificate under the Escrow Agreement. The mediation shall take place under the auspices of the American Arbitration Association in Fairfax County, Commonwealth of Virginia. 88 8.7 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTER PRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND EACH SELLER AND THE PURCHASER IRREVOCABLY AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED IN NEW YORK COUNTY, STATE OF NEW YORK OR ANY STATE COURT LOCATED IN FAIRFAX COUNTY, COMMONWEALTH OF VIRGINIA OR ANY FEDERAL COURT LOCATED IN THE EASTERN DISTRICT OF VIRGINIA AND EACH PARTY AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT, AND HEREBY WAIVES ANY OFFSETS OR COUNTERCLAIMS IN ANY SUCH ACTION, SUIT OR PROCEEDING. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER 89 NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY PARTY IF GIVEN PERSONALLY OR BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER MEANS OF MAIL THAT REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID. NOTHING HEREIN CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY JURISDICTION OTHER THAN NEW YORK OR VIRGINIA. 8.8 Notices. Any notices or other communications required under this Agreement shall be in writing and be effective upon delivery if given by hand delivery or facsimile transmission or on the next day after given if delivered by overnight courier and shall be given at the addresses or facsimile numbers set forth below, with copies provided as follows: (a) if to the Sellers, to the Sellers' Representative addressed to: Joseph J. Cane 3 Seahawk Lane Ocean View, DE 19970 with a copy to: Holland & Knight, LLP 2100 Pennsylvania Avenue, Suite 400 Washington, D.C. 20037-3203 Attn: William J. Mutryn, Esq. 90 (b) if to the Purchaser, addressed to: Anteon Corporation 3211 Jermantown Road Fairfax, VA 22030-2801 Attn: Curtis L. Schehr, Esq. Vice President and General Counsel with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attn: Carl L. Reisner, Esq. or at such other place or places or to such other person or persons as shall be designated in writing by the parties to this Agreement in the manner herein proved. 8.9 SECTION HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 8.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 8.11 ASSIGNMENTS. This Agreement may not be assigned, by operation of law or otherwise, except that the Purchaser may assign its rights under this Agreement to its financing sources upon delivery of notice of the identity of such assignee to the Sellers' Representative. This Agreement shall be binding upon and inure to the benefit of successors and legal representatives of the parties hereto. 8.12 ENTIRE AGREEMENT, ENFORCEABILITY AND MISCELLANEOUS. This Agreement including the Exhibits and Schedules attached hereto (a) constitutes the entire agreement among the parties with respect to the transactions contemplated 91 hereby and supersedes all prior agreements and understandings, both written and oral, among the parties, with respect to the subject matter hereof; (b) shall be binding upon, and is solely for the benefit of, each of the parties herein and nothing in this Agreement is intended to confer upon any other persons any rights or remedies of any nature whatsoever hereunder or by reason of this Agreement; and (c) in case any provision in this Agreement shall be or shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The parties hereto have made no representations or warranties with respect to the transactions contemplated herein, express or implied, written or oral, except for the representations and warranties made in Article II of this Agreement. 8.13 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. A reference to a Section or an Exhibit or Schedule will mean a Section in, or Exhibits or Schedule to, this Agreement unless otherwise explicitly set forth. 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ANTEON CORPORATION By: /s/ JOSEPH M. KAMPF -------------------------------------------- Name: Joseph M. Kampf Title: President and Chief Executive Officer VECTOR DATA SYSTEMS, INC. By: /s/ BARRIE A. GILLIS -------------------------------------------- Name: Barrie A. Gillis Title:President 93 SELLERS /s/ SCOTT HILTERBRICK, ATTORNEY IN FACT -------------------------------------------- Name: James Bardine By: Scott Hilterbrick attorney in fact /s/ MILIFERD E. BARNETT -------------------------------------------- Name: Milferd E. Barnett /s/ STANLEY E. GRAVES, ATTORNEY IN FACT Name: Maurice Bedford By: Stanley E. Graves attorney in fact /s/ SCOTT HILTERBRICK, ATTORNEY IN FACT -------------------------------------------- Name: James Brown By: Scott Hilterbrick attorney in fact /s/ STANLEY E. GRAVES, ATTORNEY IN FACT -------------------------------------------- Name: Robert L. Buran By: Stanley E. Graves attorney in fact /s/ JOSEPH J. CANE -------------------------------------------- Name: Joseph J. Cane, individually and as Sellers' Representative /s/ RONALD CRABB -------------------------------------------- Name: Ronald Crabb /s/ STANLEY E. GRAVES, ATTORNEY IN FACT -------------------------------------------- Name: Lisa M. Gallina By: Stanley E. Graves attorney in fact 94 /s/ BARRIE A. GILLIS -------------------------------------------- Name: Barrie A. Gillis /s/ STANLEY E. GRAVES -------------------------------------------- Name: Stanley E. Graves, in his individual capacity 95 STANLEY E. GRAVES CHARITABLE REMAINDER UNITRUST By: /s/ STANLEY E. GRAVES -------------------------------------------- Stanley E. Graves, as Co-Trustee By: /s/ BARRIE A. GILLIS, ATTORNEY IN FACT -------------------------------------------- Pamela C. Graves, Co-Trustee By: Barrie A. Gillis attorney in fact /s/ LEONARD H. PERROOTS, ATTORNEY IN FACT ----------------------------------------------- Name: Robert Hansinger By: Leonard H. Perroots attorney in fact /s/ SCOTT HILTERBRICK ----------------------------------------------- Name: Scott Hilterbrick /s/ STANLEY E. GRAVES, ATTORNEY IN FACT ----------------------------------------------- Name: Joseph Hollick By: Stanley E. Graves attorney in fact /s/ LEONARD H. PERROOTS, ATTORNEY IN FACT ----------------------------------------------- Name: Donald Mayes By: Leonard H. Perroots attorney in fact /s/ LEONARD H. PERROOTS, ATTORNEY IN FACT ----------------------------------------------- Name: Tofie Owen By: Leonard H. Perroots attorney in fact /s/ LEONARD H. PERROOTS ----------------------------------------------- Name: Leonard H. Perroots 96 /s/ BARRIE A. GILLIS, ATTORNEY IN FACT ----------------------------------------------- Name: J. Christopher Phelps By: Barrie A. Gillis attorney in fact /s/ THOMAS G. RICHARDS ----------------------------------------------- Name: Thomas G. Richards /s/ RICHARD H. ROBEY ----------------------------------------------- Name: Richard H. Robey /s/ BARRIE A. GILLIS, ATTORNEY IN FACT ----------------------------------------------- Name: Theodore K. Rulf By: Barrie A. Gillis attorney in fact ESTATE OF MARY THROWE By: /s/ BARRIE A. GILLIS, ATTORNEY IN FACT ------------------------------------------- Name: Barrie A. Gillis Personal Representative /s/ LEONARD H. PERROOTS, ATTORNEY IN FACT ----------------------------------------------- Name: John Woodbury By: Leonard H. Perroots attorney in fact EX-10.2 9 PLAN OF MERGER AGREEMENT Exhibit 10.2 ================================================================================ AGREEMENT AND PLAN OF MERGER by and among ANTEON CORPORATION, TM ACQUISITION CORP., TECHMATICS, INC., CERTAIN SHAREHOLDERS OF TECHMATICS, INC., SIGNATORIES HERETO, and JOSEPH MAURELLI, individually and as Sellers' Representative. Dated May 13, 1998 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER.......................................................3 1.1 The Merger..............................................3 1.2 Closing; Effective Time.................................3 1.3 Articles of Incorporation...............................4 1.4 Bylaws..................................................4 1.5 Directors and Officers..................................4 ARTICLE II CONVERSION OF SECURITIES FOR CASH................................5 2.1 Purchase Price..........................................5 2.2 Price Per Share.........................................5 2.3 Payment.................................................6 2.4 Options.................................................7 2.5 Merger Sub Common Stock.................................8 2.6 Exchange of Common Stock and Option Payments............9 2.7 Withholding: Net Payments.............................11 2.8 Determination and Payment of Contingent Consideration..11 ARTICLE III REPRESENTATIONS AND WARRANTIES..................................16 3.1 Representations and Warranties of the Company and the Sellers................................................16 (A) Organization and Qualification of the Company......17 (B) Authority to Execute and Perform Agreement.........18 (C) Capital Stock......................................20 (D) Vote Required......................................21 (E) Financial Statements...............................22 (F) Absence of Certain Changes or Events...............23 (G) Litigation and Liabilities.........................26 (H) Title to Properties; Absence of Liens, etc.........26 (I) Licenses and Registrations; Compliance with Laws, etc..........................................27 (J) Intangible Property................................28 (K) Non-Contravention..................................29 (L) Consent and Approvals..............................31 (M) Employee Benefit Plans; ERISA......................32 (N) Insurance Policies.................................36 (O) Agreements.........................................37 (P) Validity of Agreements.............................39 (Q) Taxes..............................................41 Page ---- (R) Additional Representations.........................45 (S) Accounts and Notes Receivable......................47 (T) Potential Conflicts of Interest....................47 (U) Liabilities........................................48 (V) Real Estate........................................49 (W) Labor Matters......................................51 (X) Management Reserves................................51 (Y) Working Capital and Outstanding Debt...............52 3.2 Representations and Warranties of the Parent and the Merger Sub.............................................52 (A) Organization.......................................52 (B) Authority to Execute and Perform Agreement.........52 (C) Consents and Approvals.............................53 (D) Non-Contravention..................................53 (E) Parent Material Adverse Effect.....................54 (F) Parent Litigation..................................55 ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES............................55 4.1 Taxes; Section 338(h)(10) Election.....................55 4.2 Tax Return Filing......................................58 4.3 Further Assurances.....................................59 4.4 Access to Records......................................59 4.5 Preservation of Records................................61 4.6 Confidentiality........................................62 4.7 Efforts; Consents......................................63 4.8 Return of Information and Confidentiality..............63 4.9 Ordinary Course of Business............................64 4.10 Insurance Proceeds, Litigation Rights..................64 4.11 Benefit Plans and Employee Matters.....................65 4.12 Preservation of Business...............................67 4.13 Litigation.............................................67 4.14 Agreements.............................................68 4.15 Continued Effectiveness of Representations and Warranties.............................................68 4.16 Satisfaction of Conditions Precedent...................69 4.17 Exclusivity............................................69 4.18 Allocation of Certain Expenses of Parent...............70 4.19 Certain Covenants of the Parent........................70 4.20 Shareholder Approval...................................73 ARTICLE V CONDITIONS TO CLOSING...........................................74 5.1 Conditions to Obligations of the Company...............74 (A) Regulatory Authorizations..........................74 ii Page ---- (B) Representations and Warranties; Covenants..........74 (C) Certificates.......................................75 (D) Opinions of Counsel to the Parent and the Merger Sub................................................75 (E) Expiration of Required Notice Period...............75 5.2 Conditions to Obligations of the Parent and the Merger Sub.............................................75 (A) Regulatory and other Authorizations................75 (B) Representations and Warranties; Covenants..........76 (C) Governmental Permits and Approvals.................76 (D) Third Party Consents...............................76 (E) Opinion of Counsel to the Company and the Sellers..77 (F) Non-Competition....................................77 (G) Certificate........................................77 (H) Payoff Letter......................................77 (I) VEBA Funding.......................................77 ARTICLE VI FEES RELATING TO THIS TRANSACTION...............................78 ARTICLE VII TERMINATION.....................................................79 7.1 Termination............................................79 7.2 Effect of Termination; Expenses........................80 ARTICLE VIII INDEMNIFICATION.................................................81 8.1 Indemnification by the Sellers.........................81 8.2 Indemnification by the Parent and the Merger Sub.......82 8.3 ERISA, Tax and Contract Supplemental Indemnification by Each Seller.........................................82 8.4 Survival of Representations and Warranties of the Sellers................................................84 8.5 Certain Limitations on Indemnification Obligations.....86 8.6 Defense of Claims......................................88 8.7 Non-Third Party Claims.................................90 8.8 Set-off Rights.........................................90 ARTICLE IX MISCELLANEOUS...................................................91 9.1 Certain Definitions....................................91 9.2 Sellers' Representative................................96 9.3 Expenses...............................................98 iii Page ---- 9.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies...............................99 9.5 Public Disclosure.....................................100 9.6 GOVERNING LAW. ......................................100 9.7 Notices...............................................102 9.8 Section Headings......................................103 9.9 Counterparts..........................................103 9.10 Assignments...........................................103 9.11 Entire Agreement, Enforceability and Miscellaneous....103 Schedules Schedule 2.2 Price Per Share Illustration Schedule 2.3(c) Deferred Tax Liability Calculation Schedule 3.1(A) Organization and Qualification of the Company Schedule 3.1(C) Capitalization Schedule 3.1(F) Absence of Certain Changes or Events Schedule 3.1(G) Litigation and Liabilities Schedule 3.1(H) Permitted Liens Schedule 3.1(I) Compliance with Laws Schedule 3.1(J) Intangible Property Schedule 3.1(K) Non-Contravention Schedule 3.1(L) Consents and Approvals Schedule 3.1(M) Employee Benefit Plans; ERISA Schedule 3.1(O) Agreements Schedule 3.1(P) Validity of Agreements Schedule 3.1(Q) Groups Schedule 3.1(R) Additional Representations Schedule 3.1(T) Potential Conflicts of Interest Schedule 3.1(U) Liabilities Schedule 3.1(V) Real Property Schedule 6.0 Certain Fees Relating to this Transaction Exhibits Exhibit I Articles of Merger Exhibit II Subordinated Promissory Note Exhibit III Option Cancellation Agreement Exhibit IV Form of Opinion of Counsel to the Parent Exhibit V Form of Opinion of Counsel to the Company and the Sellers Exhibit VI Form of Non-Compete and Non-Disclosure Agreement Exhibit VII Certain Level of Effort Contracts iv AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated May 13, 1998, by and among Anteon Corporation, a Virginia corporation (the "PARENT"), TM Acquisition Corp., a Virginia corporation and a wholly owned subsidiary of the Parent (the "MERGER SUB"), TECHMATICS, Inc., a Virginia corporation (the "COMPANY"), each of the individuals designated on the signature pages hereof as a Seller (each a "SELLER" and collectively, the "SELLERS") and Joseph Maurelli, as a Seller and in his capacity as the representative of the Sellers (the "SELLERS' REPRESENTATIVE"). The Merger Sub and the Company are sometimes collectively referred to herein as the "CONSTITUENT CORPORATIONS." W I T N E S S E T H : WHEREAS, the respective boards of directors of the Parent, the Merger Sub and the Company have approved this Agreement pursuant to which, among other things, the Merger Sub will be merged with and into the Company (the "MERGER") on the terms and conditions contained herein and in accordance with the Virginia Stock Corporation Act (the "VSCA"); WHEREAS, Sellers are hereby consenting to the adoption of this Agreement and the Merger and are agreeing to vote for and approve this Agreement and the Merger in accordance with the articles of incorporation and bylaws of the Company and the VSCA; WHEREAS, the execution of this Agreement by the Sellers, the execution of a unanimous written consent by all holders of the Company's Class A Common Stock delivered to the Secretary of the Company on April 17, 1998 (the 2 "UNANIMOUS WRITTEN CONSENT") and the execution of a second unanimous consent by all holders of the Company's Class A Common Stock delivered to the Secretary of the Company on the date hereof and to be effective at the Effective Time (the "EFFECTIVE TIME UNANIMOUS CONSENT"), constitute the only actions necessary to be taken by shareholders of the Company ("SHAREHOLDERS") in order to adopt this Agreement under the Company's articles of incorporation and bylaws and the VSCA; WHEREAS, the Sellers are the beneficial and record owners of 100% of the issued and outstanding shares of the Company's Class A Common Stock, 60.5% of the Company's Class A Nonvoting Common Stock, and 87.7% of the combined Common Stock of the Company (the Class A Common Stock and the Class A Nonvoting Common Stock are referred to together as the "COMMON STOCK"); WHEREAS, the waiting period required for this Merger pursuant to the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on March 15, 1998; and WHEREAS, the Parent, the Merger Sub, the Sellers and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger. NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 3 ARTICLE I THE MERGER 1.1 The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in Section 1.2) and in accordance with the VSCA, the Merger Sub shall be merged with and into the Company, which shall be the surviving corporation in the Merger (the "SURVIVING CORPORATION"). At the Effective Time, the separate existence of the Merger Sub shall cease and the other effects of the Merger shall be as set forth in Section 13.1-721 of the VSCA. 1.2 Closing; Effective Time. Subject to the provisions of Article VII, the closing of the Merger (the "CLOSING") shall take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1615 L Street, Washington, D.C. 20036- 5694, at 10:00 a.m. Washington, D.C., time on May 29, 1998, or on such later date thereafter on which each of the conditions set forth in Article V have been satisfied or waived by the party or parties entitled to the benefit of such conditions, or at such other place, at such other time or on such other date as the Parent, the Merger Sub and the Company may mutually agree. The date on which the Closing actually occurs is hereinafter referred to as the "CLOSING DATE." At the Closing, the Parent, the Merger Sub and the Company shall cause the articles of merger (the "ARTICLES OF MERGER") attached hereto as Exhibit I to be executed and filed with the State Corporation Commission of the Commonwealth of Virginia (the "COMMISSION") in accordance with the VSCA. The Merger shall become effective as of the date and time (the "EFFECTIVE TIME") a certificate of merger is issued by the Commission with 4 respect to the Merger, unless a later date and time is specified in the Articles of Merger pursuant to the VSCA. 1.3 Articles of Incorporation. The articles of incorporation of the Merger Sub, as in effect immediately prior to the Effective Time, shall become, from and after the Effective Time, the articles of incorporation of the Surviving Corporation, until thereafter altered, amended or repealed as provided therein and in accordance with applicable law, except that the name of the Surviving Corporation shall be "TECHMATICS, Inc." 1.4 Bylaws. The bylaws of the Merger Sub, as in effect immediately prior to the Effective Time, shall become, from and after the Effective time, the by-laws of the Surviving Corporation, until thereafter altered, amended or repealed as provided therein and in accordance with applicable law. 1.5 Directors and Officers. The directors and officers of the Merger Sub immediately prior to the Effective Time shall become, from and after the Effective Time, the directors and officers of the Surviving Corporation, until their respective successors are duly elected or appointed and qualify or their earlier resignation or removal. In addition, Joseph Maurelli shall be a director of the Surviving Corporation following the Effective Time for a period of not less than two years following the Effective Time so long as he remains an executive officer of the Surviving Corporation and Michael B. Maraghy shall be a director of the Surviving Corporation immediately following the Effective Time. 5 ARTICLE II CONVERSION OF SECURITIES FOR CASH 2.1 Purchase Price. The Parent agrees to pay or cause to be paid, an aggregate consideration of (a) Thirty-Seven Million Dollars ($37,000,000) (the "AGGREGATE CONSIDERATION"), plus (b) any amounts payable under Sections 2.3(b) and (c), plus (c) any sum or sums due hereunder pursuant to Section 2.8, subject to any right of set-off the Parent may have pursuant to Section 8.8 (the "CONTINGENT CONSIDERATION") (the Aggregate Consideration and the Contingent Consideration being hereinafter referred to collectively as the "PURCHASE PRICE"), in order to acquire all of the shares of Common Stock outstanding at the Effective Time and to cause the rights of Option Holders (as defined in Section 2.4) to acquire Common Stock to be extinguished as of the Effective Time. The parties will accomplish the foregoing by means of the Merger and the amount, timing, and form of consideration to be payable to the Shareholders and Option Holders and the manner of payment is set forth in this Article II. 2.2 Price Per Share. Each share of Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive, at the times and subject to the other provisions of this Agreement, a per share amount (the "PER SHARE AMOUNT") equal to the sum of (1) the quotient obtained by dividing (a) the sum of (i) the Purchase Price multiplied by a fraction the numerator of which is the number of shares of Common Stock issued and outstanding immediately prior to the Effective Time ("N") and the denominator of which is the 6 sum of N PLUS the aggregate number of shares of Common Stock covered by Options (as defined in Section 2.4) outstanding immediately prior to the Effective Time ("S"), PLUS (ii) the aggregate exercise price of the Options outstanding immediately prior to the Effective Time ("EP"), by (b) N, PLUS (2) the amounts payable under Sections 2.3 (b) and (c). Schedule 2.2 sets forth for illustration an example of the calculations contemplated by Sections 2.2, 2.3 and 2.4. 2.3 Payment. The Per Share Amount shall be paid as follows: (a) Three days subsequent to the Effective Time, the Parent shall pay or cause the Surviving Corporation to pay to each Shareholder entitled to receive a payment under Section 2.2 an amount for each share of Common Stock held at the Effective Time (the "PER SHARE CLOSING AMOUNT") equal to the quotient obtained by dividing (a) the sum of (i) Twenty-seven Million Dollars ($27,000,000) multiplied by a fraction the numerator of which is N and the denominator of which is the sum of N plus S, PLUS (ii) EP multiplied by the fraction obtained by dividing 27 by 37, by (b) N. (b) On December 15, 1998, for each share of Common Stock held by such Shareholder, the Parent shall pay or cause the Surviving Corporation to pay to each Shareholder entitled to receive a payment under Section 2.2 the quotient of One Million Dollars ($1,000,000) divided by N, as partial reimbursement of the estimated Deferred Tax Liability (as defined in Section 9.1) . (c) On April 1, 1999, the Parent shall pay or cause the Surviving Corporation to pay to each Shareholder entitled to receive a payment under Section 2.2, the quotient of Three Million Dollars ($3,000,000) divided by N for each 7 share of Common Stock held by such Shareholder, as partial reimbursement of the estimated Deferred Tax Liability. (d) At the Closing, the Parent shall deliver to each Shareholder entitled to receive a payment under Section 2.2, a subordinated promissory note due May 31, 2000 (the "NOTES"), in substantially the form of Exhibit II, in principal amount equal to the quotient obtained by dividing (a) the sum of (i) Ten Million Dollars ($10,000,000) multiplied by a fraction the numerator of which is N and the denominator of which is the sum of N plus S, plus (ii) EP multiplied by the fraction obtained by dividing 10 by 37, by (b) N, for each share of Common Stock held by such Shareholder at the Effective Time. (e) The Contingent Consideration to be paid pursuant to this Agreement, if any, shall be paid by the Parent in accordance with the terms of Section 2.8, subject to any set-off right the Parent may have pursuant to Section 8.8. 2.4 Options. On or prior to the Closing Date, the Company shall cause each holder (an "OPTION HOLDER") of an option obligating the Company to issue any shares of Common Stock (each, an "OPTION") to enter into an agreement with the Company in the form of Exhibit III providing that each holder of an Option outstanding immediately prior to the Effective Time, whether or not then exercisable, shall be entitled to receive in full settlement and cancellation of such Option, and in return for a waiver of all rights associated with such Option under the terms of any of the Company's option plans, the following consideration at the following times: (a) At the Closing, the Parent shall pay or cause the Merger Sub to pay to each Person who is an Option Holder at the Effective Time an amount 8 in cash for each Option held equal to the remainder of (i) Twenty-seven Million Dollars ($27,000,000) MULTIPLIED by a fraction the numerator of which is the number of shares of Common Stock covered by such Option ("OS") and the denominator of which is the sum of N plus S, MINUS (ii) the exercise price of such Option ("OEP") MULTIPLIED by OS MULTIPLIED by the fraction obtained by dividing 27 by 37. (b) At the Closing, the Parent shall deliver to the Company for delivery to each Person who is an Option Holder at the Effective Time a Note in principal amount for each Option held equal to the remainder of (i) Ten Million Dollars ($10,000,000) MULTIPLIED by a fraction the numerator of which is OS and the denominator of which is the sum of N plus S, MINUS (ii) OEP MULTIPLIED by OS MULTIPLIED by the fraction obtained by dividing 10 by 37. (c) The Contingent Consideration to be paid pursuant to this Agreement, if any, shall be paid by the Parent in accordance with the terms of Section 2.8, subject to any set-off right the Parent may have pursuant to Section 8.8. If any Option Holder shall fail to enter into an agreement referred to in the first paragraph of this Section 2.4, then the Company shall promptly exercise all its rights and give all required notice under its option plans so that the Option will be accelerated, vested and converted at the Effective Time into the consideration provided for in this Section 2.4, and the Closing Date and any termination rights under this Agreement will be tolled for a reasonable period not to exceed 45 days to permit the Company to take such actions. 2.5 Merger Sub Common Stock. Each share of common stock of the Merger Sub issued and outstanding immediately prior to the Effective Time shall, 9 by virtue of the Merger and without any action on the part of the holder thereof, be converted into one share of common stock of the Surviving Corporation. 2.6 Exchange of Common Stock and Option Payments. (a) Not later than three Business Days prior to the Closing, the Company shall mail to each Shareholder and to each Option Holder a notice and, as applicable, a transmittal form and/or an option cancellation and settlement form (in form and substance reasonably satisfactory to the Parent) advising such Shareholder and Option Holder of the procedure for delivering certificates to the Company and effecting payments for Options in accordance with Sections 2.3 and 2.4. At the Closing, the Company shall deliver to the Merger Sub all of the certificates that the Company shall have theretofore received, together with duly executed transmittal forms and option cancellation and settlement forms received by the Company from the Shareholders and Option Holders. Thereafter, each holder of a certificate representing a share of Common Stock not delivered to the Merger Sub, may surrender to the Surviving Corporation such certificate together with an executed transmittal form, and receive from the Surviving Corporation in exchange therefor the payment or payments called for under Section 2.3, and each Option Holder may deliver an option cancellation and settlement form and receive from the Surviving Corporation in exchange therefor the amount payable under Section 2.4, in each case without interest. Upon surrender of any such certificates, such certificates shall be canceled. The Surviving Corporation may set off any amount owed by a Shareholder or Option Holder to the Company or 10 any of the Subsidiaries immediately prior to the Effective Time against any payment due under this Agreement. (b) If the consideration payable for any share of Common Stock is to be delivered to a person other than the person in whose name the certificate representing such shares is registered, it shall be a condition of such delivery that the certificate so surrendered shall be properly endorsed or accompanied by appropriate stock powers, in either case signed as the name of the record holder appears on such certificate, and shall otherwise be in proper form for transfer, and that the person requesting such delivery shall pay to the Surviving Corporation any transfer or other taxes required by law as a result of such delivery to a person other than the record holder of the certificate surrendered, or shall establish to the Surviving Corporation's satisfaction that such tax has been paid or is not payable. (c) Any amounts remaining unclaimed by holders of shares of Common Stock immediately prior to such time as such amounts would otherwise escheat to or become property of any governmental entity shall, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of any claims or interest of any Person previously entitled thereto. (d) Each Shareholder shall cease at the Effective Time to have any rights as a Shareholder of the Company or the Surviving Corporation (other than rights to receive the payments provided for in Section 2.3) and each Option Holder shall cease to have any rights under the Option Plan or the option agreements pursuant to which it acquired its Options (other than to receive the payments provided 11 for in Section 2.4), and no transfer of shares of the Company's capital stock shall thereafter be made on the stock transfer books of the Surviving Corporation. 2.7 Withholding: Net Payments. Notwithstanding anything in this Agreement to the contrary, any amount paid pursuant to this Agreement or the Notes to Option Holders, including without limitation the payments to Option Holders under Section 2.4, or to Shareholders that are not United States Persons, as defined in Section 7701(a)(30) of the Code (as defined below in Section 3.1(M)(ii)), shall be net of all applicable federal, state and local withholding taxes, as determined by the Surviving Corporation and agreed to by the Sellers' Representative. The Surviving Corporation shall withhold and remit to the appropriate taxing authority all such withholding taxes due in connection with the payments made by it, and such remittance shall be deemed a payment of amounts owed to any person entitled to payment pursuant to this Agreement. Any payment to non-employee Option Holders shall be at the minimum withholding amount required by applicable law. Prior to the Effective Time, the Company shall use its reasonable efforts to take such actions as shall be necessary to allow for compliance with this Section 2.7. 2.8 Determination and Payment of Contingent Consideration. (a) The Parent shall, at its sole cost and expense, cause the Accountant to deliver to the Parent and the Sellers' Representative not later than September 30, 1999, a statement of Operating Profit (as defined in Section 9.1) for the Company for the fiscal year 1999 (July 1, 1998 - June 30, 1999) in accordance with GAAP applied on a consistent basis (the "STATEMENT OF OPERATING PROFIT"). Notwithstanding the foregoing, the Parent may elect to modify the Company's actual 12 financial reporting to conform to a calendar year basis consistent with the Parent's fiscal year, in which event the Parent shall cause the Statement of Operating Profit to be delivered by April 1, 2000, and shall pay interest at the rate of six percent per annum commencing September 30, 1999, increasing to seven and one-half percent per annum commencing April 1, 2000, on the amount of any Contingent Consideration subsequently determined to have been earned in accordance with this Section 2.8; PROVIDED, HOWEVER, that the Parent shall nevertheless continue to separately track, through its automated financial reporting system, the performance of contracts comprising the Company's business as if the Company had continued to operate on a June 30, 1999 fiscal year basis. Concurrent with the delivery of the Statement of Operating Profit, the Accountant shall certify to the Parent that the Statement of Operating Profit was calculated in accordance with the provisions of this Agreement (and the Parent shall use its reasonable efforts to cause the Accountant to allow access to the Accountant's workpapers prepared in connection with the Statement of Operating Profit to the Sellers' Representative in order to assist the Sellers' Representative to determine whether the Statement of Operating Profit was calculated in accordance with the provisions of this Agreement, if the Sellers' Representative executes and delivers on behalf of himself and the Sellers the Accountant's customary agreement for indemnification and release of liability (an "INDEMNIFICATION AGREEMENT") in a form acceptable to the Accountant). (b) The Sellers' Representative and his agents shall have reasonable access to all personnel of the Company and shall have the right to review all books, accounting records and other materials of the Company and the Subsidiaries 13 relevant to the preparation of the Statement of Operating Profit that the Sellers' Representative or his agents may reasonably request. In addition, the Parent shall use its reasonable efforts to cause the Sellers' Representative and his agents, after execution and delivery by the Seller's Representative and such agents of the Indemnification Agreement with respect to the Statement of Operating Profit, to have reasonable access to all personnel of the Accountant involved in the preparation of the Statement of Operating Profit and to be permitted to review the Accountant's audit work papers with respect thereto. In the event that the Parent and/or the Sellers' Representative disagree(s) in any respect with the Statement of Operating Profit, the Sellers' Representative and/or the Parent shall deliver to the other, within twenty-one (21) days after delivery by the Accountant of such Statement of Operating Profit, a written notice (an "OBJECTION NOTICE") specifying the matters to which it objects and the basis for such disagreement (together with any authority or documentation supporting its position). Any Objection Notice may include disagreements with respect to any adjustments in the calculation of Operating Profit made pursuant to Section 4.19(A) of this Agreement, such disagreement to be resolved in accordance with the methodology provided in this Section 2.8 of this Agreement. The Parent and the Sellers' Representative shall thereupon endeavor in good faith to resolve any disagreement or dispute arising out of the Objection Notice. In the event such parties do so, such parties shall promptly execute a document which sets forth the resolution of such disagreement or dispute. (c) In the event that the Parent or the Sellers' Representative timely receives an Objection Notice and the Sellers' Representative and the Parent are 14 unable to resolve the disagreement specified in the Objection Notice within ten (10) Business Days after receipt of the Objection Notice, the disagreement shall be submitted to a nationally recognized firm of independent public accountants (other than the Accountant) chosen by the Parent and the Sellers' Representative (the "CONTINGENCY ACCOUNTANT"); PROVIDED that if the Parent and the Sellers' Representative are unable to agree on such accountants within fourteen (14) days following the end of such ten (10) Business Day period, then the Parent and the Sellers' Representative will within seven (7) days following the end of such fourteen (14) day period jointly request that the president of the American Arbitration Association (the "AAA") select an accountant, such accountant to be associated with a nationally recognized accounting firm other than the Accountant (such AAA-appointed accountant to be deemed the "CONTINGENCY ACCOUNTANT" for purposes of this Agreement). Upon delivery to the Parent and the Sellers' Representative of a statement in writing setting forth the conclusion of the Contingency Accountant's opinion of the disputed item or items and the effect of such conclusion on the Statement of Operating Profit, such determination shall be final and binding upon the Parent and the Sellers without any further right of appeal. (d) The Contingency Accountant shall have reasonable access to all personnel of the Company and shall have the right to review all books, accounting records and other materials pertaining to the Statement of Operating Profit that the Contingency Accountant shall request. The Contingency Accountant shall render its determination on the disagreement submitted to it within sixty (60) days of submission of the disagreement by the Parent and the Sellers' Representative. The 15 Statement of Operating Profit will be deemed to be final, binding and not subject to appeal (the "FINAL STATEMENT OF OPERATING PROFIT"), on and as of the first to occur of the following: (i) the expiration of the twenty-one (21) day period referred to in Section 2.8(b) without the delivery of an Objection Notice respecting the Statement of Operating Profit; (ii) the execution of a document pursuant to Section 2.8(b), setting forth the resolution of any dispute described in any Objection Notice respecting the Statement of Operating Profit, by the Sellers' Representative and the Parent; and (iii) the date that the Contingency Accountant delivers the relevant determination to the Parent and the Sellers' Representative pursuant to Section 2.8(c), it being understood that the Final Statement of Operating Profit shall mean a Statement of Operating Profit as modified by any such resolution or determination. (e) Payment of Contingent Consideration. The Shareholders and the Option Holders shall be entitled to receive $3.75 million of aggregate Contingent Consideration if the Company's Operating Profit as set forth on the Final Statement of Operating Profit (the "FINAL OPERATING PROFIT") is $5.4 million or greater, but less than $5.7 million. Alternatively, the Shareholders and the Option Holders shall be entitled to receive $4.375 million of aggregate Contingent Consideration if the Company's Final Operating Profit is $5.7 million or greater, but less than $6.0 million. Alternatively, the Shareholders and the Option Holders shall be entitled to receive $5.0 million if the Company's Final Operating Profit is $6.0 million or greater, but less than $6.6 million. Alternatively, the Shareholders and the Option Holders shall be entitled to receive $5.625 million of aggregate Contingent Consideration if the Company's Final Operating Profit is $6.6 million or greater, but 16 less than $7.2 million. Alternatively, the Shareholders and the Option Holders shall be entitled to receive $6.25 million of aggregate Contingent Consideration if the Company's Final Operating Profit is $7.2 million or greater. The Parent shall pay or cause to be paid to each Shareholder and the Parent shall pay or cause the Surviving Corporation to pay to each Option Holder the aggregate Contingent Consideration payable hereunder divided by the sum of N plus S for each share of Common Stock held or covered by Options held by such Person at the Effective Time. Any payment required to be made under this Section 2.8 shall be made not later than the tenth (10th) Business Day after the Statement of Operating Profit is deemed to be the Final Statement of Operating Profit. (f) Fees and expenses, if any, of the Contingency Accountant with respect to the Statement of Operating Profit shall be paid by the Company, except that such fees and expenses shall be paid by the Shareholders and Option Holders pro rata by number of shares of Common Stock owned or covered by Options held at the Effective Time if the Sellers' Representative delivers an Objection Notice with respect to the Statement of Operating Profit which does not result in an increase in the Contingent Consideration payable under this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company and the Sellers. Each of the Sellers represents and warrants (it being understood that as to the matters set forth in Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D), 3.1(K)(i) and 3.1(T) each Seller is 17 making such representation and warranty with respect to such Seller only), and the Company represents and warrants (except as to the matters set forth in Sections 3.1(B)(i), 3.1(B)(iii), 3.1(D) and 3.1(K)(i), as to which no representation or warranty is made by the Company), to the Parent and Merger Sub that: (A) Organization and Qualification of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being or heretofore conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Company Material Adverse Effect (as defined below). "COMPANY MATERIAL ADVERSE EFFECT," as used in this Agreement, shall mean any event, change or effect that is or could reasonably be expected to be materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations, or reasonably anticipated prospects of the Company and its Subsidiaries taken as a whole. The copies of the Certificates of Incorporation and By-Laws (or comparable instruments) of the Company and each of the Subsidiaries previously delivered to the Parent or its counsel, in each case as amended, are complete and correct. Schedule 3.1(A) sets forth the name and jurisdiction of organization of each corporation or other entity which the Company directly or indirectly controls (each, a "SUBSIDIARY," and collectively, "SUBSIDIARIES") and each other corporation or other entity in which 18 the Company directly or indirectly owns or has the power to vote capital stock or other ownership interests. The Company does not directly or indirectly own any interest in any other person or entity. Each of the Subsidiaries is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite power and authority to own, lease and operate its properties and assets and to carry on its business as now being and as heretofore conducted. The respective minute books, or comparable records, of the Company and each of the Subsidiaries contain true and complete records of all meetings and consents in lieu of meetings of their Boards of Directors or similar governing bodies (and any committees thereof) and of their stockholders (or partners or members) since the times of their respective incorporation or formation, and accurately reflect all transactions referred to in such minutes and consents in lieu of meeting in all material respects. The stock books (or analogous ownership records) of the Company and each of the Subsidiaries are true and complete. (B) Authority to Execute and Perform Agreement. (i) Each Seller has all requisite power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party (and, if applicable, a Non-Compete and Non-Disclosure Agreement) and to perform fully such Seller's obligations hereunder and thereunder. This Agreement has been duly executed and delivered by each Seller, and on the Closing Date, each and every agreement and instrument contemplated hereby to which such Seller is a party on the Closing Date (including, if applicable, a Non-Compete and Non- 19 Disclosure Agreement) will be duly executed and delivered by such Seller. Assuming due execution and delivery hereof and thereof by the Parent, this Agreement and each such other agreement and instrument will be valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (ii) The Company has full right and power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party and to perform fully its obligations hereunder and thereunder. The Board of Directors, at a meeting duly called and convened, has unanimously adopted a resolution approving and adopting this Agreement and the Merger. This Agreement has been duly authorized, executed and delivered by the Company, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Company is a party on the Closing Date will be duly executed and delivered by the Company. Assuming due execution and delivery hereof and thereof by the Parent, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. 20 (iii) The Sellers' Representative has all requisite power and authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which he is or will be a party and to perform fully his obligations hereunder and thereunder. This Agreement has been duly executed and delivered by the Sellers' Representative, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Sellers' Representative is a party on the Closing Date will be duly executed and delivered by the Sellers' Representative. Assuming due execution and delivery hereof and thereof by the Parent, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Sellers' Representative enforceable against the Sellers' Representative, in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (C) Capital Stock. The authorized capital stock of the Company consists of 10,000,000 shares of common stock, with a par value of $0.01 each, of which 2,500,000 shares are denominated Class A Common Stock, and 7,500,000 shares are denominated Class A Nonvoting Common Stock. Of the 10,000,000 shares, 1,463,334 of the Class A Common Stock shares and 658,066 of the Class A Nonvoting Common Stock shares are duly authorized, validly issued and outstanding, fully paid and nonassessable, and are owned beneficially and of record by the Shareholders, in the respective amounts set forth on Schedule 3.1(C), free and clear of any pledges, liens, charges, encumbrances, voting or transfer restrictions, 21 security interests, restrictions and claims of any kind ("LIENS"). The Company has no other authorized, issued or outstanding class of capital stock. The entire interest in each of the Subsidiaries that is owned by the Company, is owned by the Company in the amounts set forth on Schedule 3.1(C), free and clear of any Liens. Except for options granted under the Option Plan, the amounts and exercise prices of which are as set forth on Schedule 3.1(C), there are no existing options, rights, subscriptions, warrants, unsatisfied preemptive rights, calls or commitments of any character relating to (i) the authorized and unissued capital stock of the Company or any of the Subsidiaries, or (ii) any securities or obligations convertible into or exchangeable for, or giving any person any right to subscribe for or acquire from the Company or any of the Subsidiaries any shares of capital stock of the Company or any of the Subsidiaries, and no such convertible or exchangeable securities or obligations are outstanding. The Shareholders are the lawful owners, beneficially and of record, of all of the Common Stock of the Company, free and clear of all Liens. Immediately after giving effect to the Merger, Parent will own free and clear of any Liens all of the outstanding capital stock of the Surviving Corporation (except for Liens that may attach by reason of the Parent's ownership thereof) and no Option shall be outstanding. (D) Vote Required. The execution and delivery of this Agreement, the Unanimous Written Consent and the Effective Time Unanimous Consent constitutes the only vote, consent or approval of the holders of any class or series of capital stock of the Company necessary to approve the Merger and no 22 further action of the Shareholders or Option Holders is necessary to consummate the transactions contemplated by this Agreement. (E) Financial Statements. The consolidated balance sheets of the Company and the Subsidiaries as of June 30, 1997, and June 30, 1996, and the related consolidated statements of income, shareholders' equity and changes in financial position for the years then ended, including the footnotes thereto, audited by Grant Thornton LLP, independent certified public accountants, which have been delivered to the Parent, fairly present, in all material respects, the consolidated financial position of the Company and the Subsidiaries as at such dates, and the consolidated results of operations and changes in financial position, as the case may be, of the Company and the Subsidiaries for such respective periods, in each case in accordance with GAAP consistently applied. (The foregoing consolidated financial statements of the Company and the Subsidiaries as of June 30, 1997, and for the year then ended are sometimes herein called the "AUDITED FINANCIALS." The foregoing balance sheet included in the Audited Financials is sometimes herein called the "BALANCE SHEET.") The unaudited balance sheet of the Company as of March 31, 1998, and the related statements of income, shareholders' equity and changes in financial position for the nine months then ended, including the footnotes thereto, which have been delivered to the Parent, fairly present, in all material respects, the financial position of the Company as of such dates and the results of operations of the Company for the nine months then ended, in each case in conformity with GAAP, applied on a basis consistent with that of the Audited Financials (subject to the normal year-end audit adjustments, none of which will be material). 23 (F) Absence of Certain Changes or Events. Except as described herein or in Schedule 3.1(F), from June 30, 1997, there has been no change in the business, properties, assets, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries which has resulted or reasonably could be expected to result in or which the Sellers, the Company or any Subsidiary has reason to believe could reasonably be expected to result in a Company Material Adverse Effect, and none of the Sellers, the Company or any of the Subsidiaries knows of any such change that is threatened, nor has there been any damage, destruction or loss affecting the assets, properties, business, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries, whether or not covered by insurance which has resulted or reasonably could be expected to result in or which the Sellers, the Company or any Subsidiary has reason to believe could reasonably be expected to result in a Company Material Adverse Effect. Except as set forth on Schedule 3.1(F), from June 30, 1997, neither the Company nor any of the Subsidiaries has: (i) purchased, agreed to purchase, retired, redeemed or called for redemption any of its outstanding shares, issued or sold or purchased any options, warrants, shares, bonds or other securities, interests or rights to acquire any of its securities or interests, or declared or paid any dividend or distribution on or authorized or effected any split up or recapitalization of any such securities; (ii) made or authorized any change in its certificate of incorporation or bylaws (or comparable instruments); (iii) made or contracted for any capital expenditures in excess of $10,000 per item and $50,000 in the aggregate, or made any other commitments or 24 disbursement or incurred or paid any liabilities or obligations, except in the usual and ordinary course of business consistent with past practice (the "ORDINARY COURSE OF BUSINESS"); (iv) sold, leased, abandoned, or otherwise transferred (or contracted to sell, lease or otherwise transfer) any of its assets or properties, except in the Ordinary Course of Business, or mortgaged, pledged or subjected to any Lien any of its assets; (v) canceled any debts or claims or waived any rights in excess of $10,000 in the aggregate; (vi) transferred or granted any material right under any lease, license, agreement, or other valuable asset; (vii) merged with or into or consolidated with any other person, subdivided or in any way reclassified any shares of its capital stock or changed or agreed to change in any manner the rights of its outstanding capital stock or the character of its business; (viii) entered into or amended any employment agreement, entered into or amended any agreement with any labor union or association representing any employee, adopted, entered into, or amended any employee benefit plan, program, agreement or arrangement, or made any change in the actuarial methods or assumptions used in funding any defined benefit pension plan, or made any change in the assumptions or factors used in determining benefit equivalencies thereunder; (ix) except for short-term bank borrowings in the Ordinary Course of Business, incurred any indebtedness for borrowed money; (x) made any change in its accounting methods or practices or made any change in depreciation or amortization policies or lives adopted by it, except concurrently with changes in GAAP; (xi) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any of its officers, directors, employees, consultants, agents or other representatives, or any accrual for or commitment or 25 agreement to make or pay the same, other than those made in the Ordinary Course of Business; (xii) made any loan or advance to any of its shareholders, officers, directors, employees, consultants, agents or other representatives (other than travel advances made in the Ordinary Course of Business), or made any other loan or advance otherwise than in the Ordinary Course of Business; (xiii) made any payment or commitment to pay any severance or termination pay to any of its officers, directors, employees, consultants, agents or other representatives, other than payments made in the Ordinary Course of Business to persons other than its officers or directors; (xiv) except in the Ordinary Course of Business, entered into or materially amended any contract or other agreement to which it is a party, or by or to which it or its assets or properties are bound or subject, in each case, calling for an aggregate purchase or sale price or payments of more than $50,000, or pursuant to which it agreed to indemnify any party or to refrain from competing with any party; (xv) except in the Ordinary Course of Business and in amounts less than $10,000 in each case, incurred, guaranteed or assumed any debt, obligation or liability (whether absolute or contingent and whether or not currently due and payable); (xvi) except for inventory or equipment acquired in the Ordinary Course of Business, made any acquisition of all or any part of the assets (except for purchases of assets held for sale in the Ordinary Course of Business for less than $10,000 in the aggregate), properties, capital stock or business of any other person; (xvii) paid, directly or indirectly, any of its material liabilities before the same became due in accordance with its terms or otherwise than in the Ordinary Course of Business; (xviii) suffered or incurred any damage, destruction or loss (whether or not covered by insurance) 26 materially adversely affecting the assets, properties, business, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries; (xix) terminated or failed to renew, or received any written threat (that was not subsequently withdrawn) to terminate or fail to renew, any contract or other agreement that is or was material to the assets, properties, business, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Company or any of the Subsidiaries; or (xx) agreed, whether in writing or otherwise, to take any action described in this Section 3.1(F). (G) Litigation and Liabilities. Except as listed on Schedule 3.1(G) hereto and subject to Section 8.5(a)(ii), there are no actions, suits, demands, or claims or legal, administrative or arbitral proceedings, hearings or investigations pending or, to the Knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened against or involving the Company or any of the Subsidiaries or any of their respective property or assets. Except as set forth on Schedule 3.1(G) and subject to Section 8.5(a)(ii), there are no outstanding orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or involving the Company or any of the Subsidiaries. (H) Title to Properties; Absence of Liens, etc. The Company and each of the Subsidiaries has good title to all of its properties and assets, real, personal and fixed, free and clear of any Liens, except (i) for Liens for Taxes (as defined herein) not yet due and payable, (ii) as reflected in the Balance Sheet, (iii) for such properties and assets as may have been sold since the date hereof in the 27 Ordinary Course of Business, (iv) Liens not securing debt that do not materially detract or interfere with the value of the property, and (v) Liens set forth on Schedule 3.1(H) hereto ("PERMITTED LIENS"). All of the Company's and each Subsidiary's properties and assets are, in all material respects, in good operating condition and repair, subject to ordinary wear and tear, unless surplus to the Company's prudent and reasonable business needs. (I) Licenses and Registrations; Compliance with Laws, etc. The Company and each of the Subsidiaries has all permits, authorizations, licenses, orders, registrations and approvals of, and has made all required registrations with, any government or political subdivision thereof, whether Federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision, or any insurance company or fire rating and any other similar board or organization or other non-governmental regulating body (to the extent that the rules, regulations or orders of such body have the force of law) or any court or arbitrator (each a "GOVERNMENTAL BODY," and collectively, "GOVERNMENTAL BODIES") which are material to or necessary for the Company and each of the Subsidiaries to carry on their respective businesses as presently conducted or material to the intended use of any properties of the Company or any of the Subsidiaries (collectively, "PERMITS"). Such Permits are in full force and effect; subject to Section 8.5(a)(ii) no violations are or have been recorded in respect of any Permit; and no proceeding is pending or, to the Knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened to revoke or limit any Permit. The Company and each of the Subsidiaries is in compliance in all material respects with the terms of such Permits. Except as 28 listed on Schedule 3.1(I) hereto and subject to Section 8.5(a)(ii), the businesses of the Company and each Subsidiary are not being conducted in conflict with, violation of or default under any law, rule, decree, regulation, ordinance or order applicable to their businesses, properties, assets and operations (including, without limitation, those relating to wages and hours, occupational health and safety, record keeping, customs, environmental matters, export control, hazardous waste disposal, pollution control, possession of classified information or zoning), and the Company has filed with the proper authorities all statements and reports required by all applicable laws, rules, decrees, regulations, judgments, injunctions, awards, ordinances and orders. The Company and each of the Subsidiaries has at all times complied with the provisions of The Foreign Corrupt Practices Act of 1977, as amended. Neither the Company nor any of the Subsidiaries has made any illegal payment to officers or employees of any governmental or regulatory body, or made any payment to customers for the sharing of fees or to customers or suppliers for rebating of charges, or engaged in any other reciprocal practices, or made any illegal payment or given any other illegal consideration to purchasing agents or other representatives of customers in respect of the sales made or to be made by the Company or any of the Subsidiaries. (J) Intangible Property. Schedule 3.1(J) sets forth a list of all patents, trademarks, copyrights, service marks, trade names and franchises, all applications for any of the foregoing, and all permits, grants and licenses or other rights running to or from the Company or any of the Subsidiaries relating to any of the foregoing (collectively, "INTELLECTUAL PROPERTY RIGHTS"). Except as disclosed on Schedule 3.1(J), (i) the use and registration of such Intellectual Property Rights do not 29 conflict with the intellectual property rights of any other person, firm or corporation and to the Knowledge of the Company, the Subsidiaries or any of the Sellers, no other person's, firm's or corporation's operations conflict with the use and registration of the Intellectual Property Rights; (ii) there are not now any suits pending or, to the Knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened against or by the Company or any of the Subsidiaries claiming a conflict by the Company or any of the Subsidiaries with the Intellectual Property Rights; (iii) none of the Sellers, the Company or any of the Subsidiaries has notice of any adversely held patent, invention, copyright, trademark, service mark or trade name of any other person or notice of any claim of any other person relating to any of the Intellectual Property Rights listed on Schedule 3.1(J), and none of the Company, any of the Subsidiaries or any of the Sellers knows of any reasonable basis for any such charge or claim; and (iv) the Intellectual Property Rights are owned by the Company or its Subsidiaries free and clear of all liens, claims, charges, mortgages, pledges, security interests and other encumbrances of any nature whatsoever. (K) Non-Contravention. (i) The execution and delivery of this Agreement by each Seller and the execution of each and every other agreement and instrument contemplated hereby by or on behalf of, and the consummation of the transactions contemplated hereby and thereby and the performance by such Seller of this Agreement and each such other agreement and instrument in accordance with their respective terms will not (a) violate any provision of the Certificate of Incorporation 30 or By-Laws (or comparable instruments) of the Company or any of the Subsidiaries, (b) except as set forth on Schedule 3.1(K), violate, conflict with or result in the breach of any material provision of, or result in a material modification of or otherwise entitle any party to terminate, or constitute (whether after the filing of notice or lapse of time or both) a material default (by way of substitution, novation or otherwise) under, any contract, agreement, indenture, note, bond, loan, instrument, lease, conditional sales contract, mortgage, license, franchise, commitment or other binding arrangement (collectively, the "CONTRACTS") to which the Company or any of the Subsidiaries is a party or by or to which any of the Company's or any Subsidiary's assets or properties may be bound or subject and which is required to be disclosed under this Agreement, (c) result in the creation or imposition of any material Lien upon any of the property or assets of the Company or any of the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) subject to Section 8.5(a)(ii), violate any law, regulation, statute, injunction, order, arbitration award, judgment or decree applicable to, against, or binding upon, the Company or any of the Subsidiaries or by which any of the Company's or any Subsidiary's securities, business or property is bound, or (e) subject to Section 8.5(a)(ii), violate or result in the revocation or suspension of any Permit. (ii) The execution and delivery of this Agreement by the Company and each and every other agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby and thereby and the performance by the Company of this Agreement and each such other agreement and instrument in accordance with their respective terms will not 31 (a) violate any provision of the Articles of Incorporation or By-Laws (or comparable instruments) of the Company or any of the Subsidiaries, (b) except as set forth on Schedule 3.1(K), violate, conflict with or result in the breach of any material provision of, or result in a material modification of or otherwise entitle any party to terminate, or constitute (whether after the filing of notice or lapse of time or both) a material default (by way of substitution, novation or otherwise) under, any Contract to which the Company or any of the Subsidiaries is a party or by or to which any of the Company's or any of the Subsidiaries' assets or properties may be bound or subject and which is required to be disclosed under this Agreement, (c) result in the creation or imposition of any material Lien upon any of the property or assets of the Company or any of the Subsidiaries pursuant to any provision of, any Contract or Lien, (d) subject to Section 8.5(a)(ii), violate any law, regulation, statute, injunction, order, arbitration award, judgment or decree applicable to, against, or binding upon, such Seller, the Company or any of the Subsidiaries or by which any of such Seller's, the Company's or any Subsidiary's securities, business or property is bound or (e) subject to Section 8.5(a)(ii), violate or result in the revocation or suspension of any Permit. (L) Consent and Approvals. Except as set forth on Schedule 3.1(L), none of the execution and delivery of this Agreement and each and every other agreement and instrument contemplated hereby by the Company, the Sellers and/or the Sellers' Representative, the consummation by the Company, the Sellers and/or the Sellers' Representative of the transactions contemplated hereby or thereby or compliance by the Company, any Seller and/or the Sellers' Representative 32 with any of the provisions hereof or thereof will require any consent, approval or action of, or make any filing with or give notice to, any Governmental Body. (M) Employee Benefit Plans; ERISA. Set forth on Schedule 3.1(M) is a true and complete list of each deferred compensation, executive compensation, incentive compensation, stock purchase or other stock-based compensation plan, severance or termination pay, holiday, vacation or other bonus plan or practice, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit sharing, pension, or retirement plan, program, agreement, commitment or arrangement, and each other employee benefit plan, program, agreement or arrangement, including, without limitation, each "employee benefit plan" as such term is defined under Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to or required to be contributed to by the Company or any of the Subsidiaries for the benefit of any employee or terminated employee of the Company or any of the Subsidiaries, or with respect to which the Company or any of the Subsidiaries has any liability, whether direct or indirect, actual or contingent, whether formal or informal, and whether legally binding or not (the "PLANS"). (i) Except as disclosed on Schedule 3.1(M), with respect to each Plan, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations that have not been accounted for by reserves, or otherwise properly footnoted in accordance with generally accepted accounting principles, on the Audited Financials. Except as set forth on Schedule 3.1(M), the Company and each of the Subsidiaries is 33 not and has not in the past been a member of a "controlled group" for purposes of Section 414(c) of ERISA, nor does the Company or any of the Subsidiaries have any liability with respect to any collectively-bargained for plans subject to the provisions of ERISA. (ii) Except as disclosed on Schedule 3.1(M), each Plan is in compliance with all applicable laws, including, without limitation, ERISA and the Internal Revenue Code of 1986, as amended (the "CODE"). Each Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code (a) has been determined by the Internal Revenue Service (the "IRS") to be so qualified and neither the Company nor any of the Subsidiaries, nor any of the Sellers has any Knowledge that any Plan has been operated in a manner that would jeopardize such qualification and (b) its related trust has been determined to be exempt from taxation under Code Section 501(a) or the Company or the relevant Subsidiary, as the case may be, has requested an initial favorable IRS determination of qualification and/or exemption. None of the Company nor any of the Subsidiaries or any of the Sellers knows of any fact which would adversely affect the qualified status of such Plans or the exempt status of such trusts, and the Company and each of the Subsidiaries has received a favorable IRS determination as to the qualified status of each such Plan with respect to the Tax Reform Act of 1986 and has been operated in conformity with all applicable laws. (iii) Except as disclosed on Schedule 3.1(M), with respect to each Plan which covers any current or former officer, director, consultant or employee (or beneficiary thereof) of the Company or any of the Subsidiaries, the 34 Sellers have delivered or made available, (or have caused the Company and each of the Subsidiaries heretofore to have delivered or made available) to the Parent accurate and complete copies, if applicable, of: (a) all Plan texts and agreements and related trust agreements or annuity contracts, (b) all summary plan descriptions and material modifications thereto and all other material employee communications, (c) the most recent Forms 5500, if applicable, and annual report, including all schedules thereto, (d) the most recent annual and periodic accounting of plan assets, (e) the most recent determination letter received from the IRS, (f) the most recent actuarial valuation, and (g) all material communications with any Governmental Body. (iv) With respect to each Plan: (i) such Plan has been administered and enforced in accordance with its terms; (ii) no breach of fiduciary duty has occurred; (iii) no dispute is pending, or to the Knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened; (iv) no prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of the Code, has occurred, excluding transactions effected pursuant to a statutory or administration exemption; (v) all contributions and premiums due have been fully accrued on the Company's and each of the Subsidiary's financial statements and have been made on a timely basis. There are no unfunded benefit obligations which are not accounted for by reserves or otherwise properly footnoted in accordance with GAAP on the Company's or a Subsidiary's financial statements. (v) No Plan is a "defined benefit pension plan" (as defined in Code Section 414(j)), a "multiemployer plan" (as defined in ERISA Section 3(37)) or a "multiple employer plan" (as described in Code Section 413(c)) 35 nor do the Company or any of the Subsidiaries have any liability to contribute (or have at any time contributed or had an obligation to contribute) to any multiemployer plan. No Plan will become a multiple employer plan with respect to the Company or any of the Subsidiaries immediately after the Closing Date. (vi) There is no arrangement under any Plan with respect to any employee that would result in the payment of any amount that by operation of Code Section 280(G) or 162(m) would not be deductible by the Company or any of the Subsidiaries. (vii) With respect to each Plan which is a "welfare plan" (as described in ERISA Section 3(1)): (i) no such plan provides medical or death benefits, nor shall the Company or any of the Subsidiaries be liable or obligated for any expenses, with respect to current or former employees of the Company or any of the Subsidiaries for periods beyond their termination of employment (other than coverage mandated by law), and (ii) there are no reserves, assets, surplus or prepaid premiums under any such plan referred to in subsection (i) of this paragraph. (viii) Except as disclosed on Schedule 3.1(M), the consummation of the transactions contemplated by this Agreement will not (i) entitle any individual to severance pay, unemployment compensation or other benefits or compensation, (ii) accelerate the time of payment or vesting, or increase the amount of any compensation due, or in respect of, any individual, (iii) result in or satisfy a condition to the payment of compensation that would, in combination with any other payment, result in an "excess parachute payment" within the meaning of Code Sec tion 280G(b)(1); or (iv) constitute or involve a prohibited transaction (as defined in 36 ERISA Section 406 or Code Section 4975), constitute or involve a breach of fiduciary responsibility within the meaning of ERISA section 502(l) or otherwise violate Part 4 of Subtitle B of Title I of ERISA. (N) Insurance Policies. True and complete copies of all policies of fire, casualty, liability, product liability, burglary, fidelity, worker's compensation, life, vehicular and other forms of insurance held by or on behalf of the Company or the Subsidiaries have been made available to the Parent or its representatives. All premiums due and payable for such insurance have been duly paid, and such policies, or extensions, renewals or replacements (on comparable terms to the extent available) thereof, in such amounts will be outstanding and in full force and effect without interruption up to the Closing Date. Such policies insure against all risks and liabilities to an extent and in a manner customarily insured against by persons operating comparable properties, assets or businesses in the same geographic locations. The Company has made available to the Parent a brief description (specifying the insurer and the policy number or covering note number with respect to binders, describing each pending claim thereunder of more than $25,000, setting forth the aggregate amounts paid out under each such policy through the date hereof and the aggregate limit, if any, of the insurer's liability thereunder) of all policies or binders of fire, liability, worker's compensation, vehicular and other insurance held by or on behalf of the Company or any of the Subsidiaries. The Company has made available to the Parent with respect to each policy a list and brief description of all claims in excess of $25,000 (exclusive of claims under medical and dental policies) made by the Company or any of the Subsidiaries during the 37 Company's past two fiscal years and the amount paid out under each policy with respect to such claims. None of the Company, any of the Subsidiaries or any of the Sellers has any Knowledge of any facts or of the occurrence of any event that is reasonably likely to form the basis for any material claim against the Company or any of the Subsidiaries which will not be fully covered by such policies. Neither the Company nor any of the Subsidiaries has received any written notice from any of its insurance carriers that any insurance premiums will be materially increased in the future. (O) Agreements. Schedule 3.1(O) hereto lists all of the following contracts and other agreements to which the Company or any of the Subsidiaries is a party or by or to which any of them or any of their assets or properties are bound or subject: (i) contracts and other agreements with any current or former officer, director, shareholder, employee, consultant, agent or other representative or with an entity in which any of the foregoing is a contracting person; (ii) contracts and other agreements with any labor union or association representing any employee; (iii) contracts and other agreements, including teaming agreements, that the Company has, or intends to have, with TECHMATICS Next Century Integration, L.L.C. ("TNCI") or TECHMATICS Information Alliance and Communications, L.L.C. ("TIAC") (or with any Person affiliated or associated with TNCI or TIAC) for the performance or pursuit of business opportunities of mutual interest; (iv) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $100,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) for the purchase or sale 38 of materials, supplies, equipment, merchandise or services that contain an escalation, renegotiation or redetermination clause; (v) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $50,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) for the sale of any of its assets or properties other than in the Ordinary Course of Business or for the grant to any person of any preferential rights to purchase any of its assets or properties; (vi) joint venture agreements; (vii) contracts or other agreements under which the Company or any of its Subsidiaries agrees to indemnify any party or to share tax liability of any party; (vii) contracts and other agreements calling for an aggregate purchase or sale price or payments of more than $50,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) that cannot be canceled by the Company or any of the Subsidiaries with less than ninety days' notice without incurring liability, premium or penalty; (viii) contracts and other agreements with customers or suppliers for the sharing of fees, the rebating of charges or other similar arrangements; (ix) contracts and other agreements containing obligations or liabilities of any kind to holders of the Company's or any of the Subsidiaries' securities as such (including, without limitation, an obligation to register any of such securities under any federal or state securities laws); (x) contracts and other agreements containing covenants of the Company or any of the Subsidiaries not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the Company or any of the Subsidiaries in any line of business or in any geographical area; (xi) contracts and other agreements relating to the acquisition by 39 the Company or any of the Subsidiaries of any operating business or the capital stock of any other person; (xii) options for the purchase of any asset, tangible or intangible, requiring the payment to any person of a commission or fee; (xiii) contracts and other agreements for the payment of fees or other consideration to any officer or director of the Company or any of the Subsidiaries or to any other entity in which any of the foregoing has an interest; (xiv) contracts and other agreements relating to the borrowing of money except for such contracts and agreements involving a principal amount of not more than $10,000 in the aggregate; (xv) contracts with any of the Sellers or any corporation in which any of such Sellers, individually or in the aggregate, owns a controlling interest (other than the Company or any of the Subsidiaries) or in which any Seller is a director, officer or employee; and (xvi) any other contract or other agreement calling for an aggregate purchase price or sale price or payments of more than $25,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) whether or not made in the Ordinary Course of Business. True and complete copies of all of the foregoing, in each case as amended to date, have been delivered to, or, to the extent not requested to be delivered, have been made available for inspection by, the Parent. (P) Validity of Agreements. All contracts, leases, commitments and other agreements described or listed in Schedule 3.1(O) constitute legal, valid and binding obligations of the Company and each of the Subsidiaries, as the case may be, are in full force and effect, and are enforceable in accordance with their respective terms except as enforcement may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar 40 laws affecting creditors' rights generally and (ii) general principles of equity. The Company and each of the Subsidiaries have paid in full all amounts due thereunder which are due and payable or accrued in accordance with GAAP, all amounts due to others thereunder (and have properly recognized revenues due from others thereunder), and have satisfied in full or provided for all of their liabilities and obligations thereunder which are due and payable, except amounts or liabilities disputed in good faith by the Company or any of the Subsidiaries for which adequate reserves have been set aside. Neither the Company nor any of the Subsidiaries is in default under any of such contracts or agreements, nor to the Knowledge of the Company, the Subsidiaries or any of the Sellers, does any condition exist that, with notice or lapse of time or both, would constitute a default thereunder. To the Knowledge of each of the Sellers, the Company and each of the Subsidiaries, no other party to any such contract or other agreement is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder. None of the Company, any of the Subsidiaries or any of the Sellers has knowledge that any person intends to terminate (whether for cause or convenience) or default under any contract or other agreement listed on Schedule 3.1(O) before its stated term, if any. Except as set forth on Schedule 3.1(P), none of the Sellers, the Company or any of the Subsidiaries has any Knowledge of a claim, actual or pending, by any Governmental Body under any contract or agreement set forth on Schedule 3.1(O). Except as separately identified on Schedule 3.1(P), no approval or consent of any person is needed in order that the contracts and other agreements set 41 forth on Schedule 3.1(O) or on any other Schedule continue in full force and effect following the consummation of the transactions contemplated by this Agreement. (Q) Taxes. (i) All United States federal income Tax Returns (as defined in Section 9.1) of or with respect to the Company and the Subsidiaries, required by law to be filed (including extensions of time to file) on or before the Closing Date have been duly filed. All such Tax Returns are accurate and complete in all material respects, and all taxes shown on such returns have been timely paid. (ii) All other Tax Returns of or with respect to the Company and the Subsidiaries required to be filed (including extensions of time to file) on or before the Closing Date pursuant to applicable federal, foreign, state, local or other law have been filed. All such Tax Returns are accurate and complete in all material respects. The Company and the Subsidiaries have paid or withheld (or caused to be paid or withheld) all Taxes shown on such Tax Returns as due and payable and all other Taxes due or claimed to be due, whether by proposed assessment or otherwise, by any taxing authority have been timely paid, except for such Taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided in accordance with GAAP. (iii) The charges, accruals and reserves on the books of the Company and each of the Subsidiaries in respect of any liability for Taxes (x) based on or measured by net income for any years not finally determined, (y) with respect to which the applicable statute of limitations has not expired or (z) that has been previously deferred, are adequate to satisfy any assessment for such Taxes for 42 any such years. Neither the Company nor any of the Subsidiaries has any liability for Taxes of any person or entity other than the Company and/or the Subsidiaries. (iv) With respect to any period for which Tax Returns have not yet been filed, or with respect to which Taxes are not yet due or owing, the Company and each of the Subsidiaries have made sufficient current accruals, provisions and reserves for such Taxes in accordance with GAAP. (v) The Company and each of the Subsidiaries have made all required estimated Tax payments sufficient to avoid any underpayment penalties. To the Knowledge of the Company, the Subsidiaries or any of the Sellers, the Tax Returns of the Company and each of the Subsidiaries are not currently nor have been in the past under audit or examination by the IRS. (vi) Neither the Company nor any of the Subsidiaries is a member of any affiliated, consolidated, combined or unitary group as defined in Section 1504 of the Code, and the Treasury regulations promulgated thereunder. (vii) There are no outstanding agreements, waivers or arrangements extending the statutory period of limitations applicable to any claim for, or the period for the collection or assessment of, Taxes due from or with respect to the Company or any of the Subsidiaries for any taxable period. (viii) Neither the Company nor any of the Subsidiaries (nor their predecessors) will have any liability on or after the Closing Date under any tax sharing agreement to which it has been a party on or before the Closing Date, and all such tax sharing agreements shall terminate and be of no further force and effect as of the Closing Date. 43 (ix) No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local or foreign law that could affect the Taxes of the Company or any of the Subsidiaries, for periods ending after the Closing Date has been entered into by or with respect to the Company or any of the Subsidiaries. (x) Except as set forth in Schedule 3.1(Q), to the Knowledge of the Company, the Subsidiaries or any of the Sellers, no audit or other proceeding by any court, governmental or regulatory authority or similar authority is pending, and none of the Company or any of the Subsidiaries has received any notification that such an audit or proceeding may be commenced, with respect to any Taxes due from the Company or any of the Subsidiaries. (xi) Neither the Company nor any of the Subsidiaries has agreed to or is required to make any adjustment with respect to taxable periods ending after the Closing Date pursuant to Section 481(a) of the Code (or any predecessor provision) by reason of any change in any accounting method of the Company or any of the Subsidiaries, there is no application pending with any taxing authority requesting permission for any such change in any accounting method of the Company or any of the Subsidiaries and the IRS has not proposed any such adjustment or change in accounting method. (xii) Except as set forth in Section 3.1(Q), neither the Company nor any of the Subsidiaries is, has received any notice that it is or has been, in violation (or with notice will be in violation) of any applicable law relating to the payment or withholding of Taxes. The Company and each of the Subsidiaries has 44 duly and timely withheld from employee salaries, wages, and other compensation, and has paid over to the appropriate taxing authorities all material amounts required to be so withheld and paid over for all periods under all applicable laws. (xiii) There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company or any of the Subsidiaries by reason of Section 280G of the Code. Further, the Company complies with the small business exemption under Section 280G(b)(5) of the Code. (xiv) Except as disclosed on Schedule 3.1(Q), the Company has properly elected under Section 1362(a) of the Code to be treated as an S Corporation, within the meaning of Section 1361(a) of the Code, for all of its taxable years beginning with the taxable year ended June 30, 1983, and will continue to qualify as an S Corporation within the meaning of such subsection at all times through its taxable year ending on the Closing Date and, accordingly, has and will have no liability for federal income taxes or state income taxes in Virginia, California, Mississippi, Kansas, Maine, Maryland, New Jersey and Pennsylvania, where the Company receives S Corporation treatment for state tax purposes, with respect to any taxable period beginning with its first taxable year and through its taxable year ending on the Closing Date, including as a result of the Section 338(h)(10) Election (as defined in Section 4.1(B) below). (xv) The Shareholders will take any and all actions required, for federal purposes and for purposes of each state listed in subsection (xiv) 45 above, to maintain the Company's status as an S corporation through its taxable year ending on the Closing Date. (xvi) The Company has not filed, and will not file through the Closing Date, any state or local Tax Returns on a unitary or combined basis with any other person. (xvii) No Transfer Taxes (as defined in Section 9.1 below) will be due and payable in connection with this Agreement and the transactions contemplated by this Agreement. (R) Additional Representations. (a) No representation or warranty made by the Company or any Seller in this Agreement, and no statement made in any certificate, document, exhibit or schedule prepared by or on behalf of the Company, any of the Subsidiaries, or any Seller, which is furnished or to be furnished in connection with the transactions herein contemplated, contains any untrue statement of a material fact or omits to state, when read in conjunction with all of the information contained in this Agreement and the Schedules and in light of the circumstances when made, any material fact necessary to make such representation, warranty or statement not misleading in any material respect; PROVIDED, that no representation or warranty is made regarding projections with respect to revenues from government contracts of the Company or any Subsidiary heretofore provided to the Parent. (b) (i) Except as disclosed on Schedule 3.1(R), there are no past or present events, conditions, circumstances, activities, practices, incidents, agreements, actions or plans (relating to actions or omissions by the 46 Company or the Subsidiaries or any of their contractors, sub-contractors or agents acting on the Company's or any Subsidiary's behalf, or, to the Knowledge of the Company, the Subsidiaries or any of the Sellers, by any other person) which have given rise to or will give rise to any liability on the part of the Company or any of the Subsidiaries under any Environmental Law (as defined below) or principles of common law relating to pollution, protection of the environment or health and safety; (ii) to the Knowledge of the Company, the Subsidiaries or any of the Sellers, no real property currently or formerly owned or operated by the Company or any of the Subsidiaries is contaminated with any Hazardous Substances as defined below to an extent or in a manner or condition now requiring remediation under any Environmental Law; (iii) no judicial or administrative proceeding is pending or, to the Knowledge of any of the Sellers, the Company or any of the Subsidiaries, threatened relating to liability of the Company or any of the Subsidiaries for any off-site disposal or contamination; and (iv) neither the Company nor any of the Subsidiaries has received any claims or notices alleging liability under any Environmental Law (as defined below) and none of the Company, any of the Sellers or any of the Subsidiaries has any Knowledge of any circumstances that could result in such claims. Schedule 3.1(R) lists all contracts and agreements which involve the use, handling, storage, transport or disposal of any Hazardous Substance. "ENVIRONMENTAL LAW" means any applicable federal, state, foreign or local law, regulation, code, order, decree, judgment, injunction or judicial opinion or other agency requirement having the force and effect of law and relating to pollution, health and safety, noise, odor, Hazardous Substance or the protection of the environment. 47 "HAZARDOUS SUBSTANCE" means any toxic or hazardous substance that is regulated by or under authority of any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls. (S) Accounts and Notes Receivable. All accounts and notes receivable reflected on the Balance Sheet, and all accounts and notes receivable arising subsequent to June 30, 1997, (i) have arisen in the Ordinary Course of Business of the Company or the Subsidiaries and represent valid obligations due to the Company or the Subsidiaries and (ii) subject only to a reserve for bad debts of $100,000, have been computed in a manner consistent with past practice and reasonably estimated to reflect the probable results of collection and have been collected or are collectible in the Ordinary Course of Business of the Company or the Subsidiaries (as the case may be) in the aggregate recorded amounts thereof in accordance with their terms. (T) Potential Conflicts of Interest. Except as set forth on Schedule 3.1(T), (a) no Seller, (b) no officer, director (excluding outside directors as to whom no representation or warranty is made) or affiliate of the Company or any of the Subsidiaries, (c) no immediate family member of any such officer, director or affiliate, or of a Seller, and (d) no entity controlled by any one or more of the foregoing: (i) owns, directly or indirectly, any interest in (excepting not more than 5% stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any person or entity which is, or is engaged in business as, a competitor, lessor, lessee, customer, distributor, sales agent, or supplier of the Company or any of the Subsidiaries; 48 (ii) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of the Subsidiaries uses or the use of which is necessary or desirable for the conduct of their respective businesses; (iii) has any cause of action or other claim whatsoever against, or owes any amount to, the Company or any of the Subsidiaries, except for claims in the Ordinary Course of Business, such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof; or (iv) on behalf of the Company or any of the Subsidiaries, has made any payment or commitment to pay any commission, fee or other amount to, or purchase or obtain or otherwise contract to purchase or obtain any goods or services from, any corporation or other person of which any officer or director of the Company or any of the Subsidiaries, or an immediate family member of the foregoing, is a partner or stockholder (excepting stock holdings solely for investment purposes in securities of publicly held and traded companies). (U) Liabilities. Except as set forth on Schedule 3.1(G) or as reflected in the Balance Sheet, none of the Company or any of the Subsidiaries had any direct or indirect indebtedness, liability, claim, loss, damage, deficiency or obligation or responsibility, known or unknown, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise, whether or not of a kind required by GAAP to be set forth on a financial statement or in the notes thereto ("LIABILITIES"), that were not fully and adequately reflected or reserved against on the Balance Sheet or described on any Schedule or in the notes to the Audited Financials, including, without limitation, those relating to 49 environmental and occupational safety and health matters, that, alone or in the aggregate, could result in claims against, obligations of or liabilities to the Company or any of the Subsidiaries which are reasonably likely to have a Company Material Adverse Effect. None of the Company, the Subsidiaries or the Sellers has any Knowledge of any circumstance, condition, event or arrangement that may hereafter give rise to any Liabilities of the Company or any of the Subsidiaries, or any successor to their respective businesses except in the Ordinary Course of Business or as otherwise set forth on Schedule 3.1(U) or which are reasonably likely to have a Company Material Adverse Effect. (V) Real Estate. (i) Ownership of Premises. Each of the Company and the Subsidiaries is the owner of good, marketable and insurable fee title to the land described on Schedule 3.1(V)(i)(a) and to all of the buildings, structures and other improvements located thereon (collectively, the "OWNED REAL PROPERTY") free and clear of all Title Defects (as defined in this Section) except as listed on Schedule 3.1(V)(i)(b) or covered by a valid title insurance policy. The Owned Real Property constitutes all of the real property owned by the Company and the Subsidiaries on the date hereof. For purposes of this Agreement, "TITLE DEFECTS" shall mean and include any mortgage, deed of trust, Lien, pledge, security interest, claim, lease, charge, option, right of first refusal, easement, restrictive covenant, encroachment or other survey defect, encumbrance or other restriction or limitation whatsoever. 50 (ii) Leased Real Properties. Schedule 3.1(V)(ii) identifies all of the real property which the Company or any of the Subsidiaries leases, has agreed to lease or has an obligation to lease in connection with its business. Such leased real property is hereinafter referred to as the "LEASED REAL PROPERTY." (iii) Entire Premises. All of the land, buildings, structures, plants, facilities and other improvements used by the Company and the Subsidiaries in the conduct of their respective businesses are included in the Owned Real Property and the Leased Real Property. The Leased Real Property and the Owned Real Property are collectively referred to herein as the "Real Property." (iv) There are no adverse parties in possession of the Real Property or any portion or portions thereof, and on the Closing Date the Company and the Subsidiaries' interests in the Real Property will be free and clear of any and all leases, licensees, occupants or tenants except as set forth in Schedule 3.1(V)(iv). The Company has not received notice that there are any pending or, to the Knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened condemnation, eminent domain or similar proceedings affecting the Real Property, any improvements thereon or any portion thereof. The Company has not received notice that there are any pending or, to the Knowledge of the Company, any of the Subsidiaries or any of the Sellers, threatened requests, applications or pro ceedings to alter or restrict any zoning or other use restrictions applicable to the Real Property or any improvements thereon which would interfere with the conduct of the 51 business of the Company or any of the Subsidiaries or the use of their respective assets consistent with past practice. (W) Labor Matters. The Company and each of the Subsidiaries is not now, and has not been in the last five years, bound by or party to any collective bargaining agreement and, to the Knowledge of each of the Sellers, the Company and each of the Subsidiaries, no application for certification of a collective bargaining agent is pending. Subject to Section 8.5(a)(ii), the Company and each of the Subsidiaries is in compliance with all applicable laws affecting employment practices and terms and conditions of employment. As of the Closing Date neither the Company nor any of the Subsidiaries has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act, as it may be amended from time to time, or similar applicable state law; nor has the Company or any of the Subsidiaries taken any action prior to the Closing Date which could result in any such liability or obligation to the Company or any of the Subsidiaries within the six-month period immediately following the Closing Date if, during such six-month period, only terminations of employment in the normal course of operations occur. The Company and each of the Subsidiaries do not employ and have not employed any illegal aliens. (X) Management Reserves. As of the date hereof, the Company's overall level of management reserves equals $925,000, and from January 15, 1998, through to the date hereof, the Company and the Subsidiaries have complied with GAAP and have maintained any and all reserves necessary to comply with GAAP and to meet the overall reasonable business needs of the Company and the Subsidiaries during such period. 52 (Y) Working Capital and Outstanding Debt. As of March 31, 1998, the amount of Working Capital (as defined in Section 9.1) of the Company was $10.3 million, and the amount of outstanding Debt (as defined in Section 9.1) of the Company and the Subsidiaries was $1,150,000, net of cash on hand. The amount of Working Capital of the Company as of the Closing Date shall be no less than $10 million, and the amount of outstanding Debt of the Company and the Subsidiaries shall be no more than $1.2 million. 3.2 Representations and Warranties of the Parent and the Merger SUB. The Parent and the Merger Sub represent and warrant to the Company and the Sellers as follows: (A) Organization. Each of the Parent and the Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. The Merger Sub is a newly formed, wholly owned subsidiary of the Parent and, except for activities incident to the acquisition of the Company, the Merger Sub has not engaged in any business activities of any type or kind whatsoever. The Parent has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being or heretofore conducted. (B) Authority to Execute and Perform Agreement. Each of the Parent and the Merger Sub has full right and power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which it is or will be a party and to perform fully its obligations hereunder and thereunder. This Agreement has 53 been duly executed and delivered by the Parent and the Merger Sub, and on the Closing Date, each and every agreement and instrument contemplated hereby to which the Parent or Merger Sub is a party on the Closing Date will be duly executed and delivered by the Parent or Merger Sub. Assuming due execution and delivery hereof and thereof by the Company, the Sellers and the Sellers' Representative, this Agreement and each such other agreement and instrument will be valid and binding obligations of the Parent and the Merger Sub enforceable against the Parent and the Merger Sub in accordance with their respective terms, except that such enforceability may be subject to (i) bankruptcy, insolvency, reorganization or other similar laws affecting or relating to enforcement of creditors' rights generally, and (ii) general equitable principles. (C) Consents and Approvals. None of the execution and delivery of this Agreement and each and every other agreement and instrument contemplated hereby by the Parent and the Merger Sub, the consummation by the Parent and the Merger Sub of the transactions contemplated hereby or thereby or compliance by the Parent and the Merger Sub with any of the provisions hereof or thereof will require any consent, approval or action of, or any filing with or notice to, any Governmental Body. (D) Non-Contravention. The execution and delivery of this Agreement by the Parent and the Merger Sub and the execution of each and every other agreement and instrument contemplated hereby by or on behalf of, and the consummation of the transactions contemplated hereby and thereby and the performance by the Parent and the Merger Sub of this Agreement and each such other 54 agreement and instrument in accordance with their respective terms will not (a) violate any provision of the Articles of Incorporation or By-Laws (or comparable instruments) of the Parent or the Merger Sub, (b) violate any law, regulation, statute, injunction, order, arbitration award, judgment or decree applicable to, against, or binding upon, the Parent or the Merger Sub's or by which any of the Parent or the Merger Sub's securities, business or property is bound, or (c) violate or result in the revocation or suspension of any of the Parent or the Merger Sub's permits. (E) Parent Material Adverse Effect. From January 1, 1998, there has been no change in the business, properties, assets, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Parent or the Merger Sub which has resulted or reasonably could be expected to result in or which the Parent or the Merger Sub has reason to believe could reasonably be expected to result in a Parent Material Adverse Effect (as defined below), and neither the Parent nor the Merger Sub knows of any such change that is threatened, nor has there been any damage, destruction or loss affecting the assets, properties, business, reasonably anticipated prospects, operations or condition (financial or otherwise) of the Parent or the Merger Sub, whether or not covered by insurance which has resulted or reasonably could be expected to result in or which Parent or Merger Sub has reason to believe could reasonably be expected to result in a Parent Material Adverse Effect. "PARENT MATERIAL ADVERSE EFFECT," as used in this Agreement, shall mean any event, change or effect that is or could reasonably be expected to be materially adverse to the condition (financial or otherwise), properties, assets, liabilities, business, 55 operations, results of operations, or reasonably anticipated prospects of the Parent and the Merger Sub taken as a whole. (F) Parent Litigation. There are no actions, suits, demands, or claims or legal, administrative or arbitral proceedings, hearings or investigations pending or, to the knowledge of the executive officers of the Parent or the Merger Sub (after making due inquiry of such employees of the Parent or Merger Sub who customarily would have knowledge of such matters), threatened against or involving the Parent or the Merger Sub, or any outstanding orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or involving the Parent or the Merger Sub which could have a Parent Material Adverse Effect. ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES 4.1 Taxes; Section 338(h)(10) Election. (A) As the shareholders of an S corporation, the Shareholders will pay and discharge and be responsible for any and all Taxes due or payable by the Shareholders and by the Company for any taxable year or taxable period ending on or before the Closing Date including, without limitation, any liability that the Shareholders may owe as individuals in any jurisdiction in which the Company is treated as an S corporation. In addition, the Shareholders will pay and discharge and be responsible for any State taxes (including, without limitation, excise and franchise taxes) due or payable by the Company for any taxable year or taxable period ending 56 on or before the Closing Date, including, without limitation, any liability that the Shareholders may owe as individuals in any jurisdiction in which the company is treated as an S corporation. Any excise and franchise taxes due or payable as a result of the Election (as hereinafter defined) shall be borne by the Shareholders. For purposes of this Section 4.1, and as required in connection with the Election, the current fiscal year of the Company will be treated as two separate tax years, one beginning on January 1, 1998 and ending on the Closing Date and the other beginning on the date after the Closing Date and ending at the end of the 1998 fiscal year of the Company. The books and records of the Company will be closed at the close of business on the Closing Date. (B) The Parent, the Merger Sub, the Shareholders and the Company agree to make a timely election under Section 338(h)(10) of the Code and similar provisions of state and local law, where allowable, in respect of the Merger (the "ELECTION"), thereby causing such Merger to be treated as a purchase or sale of assets of the Company for federal purposes and to the extent allowed by state, local and foreign tax laws. On all returns relating to Income Taxes, the Shareholders and the Parent will report the transfers under this Agreement consistent with the Election. Neither the Shareholders, the Parent nor the Company will take a position on a return relating to Income Taxes contrary to the Election unless required to do so by applicable state, local or foreign tax laws or pursuant to a determination as defined in Section 1313(a) of the Code. Each of the parties shall take any action required to effect state, local and foreign tax law conformity with application of the Election to the extent allowed by law. 57 (C) The Parent and the Merger Sub, the Shareholders and the Company acknowledge and agree that the Purchase Price (as defined in Section 2.1 above) reflects the fact that the Shareholders will incur substantial tax obligations as a result of the Merger, and the tax treatment of such Merger as a deemed sale of all of the assets of the Company; other than as defined in this Section 4.1, the Parent and the Merger Sub shall have no further obligations and make no further payments to the Company relating to any and all tax liabilities incurred by the Company or the Shareholders as a result of the Merger, or the Election, or relating to any current or deferred tax liabilities of the Company or the Shareholders arising on or prior to the Closing Date. (D) In connection with the Election, not later than 150 days after the Closing Date, the Parent and the Sellers' Representative shall act together in good faith to (i) determine and jointly agree upon the "MODIFIED AGGREGATE DEEMED SALES PRICE" of the assets of the Company (within the meaning of, and in accordance with, Treasury Regulations Section 1.338(h)(10)-1(f) or comparable provisions for state, local and foreign law) (the "MADSP DETERMINATION"), and (ii) determine and jointly agree upon the allocations of the "MODIFIED AGGREGATE DEEMED SALES PRICE" in accordance with Section 338(b)(5) of the Code and Treasury Regulations Section 1.338(b)-2T promulgated thereunder (and comparable provisions for state, local and foreign law) (the "MADSP ALLOCATIONS"). If the parties are unable to agree within such period, the MADSP Determination and MADSP Allocations provided for under clauses (i) and (ii) shall be determined within 30 days thereafter by an independent qualified appraiser selected by the Parent and reasonably acceptable to the Seller's 58 Representative (the "APPRAISER"), the costs of which shall be borne by the Parent. The Parent, the Sellers and the Shareholders shall (w) be bound by the joint MADSP Determination and MADSP Allocations (whether agreed upon or determined by the Appraiser) for purposes of determining any Taxes, (x) prepare and file their Tax Returns on a basis consistent with such MADSP Determination and MADSP Allocations, (y) take no position inconsistent with such MADSP Determination and MADSP Allocations on any applicable Tax Return, in any proceeding before any taxing authority or otherwise and (z) immediately following the MADSP Determination and MADSP Allocations (whether agreed upon or determined by the Appraiser), exchange completed and duly executed copies of Internal Revenue Service Form 8023, required schedules thereto, and any similar state, local or foreign forms computed to reflect such MADSP Determination and MADSP Allocations (whether agreed upon or determined by the Appraiser). 4.2 Tax Return Filing. (a) The Company and the Shareholders shall cause the Company and each of the Subsidiaries to prepare, in a manner consistent with past practices, and timely file (including extensions of time to file) all Tax Returns required to be filed by the Company and each of the Subsidiaries, the due date of which (without extensions) occurs on or before the Closing Date and pay all Taxes due with respect to any such Tax Returns. (b) The Surviving Corporation will prepare any Tax Returns due to be filed by the Company after the Closing Date but relating to periods of time prior to the Closing Date, with the understanding that such Tax Returns will be subject to the approval of the Parent and the Sellers' Representative prior to filing. 59 (c) The Shareholders will take whatever action is necessary to maintain the S status of the Company for federal purposes and for the purposes of the states listed in Section 3.1(Q)(xiv) above through the Closing Date, including as a result of the Election. (d) Except in connection with the Election, the Shareholders will not cause the Company to make any additional federal tax elections under the Code with respect to the Company for any tax period ending after the Closing Date. 4.3 Further Assurances. At any time and from time to time after the Closing, each of the parties agree to cooperate with each other and to execute and deliver such other documents, instruments of transfer or assignment, files, books and records and do all such further acts and things as may be reasonably required to carry out the transactions contemplated hereunder. 4.4 Access to Records. Prior to the Closing Date, each of the Parent and the Merger Sub shall be entitled, through its employees and representatives, including, without limitation, Paul, Weiss, Rifkind, Wharton & Garrison and accountants, to make such investigation of the assets, properties, business and operations of the Company and the Subsidiaries, and such examination of the books, records and financial condition of the Company and the Subsidiaries as the Parent or Merger Sub wishes. Any such investigation and examination shall be conducted at reasonable times after providing reasonable prior notice and under reasonable circumstances and the Company and each Seller shall, and shall cause the Company and each of the Subsidiaries to, cooperate reasonably therewith. No investigation by the Parent or Merger Sub shall diminish or obviate any of the 60 representations, warranties, covenants or agreements of the Company and each Seller contained in this Agreement. In order that the Parent and the Merger Sub may have the opportunity to make such business, accounting and legal review, examination or investigation as they may wish of the business and affairs of the Company and the Subsidiaries, the Company and the Sellers shall furnish and shall cause the Company and the Subsidiaries to furnish the representatives of the Parent and the Merger Sub during such period with all such information and copies of such documents concerning the affairs of the Company and the Subsidiaries as such representatives may reasonably request, shall make available, or cause the Company and the Subsidiaries to make available, such officers and employees of the Company as such representatives reasonably request, and shall cause its officers and employees to, and use reasonable efforts to cause its consultants, agents, accountants and attorneys to cooperate fully with such representatives in connection with such review and examination and to make full disclosure to the Parent and the Merger Sub of all material facts affecting the financial condition and business operations of the Company and the Subsidiaries. Following the Closing, each party shall afford the other and its authorized representatives access, during regular business hours after providing reasonable prior notice, to any books and records of the Company and the Subsidiaries to the extent they relate to a period prior to the Closing Date that such party shall from time to time reasonably request. From the date hereof, at the Parent or Merger Sub's request, each Seller shall give the Parent or Merger Sub and its authorized representatives reasonable access, during regular business hours after providing reasonable prior notice, to such Seller's records related to the Company 61 and/or the Subsidiaries located other than in the possession of the Company or the Subsidiaries, and shall permit the Parent or Merger Sub to make a copy at its expense of any such documents as the Parent or Merger Sub shall designate. Notwithstanding anything to the contrary in this Section 4.4, neither the Company nor any of the Subsidiaries shall be required to disclose any classified information in violation of any applicable law. 4.5 Preservation of Records. Each of the Parent and the Merger Sub agrees that it shall at its sole expense preserve and keep the records of the Sellers, the Company and the Subsidiaries (including any successors thereto) delivered to it hereunder for a period of no less than six years after the close-out of each government contract or for such longer period as may be required by any governmental agency or on account of on-going litigation, but for no less than one year from the Closing Date and shall make such records available to the Company and the Sellers as may be reasonably required by the Company and the Sellers in connection with any legal proceedings against or governmental investigations of the Company and the Sellers or in connection with any tax examination of the Company and the Sellers. In the event the Parent or the Merger Sub wishes to destroy such records after that time, it shall first give thirty (30) days' prior written notice to the Sellers' Representative and the Sellers' Representative shall have the right at its option, upon prior written notice given to the Parent or the Merger Sub within said thirty (30) day period, to take possession of said records within sixty (60) days after the date of the Sellers' Representative's notice to the Parent and the Merger Sub hereunder. If the Sellers' Representative fails to take possession of said records 62 within such sixty (60) day period, the Parent or Merger Sub may destroy such records. 4.6 Confidentiality. From and after the date of this Agreement until the fifth anniversary of the Closing Date, in the event of the consummation of the transaction contemplated hereby, each Seller shall keep any and all information relat ing to the Company and the Subsidiaries, their business operations and prospects (including, but not limited to, customer lists and related information), services and know-how confidential and shall not disclose such to any person; PROVIDED, HOWEVER, that such Seller may disclose such information that (i) is or becomes publicly available other than by disclosure by any Seller, the Sellers' Representative or any agent thereof, (ii) such Seller is required to disclose by law, government regulation or court order or in order to enforce the terms of this Agreement, but such Seller will give the Parent and the Merger Sub adequate advance notice so that the Parent and the Merger Sub may seek a protective order or take other reasonable actions to preserve the confidentiality of such information, or (iii) is required in the ordinary course of such Seller's duties as director, officer or employee of the Company or the Surviving Corporation. In the event that the transactions contemplated hereby are not consummated, the terms of the Confidentiality Agreement, dated December 17, 1997, between the Company and the Parent (the "CONFIDENTIALITY AGREEMENT") shall continue to apply in full force and effect for a period of five years subsequent to the date thereof. 63 4.7 Efforts; Consents. The Parent, the Merger Sub, the Company and each Seller agree to use all reasonable efforts to take or cause to be taken all actions necessary, proper or advisable to consummate the transactions contemplated in this Agreement. The Parent, the Merger Sub, each Seller and the Company also agree to make a good faith effort to consummate and close the transactions contemplated in this Agreement by June 1, 1998. Without limiting the generality of the foregoing, each of the parties hereto shall use all reasonable efforts to obtain the authorizations, consents, orders and approvals of federal, state, and local regulatory bodies and officials that may be or become necessary for the performance of its obligations pursuant to this Agreement and the consummation of the transactions contemplated hereby and will cooperate fully in promptly seeking to obtain such authorizations, consents, order and approvals as may be necessary for the performance of their respective obligations pursuant to this Agreement. Each of the Parent and the Merger Sub will not take any action which will have the effect of delaying, impairing or impeding the receipt of any required regulatory approvals and will use its best efforts to secure such approvals as promptly as possible. 4.8 Return of Information and Confidentiality. The terms of the Confidentiality Agreement are herewith incorporated by reference and shall continue in full force and effect until the Closing. In the event the Closing under this Agreement does not occur in accordance with the terms hereof for any reason, the Parent and the Merger Sub shall immediately return to the Company all written information (and all copies thereof) regarding the Company and the Subsidiaries, obtained from the Company or the Sellers by the Parent and the Merger Sub in the 64 course of investigating the Merger, or negotiating this Agreement or delivered to them pursuant to this Agreement, and the terms of the Confidentiality Agreement shall continue to apply in full force and effect for a period of five years subsequent to the date thereof. 4.9 Ordinary Course of Business. From the date hereof until the Closing Date, unless otherwise agreed to by the Parent and the Merger Sub, the Company and each Seller agree that they shall cause the Company and each of the Subsidiaries to conduct their business and operations in the ordinary course and in substantially the same manner in which the same have heretofore been conducted and not to undertake any of the actions specified in Section 3.1(F). 4.10 Insurance Proceeds, Litigation Rights. In the event that any pro perty owned or leased by the Company or any of the Subsidiaries suffers any material damage, destruction or other casualty loss, and the Closing occurs in accordance with the terms hereof, the Shareholders shall surrender to the Company, the Subsidiaries, the Parent and the Merger Sub (i) all insurance proceeds received by any of the Shareholders with respect to such damage or loss and (ii) all rights of the Shareholders with respect to any causes of action, whether or not litigation has commenced on the Closing Date, in connection with such damage or loss. Nothing in this Section 4.10 shall be construed to limit or prejudice the Parent or the Merger Sub's rights and remedies under this Agreement, including, without limitation, the Parent or the Merger Sub's right not to consummate the transactions contemplated hereby if all of the conditions set forth in Section 5.2 are not satisfied or waived, in the sole discretion of the Parent and the Merger Sub. 65 4.11 Benefit Plans and Employee Matters. (A) From and after the Closing Date, the Parent shall cause the Surviving Corporation and each of the Subsidiaries to (i) provide all salaried employees of the Company and each of the Subsidiaries as of the Closing Date ("COMPANY EMPLOYEES") with service credit for all periods of employment with the Company or the Subsidiaries prior to the Closing Date for purposes of satisfying any service requirements for early retirement under any defined contribution plan in effect on the date hereof or under any substantially similar replacement plan adopted by Parent, the Surviving Corporation, the Subsidiaries or any of their affiliates (or any successor entity to any of the foregoing) with respect to Company Employees and (ii) waive any pre-existing condition of any Company Employee for purposes of determining eligibility for, and the terms upon which they participate in, any welfare plan with respect to which Company Employees participate (other than conditions that are already in effect with respect to such employees under the Company's or the Subsidiaries' welfare plans that have not been satisfied as of the Closing Date). (B) The Parent hereby agrees that from and after the Closing Date, it will cause the Surviving Corporation and the Subsidiaries to continue in full force and effect all the Plans (as defined in Section 3.1(M) above and as set forth on Schedule 3.1(M) hereto), until such date as it will convert or transition such Plans to its own benefit programs, which date will be on or before January 1, 1999. Prior to such conversion or transition, the Parent will contribute (or cause the Surviving Corporation and the Subsidiaries to continue to contribute) all required contributions and pay all required premiums under such Plans; PROVIDED, HOWEVER, that nothing in 66 this Agreement shall be construed to limit the ability of the Parent or the Surviving Corporation to modify, amend or terminate any benefits of any individual, or terminate the employment of any individual, at any time after the Closing Date or, after January 1, 1999, any Plan. (C) Joseph Maurelli and other members of the senior management of the Company shall during their employment by the Surviving Corporation be entitled to participate in the Parent's or the Surviving Corporation's management incentive programs (including the annual incentive compensation program) on the same basis as other senior executives of the Parent and its subsidiaries, subject (except as set forth below) to the discretion of the board of directors of the Parent (the "PARENT'S BOARD"). The Parent shall, at the next regular meeting of the Parent's Board, which is currently scheduled to occur no later than July 24, 1998, grant options under and subject to the Anteon Corporation Omnibus Stock Plan (the "PARENT OPTION PLAN") to purchase at least fifty thousand shares, in the aggregate, of the Parent's common stock to Joseph Maurelli and other members of the Company's senior management to be designated by the Company on or before the Closing Date subject to the execution by the grantees of the Parent's customary option agreement, it being the understanding that such grants shall be made on terms consistent in all material respects with the Parent's past practice. (D) The chief executive officer of the Parent shall recommend to the Board of Directors of the Parent (or an appropriate committee thereof) that the Parent grant under the Parent Option Plan, to employees of the Surviving Corporation other than Joseph Maurelli, options to purchase at least 12,500 shares of Parent's common 67 stock no later than the first anniversary of the Closing Date and 12,500 shares of Parent's common stock no later than the second anniversary of the Closing Date, it being understood that such issuance and the terms of issuance are subject to the discretion of the Parent's Board (or an appropriate committee thereof). (E) The Parent agrees that Joseph Maurelli shall be elected a member of the Parent's Board, to serve at the pleasure of the Parent's shareholders, at the first regular meeting of the Parent's Board after the Closing Date which is currently scheduled to occur no later than July 24, 1998. 4.12 Preservation of Business. From the date hereof through the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Company and the Sellers shall use reasonable efforts to cause the Company and the Subsidiaries to preserve their respective business organizations intact, keep available the services of their respective present officers, employees, consultants and agents, maintain their respective present suppliers and customers. 4.13 Litigation. From the date hereof through the Closing Date, the Company and the Sellers shall cause the Company to notify promptly the Parent and the Merger Sub of any actions or proceedings of the type described in Section 3.1(G) that from the date hereof are commenced or, to the Knowledge of any Seller, the Company or any of the Subsidiaries, threatened against the Company or any of the Subsidiaries, against any officer, director, employee, consultant, agent, shareholder or other representative of the Company or any of the Subsidiaries with respect to their affairs. From the date hereof to the Closing Date, the Parent shall promptly notify 68 the Company of any litigation that could be reasonably expected to cause a Parent Material Adverse Effect. 4.14 Agreements. From the date hereof through the Closing Date, the Company and the Sellers shall cause the Company and the Subsidiaries to notify the Parent and the Merger Sub promptly of any evidence that any party to a contract or other agreement listed in Schedule 3.1(O) has terminated or failed to renew or intends to terminate or fail to renew any such contract or agreement or that any party has asserted or intends to assert any claim under any such contract or agreement. 4.15 Continued Effectiveness of Representations and Warranties. From the date hereof through the Closing Date, the Company and the Sellers shall cause the Company and each of the Subsidiaries to conduct their businesses in such a manner so that the representations and warranties contained in Section 3.1 shall continue to be true and correct to the extent required to satisfy Section 5.2(B) on and as of the Closing Date as if made on and as of the Closing Date, and each of the Parent and the Merger Sub shall conduct its respective business in such a manner so that the representations and warranties contained in Section 3.2 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and all of the Sellers shall conduct their affairs in such a manner so that the representations and warranties contained in Section 3.1 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and each party shall promptly give notice to the other parties of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a violation or breach by it or the other parties hereto of this Agreement. 69 4.16 Satisfaction of Conditions Precedent. During the term of the Agreement, the parties hereto will use reasonable efforts to satisfy (or cause to be satisfied) all the conditions precedent to their respective obligations. 4.17 Exclusivity. As an inducement to the Parent and the Merger Sub to enter into this Agreement, and in consideration of the time and expense which they have devoted and will devote to the transactions contemplated hereby during such period, subsequent to the execution of this Agreement and until the earlier of (i) the Closing Date; and (ii) the termination of this Agreement in accordance with Article VII, none of the Sellers nor the Company nor any of their respective representatives (including, without limitation, any investment banker, attorney or accountant retained or acting on behalf of the Company, any Seller or any Shareholder, director, officer or employee of the Company) will, directly or indirectly, (i) initiate, solicit, encourage or respond to any inquiry or proposal with respect to a merger, consolidation, share exchange, business combination, liquidation, dissolution or sale of all or a portion of the assets of the Company or any of the Subsidiaries outside the Ordinary Course of Business or any purchase of any of the outstanding shares of its capital stock (an "ACQUISITION PROPOSAL"), or (ii) enter into any discussions, negotiations or agreements concerning an Acquisition Proposal with, or disclose any information concerning the Company or any of the Subsidiaries, their businesses or properties or afford any access to their properties, books and records to, or otherwise assist or facilitate any effort relating to an Acquisition Proposal, by any corporation, individual, partnership, company, association, trust, person or other entity or group (a "PERSON"). The Sellers, the Company and the Subsidiaries will 70 immediately cease any existing discussions with any Persons concerning any Acquisition Proposal. 4.18 Allocation of Certain Expenses of Parent. The Parent, the Company and the Sellers acknowledge and agree that following the Closing, the Parent will allocate a portion of its home office general and administrative and overhead expenses to the Company (the "HOME OFFICE EXPENSE ALLOCATION"). The Home Office Expense Allocation will be calculated in accordance with the Parent's past practice in conformity with applicable regulations and is currently anticipated to be approximately $2,000,000, subject to possible adjustment in accordance with all applicable facts and circumstances and Parent's cost accounting practices as disclosed to the federal government. The Parent will consult with the appropriate personnel of the Surviving Corporation in preparing applicable cost accounting disclosure statements to be furnished by Parent to the federal government. The Company and the Parent anticipate that such Home Office Expense Allocation will be passed through to the customers of the Surviving Corporation and/or offset by indirect cost reductions from the Surviving Corporation, subject to applicable government cost accounting standards. 4.19 Certain Covenants of the Parent. (A) The Parent agrees that from and after the Closing Date until June 30, 1999, the Parent shall cause the Surviving Corporation to maintain a financial reporting system that will be sufficient to permit a firm of independent accountants to determine the Operating Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, pursuant 71 to Section 2.8. If after the Closing Date until June 30, 1999, any contracts of the Company or its Subsidiaries are transferred, assigned, or otherwise allocated or attributed, for financial reporting purposes, to the Parent or any of its other subsidiaries (other than the Company and/or its Subsidiaries), then equitable and reasonable adjustments shall be made in calculating the Operating Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, to eliminate the effect of any transfer, assignment, allocation or attribution, and no such transfer, assignment, allocation or attribution shall be made unless the financial reporting system referred to in the immediately preceding sentence is capable of tracking the performance of distinct contracts in a manner that will permit such determination of the Operating Profit of the Company and its Subsidiaries, and consequently, of the amount of Contingent Consideration payable pursuant to the terms of this Agreement. If after the Closing Date until June 30, 1999, any contracts of the Parent or its subsidiaries (other than the Company and its Subsidiaries) are transferred, assigned, or otherwise allocated or attributed, for financial reporting purposes, to the Company or its Subsidiaries, then equitable and reasonable adjustments shall be made in calculating the Operating Profit of the Company and its Subsidiaries, and consequently, the amount of Contingent Consideration payable, if any, to eliminate the effect of any transfer, assignment, allocation or attribution and no such transfer, assignment, allocation or attribution shall be made unless the financial reporting system referred to in the immediately preceding sentence is capable of tracking the performance of distinct contracts in a manner that will permit such determination of the Operating Profit of the Company 72 and its Subsidiaries, and consequently, of the amount of Contingent Consideration payable pursuant to the terms of this Agreement. All actions taken by the Parent during the period covered by this Section 4.19(A) shall be in good faith and not for the purpose of reducing the amount of Contingent Consideration payable pursuant to the terms of this Agreement. (B) The Company and the Sellers acknowledge that from and after the date hereof until June 30, 1999, the Parent intends to (i) continue to maintain management reserves of the Surviving Corporation and the Subsidiaries where probable liabilities exist; (ii) cause the Surviving Corporation to comply with GAAP consistent with the Company's past practices; and (iii) cause the Surviving Corporation continue to maintain any and all reserves necessary to comply with GAAP consistent with the Company's past practices, and to meet the overall reasonable business needs of the Surviving Corporation and the Subsidiaries during such period. (C) The Parent shall cause the Surviving Corporation to be operated as a wholly-owned subsidiary until June 30, 1999, at the earliest. The Parent agrees that from the Closing Date until June 30, 1999, it shall not terminate or permit the Surviving Corporation to terminate the employment of Joseph Maurelli unless such termination is made for cause as defined in his current employment agreement with the Company, without regard to the future efficacy of such agreement. (D) The Parent agrees that from the Closing Date until December 31, 1998, it will allow to continue in effect the Executive Employment 73 Agreements in effect on the Closing Date of the following employees of the Company: Joseph Maurelli, Walter S. Szczypinski, Jr., Deborah Alderson, William Reese, William Baker, James Sullivan, Michael Maraghy, Michael McMillan, Jeremy Nittle, Jack Youngworth and Edward Masso (letter agreement). (E) Obligations of Merger Sub. The Parent will take all action necessary to cause the Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement. 4.20 Shareholder Approval. Each Seller hereby consents to the Merger and agrees that at any meeting (whether annual or special, and whether or not an adjourned or postponed meeting) of the Shareholders, however called, or in connection with any written consent of the Shareholders, each Seller shall vote (or cause to be voted) all shares of Common Stock owned or controlled by such Seller: (i) in favor of the Merger, the execution and delivery by the Company of this Agreement and the approval and adoption of the Merger and the terms thereof and each of the other actions contemplated by this Agreement and any actions required in furtherance hereof and (ii) against any action or agreement that would impede, interfere with, or prevent the Merger. No Seller shall enter into any agreement, arrangement or understanding with any Person the effect of which would be inconsistent or violative of the provisions and agreements contained herein. 74 ARTICLE V CONDITIONS TO CLOSING 5.1 Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger hereunder are, at its option, subject to the fulfillment or waiver, prior to or on the Closing Date, of each of the following conditions: (A) Regulatory Authorizations. All authorizations, consents, orders and approvals of federal and state regulatory bodies and officials necessary for the consummation by the Company of the Merger hereunder shall have been obtained, and there shall be in effect no preliminary or permanent injunction or other order of a court or governmental or regulatory agency of competent jurisdiction directing that the transaction contemplated herein, or any of them, not be consummated (collectively, an "ORDER"). (B) Representations and Warranties; Covenants. The representations and warranties of the Parent and the Merger Sub contained in this Agreement and in any certificate delivered by any officer of the Parent or the Merger Sub pursuant hereto that are not qualified by materiality or a Parent Material Adverse Effect requirement shall be true and correct in all material respects and the representations and warranties that are qualified by materiality or a Parent Material Adverse Effect requirement (or similar concepts) shall be true and correct; in each case, at the date hereof and at and as of the Closing Date, with the same force and effect as if made at and as of the Closing Date; and the Parent and the Merger Sub shall have performed or complied with the agreements and covenants required by this 75 Agreement to be performed or complied with by them on or prior to the Closing Date. (C) Certificates. The Parent and the Merger Sub shall have delivered to the Company and the Sellers certificates, dated the Closing Date, of officers of the Parent and the Merger Sub to the effect that the conditions specified in paragraphs (A) and (B) of this Section 5.1 have been satisfied. (D) Opinions of Counsel to the Parent and the Merger Sub. The Company and the Sellers' Representative shall have received the opinions of Curtis L. Schehr and Paul, Weiss, Rifkind, Wharton & Garrison, general counsel and special counsel, respectively, to the Parent and the Merger Sub, dated the date of the Closing, addressed to the Company and the Sellers, in the form of Exhibit IV. (E) Expiration of Required Notice Period. Any notice period required to be provided to holders of the Company's nonvoting Common Stock under the VSCA shall have expired. 5.2 Conditions to Obligations of the Parent and the Merger Sub. The obligations of the Parent and the Merger Sub to consummate the Merger hereunder are subject, at their option, to the fulfillment or waiver, prior to or on the Closing Date, of each of the following conditions: (A) Regulatory and other Authorizations. All authorizations, consents, orders and approvals of federal and state and regulatory bodies and officials necessary for the performance by the Parent and the Merger Sub of this Agreement and the consummation of the Merger hereunder shall have been obtained and there shall be no Order in effect. 76 (B) Representations and Warranties; Covenants. The representations and warranties of the Company and each Seller contained in this Agreement and in any certificate delivered by any officer of the Company or any Seller pursuant hereto that are not qualified by materiality or a Company Material Adverse Effect requirement shall be true and correct in all material respects and the representations and warranties that are qualified by materiality or a Company Material Adverse Effect requirement (or similar concepts) shall be true and correct, in each case, at the date hereof and at and as of the Closing Date, with the same force and effect as if made at and as of the Closing Date, and the Company and the Sellers shall have performed or complied with the agreements and covenants required by this Agreement (including without limitation the agreements set forth in Section 2.4) to be performed or complied with by them on or prior to the Closing Date. (C) Governmental Permits and Approvals. All Permits required for the lawful consummation of the Closing shall have been obtained and be in full force and effect, and the Parent and the Merger Sub shall have been furnished with evidence reasonably satisfactory to them that such Permits have been granted and obtained. (D) Third Party Consents. All consents, permits and approvals from parties to contracts or other agreements with the Company, the Subsidiaries or with any Seller that may be required in connection with the performance by the Company and any Seller of their obligations under this Agreement or the continuance of such contracts or other agreements with the Company or the Subsidiaries after the Closing shall have been obtained and be in full force and effect, 77 and the Parent and the Merger Sub shall have been furnished with evidence reasonably satisfactory to them that such consents, permits and approvals have been granted and obtained. (E) Opinion of Counsel to the Company and the Sellers. The Parent and the Merger Sub shall have received the opinion of Venable, Baetjer and Howard, LLP, counsel to the Company and the Sellers, dated the date of the Closing, addressed to the Parent and the Merger Sub, in the form attached as Exhibit V. (F) Non-Competition. At the Closing, each of the following Sellers shall have executed and delivered a non-compete and non-disclosure agreement in substantially the form attached as Exhibit VII: Joseph Maurelli, Deborah Alderson, James Sullivan and Michael McMillan. (G) Certificate. The Company and the Sellers shall have delivered to the Parent and the Merger Sub a certificate, dated the Closing Date, to the effect that the conditions specified in paragraphs (A) through (D) of this Section 5.2 have been satisfied. (H) Payoff Letter. The Company and the Sellers shall have delivered payoff letters or other documentation from First Virginia Bank ("FVB") (and any other holder of Debt of the Company or the Subsidiaries) reasonably satisfactory to the Parent evidencing the termination of the Company's line of credit facility with FVB and the release of liens thereunder against payment of the Debt. (I) VEBA Funding. The Company shall have delivered evidence reasonably satisfactory to the Parent demonstrating that the Company's 78 VEBA trust has been fully funded as of the Closing Date consistent with the Company's past practice and contains not less that $300,000 in cash reserves. ARTICLE VI FEES RELATING TO THIS TRANSACTION Except for the commission and fees of the persons set forth on Schedule 6.0 which, subject to Section 9.3, will be paid by the Shareholders and the Option Holders through pro rata reduction of the Purchase Price and amounts payable under Sections 2.3 and 2.4, the Company and the Sellers represent and warrant to the Parent and the Merger Sub that no broker, finder, agent or similar intermediary has acted on behalf of the Company, any of the Subsidiaries or any Shareholder in connection with this Agreement or the transactions contemplated hereby, and that there are no brokerage commissions, finders' fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Company, any of the Subsidiaries or any Shareholder, or any action taken by the Company, any of the Subsidiaries or any Shareholder. The Parent and the Merger Sub represent and warrant to the Sellers that no broker, finder, agent or similar intermediary has acted on behalf of the Parent or the Merger Sub in connection with this Agreement or the transactions contemplated hereby, and that there are no brokerage commissions, finders' fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Parent or the Merger Sub or any action taken by the Parent or the Merger Sub. Each such party (the Parent and the Merger Sub on the one hand 79 and the Company and each Seller on the other) agrees to indemnify and save the other harmless from any claim or demand for commission or other compensation by any broker, finder, agent or similar intermediary claiming to have been employed by or on behalf of the Parent and the Merger Sub, on the one hand, or the Company, any of the Subsidiaries or any Shareholder, on the other, and to bear the cost of legal expenses incurred in defending against any such claim. ARTICLE VII TERMINATION 7.1 Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement may be terminated prior to the Closing as follows: (a) by the mutual written consent of the parties to this Agreement; (b) by the Company or the Parent, by notice to the other, if, for any reason, the Closing has not occurred prior to the close of business on June 5, 1998; (c) at the election of the Company, if the Parent or the Merger Sub has breached any representation, warranty, covenant or agreement contained in this Agreement that is qualified by materiality or a Parent Material Adverse Effect requirement (or similar concepts), or if the Parent or the Merger Sub has breached in any material respect any representation, warranty, covenant or agreement contained in this Agreement that is not so qualified, which breach has not 80 been cured on or prior to thirty (30) days following delivery of written notice of such breach by the Company to the Parent or the Merger Sub; (d) at the election of the Parent or the Merger Sub, if any Seller or the Company has breached any representation, warranty, covenant or agreement contained in this Agreement that is qualified by materiality or a Company Material Adverse Effect requirement (or similar concepts), or if any Seller or the Company has breached in any material respect any representation, warranty, covenant or agreement contained in this Agreement that is not so qualified, which breach has not been cured on or prior to thirty (30) days following delivery of written notice of such breach by the Parent or the Merger Sub to the Sellers' Representative; (e) at the election of the Company on the one hand or the Parent or the Merger Sub on the other, if any legal proceeding is commenced or threatened by any Governmental Body directed against the consummation of the Closing or any other transaction contemplated under this Agreement and the Company or the Parent or the Merger Sub (as the case may be) reasonably and in good faith deems it impractical or inadvisable to proceed in view of such legal proceeding or threat thereof. If this Agreement so terminates, it shall become null and void and have no further force or effect except as provided in Section 7.2. 7.2 Effect of Termination; Expenses. In the event of the termination of this Agreement pursuant to Section 7.1, this Agreement shall thereafter become void and have no further force or effect except as provided in Sections 4.6 and 4.8. Except as provided herein, none of the parties hereto shall have any liability 81 in respect of the termination of this Agreement except to the extent that failure to satisfy the conditions of Section 5 results from the violation of the representations, warranties, covenants or agreements of such party under this Agreement, in which case the termination of this Agreement will not prejudice any legal rights of any party whether those rights arise under this Agreement or otherwise. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification by the Sellers. The Sellers agree to indemnify, defend and hold harmless in the manner and subject to the limitations and qualifications set forth in this Article VIII the Parent, the Merger Sub and the Surviving Corporation (and their respective directors, officers, employees, affiliates, successors and assigns) (collectively, the "PURCHASER PARTIES") against and hold the Purchaser Parties harmless from and in respect of any and all losses, liabilities, damages, deficiencies, costs, expenses (including, without limitation, expenses of investigation and defense and reasonable fees, disbursements and expenses of counsel incurred by the Purchaser Parties in any action or proceeding between the Purchaser Parties and the Sellers or between the Purchaser Parties and any third party or otherwise), claims, liens or other obligations of any nature whatsoever (collectively, "LOSSES") based upon, arising out of, or otherwise in respect of or which may be incurred by virtue of or result from (a) the inaccuracy in or breach of any representation, warranty, covenant or agreement made by or on behalf of the Sellers or the Company in this Agreement or in any document or instrument delivered at the 82 Closing pursuant hereto, (b) any claim of any nature, including, without limitation, any claim for appraisal or dissenters' rights, by any Shareholder or Option Holder arising out of or in connection with this Agreement or the Merger (other than claims for payments under Article II of this Agreement); or (c) enforcing the indemnification provided for hereunder. The Sellers shall have no right to seek contribution from the Company or any of the Subsidiaries with respect to all or any part of any of the Sellers' indemnification obligations under this Section 8.1. 8.2 Indemnification by the Parent and the Merger Sub. The Parent and the Merger Sub agree to indemnify the Sellers against and hold each Seller harmless from and in respect of any and all Losses which may be incurred by virtue of or result from (a) the inaccuracy in or breach of any representation, warranty, covenant or agreement made by or on behalf of the Parent or the Merger Sub in this Agreement or in any document or instrument delivered at the Closing pursuant hereto, excluding, in all events, the representations and warranties set forth in Section 3.2(E) and (F), which shall not survive the Closing, (b) the conduct of the Company and the Subsidiaries after the Closing or (c) enforcing the indemnification provided for hereunder. 8.3 ERISA, Tax and Contract Supplemental Indemnification by Each Seller. (a) Supplemental ERISA Indemnification. Each Seller agrees to indemnify and hold harmless the Purchaser Parties with respect to any Losses incurred by any of the Purchaser Parties arising out of or otherwise in respect of any Plan that is not disclosed in Schedule 3.1(M). Notwithstanding anything to the 83 contrary in Section 8.4, all indemnification obligations in this Section 8.3(a) shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and shall not be subject to any time or dollar limitation. (b) Supplemental Tax Indemnification. Each Seller shall indemnify the Purchaser Parties for all Taxes which the Sellers are responsible to pay pursuant to Section 4.1 hereof and for any liability for any Taxes imposed on the Company or the Subsidiaries pursuant to federal, state, local or foreign law attributable to any periods ending on or before the Closing Date (or for the portion of any period up through the Closing Date to the extent a period does not close on such date). Any indemnity payments to or from the Sellers or to or from the Parent and the Merger Sub pursuant to this Agreement, whether under this Section 8.3(b) or otherwise, shall be treated by the Parent and the Merger Sub and the Sellers as purchase price adjustments for all tax purposes. All indemnification obligations set forth in this Section 8.3(b) shall be treated as Tax Claims for purposes of the survival provisions of Section 8.4 and shall not be subject to any dollar limitation. (c) Supplemental Contract Indemnification. Each Seller agrees to indemnify and hold harmless the Purchaser Parties, from and with respect to any and all Losses in excess of a reserve of $825,000 in the aggregate incurred by any of the Purchaser Parties arising out of, or otherwise in respect of, (i) any government disallowance of incurred Direct Contract Costs and/or Indirect Costs including, without limitation, any Losses arising out of Defense Contract Audit Agency incurred cost audits of the Company for fiscal years 1989 through 1997; 84 (ii) Losses arising out of any contract listed in Exhibit VII, which Losses relate to the reduction of fee as a result of the Company failing to deliver to the other contracting party the number of labor hours specified in such contract; and (iii) Losses arising out of or relating to the NCIS investigation disclosed on Schedule 3.1(G). All indemnification obligations in this Section 8.3(c) shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby until the fourth anniversary of the Closing Date and shall be subject to the limitations on indemnification set forth in Section 8.5(c). 8.4 Survival of Representations and Warranties of the Sellers. Notwithstanding any right of the Parent and the Merger Sub to investigate the affairs of the Company and the Subsidiaries and notwithstanding any knowledge of facts determined or determinable by the Parent and the Merger Sub pursuant to such investigation or right of investigation, the Parent and the Merger Sub have the right to rely fully upon the representations and warranties of each of the Sellers contained in this Agreement. All representations and warranties of the parties hereto contained in this Agreement shall survive the execution and delivery hereof and the Closing hereunder, and except for (a) the representations and warranties made in Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D), 3.2(A) and 3.2(B), which shall survive until the expiration of the applicable statute of limitations with respect to any claim arising from any inaccuracy in or breach thereof, (b) the representations and warranties set forth in Sections 3.1(M) and 3.1(Q) which shall constitute Tax Claims under this Section 8.4, (c) the representations and warranties set forth in Section 3.1(R)(b) which shall constitute Environmental Claims and (d) the representations and warranties in 85 Sections 3.2(E) and 3.2(F) which shall not survive the Closing, (i) shall thereafter terminate and expire twenty-four months following the Closing Date, with respect to any General Claim (as hereinafter defined) based upon, arising out of or otherwise in respect of any fact, circumstance, action or proceeding of which the party asserting such claim shall have given no notice on or prior to the expiration of such twenty-four month period, to the party against which such General Claim is asserted, (ii) with respect to any Tax Claim (as herein defined), on the later of (a) the date upon which the liability to which any such Tax Claim may relate is barred by all applicable statutes of limitation and (b) the date upon which any claim for refund or credit related to such Tax Claim is barred by all applicable statutes of limitations, and (iii) with respect to any Environmental Claim (as herein defined), on the fourth anniversary of the Closing Date. As used in this Agreement, the following terms have the following meanings: (i) "GENERAL CLAIM" means any claim (other than a Tax Claim or an Environmental Claim) based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of any Seller contained in this Agreement, (ii) "TAX CLAIM" means any claim based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of any Seller contained in this Agreement related to Taxes or any Plan (as defined in Section 3.1(M) hereof) and (iii) "ENVIRONMENTAL CLAIM" means any claim based upon, arising out of or otherwise in respect of any inaccuracy in or any breach of any representation or warranty of any Seller contained in Sections 3.1(G), 3.1(I), 3.1(K) or 3.1(R)(b) concerning Environmental Law or principles of common law relating to pollution, protection of the environment or 86 health and safety. Except as otherwise expressly provided herein, the covenants and agreements contained in this Agreement shall survive the execution and delivery hereof and the consummation of the transactions contemplated hereby. 8.5 Certain Limitations on Indemnification Obligations. (a) The Parent and the Merger Sub shall not be entitled to receive any indemnification payments under Section 8.1 with respect to any inaccuracy in or breach of any representation or warranty, except those based upon, arising out of or otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D), 3.1(M), 3.1(Q) and 3.1(S), (the "BASKET EXCLUSIONS"), until the aggregate indemnification payments, exclusive of the Basket Exclusions, equal $350,000 (the "BASKET AMOUNT"), whereupon the Parent and the Merger Sub shall be entitled to receive in full indemnity payments in excess of the Basket Amount; PROVIDED, HOWEVER, that (i) solely for purposes of determining whether the amount of the Sellers' indemnification obligations exceed $350,000 in the aggregate, a breach of the Sellers' representations or warranties (other than the representations and warranties contained in Sections 3.1(F) (absence of certain changes or events) and 3.1(R)(a) (Additional Representations)) shall be determined without regard to any limitation or qualification as to materiality set forth in such representation or warranty and (ii) the representations and warranties in this Agreement respecting compliance with laws and Permits set forth in Sections 3.1(I), 3.1(G), 3.1(K)(i)(d), 3.1(K)(i)(e), 3.1(K)(ii)(d), 3.1(K)(ii)(e) and 3.1(W) shall not be deemed to be inaccurate or breached with respect to matters involving Losses under such Sections, taken as a whole, not exceeding $10,000 individually unless such Losses exceed $50,000 in the aggregate. 87 (b) The Parent and the Merger Sub shall be entitled to receive any indemnification payments in respect of the Basket Exclusions without regard to the individual or aggregate amounts thereof and without regard to whether the aggregate of all other indemnification payments shall have exceeded, in the aggregate, the Basket Amount. (c) The maximum amount of indemnification payments under (i) under Section 8.1 with respect to any inaccuracy in or breach of a representation or warranty (excluding those based upon, arising out of or otherwise in respect of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D), or 3.1(Q)), (ii) under Section 8.1(c), and (iii) under Section 8.3(c), shall not exceed in the aggregate, with respect to claims asserted on or prior to the second anniversary of the Closing Date the aggregate amounts owed but until then not due to be paid under the Notes and Section 2.8 and after the second anniversary of the Closing Date shall not exceed $6,000,000. The amount of indemnification payments under Section 8.1 based upon, arising out of or otherwise in respect of breaches of Sections 3.1(A), 3.1(B), 3.1(C), 3.1(D) or 3.1(Q) shall not exceed the Purchase Price. (d) The Parent and Merger Sub agree to first collect any indemnification through set-off on a several basis against any amounts owed but not paid under the Notes or Section 2.8 of this Agreement. All indemnification obligations under this Article VIII or any other provision of this Agreement shall be joint and several with respect to the Parent and the Merger Sub and shall be several, but not joint, with respect to the Sellers; it being understood that with respect to the Sellers, the term "several" means that each Seller's indemnification obligation shall be 88 limited to such Seller's pro rata share of the indemnification obligation of the Sellers, with the understanding that pro rata shall be determined by the respective amount of consideration payable to holders of Common Stock and Options under Sections 2.3(a), (d), (e) and 2.4(b). Each holder of Common Stock and Options who is not a Seller hereunder shall be responsible to provide indemnification under this Agreement to the same extent as if such holder were a Seller hereunder. 8.6 Defense of Claims. In the case of any claim for indemnification under Section 8.1, 8.2 or 8.3 arising from a claim of a third party, an indemnified party shall give prompt written notice to the indemnifying party of any claim, suit or demand of which such indemnified party has knowledge and as to which it may request indemnification hereunder. The failure to give such notice shall not, however, relieve the indemnifying party of its indemnification obligations except to the extent that the indemnifying party is actually harmed thereby. The indemnifying party shall have the right to defend and to direct the defense against any such claim, suit or demand, in its name and at its expense, and with counsel selected by the indemnifying party unless such claim, suit or demand seeks an injunction or other equitable relief against the indemnified party; PROVIDED, HOWEVER, the indemnifying party shall not have the right to defend or direct the defense of any such claim, suit or demand if it refuses to acknowledge fully its obligations to the indemnified party or contests, in whole or in part, its indemnification obligations therefor. If the indemnifying party elects and is entitled to compromise or defend such claim, it shall within 30 days (or sooner, if the nature of the claim so requires) notify the indemnified party of its intent to do so, and the indemnified party shall, at the 89 expense of the indemnifying party, cooperate in the defense of such claim, suit or demand. If the indemnifying party elects not to compromise or defend such claim, fails to notify the indemnified party of its election as herein provided or refuses to acknowledge or contests its obligation to indemnify under this Agreement, the indemnified party may pay, compromise or defend such claim. Except as set forth in the immediately preceding sentence, the indemnifying party shall have no indemnification obligations with respect to any such claim, suit or demand which shall be settled by the indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld or delayed); PROVIDED, HOWEVER, that notwithstanding the foregoing, the indemnified party shall not be required to refrain from paying any claim which has matured by a court judgment or decree, unless an appeal is duly taken therefrom and exercise thereof has been stayed, nor shall it be required to refrain from paying any claim where the delay in paying such claim would result in the foreclosure of a lien upon any of the property or assets then held by the indemnified party or where any delay in payment would cause the indemnified party material economic loss. The indemnifying party's right to direct the defense shall include the right to compromise or enter into an agreement settling any claim by a third party; PROVIDED that no such compromise or settlement shall obligate the indemnified party to agree to any settlement which requires the taking of any action by the indemnified party other than the delivery of a release. Notwithstanding the indemnifying party's right to compromise or settle in accordance with the immediately preceding sentence, the indemnifying party may not settle or compromise any claim over the objection of the other; provided, however, that 90 consent to settlement or compromise shall not be unreasonably withheld. The indemnified party shall have the right to participate in the defense of any claim, suit or demand with counsel selected by it subject to the indemnifying party's right to direct the defense. The fees and disbursements of such counsel shall be at the expense of the indemnified party; PROVIDED, HOWEVER, that, in the case of any claim, suit or demand which seeks injunctive or other equitable relief against the indemnified party as to which the indemnifying party shall not in fact have employed counsel to assume the defense of such claim, suit or demand, the fees and disbursements of such counsel shall be at the expense of the indemnifying party. 8.7 Non-Third Party Claims. Any claim which does not result in a third party claim shall be asserted by a written notice to the other party or parties. The recipient of such notice shall have a period of thirty days after receipt of such notice within which to respond thereto. If the recipient does not respond within such thirty days, the recipient shall be deemed to have accepted responsibility for the Losses set forth in such notice and shall have no further right to contest the validity of such notice. If the recipient responds within such thirty days after the receipt of the notice and rejects such claim in whole or in part, the party delivering shall be free to pursue such remedies as may be available to it under contract or applicable law. 8.8 Set-off Rights. Each of the Sellers agrees that the Parent and the Merger Sub shall have the right, but not the obligation (except as set forth in Section 8.5(d)), to set-off against their payment obligations under Section 2.8 of this Agreement or the Notes the full amount of any Losses required to be paid by such Seller pursuant to this Article VIII if such Losses are not otherwise paid within 30 91 days after the Parent or the Merger Sub has requested payment. If the Parent or the Merger Sub elects to exercise its set-off rights hereunder against any payment due to the Sellers under this Agreement, it will give to the Sellers' Representative written notice of such election which includes the amount to be set-off, and upon giving of such notice, the amount of cash payable by the Parent, the Merger Sub or the Surviving Corporation to the Sellers under this Agreement shall automatically be reduced by the amount set forth in such notice. In the event there is a final deter mination by a court of competent jurisdiction that the Parent, the Merger Sub or the Surviving Corporation was not entitled to indemnification under this Article VIII with respect to the set-off amount, the Parent, the Merger Sub or the Surviving Corporation shall promptly thereafter repay to the Sellers all such amounts which are so determined to have been incorrectly set-off, plus interest thereon at a rate per annum equal to 7.5%, on the basis of a twelve-month year of thirty days each, and which shall accrue from the date the Parent or the Merger Sub exercised its right of set-off hereunder to the date of such repayment. ARTICLE IX MISCELLANEOUS 9.1 Certain Definitions. As used herein, the following terms shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): 92 "Business Day" means any day other than Saturday or Sunday or any other day on which banks in the Commonwealth of Virginia are permitted or obligated to be closed for business. "Debt" means, as of any date, (without duplication) with respect to any Person, any indebtedness outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute trade payables) and shall also include, to the extent not otherwise included (i) any capital lease obligations determined in accordance with GAAP, (ii) obligations of Persons other than such Person secured by a lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been incurred or assumed by such Person, (iii) all indebtedness of others of the types described in the other clauses of this definition (including all dividends of other Persons) the payment of which is guaranteed, directly or indirectly, by such Person or that is otherwise its legal liability or which such Person has agreed to purchase or repurchase or in respect of which such Person has agreed contingently to supply or advance funds (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligation or on any letter of credit, banker's acceptance or similar credit transaction, and (v) and obligations under any currency or interest rate swap, hedge or similar protection device of any such Person. 93 The amount of Debt of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations referred to in clause (iii) above, the maximum liability upon the occurrence of the contingency giving rise to the obligation, PROVIDED, HOWEVER, that (i) the amount outstanding at any time of any Debt issued with original issue discount is the principal amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with GAAP, and (ii) Debt shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the Ordinary Course of Business shall not be deemed to be "Debt" for purposes of this definition. "Deferred Tax Liability" means an amount equal to (x) the aggregate amount of income that would have been recognized by the Parent for periods beginning after the Closing Date pursuant to adjustments under Section 481 of the Code arising from a change in the Company's accounting method and that is instead recognized by the Shareholders in each case as a result of the Section 338(h)(10) Election, multiplied by (y) the highest rate applicable to an individual resident in Fairfax County, Commonwealth of Virginia. The parties have agreed that for purposes of Sections 2.3(b) and (c) of this Agreement, the Deferred Tax Liability shall be deemed to be $4,000,000, regardless of whatever the Deferred Tax Liability is ultimately determined to be. 94 "Direct Contract Costs" means, with respect to any period, the aggregate amounts of labor and other direct expenses, including, without limitation, expenses for materials, subcontracts, consultants and travel. "GAAP" means generally accepted accounting principles, as in effect as of the date hereof, applied in a manner consistent with the Company's past practices, except that the Parent Home Office Expense Allocation and other costs and expenses of the Parent shall be determined in a manner consistent with the Parent's past practices. "Indirect Cost" means any fringe benefits, general and administrative expenses and overhead expenses. "Knowledge" means the actual knowledge of any of the individuals listed on Schedule 9.1. "Operating Profit" means, with respect to any period, (x) Revenue MINUS (y) Direct Contract Costs minus (z) Indirect Costs. In determining Operating Profit no deduction shall be made for unallowables, interest expense, Taxes and any allocations of costs or expenses by the Parent to the Company, including the Parent Home Office Expense Allocation referred to in Section 4.18; however, deduction shall be made for costs and expenses related to certain corporate functions of the Company assumed by the Parent following the Closing, including, but not limited to, insurance, audit and treasury costs that the Company would otherwise have incurred, but for the consummation of the transactions contemplated by this Agreement. For purposes of calculating the Operating Profit, no more than $350,000 of management reserves of the Company existing as of the Closing Date may be 95 included in determining Revenue or any other constituent of the Operating Profit, except if the Parent requests that such reserves be altered. "Person" means any individual, corporation, partnership, limited liability company or partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Revenue" means, with respect to any period, revenues determined in accordance with GAAP, consistently applied. "Tax" or "Taxes" means all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, real or personal property, and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts thereon, imposed by any taxing authority (federal, state, local or foreign) and shall include any transferee liability in respect of Taxes. "Tax Return" means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect to any Taxes. "Transfer Taxes" means all stamp, transfer, documentary, sales, use, registration and other such Taxes and fees (including, without limitation, any penalties and interest) incurred in connection with this Agreement and the transactions contemplated by this Agreement. 96 "Working Capital" means the difference of (x) the consolidated current assets of the Company, MINUS (y) the consolidated current liabilities of the Company, determined in accordance with GAAP applied on a consistent basis. 9.2 Sellers' Representative. (i) Each Seller hereby irrevocably appoints and each other Shareholder and Option Holder by its execution and delivery of a letter of transmittal or option cancellation and settlement form shall irrevocably appoint Joseph Maurelli to act as such Seller's attorney-in-fact and representative (the "SELLERS' REPRESENTATIVE"), to do any and all things and to execute any and all documents, in such Shareholder's or Option Holder's name, place and stead, in any way which such Shareholder or Option Holder could do if personally present, in connection with this Agreement, and the transactions contemplated hereby and thereby, including to accept on such Shareholder's or Option Holder's behalf any amount payable to such Shareholder or Option Holder under this Agreement, or to amend, cancel or extend, or waive the terms of, this Agreement. The Parent and the Merger Sub shall be entitled to rely, as being binding upon such Shareholder or Option Holder, upon any document or other paper believed by the Parent and the Merger Sub to be genuine and correct and to have been signed by the Sellers' Representative, and the Parent and the Merger Sub shall not be liable to any Shareholder or Option Holder for any action taken or omitted to be taken by the Parent and the Merger Sub in such reliance. The Sellers' Representative shall have the sole and exclusive right on behalf of the Shareholder or Option Holder to take any action or provide any waiver pursuant to 97 Section 5.1, 9.4 or Article VII or VIII and to settle any claim or controversy arising under this Agreement. (ii) The Sellers' Representative may resign at any time by giving written notice of resignation to the Parent and the Merger Sub and the Sellers and may be removed at any time with or without cause by the Sellers who held a majority of the outstanding Common Stock of the Company at the time of the Closing. Upon any such resignation or removal, such Sellers shall have the right to appoint, with the consent of the Parent and the Merger Sub, a successor Sellers' Representative. If no successor Sellers' Representative shall have been so appointed by such Sellers, and shall have accepted such appointment, within 30 days after the retiring Sellers' Representative's giving of notice of resignation or the Sellers' removal of the retiring Sellers' Representative, then the retiring Sellers' Representative may, on behalf of the Shareholders and Option Holders, appoint a successor Sellers' Representative, which shall be acceptable to the Parent and the Merger Sub (which shall not unreasonably withhold or delay their approval). Upon the acceptance of any appointment as Sellers' Representative thereunder by a successor Sellers' Representative, such successor Sellers' Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Sellers' Representative, and the retiring Sellers' Representative shall be discharged from its duties and obligations as Sellers' Representative under this Agreement. After any retiring Sellers' Representative's resignation or removal hereunder as Sellers' Representative, the provisions of this Section 9.2 shall inure to 98 its benefit as to any actions taken or omitted to be taken by it while it was Sellers' Representative. (iii) The grant of authority provided for in this Section 9.2: (a) is coupled with an interest and shall be irrevocable and survive the death, incompetency, bankruptcy or liquidation of any Shareholder or Option Holder and shall be binding on any successor thereto; and (b) shall survive the delivery of an assignment by a Shareholder or Option Holder of the whole or any fraction of its interest in any payment due to it under this Agreement. 9.3 Expenses. Unless otherwise specifically provided herein, the parties shall bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement and consummation of the transactions contemplated hereby. Notwithstanding the foregoing, the Parent and the Merger Sub agree that if the Closing occurs and the transactions contemplated by this Agreement are consummated, the Parent and the Merger Sub will pay transaction expenses incurred by the Company, the Subsidiaries and the Shareholders in respect of their outside legal, financial and accounting advisors, up to $300,000; it being agreed by the parties hereto that any accounting, legal and/or other expenses of the Company, the Subsidiaries and the Sellers in excess of such specified amounts, and any other transaction expenses of the Company, the Subsidiaries and the Sellers shall be paid solely by the Shareholders and the Option Holders pro rata from their respective proceeds of the transaction contemplated hereunder, and shall not be otherwise charged or expensed to the Company. 99 9.4 Waivers and Amendments; Non-Contractual Remedies; PRESERVATION OF REMEDIES. Subject to the provisions of Section 13.1-718I of the VSCA, this Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the Parent and the Merger Sub and the Sellers or the Sellers' Representative or, in the case of a waiver, by or on behalf of the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The indemnification provisions of Article VIII are the exclusive remedy for breaches of this Agreement, except for equitable relief following willful failure to consummate this Agreement. The rights and remedies herein provided are cumulative. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement or any document delivered pursuant to this Agreement shall in no way be limited by the fact that the act, omission, occurrence or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement or any document delivered pursuant to this Agreement (or in any other agreement between the parties) as to which there is no inaccuracy or breach. The information provided 100 in any particular Disclosure Schedule to this Agreement is deemed disclosed for all purposes of this Agreement. 9.5 Public Disclosure. Each of the parties to this Agreement hereby agrees with the other party that, except as may be required to comply with the requirements of applicable law, no press release or similar public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement or the transactions contemplated hereunder unless specifically approved in advance by both parties, such approval not to be unreasonably withheld, conditioned or delayed. If any announcement is required by law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTER PRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND EACH SELLER AND THE PARENT IRREVOCABLY AGREE THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT LOCATED IN FAIRFAX COUNTY, COMMONWEALTH OF VIRGINIA OR ANY FEDERAL COURT LOCATED IN THE EASTERN DISTRICT OF VIRGINIA AND EACH PARTY AGREES 101 NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE ACTION, SUIT OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST ANY PARTY IF GIVEN PERSONALLY OR BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER MEANS OF MAIL THAT REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID. NOTHING HEREIN CONTAINED SHALL BE DEEMED TO AFFECT THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY JURISDICTION OTHER THAN VIRGINIA. NOTWITHSTANDING THE FOREGOING UNLESS THE SELLERS' REPRESENTATIVE AND THE PARENT SHALL OTHERWISE AGREE, ALL CLAIMS RESPECTING INDEMNIFICATION UNDER ARTICLE VIII SHALL BE REFERRED FOR BINDING RESOLUTION THROUGH ARBITRATION, NOT SUBJECT TO APPEAL, BEFORE A 102 SINGLE ARBITRATOR IN FAIRFAX COUNTY, VIRGINIA UNDER THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION. 9.7 Notices. Any notices or other communications required under this Agreement shall be in writing and be effective upon delivery if given by hand delivery or facsimile transmission or on the next day after given if delivered by overnight courier, and shall be given at the addresses or facsimile numbers set forth below, with copies provided as follows: (a) if to the Company or the Sellers, to the Sellers' Representative addressed to: Joseph Maurelli TECHMATICS, Inc. 12450 Fair Lakes Circle Fairfax, VA 22033 Fax: 703-802-2348 with a copy to: Venable, Baetjer and Howard, LLP 2010 Corporate Ridge Road, Suite 400 McLean, VA 22101 Attn: William L. Walsh, Jr., Esq. Fax: 703-821-8949 (b) if to the Parent or the Merger Sub, addressed to: Anteon Corporation 3211 Jermantown Road Fairfax, VA 22030-2801 Attn: Curtis L. Schehr, Esq. Vice President and General Counsel Fax: 703-246-0629 103 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019-6064 Attn: Carl L. Reisner, Esq. Fax: 212-757-3990 or at such other place or places or to such other person or persons as shall be designated in writing by the parties to this Agreement in the manner herein proved. 9.8 Section Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. A reference to a Section or an Exhibit or Schedule will mean a Section in, or Exhibits or Schedule to, this Agreement unless otherwise explicitly set forth. 9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 9.10 Assignments. This Agreement may not be assigned, by operation of law or otherwise, except that the Parent or the Merger Sub may assign for collateral purposes their rights under this Agreement to their financing sources. This Agreement shall be binding upon and inure to the benefit of successors and legal representatives of the parties hereto. 9.11 Entire Agreement, Enforceability and Miscellaneous. This Agreement, including the Exhibits and Schedules attached hereto, (a) constitutes the entire agreement among the parties with respect to the transactions contemplated hereby and, except as set forth herein at Sections 4.6 and 4.8, supersedes all prior 104 agreements and understandings, both written and oral, among the parties, with respect to the subject matter hereof; (b) shall be binding upon, and is solely for the benefit of, each of the parties herein and nothing in this Agreement except Sections 8.1 and 8.2 is intended to confer upon any other persons any rights or remedies of any nature whatsoever hereunder or by reason of this Agreement; and (c) in case any provision in this Agreement shall be or shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 105 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ANTEON CORPORATION By: /s/ JOSEPH M. KAMPF -------------------------------------------- Name: Joseph M. Kampf Title: President and Chief Executive Officer TECHMATICS, INC. By: /s/ J. MAURELLI -------------------------------------------- Name: J. Maurelli Title: President and Chief Executive Officer TM ACQUISITION CORP. By: /s/ JOSEPH M. KAMPF -------------------------------------------- Name: Joseph M. Kampf Title: President and Chief Executive Officer 106 SELLERS /s/ JOSEPH MAURELLI -------------------------------------------- Joseph Maurelli /s/ KENT E. MAGGARD -------------------------------------------- Kent E. Maggard /s/ WALTER S. SZCZYPINSKI, JR. -------------------------------------------- Walter S. Szczypinski, Jr. /s/ GARRY L. MILLER -------------------------------------------- Garry L. Miller /s/ JAMES A. FLEMING, JR. -------------------------------------------- James A. Fleming, Jr. /s/ CHARLES T. DERICK -------------------------------------------- Charles T. Derick /s/ DEBORAH H. ALDERSON -------------------------------------------- Deborah H. Alderson /s/ JOSEPH MAURELLI -------------------------------------------- Joseph Maurelli, as Trustee under the Joseph Maurelli revocable trust, dated February 15, 1995 /s/ WALTER S. SZCZYPINSKI, JR. -------------------------------------------- Walter S. Szczypinski, Jr., as Trustee under the Walter S. Szczypinski, Jr. revocable trust, dated October 24, 1994 EX-10.3 10 PURCHASE AGREEMENT Exhibit 10.3 $100,000,000 ANTEON CORPORATION 12% SENIOR SUBORDINATED NOTES DUE 2009 PURCHASE AGREEMENT May 6, 1999 CREDIT SUISSE FIRST BOSTON CORPORATION DEUTSCHE BANK SECURITIES INC., LEGG MASON WOOD WALKER, INCORPORATED c/o Credit Suisse First Boston Corporation Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. INTRODUCTORY. Anteon Corporation, a Virginia corporation (the "COMPANY"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "INITIAL PURCHASERS") U.S.$100,000,000 principal amount of its 12% Senior Subordinated Notes Due 2009 (the "NOTES"). The Notes will be unconditionally guaranteed on a senior subordinated basis by Vector Data Systems, Inc. and Techmatics, Inc., each a Virginia corporation (the "SUBSIDIARY GUARANTORS"), and each subsequently organized domestic subsidiary of the Company (such guaranties, together with the Notes, the "OFFERED SECURITIES"). The Offered Securities will be issued under an indenture dated as of May 11, 1999 (the "INDENTURE"), among the Company, the Subsidiary Guarantors and IBJ Whitehall Bank & Trust Company, as trustee (the "TRUSTEE"). The United States Securities Act of 1933 is herein referred to as the "SECURITIES ACT". The Offered Securities are being issued and sold in connection with (i) the consummation of the acquisition (the "ACQUISITION") of all shares of common stock issued and outstanding of Analysis & Technology, Inc., a Connecticut corporation ("A&T"), pursuant to an agreement and plan of merger dated March 7, 1999, among the Company, Buffalo Acquisition Corporation, a Connecticut corporation and a wholly-owned subsidiary of the Company ("BUFFALO"), and A&T (the "MERGER AGREEMENT") and (ii) the refinancing of all existing bank indebtedness of the Company and A&T. To consummate the Acquisition and the refinancing, (1) the Company will issue the Offered Securities, (2) the Company will enter into a credit agreement in an aggregate principal amount of $170.0 million (together with related guarantees and security agreements, the "CREDIT AGREEMENT") and (3) Caxton-Iseman Capital, Inc. and/or an affiliate (collectively, "CIC") will contribute or cause to be contributed not less than $22.5 million in cash in exchange for an equity interest in the Company. The consummation of the Acquisition is expected to occur in June 1999. On the Closing Date (as defined below), the net proceeds from the sale of the Offered Securities (the "ESCROW FUNDS") will be deposited with IBJ Whitehall Bank & Trust Company, as escrow agent (the "ESCROW AGENT"), pursuant to the terms of an escrow agreement (the "ESCROW AGREEMENT"). The Escrow Funds shall be withdrawn and paid out pursuant to the terms of the Escrow Agreement. Holders (including subsequent transferees) of the Offered Securities will be entitled to the benefit of a Registration Rights Agreement of even date herewith (the "REGISTRATION RIGHTS AGREEMENT"), among the Company, the Subsidiary Guarantors and the Initial Purchasers, pursuant to which the Company will be obligated to file with the Securities and Exchange Commission (i) a registration statement under the Securities Act registering an issue of senior subordinated notes of the Company (the "EXCHANGE NOTES") which shall be identical in all material respects to the Offered Securities (except that the Exchange Notes will not contain terms with respect to transfer restrictions) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act. This Agreement, the Registration Rights Agreement, the Indenture and the Escrow Agreement are referred to herein collectively as the "OPERATIVE DOCUMENTS". The Merger Agreement, all other operative agreements relating to the Acquisition and CIC's equity contribution, if any, and the Credit Agreement are referred to herein collectively as the "TRANSACTION DOCUMENTS". The Company and the Subsidiary Guarantors hereby agree with the several Initial Purchasers as follows: 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARY GUARANTORS. The Company and the Subsidiary Guarantors jointly and severally represent and warrant to, and agree with, the several Initial Purchasers that: 1. A preliminary confidential offering circular and a confidential offering circular relating to the Offered Securities to be offered by the Initial Purchasers have been prepared by the Company. Such preliminary offering circular and offering circular, as supplemented as of the date of this Agreement, together with any other document approved by the Company for use in connection with the contemplated resale of the Offered Securities are hereinafter collectively referred to as the "OFFERING DOCUMENt". As of its respective dates, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Initial Purchaser through Credit Suisse First Boston Corporation ("CSFBC") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b). 2. The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Virginia, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to so qualify or to be in good standing, singly or in the aggregate, would not result in a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT") . 3. Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to so qualify or to be in good standing, singly or in the aggregate, would not result in a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects, other than liens created pursuant to the Company's existing senior credit facility. Other than the Subsidiary Guarantors, the Company has no significant subsidiaries within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act. 4. The Indenture has been duly authorized by the Company and the Subsidiary Guarantors; the Offered Securities have been duly authorized; and when the Offered Securities are delivered and paid for pursuant to this Agreement on the Closing Date (as defined below), the Indenture will have been duly executed and delivered, such Offered Securities will have been duly executed, authenticated, issued and delivered and the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Company and the Subsidiary Guarantors, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and (ii) to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); and the Offered Securities conform in all material respects to the description thereof contained in the Offering Document. 2 5. Each of the Registration Rights Agreement and the Escrow Agreement has been duly authorized by the Company and the Subsidiary Guarantors, as appropriate, and, when executed and delivered by the parties thereto, will constitute a valid and legally binding obligation of the Company and the Subsidiary Guarantors, as appropriate, enforceable in accordance with its terms, except (A) to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and (ii) to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (B) with respect to the Registration Rights Agreement, any rights to indemnity and contribution may be limited by Federal and state securities laws and public policy considerations; and the Registration Rights Agreement and the Escrow Agreement conform in all material respects to the descriptions thereof contained in the Offering Document. 6. Each of the Transaction Documents has been or will be duly authorized by the Company, Buffalo and the Subsidiary Guarantors , as appropriate, and will conform in all material respects to the description thereof in the Offering Document and, when executed and delivered by the parties thereto, will constitute a valid and binding obligation of the Company, Buffalo and the Subsidiary Guarantors, as appropriate, enforceable against the Company and the Subsidiary Guarantors, as appropriate, in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and (ii) to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). The Company will advise the Initial Purchasers of any material developments relating to the Transaction Documents and, within one business day of the Acquisition closing date, deliver to the Initial Purchasers a true and correct copy of the Transaction Documents in the form originally executed. 7. Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Initial Purchaser for a brokerage commission, finder's fee or other like payment in connection with the transaction contemplated by this Agreement. 8. Except as set forth in the Offering Document and assuming the accuracy of the representations, warranties and agreements of the Initial Purchasers under Section 4 of this Agreement, no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company. 9. The execution, delivery and performance of the Operative Documents and the Transaction Documents, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof by the Company, Buffalo and the Subsidiary Guarantors and, as appropriate, will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary, except for such breaches, violations or defaults that, singly or in the aggregate, would not result in a Material Adverse Effect; and the Company and the Subsidiary Guarantors have the necessary power and authority to authorize, issue and sell the Offered Securities and the guaranties thereof, respectively, as contemplated by this Agreement. 10. To the knowledge of the Company and the Subsidiary Guarantors, the execution, delivery and performance by A&T and CIC, as appropriate, of the Transaction Documents and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over A&T or CIC or any of their properties, or any agreement or instrument to which A&T or CIC is a party or by which A&T or CIC is bound or to which any of their properties is subject, or the charter or by-laws of A&T or CIC. 3 11. This Agreement has been duly authorized, executed and delivered by the Company and the Subsidiary Guarantors. 12. Except as disclosed in the Offering Document, the Company and its subsidiaries have good and marketable title to material properties and all other material real properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or proposed to be made thereof by them; and except as disclosed in the Offering Document, the Company and its subsidiaries hold any material leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or proposed to be made thereof by them. 13. The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. 14. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that would reasonably be expected to have a Material Adverse Effect. 15. Except as described in the Offering Document, the Company and its subsidiaries own, possess, have the right to use or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. 16. Except as disclosed in the Offering Document, to the knowledge of the Company, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which would reasonably be expected to lead to such a claim. 17. Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company, Buffalo or any Subsidiary Guarantor, as appropriate, to perform its obligations under the Operative Documents or the Transaction Documents, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. 18. The financial statements included in the Offering Document present fairly the financial position of (i) the Company and its consolidated subsidiaries and (ii) to the knowledge of the Company, A&T and its consolidated subsidiaries, as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the assumptions used in preparing the pro forma financial statements included in the Offering Document provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. 4 19. Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. 20. Neither the Company nor any Subsidiary Guarantor is an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "INVESTMENT COMPANY ACT"); and neither the Company nor any Subsidiary Guarantor is nor, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will be an "investment company" as defined in the Investment Company Act. 21. No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities or the guarantees of the Subsidiary Guarantors are listed on any national securities exchange registered under Section 6 of the United States Securities Exchange Act of 1934 ("EXCHANGE ACT") or quoted in a U.S. automated inter-dealer quotation system. 22. Assuming the accuracy of the representations, warranties and agreements of the Initial Purchasers in Section 4 of this Agreement, the offer and sale of the Offered Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S thereunder; and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"). 23. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S under the Securities Act, by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S. The Company, its affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. The Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. 24. KPMG LLP, who have certified certain financial statements of the Company and A&T, whose reports appear in the Offering Document and who have delivered the letters referred to in Section 6(a) hereof, are independent certified public accountants with respect to the Company and its subsidiaries and, to the knowledge of the Company, of A&T, as required by the Securities Act and the Rules and Regulations thereunder. 3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Initial Purchasers, and the Initial Purchasers agree to purchase from the Company, at a purchase price of 97% of the principal amount thereof plus accrued interest from May 11, 1999 to the Closing Date (as hereinafter defined), the principal amount of Offered Securities set forth opposite the name of the several Initial Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global Securities in definitive form (the "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Initial Purchasers in Federal (same day) funds by wire transfer to an account maintained by the Escrow Agent at a bank acceptable to CSFBC in connection 5 with a closing to be held at the office of Cravath, Swaine & Moore at 9:00 A.M. (New York time), on May 11, 1999, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "CLOSING DATE", against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. The Global Securities will be made available for checking at the above office at least 24 hours prior to the Closing Date. 4. REPRESENTATIONS BY INITIAL PURCHASERS; RESALE BY INITIAL PURCHASERS. 1. Each Initial Purchaser severally represents and warrants to the Company that it is an "accredited investor" within the meaning of Regulation D under the Securities Act. 2. Each Initial Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Initial Purchaser severally represents and agrees that it has offered and sold the Offered Securities, and will offer and sell the Offered Securities (i) as part of its distribution at any time and (ii) otherwise until the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 or Rule 144A under the Securities Act ("RULE 144A"). Accordingly, neither such Initial Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Initial Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S. 3. Each Initial Purchaser severally agrees that it and each of its affiliates or anyone acting on its behalf will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Initial Purchasers or affiliates of the other Initial Purchasers or with the prior written consent of the Company. 4. Each Initial Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Initial Purchaser severally agrees, with respect to resales to be made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. 5. Each Initial Purchaser severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Offered Securities will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Offered Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the several Initial Purchasers that: 1. The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFBC's consent, which consent shall not be unreasonably withheld. If, at any time prior to the completion of the resale of the Offered Securities by the Initial Purchasers, any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue 6 statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Company will promptly notify CSFBC of such event and will promptly prepare, at its own expense, an amendment or supplement which will correct such statement or omission. Neither CSFBC's consent to, nor the Initial Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. 2. The Company will furnish to CSFBC copies of the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC requests, and the Company will furnish to CSFBC on the date hereof three copies of the Offering Document signed by a duly authorized officer of the Company, one of which will include the independent accountants' reports therein manually signed by such independent accountants. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC (and, upon request, to each of the other Initial Purchasers) and, upon request of holders and prospective Initial Purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to the extent necessary to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to the Initial Purchasers all such documents. 3. The Company will use its best efforts, in cooperation with the Initial Purchasers, to arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Initial Purchasers, provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state. 4. During the period of five years hereafter, the Company will furnish to CSFBC (and upon request, to each of the other Initial Purchasers), as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year, if any; and the Company will furnish to CSFBC (and upon request, to each of the other Initial Purchasers) (i) as soon as available, a copy of each description of reports, notices or communications sent to securityholders or, if applicable, filed with foreign regulators or securities exchanges, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. 5. During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFBC (and upon request, to each of the other Initial Purchasers) and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. 6. During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. 7. During the period of two years after the Closing Date, the Company will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. 8. The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Indenture and the Escrow Agreement including (i) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities, the preparation and printing of this Agreement, the Offered Securities, the Offering Document and amendments and supplements thereto, the Indenture, the Escrow Agreement and any other document relating to the issuance, offer, sale and delivery of the Offered Securities; (ii) the cost of qualifying the Offered Securities for trading in The PortalSM Market ("PORTAL") and any expenses incidental thereto; (iii) the cost of any advertising approved by the Company in connection with the issue of the Offered Securities; (iv) for any expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions in the United States and Canada as CSFBC in accordance with Section 5(c) hereof designates and the printing of memoranda relating thereto; (v) for any 7 fees charged by investment rating agencies for the rating of the Securities; (vi) for expenses incurred in distributing preliminary offering circulars and the Offering Document (including any amendments and supplements thereto) to the Initial Purchasers and (vii) the fees and expenses of the Trustee, the Escrow Agent and their professional advisors. The Company will also pay or reimburse the Initial Purchasers (to the extent incurred by them) for all travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities from the Initial Purchasers. 9. In connection with the offering, until CSFBC shall have notified the Company and the other Initial Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. 10. For a period of 180 days after the date of the initial offering of the Offered Securities by the Initial Purchasers, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any United States dollar-denominated debt securities issued or guaranteed by the Company and having a maturity of more than one year from the date of issue or publicly disclose the intention to make any such offer, sale, pledge or disposition, without the prior written consent of CSFBC. The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act or the safe harbor of Regulation S thereunder to cease to be applicable to the offer and sale of the Offered Securities. 11. The Company will use its best efforts to cause the Offered Securities to become eligible for PORTAL. 6. CONDITIONS OF THE OBLIGATION OF THE INITIAL PURCHASERS. The obligation of the several Initial Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: 1. The Initial Purchasers shall have received a letter, dated the date of this Agreement, of KPMG LLP, independent auditors for the Issuer and A&T, substantially in the form of Exhibit B hereto and acceptable to the Initial Purchasers. 2. Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) (A) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries, taken as one enterprise, which, in the judgment of CSFBC, is material and adverse and makes it impractical or inadvisable to proceed with completion of the offering or the sale of and payment for the Offered Securities; (B) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (D) any banking moratorium declared by U.S. Federal or New York authorities; or (E) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of CSFBC, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or 8 inadvisable to proceed with completion of the offering or sale of and payment for the Offered Securities. 3. The Initial Purchasers shall have received opinions, dated the Closing Date, of Curtis L. Schehr, Esq., general counsel of the Company, that: (i) Based solely on certificates of public officials in the respective jurisdictions, each of the Company and the Subsidiary Guarantors is duly incorporated and is an existing corporation in good standing under the laws of the State of Virginia and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification and to such counsels' knowledge, it is not necessary for the Company and the Subsidiary Guarantors to be qualified to do business as a foreign corporation in any other jurisdictions; (ii) To the knowledge of such counsel, the execution, delivery and performance of the Operative Documents and the Transaction Documents, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof by the Company, Buffalo and the Subsidiary Guarantors, as appropriate, will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule, regulation or order of any governmental agency or body or any court having jurisdiction over the Company, Buffalo or any Subsidiary Guarantor or any of their properties, or any agreement or instrument to which the Company, Buffalo or any Subsidiary Guarantor is a party or by which the Company, Buffalo or any Subsidiary Guarantor is bound or to which any of the properties of the Company, Buffalo or any Subsidiary Guarantor is subject, or the charter or by-laws of the Company, Buffalo or any Subsidiary Guarantor; and (iii) To the knowledge of such counsel, and except as described in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company, Buffalo or any Subsidiary Guarantor, as appropriate, to perform its obligations under the Operative Documents or the Transaction Documents; and to the knowledge of such counsel, no such actions, suits or proceedings are threatened or contemplated. 4. The Initial Purchasers shall have received opinions, dated the Closing Date, of McGuire Woods Battle & Boothe LLP, Virginia counsel to the Company and the Subsidiary Guarantors, that: (i) Each of the Company and the Subsidiary Guarantors has been duly incorporated and is an existing corporation in good standing under the laws of the applicable jurisdiction, with corporate power and authority to own its properties and conduct its business as described in the Offering Document; and the Company has the necessary corporate power to authorize, issue and sell, and each Subsidiary Guarantor has the necessary corporate power to guarantee, the Offered Securities as contemplated by this Agreement; (ii) Each of the Operative Documents has been duly authorized by the Company and the Subsidiary Guarantors, as appropriate; and (iii) The Merger Agreement has been duly authorized by the Company. 5. The Initial Purchasers shall have received opinions, dated the Closing Date, of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company and the Subsidiary Guarantors, that: (i) Based solely on certificates of public officials in the respective jurisdictions delivered to such counsel by the Company, each of the Company and each Subsidiary Guarantor has been duly incorporated and is an existing corporation in good standing 9 under the laws of the State of Virginia, and each is duly qualified to do business in the jurisdictions listed on schedule attached to such opinion; (ii) The Indenture has been duly executed and delivered by the Company and the Subsidiary Guarantors; the Offered Securities have been duly executed, issued and delivered by the Company and conform in all material respects to the description thereof contained in the Offering Document under the caption "Description of the Notes"; and, assuming due power and authorization by the Company and the Subsidiary Guarantors, the Indenture and the Offered Securities will constitute valid and legally binding obligations of the Company and the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and (ii) to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); (iii) Each of the Registration Rights Agreement and the Escrow Agreement has been duly executed and delivered by the Company and the Subsidiary Guarantors, as appropriate; and each of the Registration Rights Agreement and the Escrow Agreement conforms in all material respects to the descriptions thereof contained in the Offering Document under the caption "Description of the Notes" and, assuming due power and authorization by the Company and the Subsidiary Guarantors, constitutes a valid and legally binding obligation of the Company and the Subsidiary Guarantors, as appropriate, enforceable in accordance with its terms, except (A) to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in proceeding in equity or at law) and (B) with respect to the Registration Rights Agreements, any rights to indemnity and contribution may be limited by Federal and state securities laws and public policy considerations; (iv) This agreement has been duly executed and delivered by the Company and the Subsidiary Guarantors; (v) Neither the Company nor any Subsidiary Guarantor is nor, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will be required to be registered as an investment company under the Investment Company Act of 1940; (vi) No consent, approval, authorization or order of, or filing with, any executive, legislative, judicial, administrative or regulatory body of the United States of America which has not been obtained, taken or made under the laws, rules and regulations of the United States of America which in such counsel's experience are normally applicable to the transactions of the type contemplated by this Agreement (the "Applicable Law") is required for the consummation of the transactions contemplated by this Agreement, the Escrow Agreement, the Registration Rights Agreement or the Indenture for the issuance or sale of the Offered Securities by the Company, except such as may be required under state securities laws; (vii) The execution, delivery and performance of the Operative Documents, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof by the Company and its Subsidiary Guarantors, as appropriate, will not (i) violate Applicable Law, except where the violation would not have a Material Adverse Effect, (ii) breach or result in a default under any agreement or instrument listed in Schedule C hereto, or (iii) result in a violation of the charter or by-laws of the Company or any Subsidiary Guarantor certified by the Company as in effect on the date of the opinion; (viii) The description of the Merger Agreement contained in the Offering Document fairly summarize the terms of the Merger Agreement in all material respects; (ix) Assuming the accuracy of the representations, warranties and agreements of the Company (other than the representation and warranty in Section 2(v) of this 10 Agreement), the Subsidiary Guarantors and the Initial Purchasers contained in this Agreement, (i) the offer, sale and delivery of the Offered Securities by the Company to the Initial Purchasers pursuant to this Agreement and (ii) the resales of the Offered Securities by the Initial Purchasers in the manner contemplated by the Offering Document and this Agreement are exempt from the registration requirements of the Securities Act and it is not necessary to qualify an indenture in respect thereof under the Trust Indenture Act; and (x) Such counsel has participated in the preparation of the Offering Document and, although it has not undertaken to investigate or verify independently, and does not assume responsibility for, the accuracy or completeness of the statements contained therein (other than as explicitly stated in paragraphs (ii) and (iii) above), based upon such participation, no facts have come to its attention to lead it to believe that the Offering Document or any amendment or supplement (except for the financial statements, financial statement schedules and other financial or statistical data included or incorporated by reference in or omitted from those documents, as to which it expresses no such belief), at the time the Offering Document was issued or on the date of the opinion, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 6. The Initial Purchasers shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities, the Offering Document, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Initial Purchasers and the resales by the several Initial Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Cravath, Swaine & Moore may rely as to the incorporation of the Company and all other matters governed by Virginia law upon the opinion of McGuire Woods Battle & Boothe LLP referred to above. 7. The Initial Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company and the Subsidiary Guarantors in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct, that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the date of the most recent financial statements in the Offering Document, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise except as set forth in or contemplated by the Offering Document or as described in such certificate. 8. The Initial Purchasers shall have received a letter, dated the Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three business days prior to the Closing Date for the purposes of this subsection. 9. The Company shall execute and deliver the Registration Rights Agreement and the Escrow Agreement and deposit the amounts required in the Escrow Agreement into an escrow account, pursuant to the terms of the Escrow Agreement. 10. The Initial Purchasers shall have received the necessary waivers with respect to any default under its existing senior credit facility. The Company will furnish the Initial Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Initial Purchasers reasonably request. CSFBC may in its sole discretion waive on behalf of the Initial Purchasers compliance with any conditions to the obligations of the Initial Purchasers hereunder. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and the Subsidiary Guarantors will jointly and severally indemnify and hold harmless each Initial Purchaser, its directors and officers and each 11 person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of any of the representations and warranties of the Company contained herein or any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement, and will reimburse each Initial Purchaser for any legal or other expenses reasonably incurred by such Initial Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below; and PROVIDED FURTHER, HOWEVER, that the foregoing indemnity with respect to the preliminary offering circular shall not inure to the benefit of the Initial Purchaser from whom the person asserting any such losses, claims, damages, liabilities or actions in respect thereof purchased Offered Securities to the extent that such losses, claims, damages, liabilities or actions in respect thereof of such Initial Purchaser result from a fact that such Initial Purchaser sold Offered Securities to a person in an initial resale to whom there was not sent or given, at or prior to the written confirmation of the sale of such Offered Securities, a copy of the offering circular (as amended or supplemented), if the Company had previously furnished a copy of such amendments or supplements to such Initial Purchaser, and the losses, claims, damages, liabilities or actions in respect thereof of such Initial Purchaser result from an untrue statement or omission of a material fact contained in the preliminary offering circular, which was corrected in the offering circular. (b) Each Initial Purchaser will severally and not jointly indemnify and hold harmless the Company, the Subsidiary Guarantors, their directors and officers and each person, if any, who controls each of the Company or any Subsidiary Guarantor within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Initial Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company or any Subsidiary Guarantor in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Initial Purchaser consists of the following information in the Offering Document: the information contained in the third paragraph, the second sentence of the sixth paragraph, the seventh paragraph and the last paragraph of "Plan of Distribution". (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party (i) will not relieve it from any liability under subsection (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such 12 indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include a statement as to any admission of fault, culpability or failure to act by or on behalf of any Indemnified Party. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors on the one hand and the Initial Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors on the one hand and the Initial Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Subsidiary Guarantors on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or any Subsidiary Guarantors or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Initial Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company and the Subsidiary Guarantors under this Section 7 shall be in addition to any liability which the Company and the Subsidiary Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section 7 shall be in addition to any liability which the respective Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. DEFAULT OF INITIAL PURCHASERS. If any Initial Purchaser or Initial Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Initial Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Initial Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Initial Purchasers agreed but failed to purchase. If any Initial Purchaser or Initial Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of shares of Offered Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Initial Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "Initial Purchaser" includes any person substituted for an Initial Purchaser under this Section. Nothing herein will relieve a defaulting Initial Purchaser from liability for its default. 13 9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Initial Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Initial Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Initial Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Initial Purchasers is not consummated for any reason other than solely because of the occurrence of any event specified in clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the Initial Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. NOTICES. All communications hereunder will be in writing and, if sent to the Initial Purchasers will be mailed, delivered or telegraphed and confirmed to the Initial Purchasers c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department--Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 3211 Jermantown Road, Suite 700, Fairfax, VA 22030-2801, Attention: General Counsel, with a copy to Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, NY 10019, Attention: Carl L. Reisner; PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Initial Purchaser. 11. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties thereto. 12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The Company, the Subsidiary Guarantors and the Initial Purchasers hereby submit to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 14 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company, the Subsidiary Guarantors and the several Initial Purchasers in accordance with its terms. Very truly yours, ANTEON CORPORATION, by ------------------------------------- Name: Title: VECTOR DATA SYSTEMS, INC., by ------------------------------------- Name: Title: TECHMATICS, INC., by ------------------------------------- Name: Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION DEUTSCHE BANK SECURITIES INC. LEGG MASON WOOD WALKER, INCORPORATED Acting on behalf of itself and as the Representative of the several Initial Purchasers. by: CREDIT SUISSE FIRST BOSTON CORPORATION by ------------------------------------- Name: Title: 15 SCHEDULE A Principal Amount of Initial Purchaser Offered Securities - ----------------- ------------------ Credit Suisse First Boston Corporation............ $ 80,000,000 Deutsche Bank Securities Inc. ................... $ 15,000,000 Legg Mason Wood Walker, Incorporated ............ $ 5,000,000 Total........................... ------------- $ 100,000,000 ============= 16 SCHEDULE B FORM OF KPMG COMFORT LETTER 17 SCHEDULE C AGREEMENTS/INSTRUMENTS 1. Credit Agreement by and among Anteon Corporation and Vector Data Systems, Inc., as Borrowers, and Mellon Bank, N.A., First Union Capital Markets Group, Nationsbank, N.A. and Deutschebank AG, as Lenders, and Mellon Bank, N.A., as Agent, dated March 18, 1998, as amended by the Joinder Agreement and Amendment No. 1 to Credit Agreement, dated as of May 29, 1998 and as further amended by the Amendment No. 2 to Credit Agreement, dated as of November, 1998, and as further amended by the Amendment No. 3 and Waiver, dated as of May 5, 1999. 18 EX-10.4 11 CREDIT AGREEMENT Exhibit 10.4 ================================================================================ CREDIT AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, THE LENDERS NAMED HEREIN and CREDIT SUISSE FIRST BOSTON, as Lead Arranger and Administrative Agent --------------------------- MELLON BANK, N.A., Co-Arranger, Collateral Agent and Syndication Agent DEUTSCHE BANK AG, New York Branch Documentation Agent ================================================================================ [CS&M Ref No. 5865-038] TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Defined Terms...........................................2 SECTION 1.02. Terms Generally........................................24 ARTICLE II The Credits SECTION 2.01. Commitments.............................................25 SECTION 2.02. Loans...................................................25 SECTION 2.03. Borrowing Procedure.....................................27 SECTION 2.04. Evidence of Debt; Repayment of Loans....................27 SECTION 2.05. Fees...................................................28 SECTION 2.06. Interest on Loans.......................................29 SECTION 2.07. Default Interest........................................29 SECTION 2.08. Alternate Rate of Interest..............................29 SECTION 2.09. Termination and Reduction of Commitments................29 SECTION 2.10. Conversion and Continuation of Borrowings..............30 SECTION 2.11. Repayment of Term Borrowings............................31 SECTION 2.12. Prepayment..............................................31 SECTION 2.13. Mandatory Prepayments...................................32 SECTION 2.14. Reserve Requirements; Change in Circumstances...........33 SECTION 2.15. Change in Legality......................................34 SECTION 2.16. Indemnity...............................................35 SECTION 2.17. Pro Rata Treatment......................................35 SECTION 2.18. Sharing of Setoffs......................................36 SECTION 2.19. Payments................................................36 SECTION 2.20. Taxes...................................................36 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate.......................................38 SECTION 2.22. Swingline Loans.........................................39 SECTION 2.23. Letters of Credit.......................................40 ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers....................................44 SECTION 3.02. Authorization..........................................44 SECTION 3.03. Enforceability..........................................45 2 SECTION 3.04. Governmental Approvals; Contracts.......................45 SECTION 3.05. Financial Statements....................................45 SECTION 3.06. No Material Adverse Change..............................46 SECTION 3.07. Title to Properties; Possession Under Leases............46 SECTION 3.08. Subsidiaries............................................46 SECTION 3.09. Litigation; Compliance with Laws........................46 SECTION 3.10. Agreements..............................................47 SECTION 3.11. Federal Reserve Regulations.............................47 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.....................................................47 SECTION 3.13. Use of Proceeds.........................................47 SECTION 3.14. Tax Returns.............................................47 SECTION 3.15. No Material Misstatements...............................47 SECTION 3.16. Employee Benefit Plans..................................47 SECTION 3.17. Environmental Matters...................................48 SECTION 3.18. Insurance...............................................49 SECTION 3.19. Security Documents......................................49 SECTION 3.20. Location of Real Property...............................49 SECTION 3.21. Labor Matters...........................................49 SECTION 3.22. Solvency................................................50 SECTION 3.23. Year 2000...............................................50 ARTICLE IV Conditions of Lending SECTION 4.01. All Credit Events.......................................50 SECTION 4.02. First Credit Event......................................51 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties....................55 SECTION 5.02. Insurance...............................................55 SECTION 5.03. Obligations and Taxes...................................56 SECTION 5.04. Financial Statements, Reports, etc......................56 SECTION 5.05. Litigation and Other Notices............................59 SECTION 5.06. Employee Benefits.......................................59 SECTION 5.07. Maintaining Records; Access to Properties and Inspections.............................................59 SECTION 5.08. Use of Proceeds.........................................59 SECTION 5.09. Compliance with Environmental Laws......................59 SECTION 5.10. Preparation of Environmental Reports....................60 SECTION 5.11. Audits..................................................60 SECTION 5.12. Further Assurances......................................60 3 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness............................................61 SECTION 6.02. Liens...................................................62 SECTION 6.03. Sale and Lease-Back Transactions........................63 SECTION 6.04. Investments, Loans and Advances.........................63 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions............................................66 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends...........................66 SECTION 6.07. Transactions with Affiliates............................67 SECTION 6.08. Capital Expenditures....................................68 SECTION 6.09. Interest Coverage Ratio.................................68 SECTION 6.10. Fixed Charge Coverage Ratio.............................68 SECTION 6.11. Maximum Leverage Ratio..................................68 SECTION 6.12. Senior Leverage Ratio...................................69 SECTION 6.13. Minimum EBITDA..........................................69 SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc.......................69 SECTION 6.15. Limitation on Creation of Subsidiaries..................70 SECTION 6.16. Business................................................70 SECTION 6.17. Designated Senior Indebtedness..........................70 SECTION 6.18. Fiscal Year.............................................70 SECTION 6.19. Maintenance of Accounts.................................70 ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent and the Collateral Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices.................................................75 SECTION 9.02. Survival of Agreement...................................76 SECTION 9.03. Binding Effect..........................................76 SECTION 9.04. Successors and Assigns..................................76 SECTION 9.05. Expenses; Indemnity.....................................80 SECTION 9.06. Right of Setoff.........................................81 SECTION 9.07. Applicable Law..........................................81 SECTION 9.08. Waivers; Amendment......................................81 SECTION 9.09. Interest Rate Limitation................................82 SECTION 9.10. Entire Agreement........................................82 4 SECTION 9.11. WAIVER OF JURY TRIAL....................................83 SECTION 9.12. Severability............................................83 SECTION 9.13. Counterparts............................................83 SECTION 9.14. Headings................................................83 SECTION 9.15. Jurisdiction; Consent to Service of Process.............83 SECTION 9.16. Confidentiality.........................................84 Schedule 1.01(a) Subsidiary Guarantors Schedule 2.01 Lenders and Commitments Schedule 2.13(e) Excess Cash Flow Payments Schedule 3.04 Government Contracts Schedule 3.08 Subsidiaries Schedule 3.09 Litigation Schedule 3.17 Environmental Matters Schedule 3.18 Insurance Schedule 3.20 Real Property Owned In Fee Schedule 4.02(a) Other Local Counsel Schedule 4.02(f) Foreign Subsidiary Pledged Stock Schedule 6.01 Outstanding Indebtedness on Closing Date Schedule 6.02 Liens Existing on Closing Date Schedule 6.04(m) Existing Investments Exhibit A Form of Administrative Questionnaire Exhibit B Form of Assignment and Acceptance Exhibit C Form of Borrowing Request Exhibit D Form of Indemnity, Subrogation and Contribution Agreement Exhibit E Form of Pledge Agreement Exhibit F Form of Security Agreement Exhibit G Form of Subsidiary Guarantee Agreement Exhibit H-1 Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison Exhibit H-2 Form of Opinion of Curtis L. Schehr, Esq., General Counsel of the Borrower Exhibit H-3 Form of Opinion of Local Counsel Exhibit I Form of Compliance Certificate Exhibit J Form of Borrowing Base/Non-Default Certificate Exhibit K Form of Subordination Provisions Exhibit L Form of Solvency Certificate Exhibit M Form of Acknowledgment, Waiver and Consent of Minority Owner CREDIT AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "Borrower"), the Lenders (as defined in Article I), CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its New York branch, as issuing bank (in such capacity, the "Issuing Bank"), and as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, MELLON BANK, N.A., a national banking association, as syndication agent (in such capacity, the "Syndication Agent"), as swingline lender (in such capacity, the "Swingline Lender"), and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders, and DEUTSCHE BANK AG, New York Branch, as documentation agent (in such capacity, the "Documentation Agent"). Pursuant to the Merger Agreement (such term and each other capitalized term used but not defined herein having the meaning given it in Article I), Sub will merge (the "Merger") with and into A&T, with A&T surviving such Merger as a wholly owned Subsidiary of the Borrower. In connection with the Merger, the existing stockholders and option holders of A&T will be entitled to receive an aggregate of approximately $111,000,000 in cash (the "Merger Consideration"), net of the exercise price of certain options. The Borrower has requested the Lenders to extend credit in the form of (a) Term Loans on the Closing Date, in an aggregate principal amount not in excess of $60,000,000, and (b) Revolving Loans at any time and from time to time prior to the Revolving Credit Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $120,000,000. The Borrower has requested the Swingline Lender to extend credit, at any time and from time to time prior to the Revolving Credit Maturity Date, in the form of Swingline Loans. The Borrower has requested the Issuing Bank to issue Letters of Credit, in an aggregate face amount at any time outstanding not in excess of $10,000,000, to support payment obligations, performance guarantees and bid bonds incurred by the Borrower and its Subsidiaries in the conduct of their business. The proceeds of the Term Loans are to be used solely (a) to repay all amounts outstanding under the Existing Credit Agreements and (b) to pay related fees and expenses. The proceeds of the Senior Subordinated Notes and the Equity Contribution are to be used solely (a) to pay the Merger Consideration and (b) to pay related fees and expenses. The proceeds of the Revolving Loans and the Swingline Loans are to be used solely for general corporate purposes, including refinancing existing Indebtedness on the Closing Date and Permitted Acquisitions. The Lenders are willing to extend such credit to the Borrower and the Issuing Bank is willing to issue Letters of Credit for the account of the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: 2 ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "A&T" shall mean Analysis & Technology, Inc., a Connecticut corporation. "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan. "ABR Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "ABR Term Borrowing" shall mean a Borrowing comprised of ABR Term Loans. "ABR Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Account" shall mean any right to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Account Debtor" shall mean, with respect to any Account, the obligor with respect to such Account. "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.05(b). "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A, or such other form as may be supplied from time to time by the Administrative Agent. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided, however, that for purposes of Section 6.07, the term "Affiliate" shall also include any person that directly or indirectly owns 10% or more of any class of Equity Interests of the person specified or that is an officer or director of the person specified. "Agents" shall mean the Administrative Agent and the Collateral Agent. "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. 3 "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day less 1/4 of 1% and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate for dollars in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Applicable Percentage" shall mean, for any day, with respect to any Eurodollar Loan or ABR Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread", "ABR Spread" or "Fee Percentage", as the case may be, based upon the Leverage Ratio as of the relevant date of determination (provided, that if financial statements and a certificate with respect to the fourth fiscal quarter in any year satisfying the requirements of paragraphs (b) and (g) of Section 5.04 shall be delivered to the Administrative Agent within 60 days after the end of such fiscal quarter, then from the second Business Day following the date on which such financial statements and certificate are so delivered until the relevant date of determination following such fiscal quarter end the Applicable Percentage shall be based upon the Leverage Ratio as of such fiscal quarter end, as determined on the basis of such financial statements):
================================================================================ Eurodollar Fee Leverage Ratio Spread ABR Spread Percentage - -------------------------------------------------------------------------------- Category 1 3.25% 2.25% 0.500% Greater than 4.75 to 1.00 - -------------------------------------------------------------------------------- Category 2 3.00% 2.00% 0.500% Greater than 4.25 to 1.00 but less than or equal to 4.75 to 1.00 - -------------------------------------------------------------------------------- 4 ================================================================================ Eurodollar Fee Leverage Ratio Spread ABR Spread Percentage - -------------------------------------------------------------------------------- Category 3 2.75% 1.75% 0.375% Greater than 3.50 to 1.00 but less than or equal to 4.25 to 1.00 - -------------------------------------------------------------------------------- Category 4 2.50% 1.50% 0.375% Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 - -------------------------------------------------------------------------------- Category 5 2.25% 1.25% 0.375% Greater than 2.50 to 1.00 but less than or equal to 3.00 to 1.00 - -------------------------------------------------------------------------------- Category 6 1.75% 0.75% 0.250% Less than or equal to 2.50 to 1.00 ================================================================================
Except as set forth in the proviso immediately preceding the table above, each change in the Applicable Percentage resulting from a change in the Leverage Ratio shall be effective with respect to all Loans, Commitments and Letters of Credit outstanding on and after the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.04(a) or (b) and Section 5.04(g), respectively, indicating such change until the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change; provided, however, that (a) at any time during which the Borrower has failed to deliver when due the financial statements and certificates required by Section 5.04(a) or (b) and Section 5.04(g), respectively, or (b) at the option of the Agents or upon the request of the Required Lenders, at any time after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. Notwithstanding the foregoing, from the date hereof through and including December 31, 1999, the Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. "Approved Margin Stock" shall have the meaning assigned to such term in Section 6.04(k). "Asset Sale" shall mean the sale, transfer or other disposition (by way of merger, casualty, condemnation or otherwise) by the Borrower or any of the Subsidiaries to any person other than the Borrower or any Subsidiary Guarantor of (a) any Equity Interests of any of the Subsidiaries (other than directors' qualifying shares) or (b) any other assets of the Borrower or any of the Subsidiaries (other than (i) inventory, excess, damaged, obsolete or worn out assets, scrap and Permitted Investments, in each case disposed of in the ordinary 5 course of business, (ii) dispositions between or among Foreign Subsidiaries or (iii) dispositions of Approved Margin Stock), provided that any asset sale or series of related asset sales described in clause (b) above having a value not in excess of $250,000 shall be deemed not to be an "Asset Sale" for purposes of this Agreement. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Assignment of Claims Act" shall mean the Assignment of Claims Act of 1940, as amended from time to time. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" shall mean a group of Loans of a single Type made, converted or continued by the Lenders on a single date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" shall mean an amount equal to the sum, without duplication, of: (a) 90% of the Net Value (as defined below) of Eligible Billed Borrowing Base Receivables representing amounts due and owing from Domestic Account Debtors that are outstanding less than 91 days from the date of original invoice, plus (b) 70% of the Net Value of Eligible Billed Borrowing Base Receivables representing amounts due and owing from Foreign Account Debtors that are not fully supported by a letter of credit, guarantees, bonds or similar credit support issued by a financial institution in form and substance reasonably acceptable to the Agents and that are outstanding less than 61 days from the date of original invoice, plus (c) 90% of the Net Value of Eligible Billed Borrowing Base Receivables that represent amounts due and owing from Foreign Account Debtors that are fully supported by letters of credit, guarantees, bonds or similar credit support issued by financial institutions in form and substance reasonably acceptable to the Agents and that are outstanding less than 91 days from the date of original invoice, plus (d) 75% of the Net Value of Eligible Unbilled Borrowing Base Receivables; plus (e) the Eligible Margin Stock Amount; plus (f) until the second anniversary of the Closing Date, $10,000,000. As used herein, the "Net Value" of an Eligible Billed Borrowing Base Receivable or an Eligible Unbilled Borrowing Base Receivable shall be its face amount, net of any discount for prompt payment (and net of any other amount representing payment of finance charges, late charges or interest (however denominated)), and net of any portion thereof that constitutes payment of sales, use or other taxes. The Borrowing Base shall be computed monthly in accordance with Section 5.04(h). The Borrowing Base at any time in effect shall be determined by reference to the Borrowing Base Certificate most recently delivered hereunder. 6 "Borrowing Base/Non-Default Certificate" shall have the meaning assigned to such term in Section 5.04(h). "Borrowing Request" shall mean a request by the Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C, or such other form as shall be approved by the Administrative Agent or the Swingline Lender, as applicable. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" shall mean, for any period and with respect to any person, all expenditures during such period by such person that would be classified as capital expenditures in accordance with GAAP or are made in property that is the subject of a Synthetic Lease to which such person becomes a lessee party during such period, but excluding any such expenditure made (a) to restore, replace or rebuild property to the condition of such property immediately prior to any damage, loss, destruction or condemnation of such property, to the extent such expenditure is made with insurance proceeds, condemnation awards or indemnification or damage recovery proceeds relating to any such damage, loss, destruction or condemnation, (b) with proceeds from the sale or exchange of property to the extent utilized to purchase functionally equivalent property or equipment, (c) as the purchase price of any Permitted Acquisition or (d) with the proceeds of a substantially contemporaneous equity contribution from Holdings. "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" shall mean (a) prior to a Qualified Public Offering, the failure by the Permitted Investors to own, directly or indirectly, beneficially and of record, Equity Interests in the Borrower representing at least 51% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in the Borrower; (b) after a Qualified Public Offering, the failure by the Permitted Investors to own, directly or indirectly, beneficially and of record, Equity Interests in the Borrower representing at least 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in the Borrower; (c) after a Qualified Public Offering, the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) other than the Permitted Investors, of Equity Interests representing a greater percentage of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in the Borrower then held, directly or indirectly, beneficially and of record, by the Permitted Investors; (d) occupation of a majority of the seats (other than vacant seats) on the board of directors of Holdings by persons who were neither (i) nominated by the board of directors of Holdings or any Permitted Investor nor (ii) appointed by the directors so nominated; or (e) the occurrence of a "Change of Control" or similar event (however denominated) under and as defined in the Senior Subordinated Note Documents or any other Indebtedness of Holdings, 7 the Borrower or any Subsidiary in an aggregate outstanding principal amount in excess of $10,000,000. "Change in Law" shall mean (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.15, by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Closing Date" shall mean the date of the first Credit Event. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral" as defined in any Security Document. "Collateral Agent's Fee Letter" shall mean the Fee Letter dated April 29, 1999, between the Borrower and the Collateral Agent. "Collateral Agent's Fees" shall have the meaning assigned to such term in Section 2.05(b). "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment. "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). "Compliance Certificate" shall have the meaning assigned to such term in Section 5.04(g). "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower dated April 1999. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Event" shall have the meaning assigned to such term in Section 4.01. "Current Assets" shall mean, at any time, the consolidated current assets (other than cash and Permitted Investments) of the Borrower and its consolidated Subsidiaries. "Current Liabilities" shall mean, at any time, the consolidated current liabilities of the Borrower and its consolidated Subsidiaries at such time, but excluding, without duplication, (a) the current portion of any long-term Indebtedness and (b) outstanding Revolving Loans and Swingline Loans. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. 8 "Disability" shall mean, for purposes of Section 6.06(a), the substantial inability to perform the employee's then present duties and responsibilities by reason of any medically determinable physical or mental impairment which can be expected to last for a period of not less than 6 months in a 12-month period, or any substantially similar definition contained in any stock option or stock repurchase agreement between Holdings or the Borrower or any of its Subsidiaries and any of their employees. "dollars" or "$" shall mean lawful money of the United States of America. "Domestic Account Debtor" shall mean an Account Debtor incorporated or organized under the laws of, or with its principal place of business in, and any Governmental Authority that is, the United States, any State thereof, any municipality of any such State or the District of Columbia. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "EBITDA" for any period shall mean Net Income for such period, to which shall be added back (a) the Interest Expense of the Borrower and its consolidated Subsidiaries for such period to the extent deducted in calculating Net Income for such period, (b) all charges against income calculated in accordance with GAAP for Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with respect to such amounts, of the Borrower and its consolidated Subsidiaries for such period, to the extent deducted in calculating Net Income for such period, (c) the aggregate depreciation expense of the Borrower and its consolidated Subsidiaries for such period, (d) the aggregate amortization expense of the Borrower and its consolidated Subsidiaries for such period, and (e) Noncash Nonrecurring Charges (only to the extent that such Noncash Nonrecurring Charges do not exceed 10% of Net Income for such period), minus any noncash gain to the extent included in determining Net Income, all as determined on a consolidated basis in accordance with GAAP. For purposes of determining the Leverage Ratio and the Senior Leverage Ratio as of September 30, 1999, December 31, 1999, and March 31, 2000, EBITDA shall be deemed to be (i) $8,665,000 for the fiscal quarter ended December 31, 1998, (ii) $8,829,000 for the fiscal quarter ended March 31, 1999 and (iii) the sum of the actual EBITDA of the Borrower and of A&T for the fiscal quarter ended June 30, 1999 (assuming the Merger had occurred on April 1, 1999), plus $655,000. "Eligible Billed Borrowing Base Receivables" shall mean all rights to payment due and to become due to the Borrower or any Subsidiary Guarantor that (a) constitute an "account" as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction, (b) represent amounts due and owing (i) for products actually delivered or services actually performed or rendered by or on behalf of the Borrower or any Subsidiary Guarantor pursuant to a written contract or written agreement now or hereafter entered into by the Borrower or any Subsidiary Guarantor and a person that is not an Affiliate of the Borrower, or (ii) as interim billings or progress payments in accordance with fixed price contracts between the Borrower or any Subsidiary Guarantor and a person that is not an Affiliate of the Borrower, (c) have been properly billed, (d) arise in the ordinary course of the Loan Parties' business, (e) are due, owing and not subject to any defense, setoff or counterclaim, except if the person that is the obligor under any such account has disputed liability or made any claim of setoff or counterclaim, only the portion of the account subject to such defense, setoff or counterclaim shall be deemed an Ineligible Receivable, (f) are not final invoices and (g) are not Ineligible Receivables. 9 "Eligible Margin Stock Amount" at any time, shall mean an amount equal to 75% of the fair market value of any Approved Margin Stock pledged to the Collateral Agent to secure the Obligations. For purposes of the foregoing, the fair market value of any Approved Margin Stock on any date shall be the average of the closing prices on the principal U.S. securities exchange on which such Approved Margin Stock is traded for the period of 20 consecutive trading days preceding the date of determination. In the event (x) any Approved Margin Stock is not listed or traded on a securities exchange or (y) the fair market value of any Approved Margin Stock cannot be determined in accordance with the preceding sentence because closing prices for such Approved Margin Stock are not available, the Agents may use any reasonable estimate of the market value of such Approved Margin Stock as of the close of business on the Business Day preceding the date of determination. "Eligible Unbilled Borrowing Base Receivables" shall mean rights to payment due and to become due to the Borrower or any Subsidiary Guarantor (a) under Government Contracts or (b) under contracts with any other Account Debtor that are approved by the Agents from time to time (the "Approved Contracts"), that (i) constitute an "account" as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction, (ii) in the case of Government Contracts, are eligible to be billed to the Government in accordance with the applicable Government Contract or are eligible to be billed to a prime contractor pursuant to a subcontract under a contract between the prime contractor and the Government, and in the case of Approved Contracts, are eligible to be billed to the Account Debtor in accordance with the applicable Approved Contract, in any case within 30 days of the "as of " date of the applicable Borrowing Base/Non-Default Certificate (with no additional performance required by any person, and no condition to payment by the Government or prime contractor or Account Debtor, as applicable, other than receipt of an appropriate invoice), (iii) have not been billed to the Government or the prime contractor or Account Debtor under the Approved Contract, as applicable, solely as a result of timing differences between the date the revenue is recognized on the applicable Loan Party's books and the date the invoice is actually rendered, (iv) represent revenue recognized on the books of the Borrower or any Subsidiary Guarantor not more than 30 days prior to the "as of" date of the applicable Borrowing Base/Non-Default Certificate, (v) may, in accordance with GAAP, be included as current assets of the Borrower or any Subsidiary Guarantor, even though such amounts have not been billed to the Government or the prime contractor or Account Debtor under the Approved Contract, as applicable and (vi) are not Ineligible Receivables. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. 10 "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 5101 et seq., and any similar or implementing state, local or foreign law, and all amendments or regulations promulgated under any of the foregoing. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Contribution" shall mean the purchase by Affiliates of Caxton-Iseman Capital, Inc. of the Holdings Convertible Notes for not less than $22,500,000 in cash, and the contribution by Holdings of the amount so received to the Borrower as common equity. "Equity Interests" shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a person. "Equity Issuance" shall mean any issuance or sale by Holdings, the Borrower or any Subsidiary of any Equity Interests of Holdings, the Borrower or any Subsidiary, as applicable, or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such Equity Interests or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to Holdings, the Borrower or any Subsidiary, (b) any issuance or sale of Equity Interests or such convertible or exchangeable obligations of Holdings to one or more Permitted Investors, (c) any issuance of directors' qualifying shares, and (d) sales or issuances of common stock of Holdings or the Borrower to management or employees of Holdings, the Borrower or any Subsidiary under any employee stock option or stock purchase plan or employee benefit plan in existence from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. 11 "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or Multiemployer Plan; (g) the receipt by the Borrower or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from the Borrower or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) any Foreign Benefit Event. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan" shall mean any Eurodollar Revolving Loan or Eurodollar Term Loan. "Eurodollar Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Eurodollar Term Borrowing" shall mean a Borrowing comprised of Eurodollar Term Loans. "Eurodollar Term Loan" shall mean any Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Excess Cash Flow" shall mean, for any fiscal year of the Borrower, the excess of (a) the sum, of (i) EBITDA for such fiscal year and (ii) reductions to noncash working capital of the Borrower and its consolidated Subsidiaries for such fiscal year (i.e., the decrease, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year) over (b) the sum, without duplication, of (i) the amount of any Tax Payments payable with respect to such fiscal year, (ii) cash interest paid (net of cash interest received) by the Borrower and its consolidated Subsidiaries during such fiscal year, (iii) Capital Expenditures made in cash in accordance with Section 6.08 during such fiscal year, except to the extent financed with the proceeds of Indebtedness, casualty or condemnation proceeds, (iv) permanent repayments of Indebtedness made by the Borrower and its consolidated Subsidiaries during such fiscal year, but only to the extent that such prepayments by their terms cannot be reborrowed or redrawn and do not occur in connection with a refinancing of all or any portion of such Indebtedness and (v) additions to noncash working capital for such fiscal year (i.e., the increase, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year); provided that to the extent otherwise included 12 therein, the Net Cash Proceeds of Asset Sales shall be excluded from the calculation of Excess Cash Flow. "Excluded Taxes" shall mean, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.21(a)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.20(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.20(a). "Existing A&T Credit Agreement" shall mean the Amended and Restated Revolving Credit and Term Loan Agreement dated as of November 15, 1993, as amended, between A&T and Fleet National Bank. "Existing Anteon Credit Agreement" shall mean the Credit Agreement dated as of March 18, 1998, by and among the Borrower, Vector Data Systems, Inc., Techmatics, Inc., various lenders, Mellon Bank, N.A., as agent, and First Union Capital Markets Group and NationsBank, N.A., as co-documentation agents, as amended. "Existing Credit Agreements" shall mean the Existing Anteon Credit Agreement and the Existing A&T Credit Agreement. "Fee Letter" shall mean the Fee Letter dated March 7, 1999, between the Borrower and the Administrative Agent. "Fees" shall mean the Commitment Fees, the Administrative Agent's Fees, the Collateral Agent's Fees, the L/C Participation Fees and the Issuing Bank Fees. "Financial Officer" of any person shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such person. "Fixed Charge Coverage Ratio" for any period shall mean the ratio of (a) EBITDA plus the aggregate amount of all rent and lease payments made by the Borrower and its consolidated Subsidiaries pursuant to operating leases minus Capital Expenditures and Tax Payments for such period to (b) Fixed Charges for such period. "Fixed Charges" for any period shall mean, without duplication, the sum of (a) Interest Expense (excluding amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts, provided, however, that the aggregate amount of amortization excluded hereby shall not exceed 5% of the aggregate amount of the financing giving rise to the debt issuance costs associated with such amortization) for such period, plus (b) the aggregate amount of all rent and lease payments made by the Borrower and its consolidated Subsidiaries pursuant to operating leases for such 13 period, plus (c) scheduled payments (whether or not made) on long term Indebtedness (including Capital Lease Obligations) of the Borrower and its consolidated Subsidiaries for such period, all as determined on a consolidated basis in accordance with GAAP; provided that for clause (c) only, any loans or advances to Holdings by the Borrower permitted under clause (iii) of the first proviso of Section 6.06 relating to the payment of principal of the Seller Purchase Money Note, shall be included in the definition of "Fixed Charges" for the period in which such loans or advances are made. "Foreign Account Debtor" shall mean any Account Debtor that is not a Domestic Account Debtor. "Foreign Benefit Event" shall mean, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $2,500,000 (or the equivalent thereof in another currency) by the Borrower or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by the Borrower or any of its Subsidiaries, or the imposition on the Borrower or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $2,500,000 (or the equivalent thereof in another currency). "Foreign Lender" shall mean any Lender that is organized under the laws of a jurisdiction other than the United States of America, each State thereof and the District of Columbia. "Foreign Pension Plan" shall mean any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Government" shall mean the United States government or any department or agency thereof. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. 14 "Government Contracts" shall mean written contracts between the Borrower or any Subsidiary Guarantor and the Government. "Granting Lender" shall have the meaning specified in Section 9.04(i). "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in interest or currency exchange rates and not entered into for speculation. "Holdings" shall mean Azimuth Technologies, Inc., a Delaware corporation. "Holdings Convertible Notes" shall mean the 12% subordinated pay-in-kind convertible notes due 2010 of Holdings, in an original aggregate principal amount of $22,500,000. "IMC" shall mean Interactive Media Corp., a Delaware corporation and wholly owned subsidiary of A&T. "Inactive Subsidiary" shall mean any Subsidiary of the Borrower that (a) does not conduct any business operations, (b) has assets with a total book value not in excess of $10,000 and (c) does not have any Indebtedness outstanding. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid (other than solely on past due amounts), (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the 15 holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, except to the extent that, by its terms, such Indebtedness is nonrecourse to such person. "Indemnified Taxes" shall mean Taxes other than Excluded Taxes. "Indemnity, Subrogation and Contribution Agreement" shall mean the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit D, among the Borrower, the Subsidiary Guarantors and the Collateral Agent. "Ineligible Receivables" shall mean all receivables that are (a) evidenced by a promissory note or similar instrument; (b) owed or payable by an Account Debtor that is more than 120 days past the last date set for payment in an original invoice in the payment of 50% or more of the aggregate balance due from such Account Debtor to the Borrower or a Subsidiary Guarantor; (c) owing from any person that is the subject of any (i) suit, lien, levy or judgment which could reasonably be expected to affect the collectability of such receivable, or (ii) bankruptcy, insolvency or similar process or proceeding; (d) unbilled as a result of cost variances, retainage provisions, "milestone" requirements or any other reason, except for timing differences; (e) owed in a currency other than dollars; or (f) deemed ineligible by either Agent, in its reasonable and good faith discretion. "Interest Coverage Ratio" for any period shall mean the ratio of EBITDA for such period to the Interest Expense (excluding amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts, provided, however, that the aggregate amount of amortization excluded hereby shall not exceed 5% of the aggregate amount of the financing giving rise to the debt issuance costs associated with such amortization) for such period. "Interest Expense" for any period shall mean the total interest expense of the Borrower and its consolidated Subsidiaries (including amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts), for such period determined on a consolidated basis in accordance with GAAP. "Interest Payment Date" shall mean (a) with respect to any ABR Loan (other than a Swingline Loan), the last Business Day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of a Eurodollar Borrowing or conversion of a Eurodollar Borrowing to an ABR Borrowing and (c) with respect to any Swingline Loan, the day that such Loan is repaid or required to be repaid. "Interest Period" shall mean, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding 16 day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect (or such other period thereafter as the Borrower may request and all the Lenders with Loans included in such Borrowing may agree); provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the succeeding Business Day unless, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Investor Notes" shall mean (a) the promissory note made by Holdings in favor of Azimuth Technologies, L.P., in the original principal amount of $7,449,250; (b) the Promissory Note made by Holdings in favor of Noreen D. Centracchio, in the original principal amount of $19,250; (c) the Promissory Note made by Holdings in favor of Roger Gurner, in the original principal amount of $19,250; and (d) the Promissory Note made by Holdings in favor of Howard W. Dawson, in the original principal amount of $11,500. "Issuing Bank" shall mean, as the context may require, (a) Credit Suisse First Boston, with respect to Letters of Credit issued by it, (b) with respect to each Existing Letter of Credit, the Lender that issued such Existing Letter of Credit, (c) any other Lender that may become an Issuing Bank pursuant to Section 2.23(i) or (k), with respect to Letters of Credit issued by such Lender, or (d) collectively, all the foregoing. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(c). "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.23. "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(c). "Lenders" shall mean (a) the financial institutions listed on Schedule 2.01 (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. Unless the context clearly indicates otherwise, the term "Lenders" shall include the Swingline Lender. "Letter of Credit" shall mean any letter of credit issued pursuant to Section 2.23. "Leverage Ratio" shall mean, on any date, the ratio of Net Debt on such date to EBITDA for the period of four consecutive fiscal quarters of the Borrower most recently ended as of such date. Solely for purposes of this definition, if, at any time the Leverage Ratio is being determined, the Borrower or any Subsidiary shall have completed a Permitted 17 Acquisition or Asset Sale since the beginning of the relevant four fiscal quarter period, the Leverage Ratio shall be determined on a pro forma basis as if such Permitted Acquisition or Asset Sale, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period and taking into account any identifiable cost savings documented to the reasonable satisfaction of the Administrative Agent. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of the relevant Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent that has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBO Rate" shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Administrative Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" shall mean this Agreement, the Subsidiary Guarantee Agreement, the Security Documents and the Indemnity, Subrogation and Contribution Agreement. "Loan Parties" shall mean Holdings, the Borrower and the Subsidiary Guarantors. "Loans" shall mean the Revolving Loans, the Term Loans and the Swingline Loans. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" shall mean a materially adverse effect on (a) the business, results of operations, condition (financial or otherwise) or prospects of the Borrower and the Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights, remedies or benefits available to the Lenders thereunder. "Material Contract" shall mean any and all Government Contracts and/or other contracts or agreements of the Borrower or any Subsidiary involving amounts in excess of $2,000,000. "Merger" shall have the meaning given such term in the preamble to this Agreement. "Merger Agreement" shall mean the Agreement and Plan of Merger dated as of March 7, 1999, by and among the Borrower, Sub and A&T, as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. 18 "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received), net of (i) selling expenses (including reasonable broker's fees or commissions, legal fees, transfer and similar taxes and the Borrower's good faith estimate of income taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale and which is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); provided, however, that, if (x) the Borrower shall deliver a certificate of a Financial Officer to the Agents at the time of receipt thereof setting forth the Borrower's intent to reinvest such proceeds in productive assets of a kind then used or usable in the business of the Borrower and its Subsidiaries within 270 days of receipt of such proceeds and (y) no Default or Event of Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used or contractually committed to be used at the end of such 270-day period, at which time such proceeds shall be deemed to be Net Cash Proceeds; and (b) with respect to any issuance or disposition of Indebtedness or any Equity Issuance, the cash proceeds thereof, net of all taxes and customary fees, commissions, costs and other expenses incurred in connection therewith. "Net Debt" at any time shall mean (a) the total Indebtedness of the Borrower and the Subsidiaries at such time (excluding Indebtedness of the type described in clause (i) of the definition of such term and, except to the extent of any unreimbursed drawings, clause (j) of the definition of such term), less (b) the sum of (i) the amount at such time of all cash and Permitted Investments of the Borrower and the Subsidiaries and (ii) the Eligible Margin Stock Amount. "Net Income" shall mean, for any period, net income or loss of the Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of that income is prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to the Subsidiary, and (b) the income (or loss) of any person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any of the Subsidiaries or the date that person's assets are acquired by the Borrower or any of the Subsidiaries. "Net Senior Debt" at any time shall mean the Net Debt at such time less, to the extent included therein, the amount of any Indebtedness that is subordinated to the Obligations pursuant to the subordination provisions contained in Exhibit K or subordination provisions no less favorable to the Lenders than those contained in the Senior Subordinated Note Indenture. "Noncash Nonrecurring Charges" shall mean charges to income (a) that are not expected to occur in the future and (b) whereby the underlying asset was not created at least 19 12 months before the period end in which the charge is reflected in the Borrower's financial statements. "Obligations" shall mean all obligations defined as "Obligations" in the Subsidiary Guarantee Agreement and the Security Documents. "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Annex 2 to the Security Agreement. "Permitted Acquisition" shall have the meaning assigned to such term in Section 6.04(i). "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Service or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any Lender or any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria of clause (c) above; (e) investments in municipal securities maturing within one year from the date of acquisition thereof and having, at such date of acquisition, a rating of at least "AA" by Standard & Poor's Ratings Service or at least "Aa" by Moody's Investors Service, Inc.; and (f) other short-term investments utilized by Foreign Subsidiaries in accordance with normal investment practices for cash management in investments of a type analogous to the foregoing. 20 "Permitted Investors" shall mean (a) Caxton Corporation, Frederick J. Iseman, Steven M. Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other person who is a Controlled Affiliate of any of the foregoing and any member of senior management of the Borrower on the Closing Date and (ii) any Related Party of any of the foregoing. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Pledge Agreement, substantially in the form of Exhibit E, between the Borrower, Holdings, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Properties" shall have the meaning specified in Section 3.17. "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment. "Qualified Public Offering" shall mean an underwritten public offering of common stock of, and by, Holdings pursuant to a registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act of 1933, as amended, which public equity offering results in gross proceeds to Holdings of not less than $50,000,000. "Register" shall have the meaning given such term in Section 9.04(d). "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Related Party" shall mean (a) any controlling stockholder, general partner, wholly owned Subsidiary, or spouse or immediate family member (in the case of an individual) of any Permitted Investor or (b) any trust, corporation, partnership or other entity, all the beneficiaries, stockholders, partners or owners of which consist solely of one or more Permitted Investors and/or such other persons referred to in the immediately preceding clause (a). 21 "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Repayment Date" shall have the meaning given such term in Section 2.11. "Required Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments representing greater than 50% of the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such time. "Responsible Officer" of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement. "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure, plus the aggregate amount at such time of such Lender's Swingline Exposure. "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment. "Revolving Credit Maturity Date" shall mean June 30, 2005. "Revolving Loans" shall mean the revolving loans made by the Lenders to the Borrower pursuant to clause (b) of Section 2.01. Each Revolving Loan shall be a Eurodollar Revolving Loan or an ABR Revolving Loan. "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. 22 "Security Agreement" shall mean the Security Agreement, substantially in the form of Exhibit F, among the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Security Documents" shall mean the Security Agreement, the Pledge Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.12. "Seller Purchase Money Note" shall mean the promissory note made by Holdings in favor of Ogden Technology Services Corporation, in the outstanding principal amount of $3,650,000. "Senior Leverage Ratio" shall mean, on any date, the ratio of Net Senior Debt on such date to EBITDA for the period of four consecutive fiscal quarters of the Borrower most recently ended as of such date. Solely for purposes of this definition, if, at any time the Senior Leverage Ratio is being determined, the Borrower or any Subsidiary shall have completed a Permitted Acquisition or Asset Sale since the beginning of the relevant four fiscal quarter period, the Senior Leverage Ratio shall be determined on a pro forma basis as if such Permitted Acquisition or Asset Sale, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period and taking into account any identifiable cost savings documented to the reasonable satisfaction of the Administrative Agent. "Senior Subordinated Note Documents" shall mean the Senior Subordinated Notes, the Senior Subordinated Note Indenture and all other documents executed and delivered with respect to the Senior Subordinated Notes or the Senior Subordinated Note Indenture. "Senior Subordinated Note Indenture" shall mean the indenture dated as of May 11, 1999, between the Borrower, the Subsidiary Guarantors and IBJ Whitehall Bank and Trust Company, as trustee, as in effect on the Closing Date and as thereafter amended from time to time in accordance with the requirements hereof and thereof. "Senior Subordinated Notes" shall mean the Borrower's 12% Senior Subordinated Notes Due 2009 in the initial principal amount of $100,000,000 issued pursuant to the Senior Subordinated Note Indenture and any notes issued by the Borrower in exchange for, and as contemplated by, the Senior Subordinated Notes with substantially identical terms as the Senior Subordinated Notes. "SPC" shall have the meaning specified in Section 9.04(i). "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Sub" shall mean Buffalo Acquisition Corporation, a Connecticut corporation. 23 "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power are, at the time any determination is being made, owned, controlled or held, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of the Borrower. "Subsidiary Guarantee Agreement" shall mean the Subsidiary Guarantee Agreement, substantially in the form of Exhibit G, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties. "Subsidiary Guarantor" shall mean each Subsidiary of the Borrower listed on Schedule 1.01(a), and each other Subsidiary that is or becomes a party to a Subsidiary Guarantee Agreement. "Supermajority Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments representing at least two-thirds of the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such time. "Swingline Commitment" shall mean the commitment of the Swingline Lender to make loans pursuant to Section 2.22, as the same may be reduced from time to time pursuant to Section 2.09 or Section 2.22. "Swingline Exposure" shall mean at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time. "Swingline Loan" shall mean any loan made by the Swingline Lender pursuant to Section 2.22. "Synthetic Lease" shall mean any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the transaction is considered indebtedness for borrowed money for Federal income tax purposes but is classified as an operating lease in accordance with GAAP for financial reporting purposes. "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges, liabilities or withholdings imposed by any Governmental Authority. "Tax Payments" shall mean payments in cash in respect of Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with respect to such amounts, paid or payable by or on behalf of the Borrower and its consolidated Subsidiaries. "Term Borrowing" shall mean a Borrowing comprised of Term Loans. "Term Loan Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Term Loans hereunder as set forth on Schedule 2.01, or in the 24 Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Term Loan Maturity Date" shall mean June 30, 2005. "Term Loans" shall mean the term loans made by the Lenders to the Borrower pursuant to Section 2.01. Each Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan. "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. "Transactions" shall have the meaning assigned to such term in Section 3.02. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate. "wholly owned Subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. 25 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (a) to make a Term Loan to the Borrower on the Closing Date in a principal amount not to exceed its Term Loan Commitment, and (b) to make Revolving Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding the lesser of (i) such Lender's Revolving Credit Commitment and (ii) such Lender's Pro Rata Percentage of the Borrowing Base, each as in effect at such time. Within the limits set forth in clause (b) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than eight Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Eurodollar Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 11:00 a.m., New York City time, in the case of a Eurodollar Borrowing, or 1:00 p.m., New York City time, in the case of an ABR Borrowing, and the Administrative Agent shall promptly credit the amounts so received to an account in the name of the Borrower, maintained with the Administrative Agent and designated by the Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such 26 date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Revolving Credit Borrowing if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date. (f) If the Issuing Bank shall not have received from the Borrower the payment required to be made by Section 2.23(e) within the time specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 11:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrower pursuant to Section 2.23(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Revolving Credit Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, such Lender and the Borrower severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate. 27 SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f), as to which this Section 2.03 shall not apply), the Borrower shall hand deliver or fax to the Administrative Agent a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender's portion of the requested Borrowing. SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby unconditionally promises to pay to (i) the Administrative Agent (x) for the account of each Lender holding Term Loans, the principal amount of each Term Loan of such Lender as provided in Section 2.11 and (y) for the account of each Revolving Credit Lender, the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Credit Maturity Date and (ii) to the Swingline Lender, the then unpaid principal amount of each Swingline Loan on the Revolving Credit Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower or any Subsidiary Guarantor and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Any Lender may request that Loans made by it hereunder be evidenced by a promissory note. In such event, the Borrower shall execute and deliver to such Lender a 28 promissory note payable to such Lender and its registered assigns and in a form and substance reasonably acceptable to the Administrative Agent and the Borrower. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender, through the Administrative Agent, on the last day of March, June, September and December in each year and on each date on which any Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage per annum in effect from time to time on the daily unused amount of the Commitments of such Lender (other than the Swingline Commitment) during the preceding quarter (or other period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which the Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Commitment of such Lender shall expire or be terminated as provided herein. For purposes of calculating Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed utilized under Section 2.17 as a result of outstanding Swingline Loans. (b) The Borrower agrees to pay to the Administrative Agent, for its own account, the administration fees set forth in the Fee Letter at the times and in the amounts specified therein (the "Administrative Agent Fees"). The Borrower agrees to pay to the Collateral Agent, for its own account, the collateral agent's fees set forth in the Collateral Agent's Fee Letter at the times and in the amounts specified therein (the "Collateral Agent's Fees"). (c) The Borrower agrees to pay (i) to each Revolving Credit Lender, through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Credit Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period commencing with the date hereof or ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to the Applicable Percentage from time to time used to determine the interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (d) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances. SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan, shall bear interest 29 (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times and calculated from and including the date of such Borrowing to but excluding the date of repayment thereof) at a rate per annum equal to the Alternate Base Rate plus the Applicable Percentage in effect from time to time. (b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect from time to time. (c) Interest on each Loan shall be payable to the Administrative Agent on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) (a) in the case of overdue principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the rate that would be applicable to an ABR Revolving Loan plus 2.00%. SECTION 2.08. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to a majority in interest of the Lenders making or maintaining such Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or fax notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist (which the Administrative Agent agrees to do as soon as practicable after such circumstances cease to exist), any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on the Closing Date. The Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date. Notwithstanding the foregoing, all the Commitments shall automatically terminate at 5:00 p.m., New York City time, on July 31, 1999, if the initial Credit Event shall not have occurred by such time. 30 (b) Upon at least three Business Days' prior irrevocable written or fax notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the sum of the Aggregate Revolving Credit Exposure at the time. (c) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrower shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 12:00 (noon), New York City time, on the day of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 10:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Lender and the Administrative Agent by recording for the account of such Lender the new Type and/or Interest Period for such Borrowing resulting from such conversion; accrued interest on any Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (iv) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16; (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; 31 (vii) no Interest Period may be selected for any Eurodollar Term Borrowing that would end later than a Repayment Date occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (A) the Eurodollar Term Borrowings with Interest Periods ending on or prior to such Repayment Date and (B) the ABR Term Borrowings would not be at least equal to the principal amount of Term Borrowings to be paid on such Repayment Date; and (viii) upon notice to the Borrower from the Administrative Agent given at the request of the Required Lenders, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan. Each notice pursuant to this Section 2.10 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrower requests be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender's portion of any converted or continued Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.10 to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into an ABR Borrowing. SECTION 2.11. Repayment of Term Borrowings. (a) The Term Borrowings shall be payable as to principal in 17 consecutive installments payable on the last Business Day of March, June, September and December of each year, commencing on the last Business Day in June 2001 and ending on the Term Loan Maturity Date (each such date being called a "Repayment Date"). Each of the first 16 installments shall be in an amount equal to 4.6875% of the initial aggregate principal amount of the Term Borrowings, with the balance due and payable on the Term Loan Maturity Date. (b) Each payment of Term Borrowings pursuant to this Section 2.11 shall be accompanied by accrued interest on the principal amount paid to but excluding the date of payment. SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or fax notice (or telephone notice promptly confirmed by written or fax notice) in the case of Eurodollar Loans, or written or fax notice (or telephone notice promptly confirmed by written or fax notice) on or prior to the date of prepayment in the case of ABR Loans, to the Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000. 32 (b) Optional prepayments of Term Loans shall be applied pro rata against the remaining scheduled installments of principal due in respect of the Term Loans. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments of Eurodollar Loans under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. Interest on ABR Loans prepaid under this Section 2.12 shall be paid in accordance with Section 2.06(c). SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrower shall, on the date of such termination, repay or prepay all its outstanding Revolving Credit Borrowings and all outstanding Swingline Loans and replace all outstanding Letters of Credit and/or deposit an amount equal to the L/C Exposure in cash in a cash collateral account established with the Collateral Agent for the benefit of the Secured Parties. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the effective date of such reduction, the Administrative Agent shall notify the Borrower and the Revolving Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess. (b) If on any date the Aggregate Revolving Credit Exposure shall exceed the Borrowing Base, the Borrower shall on such date repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess. (c) Not later than the third Business Day following the completion of any Asset Sale, the Borrower shall apply 100% of the Net Cash Proceeds received with respect thereto to prepay outstanding Term Loans in accordance with Section 2.13(g). (d) In the event and on each occasion that an Equity Issuance occurs, the Borrower shall, substantially simultaneously with (and in any event not later than the third Business Day next following) the occurrence of such Equity Issuance, apply 50% of the Net Cash Proceeds therefrom to prepay outstanding Term Loans in accordance with Section 2.13(g). (e) No later than the earlier of (i) 90 days after the end of each fiscal year of the Borrower, commencing with the fiscal year ending on December 31, 2000, and (ii) the date on which the financial statements with respect to such period are delivered pursuant to Section 5.04(a), except as set forth on Schedule 2.13(e), the Borrower shall prepay outstanding Term Loans in accordance with Section 2.13(g) in an aggregate principal amount equal to 75% of Excess Cash Flow for the fiscal year then ended; provided, however, that such percentage shall be reduced to 50% for any year if the Leverage Ratio at the end of such year shall have been less than 3.50 to 1.00. (f) In the event that any Loan Party or any subsidiary of a Loan Party shall receive Net Cash Proceeds from the issuance or other disposition of Indebtedness for money 33 borrowed of any Loan Party or any subsidiary of a Loan Party (other than Indebtedness for money borrowed permitted pursuant to Section 6.01), the Borrower shall, substantially simultaneously with (and in any event not later than the third Business Day next following) the receipt of such Net Cash Proceeds by such Loan Party or such subsidiary, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans in accordance with Section 2.13(g). (g) Mandatory prepayments of outstanding Term Loans under this Agreement shall be applied pro rata against the remaining scheduled installments of principal due in respect of the Term Loans under Section 2.11. (h) The Borrower shall deliver to the Administrative Agent, at the time of each pre payment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the Borrower setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All pre payments of Borrowings under this Section 2.13 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or the Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), in each case, by an amount deemed by such Lender or the Issuing Bank to be material, then the Borrower will pay to such Lender or the Issuing Bank, as the case may be, upon demand in accordance with paragraph (c) below such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that any Change in Law regarding capital adequacy has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change In Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be material, then from time to time in accordance with paragraph (c) below the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. 34 (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above, together with supporting documentation or computations in each case in reasonable detail, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrower shall not be under any obligation to compensate any Lender or the Issuing Bank under paragraph (a) or (b) above with respect to increased costs or reductions with respect to any period prior to the date that is 120 days prior to such request if such Lender or the Issuing Bank knew or could reasonably have been expected to know of the circumstances giving rise to such increased costs or reductions and of the fact that such circumstances would result in a claim for increased compensation by reason of such increased costs or reductions; provided further that the foregoing limitation shall not apply to any increased costs or reductions arising out of the retroactive application of any Change in Law within such 120-day period. SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the date hereof, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such or to convert a Eurodollar Loan into an ABR Loan, as the case may be), unless such declaration shall be subsequently withdrawn (which such Lender agrees to do as promptly as practicable after circumstances allow); and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. 35 (b) For purposes of this Section 2.15, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period then applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against any loss or expense (other than any loss of margin over funding cost or anticipated profit) that such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender in reasonable detail with supporting calculations setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.17. Pro Rata Treatment. Except as provided below in this Section 2.17 with respect to Swingline Loans and as required under Section 2.15, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). For purposes of determining the available Revolving Credit Commitments of the Lenders at any time, each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Lenders (including those Lenders which shall not have made Swingline Loans) pro rata in accordance with such respective Revolving Credit Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Obligation as a result of which the unpaid portion of its Obligations shall be proportionately 36 less than the unpaid portion of the Obligations of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Obligations of such other Lender, so that the aggregate unpaid amount of the Obligations and participations in Obligations held by each Lender shall be in the same proportion to the aggregate unpaid amount of all Obligations then outstanding as the amount of its Obligations prior to such exercise of banker's lien, setoff or counterclaim or other event was to the amount of all Obligations outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.19. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 1:00 p.m., New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim; provided, however, that the Borrower shall make each payment of principal of or interest on Swingline Loans not later than 12:00 (noon), New York City time . Each such payment (other than (i) Issuing Bank Fees, which shall be paid directly to the Issuing Bank, and (ii) principal of and interest on Swingline Loans, which shall be paid directly to the Swingline Lender except as otherwise provided in Section 2.22(e)) shall be made to the Administrative Agent at its offices at Eleven Madison Avenue, New York, New York. (b) Except as otherwise expressly provided herein, whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower or any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or such Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Loan Party shall make such deductions and (iii) the Borrower or such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. 37 (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower or any Loan Party hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative Agent on its behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or any other Loan Party to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Credit Agreement pursuant to Section 9.04 (unless the Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, such accurate, properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. In addition, each Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Agent new accurate, properly completed and executed documentation prescribed by applicable law or as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Credit Agreement and any Revolving Loan, or it shall immediately notify the Borrower and the Agent of its inability to deliver any such documentation, in which case such Lender shall not be required to deliver any such documentation, pursuant to this Section 2.20(e). Notwithstanding anything to the contrary contained in Section 2.20 but subject to Section 9.04 and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is a Foreign Lender to the extent that such Lender has not provided to the Borrower accurate, properly completed and executed documentation that establishes a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 2.20 to make any additional payments to a Lender pursuant to Section 2.20(b) or 2.20(c), as the case may be (the "Gross-Up Payments") if such Lender has not provided to the Borrower the documentation required to be provided to the Borrower pursuant to this Section 2.20(e). Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 2.20 and except as set forth in Section 9.04, the Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set 38 forth in Sections 2.20(b) and 2.20(c) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (f) If the Borrower pays any additional amount under this Section 2.20 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax Liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.20 or (iv) any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by the Borrower that requires the consent of a greater percentage of the Lenders than the Required Lenders and such amendment, waiver or other modification is consented to by the Required Lenders, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Administrative Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, and (z) the Borrower or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including any amounts under Section 2.14 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. 39 (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrower is required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer. SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Swingline Lender agrees to make loans to the Borrower at any time and from time to time on and after the Closing Date and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitments in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of all Swingline Loans exceeding $10,000,000 in the aggregate, (ii) the Revolving Credit Exposure of any Lender, after giving effect to any Swingline Loan, exceeding such Lender's Revolving Credit Commitment or (iii) the Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan, exceeding the lesser of (x) the Total Revolving Credit Commitment and (y) the Borrowing Base in effect at such time. Each Swingline Loan shall be in a principal amount that is an integral multiple of $100,000. The Swingline Commitment may be terminated or reduced from time to time as provided herein. Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. (b) Swingline Loans. The Borrower shall notify the Swingline Lender by fax, or by telephone (confirmed by fax), with a copy of such notice to the Administrative Agent, not later than 12:00 (noon), New York City time, on the day of a proposed Swingline Loan. Such notice shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender by 3:00 p.m. on the date such Swingline Loan is so requested. Pursuant to Section 5.01(c) of the Security Agreement, the Swingline Lender may apply the funds on deposit in the Concentration Account (as such term is defined in the Security Agreement) on any Business Day to repay outstanding Swingline Loans. (c) Prepayment. The Borrower shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, upon giving written or fax notice (or telephone notice promptly confirmed by written, or fax notice) to the Swingline Lender and to the Administrative Agent before 1:00 p.m., New York City time on the date of prepayment at the Swingline Lender's address for notices specified on Schedule 2.01. All principal payments of Swingline Loans shall be accompanied by accrued interest on the principal amount being repaid to the date of payment. 40 (d) Interest. Each Swingline Loan shall be an ABR Loan and, subject to the provisions of Section 2.07, shall bear interest as provided in Section 2.06(a). (e) Participations. The Swingline Lender may by written notice given to the Administrative Agent not later than 11:00 a.m., New York City time, on any Business Day require the Revolving Credit Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which the Revolving Credit Lenders will participate. The Administrative Agent will, promptly upon receipt of such notice, give notice to each Revolving Credit Lender, specifying in such notice such Lender's Pro Rata Percentage of such Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Revolving Credit Lender's Pro Rata Percentage of such Swingline Loan or Loans. Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Credit Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Lenders) and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower (or other party liable for obligations of the Borrower) of any default in the payment thereof. SECTION 2.23. Letters of Credit. (a) General. The Borrower may request the issuance of a Letter of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrower shall hand deliver or fax to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address 41 of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (i) the L/C Exposure shall not exceed $10,000,000 and (ii) the Aggregate Revolving Credit Exposure shall not exceed the lesser of (x) the Total Revolving Credit Commitment and (y) the Borrowing Base in effect at such time. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit and the date that is five Business Days prior to the Revolving Credit Maturity Date, unless such Letter of Credit expires by its terms on an earlier date; provided that a Letter of Credit may provide for automatic extension of any expiration date for additional periods of up to one year, subject to a right on the part of the Issuing Bank to prevent any such automatic extension from occurring by giving reasonable notice to the beneficiary during a period satisfactory to the Administrative Agent. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrower (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrower shall pay to the Administrative Agent an amount equal to such L/C Disbursement not later than two hours after the Borrower shall have received notice from the Issuing Bank that payment of such draft will be made, or, if the Borrower shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; 42 (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrower hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Issuing Bank. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by fax, to the Administrative Agent and the Borrower of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve 43 the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement. The Administrative Agent shall promptly give each Revolving Credit Lender notice thereof. (h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrower shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrower or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were an ABR Revolving Loan. (i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 30 days' prior written notice to the Administrative Agent, the Lenders and the Borrower, and may be removed at any time by the Borrower by notice to the Issuing Bank, the Administrative Agent and the Lenders. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrower and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, the Borrower shall, on the Business Day it receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C Exposure as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made at the option and sole discretion of the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrower for the L/C Exposure at such time and (iii) if the maturity of the Loans has 44 been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. (k) Additional Issuing Banks. The Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an issuing bank pursuant to this paragraph (k) shall be deemed (in addition to being a Lender) to be the Issuing Bank with respect to Letters of Credit issued or to be issued by such Lender, and all references herein and in the other Loan Documents to the term "Issuing Bank" shall, with respect to such Letters of Credit, be deemed to refer to such Lender in its capacity as Issuing Bank. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that: SECTION 3.01. Organization; Powers. The Borrower and each of the Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated hereby or thereby to which it is or will be a party and, in the case of the Borrower, to borrow hereunder. SECTION 3.02. Authorization. The execution, delivery and performance by (a) each of the Borrower and Sub of the Merger Agreement and (b) each Loan Party of each of the Loan Documents and the consummation of the transactions contemplated by the Merger Agreement and the Loan Documents (including the borrowings hereunder) (collectively, the "Transactions") (i) have been duly authorized by all requisite corporate and, if required, stockholder action and (ii) will not (x) violate (A) any material provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of Holdings, the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any indenture or any other material agreement or other instrument to which Holdings, the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (y) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture, agreement or other instrument or (z) result in the crea tion or imposition of any Lien upon or with respect to any property or assets now owned or 45 hereafter acquired by Holdings, the Borrower or any Subsidiary (other than any Lien created hereunder or under the Security Documents). SECTION 3.03. Enforceability. This Agreement has been duly executed and delivered by Holdings and the Borrower and constitutes, and each other Loan Document when executed and delivered by each Loan Party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization and other similar laws relating to or affecting creditors' rights generally and general equitable principles. SECTION 3.04. Governmental Approvals; Contracts. (a) No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (i) the filing of Uniform Commercial Code financing statements, filings pursuant to the Assignment of Claims Act and filings with the United States Patent and Trademark Office and the United States Copyright Office, (ii) such as have been made or obtained and are in full force and effect and (iii) such actions, consents, approvals, registrations or filings, the failure of which to make or obtain could not reasonably be expected to result in a Material Adverse Effect. (b) No notice of suspension, debarment of termination for default has been received by Holdings, the Borrower or any Subsidiary and no cure notice (other than any immaterial cure notice under any General Services Administration contract) has been received by Holdings, the Borrower or any Subsidiary in connection with any Government Contract or other contract pursuant to which Holdings, the Borrower or any Subsidiary is directly or indirectly acting as a subcontractor under or in connection with a Government Contract. All Government Contracts that as of the date hereof constitute Material Contracts are listed on Schedule 3.04, and documentation necessary for compliance with the Assignment of Claims Act has been executed and delivered by the Borrower or any Subsidiary, as applicable, with respect to each Government Contract for which Assignment of Claims Act perfection is currently being required by the Lenders (as noted on Schedule 3.04). SECTION 3.05. Financial Statements. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheets and statements of income, stockholder's equity and cash flows (i) as of and for the fiscal year ended December 31, 1998, audited by and accompanied by the opinion of KPMG LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended March 31, 1999, certified by its chief financial officer. Such financial statements present fairly in all material respects the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. (b) The Borrower has heretofore delivered to the Lenders its unaudited pro forma consolidated balance sheet and statements of income, stockholder's equity and cash flows as of December 31, 1998, prepared giving effect to the Transactions as if they had occurred, with respect to such balance sheet, on such date and, with respect to such other financial statements, on the first day of the 12-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Borrower, based on the assumptions used to prepare the pro forma financial information contained in the Confidential Information Memorandum (which assumptions at the time made were believed 46 by the Borrower to be reasonable), were based on the best information available to the Borrower as of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions and present fairly in all material respects on a pro forma basis the estimated consolidated financial position of the Borrower and its consolidated Subsidiaries as of such date and for such period, assuming that the Transactions had actually occurred at such date or at the beginning of such period, as the case may be. SECTION 3.06. No Material Adverse Change. There has been no material adverse change in the business, results of operations, property, condition (financial or otherwise) or prospects of the Borrower and the Subsidiaries, taken as a whole, since December 31, 1998. SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.02. (b) Each of the Borrower and the Subsidiaries has complied with all obligations under all material leases to which it is a party and all such leases are in full force and effect. Each of the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases. SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing Date a list of all Subsidiaries and the percentage ownership interest of Holdings or the Borrower therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.08 are fully paid and non-assessable and are owned by Holdings or the Borrower, directly or indirectly, free and clear of all Liens (other than Liens created pursuant to the Loan Documents). SECTION 3.09. Litigation; Compliance with Laws. Except as set forth on Schedule 3.09, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of Holdings or the Borrower, threatened against or affecting Holdings or the Borrower or any Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. SECTION 3.10. Agreements. None of Holdings, the Borrower or any of the Subsidi aries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any Material Contract, where such default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. Federal Reserve Regulations. (a) None of Holdings, the Borrower or any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X. 47 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act. None of Holdings, the Borrower or any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 3.14. Tax Returns. Each of Holdings, the Borrower and the Subsidiaries has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all material taxes due and payable by it and all material assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Holdings, the Borrower or such Subsidiary, as applicable, shall have set aside on its books adequate reserves. SECTION 3.15. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement, exhibit or schedule furnished by or on behalf of Holdings or the Borrower to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material mis statement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, each of Holdings and the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.16. Employee Benefit Plans. (a) Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Borrower or any of its ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of all such underfunded Plans. (b) Each Foreign Pension Plan is in compliance in all material respects with all requirements of law applicable thereto and the respective requirements of the governing documents for such plan except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Pension Plan, none of the Borrower, its Affiliates or any of its directors, officers, employees or agents has engaged in a transaction that subjects the Borrower or any of its Subsidiaries, directly or indirectly, to a material tax or civil penalty. With respect to each Foreign Pension Plan, reserves have been established in the financial statements furnished to the Lenders in respect of any unfunded liabilities in accordance with applicable law and prudent business practice 48 or, where required, in accordance with ordinary accounting practices in the jurisdiction in which such Foreign Pension Plan is maintained. The aggregate unfunded liabilities, with respect to such Foreign Pension Plans could not reasonably be expected to result in a Material Adverse Effect. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrower or any of its Affiliates with respect to any Foreign Pension Plan that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17: (a) The properties owned or operated by Holdings, the Borrower and the Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Subsidiaries are in compliance, and in the last six years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (c) There have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Borrower or the Subsidiaries, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (d) None of Holdings, the Borrower or any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Subsidiaries or with regard to any person whose liabilities for environmental matters Holdings, the Borrower or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could reasonably be expected to result in a Material Adverse Effect, nor do Holdings, the Borrower or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; and (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Borrower or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the date hereof and the Closing Date. As of each such date, such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice. 49 SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Pledge Agreement) and, when the Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the pledgors thereunder in such Collateral, in each case prior and superior in right to any other person. (b) The Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and, when financing statements in appropriate form are filed in the offices specified on Schedule 6 to the Perfection Certificate, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral (other than the Intellectual Property, as defined in the Security Agreement), in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02. (c) When the Security Agreement is filed in the United States Patent and Trademark Office and the United States Copyright Office, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in the Security Agreement), in each case prior and superior in right to any other person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a lien on registered trademarks, trademark applications and copyrights acquired by the grantors after the date hereof). SECTION 3.20. Location of Real Property. Schedule 3.20 lists completely and correctly as of the Closing Date (after giving effect to the Merger) all real property owned by the Borrower and the Subsidiaries and the addresses thereof. The Borrower and the Subsidiaries own in fee all the real property set forth on Schedule 3.20. SECTION 3.21. Labor Matters. As of the date hereof and the Closing Date, there are no strikes, lockouts or slowdowns against Holdings, the Borrower or any Subsidiary pending or, to the knowledge of Holdings or the Borrower, threatened. The hours worked by and payments made to employees of Holdings, the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from Holdings, the Borrower or any Subsidiary, or for which any claim may be made against Holdings, the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of Holdings, the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which Holdings, the Borrower or any Subsidiary is bound. SECTION 3.22. Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately following the making of each Loan and after giving effect to the application of the proceeds of each Loan, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities 50 become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Closing Date. SECTION 3.23. Year 2000. No further programming or reprogramming is required to permit the proper functioning, in and following the year 2000, of (a) the Borrower's and its Subsidiaries' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or, to the Borrower's knowledge, with which the Borrower's or its Subsidiaries' systems interface). The cost to the Borrower and its Subsidiaries of the reasonably foreseeable consequences of the year 2000 to the Borrower and its Subsidiaries (including reprogramming errors and the failure of others' systems or equipment) will not result in a Material Adverse Effect. The computer and management information systems of the Borrower and its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrower and its Subsidiaries to conduct their business without Material Adverse Effect. ARTICLE IV Conditions of Lending The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions: SECTION 4.01. All Credit Events. On the date of each Borrowing, including each Borrowing of a Swingline Loan but excluding the conversion of a Eurodollar Borrowing to an ABR Borrowing or vice versa or the continuation or conversion of the Interest Period of a Eurodollar Borrowing into another permitted Interest Period, and on the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a "Credit Event"): (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.23(b) or, in the case of the Borrowing of a Swingline Loan, the Swingline Lender and the Administrative Agent shall have received a notice requesting such Swingline Loan as required by Section 2.22(b). (b) The representations and warranties set forth in Article III hereof and in each other Loan Document shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) At the time of and immediately after such Credit Event, no Event of Default or Default shall have occurred and be continuing. 51 (d) If, after giving effect to such Borrowing or the issuance of any Letter of Credit, the Aggregate Revolving Credit Exposure would exceed $110,000,000, the Administrative Agent shall have received a certificate of a Financial Officer in form and substance satisfactory to the Administrative Agent demonstrating that either (i) on the date of such Borrowing or upon the issuance of any Letter of Credit, as the case may be, the Consolidated Coverage Ratio exceeds 2.00 to 1.00 (or 2.25 to 1.00 after May 15, 2001) and the Consolidated Leverage Ratio is less than 5.75 to 1.00 (or 5.50 to 1.00 after December 31, 2000), in each case, as calculated in accordance with Section 4.03(a) of the Senior Subordinated Note Indenture or (ii) the Aggregate Revolving Credit Exposure would not exceed 90% of accounts receivable of the Borrower and its Subsidiaries as calculated in accordance with Section 4.03(b)(1) of the Senior Subordinated Note Indenture. Each Credit Event shall be deemed to constitute a representation and warranty by the Borrower and Holdings on the date of such Credit Event as to the matters specified in paragraphs (b) and (c) of this Section 4.01. SECTION 4.02. First Credit Event. On the Closing Date: (a) The Administrative Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for Holdings and the Borrower, substantially to the effect set forth in Exhibit H-1, (ii) Curtis L. Schehr, Esq., General Counsel of the Borrower, substantially to the effect set forth in Exhibit H-2, and (iii) each local counsel listed on Schedule 4.02(a), substantially to the effect set forth in Exhibit H-3, in each case (A) dated the Closing Date, (B) addressed to the Issuing Bank, the Administrative Agent and the Lenders, and (C) covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and Holdings and the Borrower hereby request such counsel to deliver such opinions. (b) All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Loan Documents shall be reasonably satisfactory to the Lenders, to the Issuing Bank and to the Administrative Agent. (c) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the 52 certificate pursuant to clause (ii) above; and (iv) such other documents as the Lenders, the Issuing Bank or the Administrative Agent may reasonably request. (d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01. (e) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document. (f) The Pledge Agreement shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, and (i) all the outstanding capital stock of the Borrower then owned by Holdings, (ii) all the outstanding capital stock of each Domestic Subsidiary then owned by the Borrower and each other Domestic Subsidiary and (iii) 65% of the voting capital stock and 100% of the nonvoting capital stock (if any) of each Foreign Subsidiary listed on Schedule 4.02(f), shall have been duly and validly pledged thereunder to the Collateral Agent for the ratable benefit of the Secured Parties and certificates representing such shares, accompanied by instruments of transfer and stock powers endorsed in blank, shall be in the actual possession of the Collateral Agent. (g) The Security Agreement shall have been duly executed by the Loan Parties party thereto and shall have been delivered to the Collateral Agent and shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement and each Assignment of Claims Act notice) required by law or reasonably requested by the Agents to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority security interest in and lien on the Collateral (subject to any Lien expressly permitted by Section 6.02) described in such agreement shall have been delivered to the Collateral Agent. (h) The Agents shall have received the results of a search of the Uniform Commercial Code filings (or equivalent filings) made with respect to the Loan Parties in the states (or other jurisdictions) in which the chief executive office of each such person is located, any offices of such persons in which records have been kept relating to Accounts and the other jurisdictions in which Uniform Commercial Code filings (or equivalent filings) are to be made pursuant to the preceding paragraph, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence satisfactory to the Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 6.02 or have been or will be contemporaneously released or terminated. The Agents shall have also received all information required for the proper assignment under the Assignment of Claims Act of all Government Contracts required to be assigned as indicated on Schedule 3.04. (i) The Collateral Agent shall have received a Perfection Certificate with respect to the Loan Parties dated the Closing Date and duly executed by a Responsible Officer of the Borrower. 53 (j) Each of the Subsidiary Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement shall have been duly executed by the parties thereto, shall have been delivered to the Collateral Agent and shall be in full force and effect. (k) The Agents shall have received a Borrowing Base/Non-Default Certificate dated the Closing Date, relating to the period ending on the last day of the preceding month and executed by a Financial Officer of the Borrower. (l) The Agents shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.02 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Collateral Agent as additional insured, in form and substance satisfactory to the Agents. (m) The Lenders shall have received the Borrower's unaudited consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of and for the quarter ended March 31, 1999, and A&T's audited consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of and for the year ended April 3, 1999. (n) The Lenders shall be reasonably satisfied as to the amount and nature of any environmental and employee health and safety exposures to which the Borrower and the Subsidiaries may be subject and the plans of the Borrower with respect thereto. (o) The Merger shall have been consummated or shall be consummated simultaneously with the initial Credit Event on the Closing Date, in each case in all material respects in accordance with the terms of the relevant documentation therefor, including the Merger Agreement and the related schedules and attachments thereto in the form in which they were initially executed (and without the waiver or amendment of any material terms or conditions of the Merger Agreement, except as shall be approved by the Administrative Agent (which approval shall not be unreasonably withheld)). (p) There shall be no litigation or administrative proceedings, governmental investigations or other legal or regulatory developments, actual or threatened, that, singly or in the aggregate, will or are reasonably likely to have a Material Adverse Effect. (q) The Lenders shall be reasonably satisfied with all material legal, tax and accounting matters relating to the Transactions and the other transactions contemplated hereby, including the ability of Subsidiaries to transfer funds to the Borrower and the withholding tax consequences thereof. (r) All requisite Governmental Authorities and third parties shall have approved or consented to the Transactions and the other transactions contemplated hereby to the extent required, in each case to the extent failure to obtain such consent or approval will or is reasonably likely to have a Material Adverse Effect and there shall be no governmental or judicial action, actual or threatened, that has or would have, singly or in the aggregate, a reasonable likelihood of restraining, preventing or imposing burdensome conditions on the Transactions or the other transactions contemplated hereby. (s) The Lenders shall have received a certificate substantially in the form of Exhibit L from the chief financial officer of the Borrower to the effect that, after giving effect to the Transactions, the Borrower and the Subsidiaries taken as a whole will not (i) be insolvent, 54 (ii) be rendered insolvent by the Indebtedness incurred in connection therewith, (iii) be left with unreasonably small capital with which to engage in its business or (iv) have incurred debts beyond its ability to pay such debts as they mature. (t) All principal, premium, if any, interest, fees and other amounts due and owing under the Existing Credit Agreements shall have been paid in full, the commitments thereunder terminated and all guarantees and security in support thereof released, and the Agent shall have received reasonably satisfactory evidence thereof, and after giving effect to the Transactions and the other transactions contemplated hereby, the Borrower and its subsidiaries shall have outstanding no Indebtedness or preferred stock other than (i) the Loans and Letters of Credit hereunder and (ii) the Indebtedness listed on Schedule 6.01. (u) After giving pro forma effect to the Transactions, the Leverage Ratio shall not exceed 5.50 to 1.00. (v) The Equity Contribution shall have been made, and the proceeds of the Senior Subordinated Notes shall have been released from escrow and, together with the Equity Contribution, shall have been used as described in the preamble to this Agreement. (w) All the representations and warranties contained in the Merger Agreement shall be true and correct in all material respects without giving effect to any waiver thereof (except for waivers granted with the Administrative Agent's approval, such approval not to be unreasonably withheld). ARTICLE V Affirmative Covenants The Borrower covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations, decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and 55 replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.02. Insurance. (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. (b) Cause all such policies covering any Collateral to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent, which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Administrative Agent or the Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower or the Loan Parties under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Borrower, the Administrative Agent, the Collateral Agent nor any other party shall be a coinsurer thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Administrative Agent or the Collateral Agent may reasonably require from time to time to protect their interests; deliver original or certified copies of all such policies to the Collateral Agent; cause each such policy to provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium upon not less than 10 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent (giving the Administrative Agent and the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent; deliver to the Administrative Agent and the Collateral Agent, prior to the cancelation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent and the Collateral Agent) together with evidence satisfactory to the Administrative Agent and the Collateral Agent of payment of the premium therefor. (c) Notify the Administrative Agent and the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.02 is taken out by the Borrower; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies. SECTION 5.03. Obligations and Taxes. Pay its material Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that (a) such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set 56 aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien and (b) failure to pay any Indebtedness shall not be a breach of this covenant unless such failure would give rise to an Event of Default under paragraph (f) of Article VII. SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Administrative Agent, the Collateral Agent and each Lender: (a) within 90 days after the end of each fiscal year, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by KPMG LLP or other independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments; (c) within 30 days after the end of each of the first 11 fiscal months of each fiscal year, its consolidated balance sheet and related statements of income, stockholder's equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal month and the results of its operations and the operations of such Subsidiaries during such fiscal month and the then elapsed portion of such fiscal year, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments; (d) at the time of delivery of the financial statements referred to in paragraph (a), (b) or (c) above, the unaudited consolidating balance sheet and related statements of income and cash flows, showing the financial position of the Borrower and each of its Subsidiaries as of the close of, and the results of operations of the Borrower and each of its Subsidiaries during, the relevant period referred to in paragraph (a), (b) or (c) above, as the case may be, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and each of its Subsidiaries in accordance with GAAP (except for consolidation), subject in the case of monthly and quarterly reports, to normal year-end audit adjustments; 57 (e) within 45 days after the end of each fiscal year, consolidated and consolidating projections of revenues, expenditures and results of operations and cash positions of the Borrower and each Subsidiary as of the end of each month in the forthcoming year, together with a statement of assumptions and estimates upon which such projections are based, all in detail reasonably satisfactory to the Administrative Agent; (f) within 90 days after the end of each fiscal year, projections of backlog and rolloff of the Borrower and each Subsidiary as of the end of each month in the forthcoming year, together with a statement of assumptions and estimates upon which such projections are based, all in detail reasonably satisfactory to the Administrative Agent; (g) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate in the form of Exhibit I (a "Compliance Certificate") of (i) the accounting firm (in the case of paragraph (a)) or Financial Officer (in the case of paragraph (b)) opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (A) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (B) setting forth computations in detail reasonably satisfactory to the Agents demonstrating compliance with the covenants contained in Sections 6.08 (in the case of paragraph (a)), 6.09, 6.10, 6.11, 6.12 and 6.13, and (ii) the Financial Officer in the case of paragraph (a) or (b) setting forth compliance with the covenants contained in Sections 6.01(c), 6.01(f), 6.01(g), 6.01(h), 6.01(i), 6.01(j), 6.01(k), 6.04(d), 6.04(h), 6.04(k), 6.04(p), 6.05(b), 6.06 and 6.07(d), and, in the case of a certificate delivered with the financial statements required by paragraph (a) above, setting forth the Borrower's calculation of Excess Cash Flow; (h) within 37 days after the end of each calendar month a certificate in the form of Exhibit J (a "Borrowing Base/Non-Default Certificate") showing the Borrowing Base as of the close of business on the last day of such calendar month, each such Certificate to be certified as complete and correct on behalf of the Borrower by a Financial Officer of the Borrower; (i) promptly upon their becoming available, and in any event within 30 days following the end of each calendar month, (i) a monthly report, in form and detail reasonably satisfactory to the Agents, setting forth the current billed accounts receivable agings reports, as well as a detailed subcontractor invoice report, of the Borrower and each Subsidiary Guarantor as of the end of the preceding calendar month, and (ii) a contract status backlog report of the Borrower and each Subsidiary Guarantor prepared as of the last day of the calendar month most recently ended; (j) commencing on December 31, 1999, for the fiscal quarter then ended, and thereafter within 6 weeks following the end of each calendar quarter, a quarterly report, in form and detail reasonably satisfactory to the Agents, setting forth unbilled active accounts relating to Material Contracts of the Borrower as of the end of such calendar quarter; 58 (k) promptly after the same become publicly available, copies of all periodic and other reports, final proxy statements and, upon notice of filing to the Administrative Agent and upon the request of the Administrative Agent, other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be, and all press releases; (l) promptly after the receipt thereof by Holdings, the Borrower or any of their respective Subsidiaries, a copy of any "management letter" in final form (or if such final letter has not been delivered to Holdings, the Borrower or any of their respective Subsidiaries by the date that is 8 months after the Borrower's fiscal year end, the then current draft of any "management letter") received by any such person from its certified public accountants and the management's responses thereto; (m) each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) above, the Borrower shall deliver to the Agents a certificate of a Financial Officer of the Borrower (i) setting forth the information required pursuant to Section 2 of the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); (n) within 45 days after the end of the first and third fiscal quarters of the Borrower, a certificate of a Financial Officer of the Borrower listing all new Government Contracts since the date of the last Perfection Certificate which constitute Material Contracts and which are required by this Agreement to be assigned to the Collateral Agent, on behalf of the Lenders, in accordance with the Assignment of Claims Act; and (o) promptly, from time to time, subject to any restrictions requiring confidentiality or secrecy, such other information regarding the operations, business affairs and financial condition of Holdings, the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request. SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative Agent, the Issuing Bank and each Lender prompt written notice of the following: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in 59 equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; and (c) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 5.06. Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within 10 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrower in an aggregate amount exceeding $1,000,000, a statement of a Financial Officer of the Borrower setting forth details as to such ERISA Event and the action, if any, that the Borrower proposes to take with respect thereto. SECTION 5.07. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, subject to any restrictions requiring confidentiality or secrecy, permit any representatives designated by the Agents or any Lender to visit and inspect the financial records and the properties of Holdings, the Borrower or any Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Agents or any Lender to discuss the affairs, finances and condition of Holdings, the Borrower or any Subsidiary with the officers thereof and independent accountants therefor. SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 5.09. Compliance with Environmental Laws. Comply, and cause all lessees and other persons occupying its Properties to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that none of the Borrower or any of the Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. SECTION 5.10. Preparation of Environmental Reports. If a Default caused by reason of a breach of Section 3.17 or 5.09 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties which are the subject of such Default prepared by an environmental consulting firm acceptable to the Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. 60 SECTION 5.11. Audits. (a) From time to time upon the request of the Collateral Agent or the Required Lenders through the Administrative Agent, but unless an Event of Default has occurred and is continuing no more frequently than two times in any 12-month period, and prior to each material Permitted Acquisition, permit the Collateral Agent or the Lenders or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Collateral Agent or the Lenders to conduct evaluations and appraisals of (i) the Borrower's practices in the computation of the Borrowing Base and (ii) the assets included in the Borrowing Base, and pay the reasonable fees and expenses of such professionals. (b) In connection with any evaluation and appraisal relating to the computation of the Borrowing Base, agree to maintain such additional reserves (for purposes of computing the Borrowing Base) in respect of the Accounts included in the Borrowing Base and make such other adjustments to its parameters for including Accounts in the Borrowing Base as the Collateral Agent or the Required Lenders through the Administrative Agent shall require based upon the results of any such evaluation and appraisal. SECTION 5.12. Further Assurances. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust and preparing all documentation relating to filings under the Assignment of Claims Act) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Security Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary (other than any Inactive Subsidiary) or any Domestic Subsidiary that ceases to be an Inactive Subsidiary to execute a Subsidiary Guarantee Agreement, Indemnity, Subrogation and Contribution Agreement and each applicable Security Document in favor of the Collateral Agent. In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as either Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by substantially all the assets of the Borrower and its Subsidiaries (including real and other properties acquired subsequent to the Closing Date)). Such security interests and Liens will be created under the Security Documents and other security agreements, mortgages, deeds of trust and other instruments and documents in form and substance reasonably satisfactory to the Collateral Agent, and the Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section. The Borrower agrees to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. In furtherance of the foregoing, the Borrower will give prompt notice to the Agents of the acquisition by the Borrower or any Domestic Subsidiary of any real property (or any interest in real property) having a value in excess of $750,000. 61 ARTICLE VI Negative Covenants The Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it cause or permit any of the Subsidiaries to: SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness for borrowed money existing on the date hereof and set forth in Schedule 6.01, and any extensions, renewals or replacements of such Indebtedness to the extent the principal amount of such Indebtedness is not increased, the weighted average life to maturity of such Indebtedness is not decreased, such Indebtedness, if subordinated to the Obligations, remains so subordinated on terms not less favorable to the Lenders and the original obligors in respect of such Indebtedness remain the only obligors thereon; (b) Indebtedness created hereunder and under the other Loan Documents; (c) Indebtedness evidenced by Capital Lease Obligations, or secured pursuant to Section 6.02(h), in each case so long as (i) the related Capital Expenditure is permitted by Section 6.08 and (ii) the aggregate principal amount of all Indebtedness permitted to be outstanding under this paragraph (c) shall not exceed $7,500,000; (d) Indebtedness in favor of a Lender (or an Affiliate thereof) under one or more Hedging Agreements approved by the Administrative Agent (such approval not to be unreasonably withheld); (e) intercompany Indebtedness of the Borrower and its Subsidiaries to the extent permitted by Sections 6.04(f) and (h); (f) Indebtedness with respect to any surety bonds required in the ordinary course of business of the Borrower and the Subsidiaries, provided that such Indebtedness shall not at any time exceed $750,000 in the aggregate; (g) Indebtedness of Foreign Subsidiaries in an aggregate principal amount not to exceed $7,500,000 at any time outstanding; and (h) unsecured Indebtedness of the Borrower incurred in connection with a Permitted Acquisition subordinated to the Obligations on terms and conditions no less favorable to the Lenders than those contained in Exhibit K in an aggregate principal amount not to exceed $4,000,000 at any time outstanding; (i) other unsecured Indebtedness of the Borrower and the Subsidiaries in an aggregate principal amount not to exceed $2,500,000 at any time outstanding; 62 (j) Indebtedness to Mellon in connection with purchase cards issued by Mellon in an aggregate amount not to exceed $500,000 at any time outstanding; and (k) Indebtedness of any Subsidiary that exists at the time such person becomes a Subsidiary and that was not incurred in contemplation of or in connection with the acquisition by the Borrower or a Subsidiary of such person in an aggregate principal amount not to exceed $4,000,000 at any time outstanding. SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the date hereof and set forth in Schedule 6.02; provided that such Liens shall secure only those obligations which they secure on the date hereof; (b) any Lien created under the Loan Documents; (c) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03; (e) Liens (other than any Lien imposed by ERISA), pledges and deposits made in the ordinary course of business in compliance with workmen's compen sation, unemployment insurance and other social security laws or regulations; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (h) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 90 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed 100% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrower or any Subsidiary; 63 (i) Liens on assets of Foreign Subsidiaries; provided that (i) such Liens do not extend to, or encumber, assets of the Borrower or any of its Domestic Subsidiaries and (ii) such Liens secure only Indebtedness incurred by such Foreign Subsidiaries pursuant to Section 6.01(g); (j) Liens that are contractual rights of setoff (i) relating to the establishment of depository relations with any Lender or any bank with which the Borrower may maintain accounts in accordance with Section 6.19 and which are not given in connection with the issuance of Indebtedness or (ii) pertaining to pooled deposit and/or sweep accounts of the Borrower or any Subsidiary with any Lender to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and the Subsidiaries; (k) judgment liens securing judgments that have not resulted in an Event of Default under paragraph (i) of Article VII; and (l) any Lien existing on any property or asset of any person that exists at the time such person becomes a Subsidiary and that secured Indebtedness permitted by Section 6.01(k); provided that (i) such Lien was not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any property or assets of the Borrower or any other Subsidiary. SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred unless (a) the sale of such property is permitted by Section 6.05 and (b) the Capital Lease Obligations arising therefrom are permitted by Section 6.01(c). SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except: (a) investments by the Borrower existing on the date hereof in the Equity Interests of the Subsidiaries and additional investments in the Equity Interests of domestic Subsidiary Guarantors; (b) Permitted Investments; (c) Accounts owing to the Borrower or any of its Subsidiaries arising from sales of inventory under usual and customary terms in the ordinary course of business; (d) advances to officers and employees of the Borrower or any of its Subsidiaries to meet expenses incurred by such officers and employees in the ordinary course of business, in an aggregate amount not to exceed $500,000 at any time outstanding; (e) securities of any customer of the Borrower or any Subsidiary received in lieu of cash payment, if the Borrower reasonably deems such customer to be in a 64 reorganization or unable to make a timely cash payment on Indebtedness of such customer owing to it, provided that the Borrower or such Subsidiary, as the case may be, has paid no new consideration (other than forgiveness of Indebtedness) therefor; (f) any Subsidiary may make intercompany loans to the Borrower or any Subsidiary Guarantor and the Borrower may make intercompany loans and advances to any Subsidiary Guarantor; provided that any promissory notes evidencing such intercompany loans shall be pledged (and delivered) by the Borrower or the respective Domestic Subsidiary Guarantor that is the lender of such intercompany loan as Collateral pursuant to the Pledge Agreement; provided further that (i) neither the Borrower nor any Domestic Subsidiaries may make loans to any Foreign Subsidiaries of the Borrower pursuant to this paragraph (f) and (ii) any loans made by any Foreign Subsidiaries to the Borrower or any of its Domestic Subsidiaries pursuant to this paragraph (f) shall be subordinated to the obligations of the Loan Parties pursuant to subordination provisions in substantially the form of Exhibit K; (g) the Borrower may establish Subsidiaries to the extent permitted by Section 6.15; (h) the Borrower and its Domestic wholly owned Subsidiaries may make loans and advances to, or other investments in, Foreign Subsidiaries of the Borrower so long as the aggregate amount of any loans, advances or other investments at any time outstanding (determined without regard to any write-downs or write-offs thereof) pursuant to this paragraph (h) shall not exceed $4,000,000; (i) the Borrower may acquire all or substantially all the assets of a person or line of business of such person, or not less than 80% of the Equity Interests of a person (referred to herein as the "Acquired Entity"); provided that (i) the Acquired Entity shall be a going concern and shall be in a similar line of business as that of the Borrower and its Subsidiaries as conducted during the current and most recent calendar year; (ii) at the time of such transaction (A) both before and after giving effect thereto, no Event of Default or Default shall have occurred and be continuing or shall exist; (B) the Borrower would be in compliance with the covenants set forth in Sections 6.09, 6.10, 6.11, 6.12 and 6.13 as of the most recently completed period of four consecutive fiscal quarters ending prior to such transaction for which the financial statements and certificates required by Section 5.04(a) or 5.04(b) have been delivered or for which comparable financial statements have been filed with the Securities and Exchange Commission, after giving pro forma effect to such transaction and to any other event occurring after such period as to which pro forma recalculation is appropriate (including any other transaction described in this Section 6.04(i) occurring after such period) as if such transaction had occurred as of the first day of such period; (C) based on projections of the Borrower after giving pro forma effect to such transaction and such other events or transactions, the Borrower would be in compliance with the covenants set forth in Sections 6.09, 6.10, 6.11, 6.12 and 6.13 for each of the four succeeding calendar quarters; (D) after giving effect to such acquisition, there must be at least $10,000,000 of unused and available Revolving Credit Commitments; and (E) if the total consideration for the acquisition exceeds $35,000,000, the Required Lenders shall have approved the acquisition; (iii) the Acquired Entity shall have had a positive EBITDA for the 12-month period immediately preceding the transaction; (iv) the Borrower shall assume no Indebtedness in connection with such acquisition, except as permitted by Section 6.01; (v) the Acquired Entity shall not be subject to any material pending 65 litigation or material contingent liabilities (any acquisition of an Acquired Entity meeting all the criteria of this Section 6.04(i) being referred to herein as a "Permitted Acquisition") and (vi) if the Acquired Entity would not constitute a wholly owned Subsidiary, each holder of an Equity Interest therein (other than the Borrower or any wholly owned Subsidiary) shall have executed and delivered to the Collateral Agent an acknowledgement, waiver and consent substantially the form of Exhibit M. All pro forma calculations required to be made pursuant to this Section 6.04(i) shall (i) include only those adjustments that (A) except with respect to the projections referred to in clause (C) of the preceding sentence, would be permitted or required by Regulation S-X, and (B) are based on reasonably detailed written assumptions reasonably acceptable to the Administrative Agent and (ii) be certified to by a Financial Officer as having been prepared in good faith based upon reasonable assumptions; (j) the Borrower may enter into Hedging Agreements to the extent permitted in Section 6.01(d); (k) the Borrower or any Subsidiary Guarantor may acquire Margin Stock of entities in a similar line of business as that of the Borrower and its Subsidiaries as conducted during the current and most recent calendar year; provided, however, that (i) the Borrower or any Subsidiary Guarantor must notify the Agents promptly after any such acquisition, (ii) after giving effect to such acquisition, there must be at least $10,000,000 of unused and available Revolving Credit Commitments and (iii) the Borrower and the Subsidiaries shall not hold Margin Stock with a cost basis in excess of $25,000,000 in the aggregate at any time (any Margin Stock acquired and held by the Borrower or any Subsidiary Guarantor in accordance with this Section 6.04(k) being referred to herein as "Approved Margin Stock"); (l) Holdings, the Borrower and the Subsidiaries may consummate the Transactions; (m) investments existing on the date hereof and set forth on Schedule 6.04; (n) investments consisting of non-cash proceeds of Asset Sales for which the consideration consists of at least 75% cash as required under Section 6.05; (o) the Borrower may make loans or advances permitted by clauses (ii) and (iii) of the first proviso of Section 6.06(a); and (p) other investments, loans and advances (other than investments in and loans and advances to Foreign Subsidiaries) in an aggregate amount (valued at cost or outstanding principal amount, as the case may be) not greater than $4,000,000 at any time outstanding. SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of the assets of the Borrower (whether now owned or hereafter acquired) or less than all the Equity Interests of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that (i) the Borrower and any Subsidiary may purchase and sell inventory in the ordinary course of business, (ii) the 66 Borrower or any wholly owned Subsidiary may make Permitted Acquisitions and (iii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (x) any wholly owned Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation and (y) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Subsidiary (or, in order to consummate a Permitted Acquisition, any other person) in a transaction in which the surviving entity is a wholly owned Subsidiary and (except in the case of Permitted Acquisitions) no person other than the Borrower or a wholly owned Subsidiary receives any consideration, provided that if any such merger described in this clause (y) shall involve a Domestic Subsidiary, the surviving entity of such merger shall be a Domestic Subsidiary. (b) Engage in any Asset Sale otherwise permitted under paragraph (a) above unless (i) such Asset Sale is for consideration at least 75% of which is cash (provided that such 75% requirement shall not apply to any Asset Sale constituting the sale of a business unit if the cash portion of the consideration received therefor is no less than an amount equal to the product of (A) six and (B) the amount of EBITDA for the preceding fiscal year directly attributable to the assets included in such Asset Sale), (ii) such consideration is at least equal to the fair market value of the assets being sold, transferred, leased or disposed of and (iii) except with respect to a sale by the Borrower of all the Equity Interests or all or substantially all the assets of IMC, the fair market value of all assets sold, transferred, leased or disposed of pursuant to this paragraph (b) shall not exceed (i) $5,000,000 in any fiscal year or (ii) $10,000,000 in the aggregate. SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any of its Equity Interests or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions ratably to the holders of its Equity Interests, (ii) so long as no Event of Default or Default shall have occurred and be continuing or would result therefrom, the Borrower may, or the Borrower may make distributions to Holdings so that Holdings may, repurchase its Equity Interests owned by employees of the Borrower or make payments to employees of the Borrower or any of its Subsidiaries, in each case upon termination of employment in connection with the exercise of stock options, stock appreciation rights or similar equity incentives or equity based incentives pursuant to incentive plans or in connection with the death or Disability of such employees in an aggregate amount not to exceed $5,000,000 in any fiscal year (of which not more than $3,000,000 may be used for payments not related to death or Disability) and (iii) so long as, in the case of clause (w) and (x) only, no Event of Default or Default shall have occurred and be continuing or would result therefrom, the Borrower may declare and pay cash dividends or make loans or advances to Holdings (w) in an amount required by Holdings to be paid as interest under the Seller Purchase Money Note and the Investor Notes, (x) in an aggregate amount not to exceed $3,650,000 required by Holdings to be paid as principal under the Seller Purchase Money Note, (y) in an amount not to exceed $250,000 in any fiscal year, to the extent necessary to pay general corporate and overhead expenses incurred by Holdings in the ordinary course of business and (z) in an amount necessary to make Tax Payments directly attributable to (or arising as a result of) the operations of the Borrower and its Subsidiaries; provided, however, that (A) the amount of such dividends shall not exceed the amount that the Borrower and its Subsidiaries would be required to pay in respect of Federal, State and 67 local taxes were the Borrower to pay such taxes as a stand-alone taxpayer and (B) such dividends pursuant to this clause (z) are used by Holdings for such purposes within 20 days of the receipt of such dividends. (b) Permit its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (i) pay any dividends or make any other distributions on its Equity Interests or (ii) make or repay any loans or advances to the Borrower or the parent of such Subsidiary except (v) for such encumbrances or restrictions existing under or by reason of (A) applicable law, (B) this Agreement and the other Loan Documents, (C) the Senior Subordinated Note Documents or (D) with respect to Foreign Subsidiaries only, Indebtedness of such Foreign Subsidiaries permitted to be incurred hereunder, (w) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower, (x) customary provisions restricting assignment of any agreement entered into by the Borrower or a Subsidiary in the ordinary course of business, (y) any holder of a Lien permitted by Section 6.02 may restrict the transfer of the asset or assets subject thereto and (z) subordination provisions in favor of the Lenders and required by Section 6.04(f). SECTION 6.07. Transactions with Affiliates. Except for transactions by or among Loan Parties, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that: (a) the Borrower or any Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; (b) dividends may be paid to the extent provided in Section 6.06; (c) loans may be made and other transactions may be entered into between and among the Borrower, Holdings, the Subsidiaries and their respective Affiliates to the extent permitted by Sections 6.01 and 6.04; and (d) so long as no Event of Default or Default shall have occurred and be continuing or would result therefrom, (i) customary fees may be paid to non-officer directors of the Borrower in an aggregate amount not to exceed $250,000 in any fiscal year; (ii) business management fees may be paid to Caxton-Iseman Capital, Inc. or any of its Affiliates (and such other reasonable and customary fees may be paid to Caxton-Iseman Capital, Inc. or such Affiliates as shall be approved by the Board of Directors of the Borrower for any future advisory services actually rendered by Caxton-Iseman Capital, Inc. or such Affiliates), in an aggregate amount not to exceed $1,000,000 in any fiscal year; provided, however, that the amount of such fees actually paid in any fiscal year does not exceed an amount equal to the sum of (A) in the event the Interest Coverage Ratio on the date of the proposed payment is greater than 2.0:1.0 but less than or equal to 2.25:1.0, $500,000, plus (B) in the event the Interest Coverage Ratio on the date of any proposed payment exceeds 2.25:1.0, an additional $500,000, in each case together with the amount of unpaid management fees accrued in any prior fiscal year that could have been paid in such prior fiscal year had the Interest Coverage Ratio applicable to clause (A) or (B) on the date of such proposed payment been in effect on the date of accrual of such prior year's fee, 68 and (iii) an advisory fee in respect of the Merger may be paid to Caxton-Iseman Capital, Inc. or any of its Affiliates on the Closing Date in an amount not to exceed the lesser of $1,150,000 or 1% of the total acquisition cost of the Merger. SECTION 6.08. Capital Expenditures. Make any Capital Expenditures, except that (a) during the period (in each case, taken as one accounting period) from January 1, 1999, through and including December 31, 1999, the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed $6,000,000 and (b) during each fiscal year thereafter (in each case, taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed 1.25% of the consolidated net sales of the Borrower and its consolidated Subsidiaries for the preceding fiscal year, as shown on the consolidated financial statements for such year delivered pursuant to Section 5.04(a) after giving pro forma effect to Permitted Acquisitions consummated in such preceding fiscal year as if such Permitted Acquisitions had occurred as of the first day of such fiscal year. SECTION 6.09. Interest Coverage Ratio. Permit the Interest Coverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, ending on a date or during any period set forth below to be less than the amount set forth opposite such date or period below:
Date or Period Ratio - -------------- ----- September 30, 1999 through September 30, 2000 1.65:1.0 December 31, 2000 1.75:1.0 March 31, 2001 through December 31, 2001 2.00:1.0 March 31, 2002 through December 31, 2002 2.25:1.0 March 31, 2003 through December 31, 2003 2.50:1.0 March 31, 2004 and thereafter 3.00:1.0
SECTION 6.10. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, ending during any period set forth below to be less than the amount set forth opposite such period below:
Period Ratio - ------ ----- September 30, 1999 through December 31, 2001 1.0:1.0 March 31, 2002 and thereafter 1.05:1.0
SECTION 6.11. Maximum Leverage Ratio. Permit the Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below:
Period Ratio - ------ ----- September 30, 1999 through December 31, 1999 5.75:1.0 January 1, 2000 through December 31, 2000 5.50:1.0 January 1, 2001 through December 31, 2001 5.25:1.0 January 1, 2002 through December 31, 2002 5.00:1.0 January 1, 2003 through December 31, 2003 4.75:1.0 January 1, 2004 and thereafter 4.50:1.0
69 SECTION 6.12. Senior Leverage Ratio. Permit the Senior Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below:
Period Ratio - ------ ----- September 30, 1999 through December 31, 2000 3.75:1.0 January 1, 2001 through December 31, 2001 3.50:1.0 January 1, 2002 and thereafter 3.25:1.0
SECTION 6.13. Minimum EBITDA. Without giving effect to any Permitted Acquisitions completed in the relevant period, permit EBITDA for any period of four consecutive fiscal quarters ending on or before December 31, 2001, in each case taken as one accounting period, ended on the last day of any fiscal quarter set forth below to be less than the amount set forth opposite such fiscal quarter below:
Fiscal Quarter EBITDA - -------------- ------ September 30, 1999 through December 31, 1999 $30,000,000 March 31, 2000 through December 31, 2000 $33,000,000 March 31, 2001 through December 31, 2001 $37,000,000
SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc. (a) Amend or modify, or permit the amendment or modification of, any provision of existing Indebtedness or of any agreement (including any purchase agreement, indenture, loan agreement or security agreement) relating thereto other than any amendments or modifications to Indebtedness which do not in any way materially adversely affect the interests of the Lenders, (b) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Senior Subordinated Notes, (c) amend or modify, or permit the amendment or modification of, the Merger Agreement or any of the operating agreements entered into in connection therewith or any tax sharing agreement, in each case except for amendments or modifications which are not in any way adverse in any material respect to the interests of the Lenders, (d) amend, modify or change its Certificate of Incorporation (including by the filing or modification of any certificate of designation) or By-laws, or any agreement entered into by it, with respect to its Equity Interests (including any shareholders' agreement), or enter into any new agreement with respect to its Equity Interests, other than any amendments, modifications or changes pursuant to this clause (d) or any such new agreements pursuant to this clause (d) which do not in any way materially adversely affect the interests of the Lenders; provided that nothing in this clause (d) shall prevent the Borrower or any of its Subsidiaries from amending its Certificate of Incorporation or By-laws to provide indemnification to any officer or director of the Borrower or any such Subsidiary to the maximum extent permitted by the law of its jurisdiction of incorporation or (e) amend, modify or change, or permit the amendment, modification or change of, the charter, by-laws or other organizational documents of each of Anteon VDS Foreign Enterprises LLC and Anteon VDS Foreign Investments LLC, each a Delaware limited liability company and wholly owned subsidiary of the Borrower, to permit such companies to engage in any activity other than owning all the outstanding shares of capital stock of Yuhan Hoeysa Anteon VDS-Korea. 70 SECTION 6.15. Limitation on Creation of Subsidiaries. Establish or create any additional Subsidiaries; provided that the Borrower may establish or create one or more Subsidiaries of the Borrower so long as (a) at least 80% of the Equity Interests of such Subsidiary is owned by the Borrower or a wholly owned Subsidiary, (b) 100% of the Equity Interests so owned by Borrower or such Subsidiary of any new Subsidiary (except that not more than 65% of the voting Equity Interests of any Foreign Subsidiary owned by a Loan Party shall be required to be so pledged) is upon the creation or establishment of any such new Subsidiary pledged and delivered to the Collateral Agent for the benefit of the Secured Parties under the Pledge Agreement and (c) upon the creation or establishment of any such new Domestic Subsidiary such Domestic Subsidiary becomes a party to the applicable Security Documents in accordance with Section 5.12 and the other Loan Documents (and if such new Domestic Subsidiary is not a wholly owned Subsidiary of Borrower, each owner of any minority Equity Interest in such new Domestic Subsidiary shall have consented to such new Domestic Subsidiary becoming party to the applicable Security Documents and other Loan Documents and executed an acknowledgment, waiver and consent substantially in the form of Exhibit M). SECTION 6.16. Business. Engage (directly or indirectly) in any business other than the business in which the Borrower and its Subsidiaries are engaged on the Closing Date and other businesses reasonably related thereto. SECTION 6.17. Designated Senior Indebtedness. Designate any indebtedness as "Designated Senior Indebtedness" for purposes of the Senior Subordinated Note Indenture unless the Required Lenders specifically consent thereto in writing. SECTION 6.18. Fiscal Year. With respect the Borrower, change its fiscal year end to a date other than December 31. SECTION 6.19. Maintenance of Accounts. With respect to the Borrower and the Domestic Subsidiaries, maintain any bank account, other than payroll and petty cash accounts, with any financial institution that is not a Lender. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; 71 (c) default shall be made in the payment of any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days; (d) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.01(a) insofar as it relates to the existence of the Borrower, 5.05 or 5.08 or in Article VI; (e) default shall be made in the due observance or performance by Holdings, the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 20 days after notice thereof from the Administrative Agent or any Lender to the Borrower; (f) Holdings, the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any one or more items of Indebtedness in a principal amount in excess of $3,000,000 in the aggregate, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of Holdings, the Borrower or any Subsidiary, or of a substantial part of the property or assets of Holdings, the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or a Subsidiary or (iii) the winding-up or liquidation of Holdings, the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) Holdings, the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Holdings, the Borrower or any Subsidiary or for a substantial part of the property or assets of Holdings, the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against Holdings, the Borrower, any Subsidiary or 72 any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of Holdings, the Borrower or any Subsidiary to enforce any such judgment; (j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Borrower and its ERISA Affiliates in an aggregate amount exceeding $5,000,000; (k) any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Borrower or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under the Pledge Agreement and except to the extent that such loss is covered by a lender's title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy; (l) any of the Obligations shall cease to constitute "Senior Indebtedness" under and as defined in the Senior Subordinated Note Indenture; (m) there shall have occurred a Change in Control; or (n) (i) A notice of debarment, notice of suspension or notice of termination for default shall have been issued under any Government Contract; (ii) the Borrower is barred or suspended from contracting with any part of the Government; (iii) a Government investigation shall have resulted in a criminal or civil liability in excess of $5,000,000; (iv) the actual termination of any Material Contract due to alleged fraud, wilful misconduct, neglect, default or any other wrongdoing; or (v) a cure notice (other than any immaterial cure notice under any General Services Administration contract) issued under any Government Contract shall remain uncured (subject to expiration of extensions that may have been received) beyond (A) the expiration of the time period available to the Borrower pursuant to such Government Contract and/or such cure notice, to cure the noticed default, or (B) the date on which the other contracting party is entitled to exercise its rights and remedies under the Government Contract as a consequence of such default; then, and in every such event (other than an event with respect to the Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to the Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all 73 other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding. ARTICLE VIII The Administrative Agent and the Collateral Agent In order to expedite the transactions contemplated by this Agreement, Credit Suisse First Boston is hereby appointed to act as Administrative Agent and Mellon Bank, N.A. is hereby appointed to act as Collateral Agent, each on behalf of the Lenders and the Issuing Bank. Each of the Lenders and each assignee of any such Lender, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower or any other Loan Party on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of its obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by 74 any other Lender or the Issuing Bank or the Borrower or any other Loan Party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agree ment unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right (with the consent of the Borrower, not to be unreasonably withheld) to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent (with the consent of the Borrower, not to be unreasonably withheld) which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with Holdings, the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on the aggregate amount of its outstanding Term Loans and Revolving Credit Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower or any other Loan Party, provided that no Lender shall be liable to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent or any of its directors, officers, employees 75 or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and its directors, employees and agents, in each case, to the same extent and subject to the same limitations as provided above for the Agents. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. Each of the parties hereto acknowledges and agrees that neither the Syndication Agent nor the Documentation Agent shall have any duties, responsibilities, obligations or liabilities, as such, hereunder or under the other Loan Documents. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax, as follows: (a) if to the Borrower or Holdings, to it at 3211 Jermantown Road, Suite 700, Fairfax, Virginia 22030-2801, Attention of Curtis L. Schehr, Esq. (Fax No. (703) 246-0629), with a copy to Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064, Attention of Carl L. Reisner, Esq. (Fax No. (212) 757-3990); (b) if to the Administrative Agent, to Credit Suisse First Boston, Eleven Madison Avenue, New York, New York 10010, Attention of David Dodd (Fax No. (212) 325-8304, with a copy to Credit Suisse First Boston, at Eleven Madison Avenue, New York, New York 10010, Attention of Matthew Carter (Fax No. (212) 325-8304); (c) if to the Collateral Agent, to Mellon Bank, N.A., 1901 Research Blvd., Room 201-0320, 6th Floor, Rockville, MD 20850, Attention of Leslie Grizzard (Fax No. (301) 309-3458); and (d) if to a Lender, to it at its address (or fax number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by fax or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this 76 Section 9.01. Any party may change its address for Notices by giving notice of such change to each party in accordance with this Section 9.01 SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower or Holdings herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. SECTION 9.03. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower, Holdings and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, Holdings, the Administrative Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate or Related Fund of such Lender, (x) the Borrower and the Administrative Agent (and, in the case of any assignment of a Revolving Credit Commitment, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed); provided, however, that the consent of the Borrower shall not be required to any such assignment during the continuance of any Event of Default described in subsection (g) or (h) of Article VII, and (y) the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $2,500,000 (or, if less, the entire remaining amount of such Lender's Commitment) or such lesser amount as the Borrower and the Administrative Agent may from time to time agree (such agreement to be conclusively evidenced by the execution of the related Assignment and Acceptance by all the parties thereto), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together 77 (except in the case of any assignment to an Affiliate or a Related Fund) with a processing and recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrower, the Administrative Agent, the Issuing Bank, 78 the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower, the Swingline Lender, the Issuing Bank and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders and the Issuing Bank. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). (f) Each Lender may without the consent of the Borrower, the Swingline Lender, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 and shall be bound by the confidentiality provisions contained in Section 9.16 to the same extent as if they were Lenders and (iv) the Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans, increasing or extending the Commitments or releasing all or substantially all the Guarantors or the Collateral). All amounts payable by the Borrower to any Lender hereunder in respect of any Loan and the applicability of the cost protection provisions contained in Section 2.14, 2.16 and 2.20 shall be determined as if such Lender had not sold or agreed to sell any participation in such Loan, and as if such Lender were funding the participated portion of such Loan the same way that it is funding the portion of such Loan in which no participation has been sold. (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16. 79 (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. (i) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefore, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. (j) Neither Holdings nor the Borrower shall assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void. (k) In the event that Standard & Poor's Ratings Group, Moody's Investors Service, Inc., and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender becomes a Revolving Credit Lender, downgrade the long-term certificate deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have the right, but not the obligation, at its own expense, upon notice to such Lender and the Administrative Agent, to replace (or to request the Borrower to use its reasonable efforts to replace) such Lender with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Revolving Credit 80 Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION 9.05. Expenses; Indemnity. (a) The Borrower and Holdings agree, jointly and severally, to pay all out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, the Issuing Bank and the Swingline Lender in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent, and, in connection with any such enforcement or protection, the fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent or any Lender. (b) The Borrower and Holdings agree, jointly and severally, to indemnify the Administrative Agent, the Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, officers, trustees, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor. SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, except to 81 the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower or Holdings against any of and all the obligations of the Borrower or Holdings now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9.06 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower or Holdings in any case shall entitle the Borrower or Holdings to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower, Holdings and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement, without the prior written consent of each Lender affected thereby, (ii) decrease other than on a pro rata basis or increase or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender, (iii) amend or modify the pro rata requirements of Section 2.17, the provisions of Section 9.04(i), the provisions of this Section, the definition of the term "Required Lenders" or release any Guarantor (other than pursuant to a permitted sale or liquidation of a Subsidiary Guarantor) or all or any substantial part of the Collateral, without the prior written 82 consent of each Lender, (iv) amend or modify the protections afforded to an SPC pursuant to the provisions of Section 9.04(i) without the written consent of such SPC or (v) increase the advance rates set forth in the definition of the term "Borrowing Base" in Section 1.01 or change the definition of the term "Eligible Billed Borrowing Base Receivables", "Eligible Unbilled Borrowing Base Receivables" or "Eligible Margin Stock Amount" without the prior written consent of the Supermajority Lenders; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, respectively. Notwithstanding the foregoing, if the Borrower shall request the release of any Collateral to be sold as part of any Asset Sale permitted under Section 6.05 and shall deliver to the Collateral Agent a certificate to the effect that such Asset Sale and the disposition of the proceeds thereof will comply with the terms of this Agreement, the Collateral Agent, if satisfied that the applicable certificate is correct, shall and is hereby authorized to, without the consent of any Lender, execute and deliver all such instruments as may be required to effect the release of such Collateral. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN 83 DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforce able provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each of Holdings and the Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in the Borough of Manhattan in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower, Holdings or their respective properties in the courts of any jurisdiction. (b) Each of Holdings and the Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any such New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 84 SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and to use its reasonable best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to a potential assignee or participant of such Lender or any direct or indirect contractual counterparty in any swap agreement relating to the Loans or such potential assignee's or participant's or counterparty's advisors who need to know such Information (provided that any such potential assignee or participant or counterparty shall, and shall use its reasonable best efforts to cause its advisors to, keep confidential all such Information on the terms set forth in this Section 9.16), (c) to the extent requested by any regulatory authority, (d) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (e) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (f) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from a source other than the Borrower or Holdings. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) that are received from the Borrower or Holdings and related to the Borrower or Holdings, any shareholder of the Borrower or Holdings or any employee, customer or supplier of the Borrower or Holdings, other than any of the foregoing that were available to the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrower or Holdings, and which are in the case of Information provided after the date hereof, clearly identified at the time of delivery as confidential or of such a nature that a prudent person would expect such Information to be confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration and term of this Agreement. 85 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ANTEON CORPORATION, by _________________________ Name: Title: 86 CREDIT SUISSE FIRST BOSTON, individually and as Administrative Agent and Issuing Bank, by _________________________ Name: Title: by: ________________________ Name: Title: 87 MELLON BANK, N.A., individually and as Collateral Agent, Swingline Lender and Syndication Agent, by _________________________ Name: Title 88 DEUTSCHE BANK AG, New York and/or Cayman Islands Branches, individually and as Documentation Agent, by _________________________ Name: Title: by _________________________ Name: Title: 89 THE BANK OF NOVA SCOTIA, by _________________________ Name: Title: 90 BANK POLSKA KASA OPIEKI S.A., PEKAO S.A. GROUP, New York Branch, by _________________________ Name: Title: 91 FLEET NATIONAL BANK, by _________________________ Name: Title: 92 GREEN TREE FINANCIAL SERVICING CORP., by _________________________ Name: Title: 93 IBM CREDIT CORPORATION, by _________________________ Name: Title: 94 TRANSAMERICA BUSINESS CREDIT CORPORATION, by _________________________ Name: Title: EX-10.5 12 PLEDGE AGREEMENT Exhibit 10.5 PLEDGE AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), AZIMUTH TECHNOLOGIES, INC., a Delaware corporation ("AZIMUTH"), each Subsidiary of the Borrower listed on Schedule I hereto (each such Subsidiary individually a "SUBSIDIARY PLEDGOR" and collectively, the "SUBSIDIARY PLEDGORS"; the Borrower, Azimuth and the Subsidiary Pledgors are referred to collectively herein as the "PLEDGORS") and MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AGREEMENT") among the Subsidiary Pledgors and the Collateral Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Lenders have agreed to make Loans to the Borrower and the Issuing Bank has agreed to issue Letters of Credit for the account of the Borrower, in each case pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The Subsidiary Guarantors have agreed to guarantee, among other things, all the obligations of the Borrower under the Credit Agreement. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Pledgors of a Pledge Agreement in the form hereof to secure (a) the due and punctual payment by the Borrower of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under this Agreement, the Credit Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to this Agreement, the Credit Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each Loan Party under or pursuant to this Agreement and the other Loan Documents, (d) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower, monetary or otherwise, under each Hedging Agreement entered into with (i) Mellon, pursuant to a Master Agreement for Swaps dated May 6, 1998, between 2 the Borrower and Mellon and (ii) any counterparty that was a Lender (or an Affiliate of a Lender) at the time such Hedging Agreement was entered into and (e) the due and punctual payment and performance of all obligations of any Loan Party in respect of (i) overdrafts and related liabilities incurred in the ordinary course of business owed to Mellon or any of its Affiliates and arising from treasury, depository and cash management services or in connection with any automated clearing house transfers of funds and (ii) indebtedness to Mellon in connection with purchase cards issued by Mellon in an aggregate amount not to exceed $500,000 (all the monetary and other obligations referred to in the preceding lettered clauses of this paragraph being referred to collectively as the "OBLIGATIONS"). Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and each Secured Party (and each of their respective successors or assigns), hereby agree as follows: SECTION 1. PLEDGE. As security for the payment and performance, as the case may be, in full of the Obligations, each Pledgor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the Collateral Agent, its successors and assigns, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a security interest in all of the Pledgor's right, title and interest in, to and under (a) Equity Interests owned by it and listed on Schedule II hereto and any Equity Interests of the Borrower or any Subsidiary (other than any Inactive Subsidiary) obtained in the future by the Pledgor and the certificates representing all such Equity Interests (the "PLEDGED STOCK"); PROVIDED that the Pledged Stock shall not include (i) more than 65% of the issued and outstanding shares of voting capital stock and 100% of the issued and outstanding shares of nonvoting capital stock (if any) of any Foreign Subsidiary, (ii) to the extent that applicable law requires that a Subsidiary of the Pledgor issue directors' qualifying shares, such qualifying shares or (iii) the shares of capital stock of any Foreign Subsidiary with total assets of less than $500,000; (b)(i) the debt securities listed opposite the name of the Pledgor on Schedule II hereto, (ii) any debt securities in the future issued to any Pledgor (other than Azimuth) and (iii) the promissory notes and any other instruments evidencing such debt securities (the "PLEDGED DEBT SECURITIES"); (c) all other property that may be delivered to and held by the Collateral Agent pursuant to the terms hereof; (d) subject to Section 5, all payments of principal or interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed, in respect of, in exchange for or upon the conversion of the securities referred to in clauses (a) and (b) above; (e) subject to Section 5, all rights and privileges of the Pledgor with respect to the securities and other property referred to in clauses (a), (b), (c) and (d) above; and (f) all proceeds of any of the foregoing (the items referred to in clauses (a) through (f) above being collectively referred to as the "COLLATERAL"). Upon delivery to the Collateral Agent, (a) any stock certificates, notes or other securities now or hereafter included in the Collateral (the "PLEDGED SECURITIES") shall be accompanied by stock powers duly executed in blank or other instruments of transfer satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (b) all other property comprising part of the Collateral shall be accompanied by proper instruments of assignment duly executed by the applicable Pledgor and such other instruments or documents as the Collateral Agent may reasonably request. Each delivery of Pledged Securities shall be accompanied by a schedule describing the securities theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule II and made a part hereof. Each schedule so delivered shall supersede any prior schedules so delivered. TO HAVE AND TO HOLD the Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, 3 its successors and assigns, for the ratable benefit of the Secured Parties, forever; SUBJECT, HOWEVER, to the terms, covenants and conditions hereinafter set forth. SECTION 2. DELIVERY OF THE COLLATERAL. (a) Each Pledgor agrees promptly to deliver or cause to be delivered to the Collateral Agent any and all Pledged Securities, and any and all certificates or other instruments or documents representing the Collateral. (b) Each Pledgor (other than Azimuth) will cause any Indebtedness for borrowed money owed to the Pledgor by any person in excess of $200,000 to be evidenced by a duly executed promissory note that is pledged and delivered to the Collateral Agent pursuant to the terms thereof. SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Pledgor hereby represents, warrants and covenants, as to itself and the Collateral pledged by it hereunder, to and with the Collateral Agent that: (a) the Pledged Stock represents that percentage as set forth on Schedule II of the issued and outstanding shares of each class of the capital stock of the issuer with respect thereto; (b) except for the security interest granted hereunder, the Pledgor (i) is and will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule II, (ii) holds the same free and clear of all Liens, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Collateral, other than pursuant hereto, and (iv) subject to Section 5, will cause any and all Collateral, whether for value paid by the Pledgor or otherwise, to be forthwith deposited with the Collateral Agent and pledged or assigned hereunder; (c) the Pledgor (i) has the power and authority to pledge the Collateral in the manner hereby done or contemplated and (ii) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Agreement), however arising, of all persons whomsoever; (d) no consent of any other person (including stockholders or creditors of any Pledgor) and no consent or approval of any Governmental Authority or any securities exchange was or is necessary to the validity of the pledge effected hereby; (e) by virtue of the execution and delivery by the Pledgors of this Agreement, when the Pledged Securities, certificates or other documents representing or evidencing the Collateral are delivered to the Collateral Agent in accordance with this Agreement, the Collateral Agent will obtain a valid and perfected first lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations; (f) the pledge effected hereby is effective to vest in the Collateral Agent, on behalf of the Secured Parties, the rights of the Collateral Agent in the Collateral as set forth herein; (g) all of the Pledged Stock has been duly authorized and validly issued and is fully paid and nonassessable; 4 (h) all information set forth herein relating to the Pledged Stock is accurate and complete in all material respects as of the date hereof; and (i) the pledge of the Pledged Stock pursuant to this Agreement does not violate Regulation T, U or X of the Federal Reserve Board or any successor thereto as of the date hereof. SECTION 4. COVENANTS OF AZIMUTH. Azimuth covenants that it will not: (a) engage in any business activities or have any assets or liabilities, other than (i) its ownership of the Equity Interests of the Borrower and liabilities incidental thereto, including its liabilities pursuant to this Agreement, (ii) its obligations pursuant to (A) the Seller Purchase Money Note, (B) the Investor Notes, (C) the Holdings Convertible Notes and (D) additional indebtedness to any Permitted Investor and (iii) its employment of members of its management. (b) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Senior Subordinated Notes, the Seller Purchase Money Note or the Investor Notes. SECTION 5. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. The Collateral Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) upon the occurrence and during the continuance of a Default or an Event of Default, to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent. If a Default or an Event of Default shall have occurred and be continuing, each Pledgor will promptly give to the Collateral Agent copies of any notices or other communications received by it with respect to Pledged Securities registered in the name of such Pledgor. The Collateral Agent shall at all times have the right to exchange the certificates representing Pledged Securities for certificates of smaller or larger denominations for any purpose consistent with this Agreement. SECTION 6. VOTING RIGHTS; DIVIDENDS AND INTEREST, ETC. (a) Unless and until an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given the Pledgors notice of its intent to exercise its rights under this Agreement: (i) Each Pledgor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof for any purpose consistent with the terms of this Agreement, the Credit Agreement and the other Loan Documents; PROVIDED, HOWEVER, that such Pledgor will not be entitled to exercise any such right if the result thereof could materially and adversely affect the rights inuring to a holder of the Pledged Securities or the rights and remedies of any of the Secured Parties under this Agreement or the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same. (ii) The Collateral Agent shall execute and deliver to each Pledgor, or cause to be executed and delivered to each Pledgor, all such proxies, powers of attorney and other instruments as such Pledgor may reasonably request for the purpose of enabling 5 such Pledgor to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above and to receive the dividends it is entitled to receive pursuant to subparagraph (iii) below. (iii) Each Pledgor shall be entitled to receive and retain any and all cash dividends, interest and principal paid on the Pledged Securities to the extent and only to the extent that such cash dividends, interest and principal are permitted by, and otherwise paid in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws. All noncash dividends, interest and principal, and all dividends, interest and principal paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, return of capital, capital surplus or paid-in surplus, and all other distributions (other than distributions referred to in the preceding sentence) made on or in respect of the Pledged Securities, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Collateral, and, if received by any Pledgor, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement). This paragraph (iii) shall not apply to dividends among the Subsidiaries only of property subject to a perfected security interest under the Security Agreement; PROVIDED THAT the Borrower notifies the Collateral Agent in writing, specifically referring to this Section 6, at the time of such dividend and takes any actions the Collateral Agent reasonably specifies to ensure the continuance of its perfected security interest in such property under the Security Agreement. (b) Upon the occurrence and during the continuance of an Event of Default and the giving by the Collateral Agent of a notice of its intention to exercise its remedies, all rights of any Pledgor to dividends, interest or principal that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest or principal. All dividends, interest or principal received by the Pledgor contrary to the provisions of this Section 6 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Collateral Agent upon demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 8. After all Events of Default have been cured or waived, the Collateral Agent shall, within five Business Days after all such Events of Default have been cured or waived, repay to each Pledgor all cash dividends, interest or principal (without interest), that such Pledgor would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) above and which remain in such account. (c) Upon the occurrence and during the continuance of an Event of Default and the giving by the Collateral Agent of a notice of its intention to exercise its remedies, all rights 6 of any Pledgor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 6, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 6, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers, PROVIDED THAT, unless otherwise directed by the Required Lenders, the Collateral Agent shall have the right from time to time following and during the continuance of an Event of Default to permit the Pledgors to exercise such rights. After all Events of Default have been cured or waived, such Pledgor will have the right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of paragraph (a)(i) above. SECTION 7. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of an Event of Default, subject to applicable regulatory and legal requirements, the Collateral Agent may sell the Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Pledgor, and, to the extent permitted by applicable law, the Pledgors hereby waive all rights of redemption, stay, valuation and appraisal any Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall give a Pledgor 10 days' prior written notice (which each Pledgor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions or successor versions of such Uniform Commercial Code) of the Collateral Agent's intention to make any sale of such Pledgor's Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid in full by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this 7 Section 7, any Secured Party may bid for or purchase, free from any right of redemption, stay or appraisal on the part of any Pledgor (all said rights being also hereby waived and released), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to it from such Pledgor as a credit against the purchase price, and it may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Pledgor therefor. For purposes hereof, (a) a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant to such agreement and (c) such Pledgor shall not be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Collateral and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Section 6 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions. SECTION 8. APPLICATION OF PROCEEDS OF SALE. The proceeds of any sale, foreclosure or other realization upon any Collateral pursuant to Section 7, as well as any Collateral consisting of cash, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs and expenses incurred by the Administrative Agent or the Collateral Agent (in its capacity as such hereunder or under any other Loan Document) in connection with such sale, foreclosure or realization or otherwise in connection with this Agreement, any other Loan Document or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any other Loan Document on behalf of any Pledgor and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document; SECOND, to the payment in full of the Obligations (the amounts so applied to be distributed among the Secured Parties pro rata in accordance with the amounts of the Obligations owed to them on the date of any such distribution); and THIRD, to the Pledgors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Administrative Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. 8 SECTION 9. REIMBURSEMENT OF COLLATERAL AGENT. (a) Each Pledgor agrees to pay upon demand to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees, other charges and disbursements of its counsel and of any experts or agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collec tion from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or observe any of the provisions hereof. (b) Without limitation of its indemnification obligations under the other Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and the Indemnitees (as defined in Section 9.05 of the Credit Agreement) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, other charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby or (ii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of any Indemnitee. (c) Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section 9 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Loan Document, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or any investigation made by or on behalf of the Collateral Agent or any other Secured Party. All amounts due under this Section 9 shall be payable on written demand therefor and shall bear interest at the rate specified in Section 2.06 of the Credit Agreement. SECTION 10. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each Pledgor hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent's name or in the name of such Pledgor, to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to the Pledgor representing any interest or dividend or other distribution payable in respect of the Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and to make any agreement respecting, or otherwise deal with, the same; PROVIDED, HOWEVER, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent 9 to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby. The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to any Pledgor for any act or failure to act hereunder, except for their own gross negligence or wilful misconduct. The Collateral Agent agrees not to exercise the power of attorney provided for in this Section 10 unless a Default or Event of Default shall have occurred and be continuing. SECTION 11. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or consent to any departure by any Pledgor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Pledgor in any case shall entitle such Pledgor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Collateral Agent and the Pledgor or Pledgors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 9.08 of the Credit Agreement. SECTION 12. SECURITIES ACT, ETC. In view of the position of the Pledgors in relation to the Pledged Securities, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the "FEDERAL SECURITIES LAWS") with respect to any disposition of the Pledged Securities permitted hereunder. Each Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Securities, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Securities under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Each Pledgor recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Securities, limit the purchasers to those who will agree, among other things, to acquire such Pledged Securities for their own account, for investment, and not with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion, (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential 10 purchaser to effect such sale. Each Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section 12 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells. SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent hereunder, the grant of a security interest in the Collateral and all obligations of each Pledgor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument relating to any of the foregoing, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Pledgor in respect of the Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Obligations). SECTION 14. TERMINATION OR RELEASE. (a) This Agreement and the security interests granted hereby shall terminate when all the Obligations (other than wholly contingent indemnification obligations) then due and owing have been indefeasibly paid in full and the Lenders have no further commitment to lend under the Credit Agreement, the L/C Exposure has been reduced to zero and the Issuing Bank has no further obligation to issue Letters of Credit under the Credit Agreement. (b) Upon any sale or other transfer by any Pledgor of any Collateral that is permitted under the Credit Agreement to any person that is not a Pledgor, or, upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.08(b) of the Credit Agreement, the security interest in such Collateral shall be automatically released. (c) In connection with any termination or release pursuant to paragraph (a) or (b), the Collateral Agent shall execute and deliver to any Pledgor, at such Pledgor's expense, all documents that such Pledgor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 14 shall be without recourse to or warranty by the Collateral Agent. SECTION 15. NOTICES. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Subsidiary Pledgor shall be given to it in care of the Borrower. 11 SECTION 16. FURTHER ASSURANCES. Each Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Collateral or any part thereof or in order better to assure and confirm unto the Collateral Agent its rights and remedies hereunder. SECTION 17. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Pledgor that are contained in this Agreement shall bind and inure to the benefit of its successors and assigns. This Agreement shall become effective as to any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Pledgor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Pledgor, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Pledgor shall have the right to assign its rights hereunder or any interest herein or in the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Agreement or the other Loan Documents. If all of the capital stock of a Pledgor is sold, transferred or otherwise disposed of to a person that is not an Affiliate of the Borrower pursuant to a transaction permitted by Section 6.05 of the Credit Agreement, such Pledgor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Pledgor and may be amended, modified, supplemented, waived or released with respect to any Pledgor without the approval of any other Pledgor and without affecting the obligations of any other Pledgor hereunder. SECTION 18. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by each Pledgor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit by the Issuing Bank, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments and the L/C Commitments have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 12 SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 20. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute a single contract, and shall become effective as provided in Section 18. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 21. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting this Agreement. SECTION 22. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Pledgor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Pledgor or its properties in the courts of any jurisdiction. (b) Each Pledgor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 15. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT 13 SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 24. ADDITIONAL PLEDGORS. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence or not a Domestic Subsidiary on the date of the Credit Agreement is required to enter in this Agreement as a Subsidiary Pledgor upon becoming a Domestic Subsidiary (or ceasing to be an Inactive Subsidiary) if such Domestic Subsidiary owns or possesses property of a type that would be considered Collateral hereunder. Upon execution and delivery by the Collateral Agent and a Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Subsidiary Pledgor hereunder with the same force and effect as if originally named as a Subsidiary Pledgor herein. The execution and delivery of such instrument shall not require the consent of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Pledgor as a party to this Agreement. SECTION 25. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions, each Pledgor authorizes the Collateral Agent to file financing statements with respect to the Collateral owned by it without the signature of such Pledgor in such form and in such filing offices as the Collateral Agent reasonably determines appropriate to perfect the security interests of the Collateral Agent under this Agreement. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. 14 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ANTEON CORPORATION, by: ---------------------- Name: Title: ANALYSIS & TECHNOLOGY, INC., by: ---------------------- Name: Title: INTERACTIVE MEDIA CORP., by: ---------------------- Name: Title: TECHMATICS, INC., by: ---------------------- Name: Title: VECTOR DATA SYSTEMS, INC., by: ---------------------- Name: Title: 15 AZIMUTH TECHNOLOGIES, INC., by: ---------------------- Name: Title: 16 MELLON BANK, N.A., as Collateral Agent, by: ---------------------- Name: Title: Schedule I to the Pledge Agreement SUBSIDIARY PLEDGORS Name - ---- Analysis & Technology, Inc. Interactive Media Corp. Techmatics, Inc. Vector Data Systems, Inc. Schedule II to the Pledge Agreement EQUITY INTERESTS Number of Registered Number and Class Percentage of Issuer Certificate Owner of Shares Shares - ------ ----------- ----- --------- ------ DEBT SECURITIES Principal Issuer Amount Date of Note Maturity Date - ------ ------ ------------ ------------- Annex 1 to the Pledge Agreement SUPPLEMENT NO. dated as of , to the PLEDGE AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), AZIMUTH TECHNOLOGIES, INC., a Delaware corporation ("AZIMUTH") and each subsidiary of the Borrower listed on Schedule I hereto (each such subsidiary individually a "SUBSIDIARY PLEDGOR" and collectively, the "SUBSIDIARY PLEDGORS"; the Borrower, Azimuth and Subsidiary Pledgors are referred to collectively herein as the "PLEDGORS") and MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below) A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AGREEMENT") among the Subsidiary Pledgors and the Collateral Agent. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. C. The Pledgors have entered into the Pledge Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence or not a Domestic Subsidiary on the date of the Credit Agreement is required to enter into the Pledge Agreement as a Subsidiary Pledgor upon becoming a Domestic Subsidiary (or ceasing to be an Inactive Subsidiary) if such Domestic Subsidiary owns or possesses property of a type that would be considered Collateral under the Pledge Agreement. Section 24 of the Pledge Agreement provides that such Domestic Subsidiaries may become Subsidiary Pledgors under the Pledge Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Domestic Subsidiary (the "NEW PLEDGOR") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Subsidiary Pledgor under the Pledge Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Pledgor agree as follows: SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with the same force and effect as if originally named therein as a Pledgor and the New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge Agreement applicable to it as a Pledgor thereunder and (b) represents and warrants that the representations and warranties made by it as a Pledgor thereunder are true and correct on and as of the date 2 hereof. In furtherance of the foregoing, the New Pledgor, as security for the payment and performance in full of the Obligations (as defined in the Pledge Agreement), does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Pledgor's right, title and interest in and to the Collateral (as defined in the Pledge Agreement) of the New Pledgor. Each reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement shall be deemed to include the New Pledgor. The Pledge Agreement is hereby incorporated herein by reference. SECTION 2. The New Pledgor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Pledgor and the Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. The New Pledgor hereby represents and warrants that set forth on Schedule I attached hereto is a true and correct schedule of all its Pledged Securities. SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect. SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Pledge Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 16 of the Pledge Agreement. All communications and notices hereunder to the New Pledgor shall be given to it in care of the Borrower. SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reason able fees, other charges and disbursements of counsel for the Collateral Agent. 3 IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly executed this Supplement to the Pledge Agreement as of the day and year first above written. [Name of New Pledgor], by: -------------------------- Name: Title: Address: MELLON BANK, N.A., as Collateral Agent, by: -------------------------- Name: Title: Schedule I to Supplement No. to the Pledge Agreement PLEDGED SECURITIES OF THE NEW PLEDGOR EQUITY INTERESTS Number of Registered Number and Class Percentage of Issuer Certificate Owner of Shares Shares - ------ ----------- ----- --------- ------ DEBT SECURITIES Principal Issuer Amount Date of Note Maturity Date - ------ ------ ------------ ------------- EX-10.6 13 INDEMNITY Exhibit 10.6 INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), each Subsidiary of the Borrower listed on Schedule I hereto (the "GUARANTORS") and MELLON BANK, N.A., a national banking association, ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999, among the Guarantors and the Collateral Agent (the "GUARANTEE AGREEMENT"). Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank has agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The Guarantors have guaranteed such Loans and the other Obligations (as defined in the Guarantee Agreement) of the Borrower under the Credit Agreement pursuant to the Guarantee Agreement and certain Guarantors have granted Liens on and security interests in certain of their assets to secure such guarantees. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Borrower and the Guarantors of an agreement in the form hereof. Accordingly, the Borrower, each Guarantor and the Collateral Agent agree as follows: SECTION 1. INDEMNITY AND SUBROGATION. In addition to all such rights of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 3), the Borrower agrees that (a) in the event a payment shall be made by any Guarantor under the Guarantee Agreement, the Borrower shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Guarantor shall be sold pursuant to any Security Document to satisfy a claim of any Secured Party, the Borrower shall indemnify such Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. SECTION 2. CONTRIBUTION AND SUBROGATION. Each Guarantor (a "CONTRIBUTING GUARANTOR") agrees (subject to Section 3) that, in the event a payment shall be made by any other Guarantor under the Guarantee Agreement or assets of any other Guarantor shall be sold pursuant to any Security Document to satisfy a claim of any Secured Party and such other Guarantor (the "CLAIMING GUARANTOR") shall not have been fully indemnified by the Borrower as provided in Section 1, the Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment or the greater of the book value 2 or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 12, the date of the Supplement hereto executed and delivered by such Guarantor). Any Contributing Guarantor making any payment to a Claiming Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Guarantor under Section 1 to the extent of such payment. SECTION 3. SUBORDINATION. Notwithstanding any provision of this Agreement to the contrary, all rights of the Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full in cash of the Obligations. No failure on the part of the Borrower or any Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Guarantor with respect to its obligations hereunder, and each Guarantor shall remain liable for the full amount of the obligations of such Guarantor hereunder. SECTION 4. TERMINATION. This Agreement shall survive and be in full force and effect so long as any Obligation is outstanding and has not been indefeasibly paid in full in cash, and so long as the L/C Exposure has not been reduced to zero or any of the Commit ments under the Credit Agreement have not been terminated, and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor or other wise. SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. NO WAIVER; AMENDMENT. (a) No failure on the part of the Collateral Agent or any Guarantor to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Collateral Agent or any Guarantor preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. None of the Collateral Agent and the Guarantors shall be deemed to have waived any rights here under unless such waiver shall be in writing and signed by such parties. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Borrower, the Guarantors and the Collateral Agent, with the prior written consent of the Required Lenders (except as otherwise provided in the Credit Agreement). SECTION 7. NOTICES. All communications and notices hereunder shall be in writing and given as provided in the Guarantee Agreement and addressed as specified therein. 3 SECTION 8. BINDING AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the parties that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Neither the Borrower nor any Guarantor may assign or transfer any of its rights or obligations hereunder (and any such attempted assignment or transfer shall be void) without the prior written consent of the Required Lenders. Notwithstanding the foregoing, at the time any Guarantor is released from its obligations under the Guarantee Agreement in accordance with such Guarantee Agreement and the Credit Agreement, such Guarantor will cease to have any rights or obligations under this Agreement. SECTION 9. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants and agreements made by the Borrower and each Guarantor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or the other Loan Documents shall be considered to have been relied upon by the Collateral Agent, the other Secured Parties and each Guarantor and shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit by the Issuing Bank, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loans or any other fee or amount payable under the Credit Agreement or this Agreement or under any of the other Loan Documents is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments have not been terminated. (b) In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10. COUNTERPARTS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agree ment shall be effective with respect to any Guarantor when a counterpart bearing the signature of such Guarantor shall have been delivered to the Collateral Agent. Delivery of an executed signature page to this Agreement by fax transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 11. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 12. ADDITIONAL GUARANTORS. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence or not such a Subsidiary on the date of the Credit Agreement is required to enter into the Guarantee Agreement as a Guarantor upon becoming such a Subsidiary (or ceasing to be an Inactive Subsidiary). Upon execution and delivery, after the date hereof, by the Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary shall become a Guarantor hereunder with the same force 4 and effect as if originally named as a Guarantor hereunder. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require the consent of any Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date first appearing above. ANTEON CORPORATION, by: ----------------------- Name: Title: ANALYSIS & TECHNOLOGY, INC., by: ----------------------- Name: Title: INTERACTIVE MEDIA CORP., by: ----------------------- Name: Title: TECHMATICS, INC., by: ----------------------- Name: Title: VECTOR DATA SYSTEMS, INC., by: ----------------------- Name: Title: MELLON BANK, N.A., as Collateral Agent, by: ----------------------- Name: Title: SCHEDULE I to the Indemnity Subrogation and Contribution Agreement GUARANTORS Name - ---- Analysis & Technology, Inc. Interactive Media Corp. Techmatics, Inc. Vector Data Systems, Inc. Annex 1 to the Indemnity, Subrogation and Contribution Agreement SUPPLEMENT NO. dated as of [ ], to the Indemnity, Subrogation and Contribution Agreement dated as of June 23, 1999 (as the same may be amended, supplemented or otherwise modified from time to time, the "INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT"), among ANTEON CORPORATION, a Virginia corporation (the "BORROWER") each Subsidiary of the Borrower listed on Schedule I thereto (the "GUARANTORS"), and MELLON BANK, N.A., an national banking association, ("MELLON"), as collateral agent (the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank A.G., as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999, among the Guarantors and the Collateral Agent (the "GUARANTEE AGREEMENT"). B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Indemnity, Subrogation and Contribution Agreement and the Credit Agreement. C. The Borrower and the Guarantors have entered into the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence or not such a Subsidiary on the date of the Credit Agreement is required to enter into the Guarantee Agreement as a Guarantor upon becoming a Domestic Subsidiary (or ceasing to be an Inactive Subsidiary). Section 12 of the Indemnity, Subrogation and Contribution Agreement provides that additional Subsidiaries of the Borrower may become Guarantors under the Indemnity, Subrogation and Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "NEW GUARANTOR") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 12 of the Indemnity, Subrogation and Contribution Agreement, the New Guarantor by its signature below becomes a Guarantor under the Indemnity, Subrogation and Contribution Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby agrees to all the terms and provisions of the Indemnity, Subrogation and Contribution Agreement applicable to it as a Guarantor thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and Contribution Agreement shall be deemed to include the New Guarantor. The Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein by reference. 2 SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. Delivery of an executed signature page to this Supplement by fax transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Indemnity, Subrogation and Contribution Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Indemnity, Subrogation and Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Indemnity, Subrogation and Contribution Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. 3 IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Indemnity, Subrogation and Contribution Agreement as of the day and year first above written. [Name Of New Guarantor], by: -------------------------- Name: Title: Address: MELLON BANK, N.A., as Collateral Agent, by: -------------------------- Name: Title: SCHEDULE I to Supplement No.___ to the Indemnity Subrogation and Contribution Agreement GUARANTORS Name - ---- EX-10.7 14 SUBSIDIARY GUARANTEE AGREEMENT Exhibit 10.7 SUBSIDIARY GUARANTEE AGREEMENT dated as of June 23, 1999, among each of the subsidiaries listed on Schedule I hereto (each such subsidiary individually, a "GUARANTOR" and collectively, the "GUARANTORS") of ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), and MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below). Reference is made to the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank A.G., as documentation agent. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank has agreed to issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Guarantors is a Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing Bank. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Guarantors of a Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit, the Guarantors are willing to execute this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. GUARANTEE. Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under this Agreement, the Credit Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to this Agreement, the Credit Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each Loan 2 Party under or pursuant to this Agreement and the other Loan Documents, (d) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower, monetary or otherwise, under each Hedging Agreement entered into with (i) Mellon, pursuant to a Master Agreement for Swaps dated May 6, 1998, between the Borrower and Mellon and (ii) any counterparty that was a Lender (or an Affiliate of a Lender) at the time such Hedging Agreement was entered into and (e) the due and punctual payment and performance of all obligations of any Loan Party in respect of (i) overdrafts and related liabilities incurred in the ordinary course of business owed to Mellon or any of its Affiliates and arising from treasury, depository and cash management services or in connection with any automated clearing house transfers of funds and (ii) indebtedness to Mellon in connection with purchase cards issued by Mellon in an aggregate amount not to exceed $500,000 (all the monetary and other obligations referred to in the preceding lettered clauses of this paragraph being referred to collectively as the "OBLIGATIONS"). SECTION 2. OBLIGATIONS NOT WAIVED. To the fullest extent permitted by applicable law, each Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (a) the failure of the Collateral Agent or any other Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Guarantor under the provisions of the Credit Agreement, any other Loan Document or otherwise, (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of this Agreement, any other Loan Document, any Guarantee or any other agreement, including with respect to any other Guarantor under this Agreement or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Collateral Agent or any other Secured Party. SECTION 3. SECURITY. Each of the Guarantors authorizes the Collateral Agent to (a) take and hold security for the payment of this Guarantee and the Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as it in its sole discretion may determine and (c) release or substitute any one or more endorsees, other guarantors or other obligors. SECTION 4. GUARANTEE OF PAYMENT. Each Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Collateral Agent or any other Secured Party to any of the security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Collateral Agent or any other Secured Party in favor of the Borrower or any other person. SECTION 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense (other than a defense of payment) or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Collateral Agent or any 3 other Secured Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of each Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations). SECTION 6. DEFENSES OF BORROWER WAIVED. To the fullest extent permitted by applicable law, each of the Guarantors waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Obligations. The Collateral Agent and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each of the Guarantors waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other Guarantor or guarantor, as the case may be, or any security. SECTION 7. AGREEMENT TO PAY; SUBORDINATION. In furtherance of the foregoing and not in limitation of any other right that the Collateral Agent or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Collateral Agent or such other Secured Party as designated thereby in cash the amount of such unpaid Obligations. Upon payment by any Guarantor of any sums to the Collateral Agent or any Secured Party as provided above, all rights of such Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior payment in full of the Obligations. If any amount shall erroneously be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Collateral Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. SECTION 8. INFORMATION. Each of the Guarantors assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, 4 and agrees that none of the Collateral Agent or the other Secured Parties will have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 9. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Credit Agreement are true and correct. SECTION 10. TERMINATION. The Guarantees made hereunder (a) shall terminate when all the Obligations (other than wholly contingent indemnification obligations) then due and owing have been indefeasibly paid in full and the Lenders have no further commitment to lend under the Credit Agreement, the L/C Exposure has been reduced to zero and the Issuing Bank has no further obligation to issue Letters of Credit under the Credit Agreement and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor or otherwise. SECTION 11. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Guarantors that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to any Guarantor when a counterpart hereof executed on behalf of such Guarantor shall have been delivered to the Collateral Agent, and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Guarantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Guarantor, the Collateral Agent and the other Secured Parties, and their respective successors and assigns, except that no Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Guarantor is sold, transferred or otherwise disposed of pursuant to a transaction permitted by Section 6.05 of the Credit Agreement, such Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Guarantor and may be amended, modified, supplemented, waived or released with respect to any Guarantor without the approval of any other Guarantor and without affecting the obligations of any other Guarantor hereunder. SECTION 12. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or 5 demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Guarantors with respect to which such waiver, amendment or modification relates and the Collateral Agent, with the prior written consent of the Required Lenders (except as otherwise provided in the Credit Agreement). SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 14. NOTICES. All communications and notices hereunder shall be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to each Guarantor shall be given to it in care of the Borrower. SECTION 15. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements, representations and warranties made by the Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit by the Issuing Bank regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the L/C Exposure does not equal zero and as long as the Commitments and the L/C Commitment have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 11. Delivery of an executed signature page to this Agreement by fax transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 17. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. SECTION 18. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the 6 nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Guarantor or its properties in the courts of any jurisdiction. (b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 14. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19. SECTION 20. ADDITIONAL GUARANTORS. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence on the date of the Credit Agreement is required to enter into this Agreement as a Guarantor upon becoming a Subsidiary (or ceasing to be an Inactive Subsidiary). Upon execution and delivery after the date hereof by the Collateral Agent and such Domestic Subsidiary of an instrument in the form of Annex 1, such Domestic Subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require 7 the consent of any other Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. SECTION 21. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Secured Party to or for the credit or the account of any Guarantor against any or all the obligations of such Guarantor now or hereafter existing under this Agreement and the other Loan Documents held by such Secured Party, irrespective of whether or not such Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Secured Party under this Section 21 are in addition to other rights and remedies (including other rights of setoff) which such Secured Party may have. 8 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ANALYSIS & TECHNOLOGY, INC., by: ---------------------------- Name: Title: INTERACTIVE MEDIA CORP., by: ---------------------------- Name: Title: TECHMATICS, INC., by: ---------------------------- Name: Title: VECTOR DATA SYSTEMS, INC., by: ---------------------------- Name: Title: 9 MELLON BANK, N.A., as Collateral Agent, by: ---------------------------- Name: Title: Schedule I to the Guarantee Agreement Guarantor --------- Analysis & Technology, Inc. Interactive Media Corp. Techmatics, Inc. Vector Data Systems, Inc. Annex 1 to the Subsidiary Guarantee Agreement SUPPLEMENT NO. dated as of , to the Subsidiary Guarantee Agreement dated as of June 23, 1999, among each of the subsidiaries listed on Schedule I thereto (each such subsidiary individually, a "GUARANTOR" and collectively, the "GUARANTORS") of ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), and MELLON BANK, N.A., a national banking association, as collateral agent (the "COLLATERAL AGENT") for the Secured Parties (as defined in the Credit Agreement referred to below). A. Reference is made to the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and as issuing bank, Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank AG, New York Branch, as documentation agent. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guarantee Agreement and the Credit Agreement. C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12 of the Credit Agreement, each Domestic Subsidiary of the Borrower (other than any Inactive Subsidiary) that was not in existence or not a Domestic Subsidiary on the date of the Credit Agreement is required to enter into the Guarantee Agreement as a Guarantor upon becoming a Domestic Subsidiary (or ceasing to be an Inactive Subsidiary). Section 20 of the Guarantee Agreement provides that additional Domestic Subsidiaries of the Borrower may become Guarantors under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Domestic Subsidiary of the Borrower (the "NEW GUARANTOR") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Guarantee Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Guarantor agree as follows: SECTION 1. In accordance with Section 20 of the Guarantee Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Guarantor" in the Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. 2 SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Collateral Agent. Delivery of an executed signature page to this Supplement by fax transmission shall be as effective as delivery of a manually executed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 14 of the Guarantee Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Collateral Agent. 3 IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written. [Name Of New Guarantor], by: ---------------------------- Name: Title: Address: MELLON BANK, N.A., as Collateral Agent, by: ---------------------------- Name: Title: EX-10.8 15 SECURITY AGREEMENT Exhibit 10.8 SECURITY AGREEMENT dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), each subsidiary of the Borrower listed on Schedule I hereto (each such subsidiary individually a "SUBSIDIARY GUARANTOR" and collectively, the "SUBSIDIARY GUARANTORS"; the Subsidiary Guarantors and the Borrower are referred to collectively herein as the "GRANTORS") and MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as defined herein). Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, a bank organized under the laws of Switzerland, acting through its New York branch ("CSFB"), as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as issuing bank (in such capacity, the "ISSUING BANK"), Mellon, as Collateral Agent, swingline lender and syndication agent, and Deutsche Bank AG, New York Branch, as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AGREEMENT"), among the Subsidiary Guarantors and the Collateral Agent. The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank has agreed to issue Letters of Credit for the account of the Borrower, in each case pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Subsidiary Guarantors has agreed to guarantee, among other things, all the obligations of the Borrower under the Credit Agreement. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Borrower of an agreement in the form hereof to secure, and the execution and delivery by the Subsidiary Guarantors of an agreement in the form hereof to secure their guarantees under the Guarantee Agreement of, (a) the due and punctual payment by the Borrower of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise 2 (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Borrower to the Secured Parties under this Agreement, the Credit Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Borrower under or pursuant to this Agreement, the Credit Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each Loan Party under or pursuant to this Agreement and the other Loan Documents, (d) unless otherwise agreed upon in writing by the applicable Lender party thereto, the due and punctual payment and performance of all obligations of the Borrower, monetary or otherwise, under each Hedging Agreement entered into with (i) Mellon, pursuant to a Master Agreement for Swaps dated May 6, 1998, between the Borrower and Mellon and (ii) any counterparty that was a Lender (or an affiliate of a Lender) at the time such Hedging Agreement was entered into and (e) the due and punctual payment and performance of all obligations of any Loan Party in respect of (i) overdrafts and related liabilities incurred in the ordinary course of business owed to Mellon or any of its Affiliates and arising from treasury, depository and cash management services or in connection with any automated clearing house transfers of funds and (ii) indebtedness to Mellon in connection with purchase cards issued by Mellon in an aggregate amount not to exceed $500,000 (all the monetary and other obligations referred to in the preceding lettered clauses of this paragraph being referred to collectively as the "OBLIGATIONS"). Accordingly, the Grantors and the Collateral Agent, on behalf of itself and each Secured Party (and each of their respective successors or assigns), hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITION OF TERMS USED HEREIN. Unless the context otherwise requires, all capitalized terms used but not defined herein shall have the meanings set forth in the Credit Agreement, and all references to the Uniform Commercial Code shall mean the Uniform Commercial Code in effect in the State of New York as of the date hereof. SECTION 1.02. DEFINITION OF CERTAIN TERMS USED HEREIN. As used herein, the following terms shall have the following meanings: "ACCOUNT DEBTOR" shall mean any person who is or who may become obligated to any Grantor under, with respect to or on account of an Account. "ACCOUNTS" shall mean any and all right, title and interest of any Grantor to payment for goods and services sold or leased, including any such right evidenced by chattel paper, 3 whether due or to become due, whether or not it has been earned by performance, and whether now or hereafter acquired or arising in the future, including accounts receivable from Affiliates of the Grantors. "ACCOUNTS RECEIVABLE" shall mean all Accounts and all right, title and interest in any returned goods, together with all rights, titles, securities and guarantees with respect thereto, including any rights to stoppage in transit, replevin, reclamation and resales, and all related security interests, liens and pledges, whether voluntary or involuntary, in each case whether now existing or owned or hereafter arising or acquired. "CHATTEL PAPER" shall mean (a) a writing or writings which evidence both a monetary obligation and a security interest in or a lease of specific Equipment and (b) all other property now or hereafter constituting "chattel paper" under the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions, in each case that are now or hereafter owned by Grantor. "COLLATERAL" shall mean all (a) Accounts Receivable, (b) Chattel Paper, (c) Contract Rights, (d) Documents, (e) Equipment, (f) General Intangibles, (g) Inventory, (h) cash and cash accounts (including the Concentration Account and the Collection Deposit Accounts), (i) Investment Property and (j) Proceeds; PROVIDED that the Collateral shall not include (i) except as set forth in Section 9-318 of the Uniform Commercial Code, any agreement or License which cannot be pledged or assigned according to its terms or the pledge or assignment of which requires the consent of any third party unless such third party has consented thereto, (ii) Investment Property evidenced by a certificate pledged under the Pledge Agreement, (iii) property subject to a Lien permitted by Section 6.02(h) of the Credit Agreement and (iv) property acquired after the Closing Date and subject to Liens permitted by Section 6.02 (l) of the Credit Agreement to the extent that the terms of the Indebtedness secured by such Liens do not permit the creation of additional Liens thereon. "COLLECTION DEPOSIT ACCOUNT" shall mean a lockbox account of a Grantor maintained for the benefit of the Secured Parties with the Collateral Agent or with a Sub-Agent pursuant to a Lockbox and Depository Agreement. "COMMODITY ACCOUNT" shall mean an account maintained by a Commodity Intermediary in which a Commodity Contract is carried for a Commodity Customer. "COMMODITY CONTRACT" shall mean a commodity futures contract, an option on a commodity futures contract, a commodity option or any other contract that, in each case, is (a) traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract pursuant to the Federal commodities laws or (b) traded on a foreign commodity board of trade, exchange or market, and is carried on the books of a Commodity Intermediary for a Commodity Customer. 4 "COMMODITY CUSTOMER" shall mean a person for whom a Commodity Intermediary carries a Commodity Contract on its books. "COMMODITY INTERMEDIARY" shall mean (a) a person who is registered as a futures commission merchant under the federal commodities laws or (b) a person who in the ordinary course of its business provides clearance or settlement services for a board of trade that has been designated as a contract market pursuant to Federal commodities laws. "CONCENTRATION ACCOUNT" shall mean the cash collateral account established at the office of Mellon, at Mellon Bank, N.A., Philadelphia, PA in the name of the Collateral Agent, ABA No. 031-000-037, Account No.2-410-074. "CONTRACT RIGHT" shall mean any right of a Grantor to bill and receive payment under any and all contracts, agreements or purchase orders, whether now existing or owned or hereafter arising or acquired. "COPYRIGHT LICENSE" shall mean any written agreement, now or hereafter in effect, granting any right to any Grantor under any Copyright now or hereafter owned by any third party, and all rights of such Grantor under any such agreement. "COPYRIGHTS" shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (b) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office (or any successor office or any similar office in any other country), including those listed on Schedule II. "CREDIT AGREEMENT" shall have the meaning assigned to such term in the preliminary statement of this Agreement. "DOCUMENTS" shall mean all instruments, files, records, ledger sheets and documents covering or relating to any of the Collateral. "ENTITLEMENT HOLDER" shall mean a person identified in the records of a Securities Intermediary as the person having a Security Entitlement against the Securities Intermediary. If a person acquires a Security Entitlement by virtue of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such person is the Entitlement Holder. "EQUIPMENT" shall mean all equipment, furniture and furnishings, and all tangible personal property similar to any of the foregoing, including tools, parts and supplies of every kind and description, and all improvements, accessions or appurtenances thereto, that are now or hereafter owned by any Grantor. The term Equipment shall include Fixtures. 5 "FINANCIAL ASSET" shall mean (a) a Security, (b) an obligation of a person or a share, participation or other interest in a person or in property or an enterprise of a person, which is, or is of a type, dealt with in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment or (c) any property that is held by a Securities Intermediary for another person in a Securities Account if the Securities Intermediary has expressly agreed with the other person that the property is to be treated as a Financial Asset under Article 8 of the Uniform Commercial Code. As the context requires, the term Financial Asset shall mean either the interest itself or the means by which a person's claim to it is evidenced, including a certificated or uncertificated Security, a certificate representing a Security or a Security Entitlement. "FIXTURES" shall mean all items of Equipment, whether now owned or hereafter acquired, of any Grantor that become so related to particular real estate that an interest in them arises under any real estate law applicable thereto. "GENERAL INTANGIBLES" shall mean all choses in action and causes of action and all other assignable intangible personal property of any Grantor of every kind and nature (other than Accounts Receivable) now owned or hereafter acquired by any Grantor, including all rights and interests in partnerships, limited partnerships, limited liability companies and other unincorporated entities, corporate or other business records, indemnification claims, Contract Rights (including rights under leases, whether entered into as lessor or lessee, Hedging Agreements and other agreements), Intellectual Property, goodwill, registrations, franchises, tax refund claims and any letter of credit, guarantee, claim, security interest or other security held by or granted to any Grantor to secure payment by an Account Debtor of any of the Accounts Receivable. "INTELLECTUAL PROPERTY" shall mean all intellectual and similar property of any Grantor of every kind and nature now owned or hereafter acquired by any Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations and franchises, and all additions, improvements and accessions to, and books and records describing or used in connection with, any of the foregoing. "INVENTORY" shall mean all goods of any Grantor, whether now owned or hereafter acquired, held for sale or lease, or furnished or to be furnished by any Grantor under contracts of service, or consumed in any Grantor's business, including raw materials, intermediates, work in process, packaging materials, finished goods, semi-finished inventory, scrap inventory, manufacturing supplies and spare parts, and all such goods that have been returned to or repossessed by or on behalf of any Grantor. "INVESTMENT PROPERTY" shall mean all Securities (whether certificated or uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts and 6 Commodity Accounts of any Grantor, whether now owned or hereafter acquired by any Grantor. "LICENSE" shall mean any Patent License, Trademark License, Copyright License or other license or sublicense to which any Grantor is a party, including those listed on Schedule III (other than those license agreements in existence on the date hereof and listed on Schedule III and those license agreements entered into after the date hereof, which by their terms or applicable law prohibit assignment or a grant of a security interest by such Grantor as licensee thereunder). "LOCKBOX AND DEPOSITORY AGREEMENT" shall mean a Lockbox and Depository Agreement substantially in the form of Annex 1 hereto among a Grantor, the Collateral Agent and a Sub-Agent with such changes thereto, if any, as may be approved by the Collateral Agent. "LOCKBOX SYSTEM" shall have the meaning assigned to such term in Section 5.01. "OBLIGATIONS" shall have the meaning assigned to such term in the preliminary statement of this Agreement. "PATENT LICENSE" shall mean any written agreement, now or hereafter in effect, granting to any Grantor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement. "PATENTS" shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office (or any successor or any similar offices in any other country), including those listed on Schedule IV, and (b) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. "PERFECTION CERTIFICATE" shall mean a certificate substantially in the form of Annex 2 hereto, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Financial Officer and the chief legal officer of the Borrower. "PROCEEDS" shall mean any consideration received from the sale, exchange, license, lease or other disposition of any asset or property that constitutes Collateral, any value received as a consequence of the possession of any Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft, damage 7 or other involuntary conversion of whatever nature of any asset or property which constitutes Collateral, and shall include (a) all cash and negotiable instruments received by or held on behalf of the Collateral Agent pursuant to the Lockbox System , (b) any claim of any Grantor against any third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (i) past, present or future infringement of any Patent now or hereafter owned by any Grantor, or licensed under a Patent License, (ii) past, present or future infringement or dilution of any Trademark now or hereafter owned by any Grantor or licensed under a Trademark License or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past, present or future breach of any License and (iv) past, present or future infringement of any Copyright now or hereafter owned by any Grantor or licensed under a Copyright License and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "SECURED PARTIES" shall mean (a) the Lenders, (b) the Administrative Agent, (c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to a Hedging Agreement entered into with the Borrower if such counterparty was a Lender (or an Affiliate of a Lender) at the time the Hedging Agreement was entered into, (f) the beneficiaries of each indemnification obligation undertaken by any Grantor under any Loan Document and (g) the successors and assigns of each of the foregoing. "SECURITIES" shall mean any obligations of an issuer or any shares, participations or other interests in an issuer or in property or an enterprise of an issuer which (a) are represented by a certificate representing a security in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer, (b) are one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations and (c)(i) are, or are of a type, dealt with or traded on securities exchanges or securities markets or (ii) are a medium for investment and by their terms expressly provide that they are a security governed by Article 8 of the Uniform Commercial Code (other than as expressly excluded by Section 8-103(c), (e) and (f) of such Article). "SECURITIES ACCOUNT" shall mean an account to which a Financial Asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise rights that comprise the Financial Asset. "SECURITY ENTITLEMENTS" shall mean the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "SECURITY INTEREST" shall have the meaning assigned to such term in Section 2.01. 8 "SECURITIES INTERMEDIARY" shall mean (a) a clearing corporation or (b) a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity. "SUB-AGENT" shall mean a financial institution which shall have delivered to the Collateral Agent an executed Lockbox and Depository Agreement. "TRADEMARK LICENSE" shall mean any written agreement, now or hereafter in effect, granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement. "TRADEMARKS" shall mean all of the following now owned or hereafter acquired by any Grantor: (a) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office, any State of the United States or any similar offices in any other country or any political subdivision thereof, and all extensions or renewals thereof, including those listed on Schedule V, (b) all goodwill associated therewith or symbolized thereby and (c) all other assets, rights and interests that uniquely reflect or embody such goodwill. SECTION 1.03. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement. ARTICLE II SECURITY INTEREST SECTION 2.01. SECURITY INTEREST. As security for the payment or performance, as the case may be, in full of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent, its successors and assigns, for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor's right, title and interest in, to and under the Collateral (the "SECURITY INTEREST"). Without limiting the foregoing, the Collateral Agent is hereby authorized to file one or more financing statements (including fixture filings), continuation statements, filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by each Grantor, without the signature of any 9 Grantor, and naming any Grantor or the Grantors as debtors and the Collateral Agent as secured party. SECTION 2.02. NO ASSUMPTION OF LIABILITY. The Security Interest is granted as security only and shall not subject the Collateral Agent or any other Secured Party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral. ARTICLE III REPRESENTATIONS AND WARRANTIES The Grantors jointly and severally represent and warrant to the Collateral Agent and the Secured Parties that: SECTION 3.01. TITLE AND AUTHORITY. Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a Security Interest hereunder and has full power and authority to grant to the Collateral Agent the Security Interest in such Collateral pursuant hereto and to execute, deliver and perform its obligations in accordance with the terms of this Agreement, without the consent or approval of any other person other than any consent or approval which has been obtained. SECTION 3.02. FILINGS. (a) The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete. Fully executed Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations containing a description of the Collateral have been delivered to the Collateral Agent for filing in each governmental, municipal or other office specified in Schedule 6 to the Perfection Certificate, which are all the filings, recordings and registrations (other than filings required to be made in the United States Patent and Trademark Office and the United States Copyright Office in order to perfect the Security Interest in Collateral consisting of United States Patents, Trademarks and Copyrights) that are necessary to publish notice of and protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the ratable benefit of the Secured Parties) in respect of all Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary in any such jurisdiction, except as provided under applicable law with respect to the filing of continuation statements. (b) Each Grantor represents and warrants that fully executed security agreements in the form hereof and containing a description of all Collateral consisting of Intellectual 10 Property with respect to United States Patents and United States registered Trademarks (and Trademarks for which United States registration applications are pending) and United Sates registered Copyrights have been delivered to the Collateral Agent for recording by the United States Patent and Trademark Office and the United States Copyright Office pursuant to 35 U.S.C. ss. 261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations thereunder, as applicable, and otherwise as may be required pursuant to the laws of any other necessary jurisdiction, to protect the validity of and to establish a legal, valid and perfected security interest in favor of the Collateral Agent (for the ratable benefit of the Secured Parties) in respect of all Collateral consisting of Patents, Trademarks and Copyrights in which a security interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof) and its territories and possessions, or in any other necessary jurisdiction, and no further or subsequent filing, refiling, recording, rerecording, registration or reregistration is necessary (other than such actions as are necessary to perfect the Security Interest with respect to any Collateral consisting of Patents, Trademarks and Copyrights (or registration or application for registration thereof) acquired or developed after the date hereof). SECTION 3.03. VALIDITY OF SECURITY INTEREST. The Security Interest constitutes (a) a legal and valid security interest in all the Collateral securing the payment and performance of the Obligations, (b) subject to the filings described in Section 3.02 above, a perfected security interest in all Collateral in which a security interest may be perfected by filing, recording or registering a financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Uniform Commercial Code or other applicable law in such jurisdictions and (c) a security interest that shall be perfected in all Collateral in which a security interest may be perfected upon the receipt and recording of this Agreement with the United States Patent and Trademark Office and the United States Copyright Office, as applicable. The Security Interest is and shall be prior to any other Lien on any of the Collateral, other than Liens expressly permitted to be prior to the Security Interest pursuant to Section 6.02 of the Credit Agreement. SECTION 3.04. ABSENCE OF OTHER LIENS. The Collateral is owned by the Grantors free and clear of any Lien, except for Liens expressly permitted pursuant to Section 6.02 of the Credit Agreement. No Grantor has filed or consented to the filing of (a) any financing statement or analogous document under the Uniform Commercial Code or any other applicable laws covering any Collateral, (b) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with the United States Patent and Trademark Office or the United States Copyright Office, (c) any notice under the Assignment of Claims Act or (d) any assignment in which any Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is 11 still in effect, except, in each case, for Liens expressly permitted pursuant to Section 6.02 of the Credit Agreement. ARTICLE IV COVENANTS SECTION 4.01. CHANGE OF NAME; LOCATION OF COLLATERAL; RECORDS; PLACE OF BUSINESS. (a) Each Grantor agrees promptly to notify the Collateral Agent in writing of any change (i) in its corporate name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) in the location of its chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (iii) in its identity or corporate structure or (iv) in its Federal Taxpayer Identification Number. Each Grantor agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected first priority security interest in all the Collateral. Each Grantor agrees promptly to notify the Collateral Agent if any material portion of the Collateral owned or held by such Grantor is damaged or destroyed. (b) Each Grantor agrees to maintain, at its own cost and expense, such complete and accurate records with respect to the Collateral owned by it as is consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged, but in any event to include complete accounting records indicating all payments and proceeds received with respect to any part of the Collateral, and, at such time or times as the Collateral Agent may reasonably request, promptly to prepare and deliver to the Collateral Agent a duly certified schedule or schedules in form and detail satisfactory to the Collateral Agent showing the identity, amount and location of any and all Collateral. SECTION 4.02. PROTECTION OF SECURITY. Each Grantor shall, at its own cost and expense, take any and all actions necessary to defend title to the Collateral against all persons and to defend the Security Interest of the Collateral Agent in the Collateral and the priority thereof against any Lien not expressly permitted pursuant to Section 6.02 of the Credit Agreement. SECTION 4.03. FURTHER ASSURANCES. Each Grantor agrees, at its own expense, to execute, acknowledge, deliver and cause to be duly filed all such further instruments and documents and take all such actions as the Collateral Agent may from time to time reasonably request to better assure, preserve, protect and perfect the Security Interest and the 12 rights and remedies created hereby, including the payment of any fees and taxes required in connection with the execution and delivery of this Agreement, the granting of the Security Interest and the filing of any financing statements (including fixture filings) or other documents in connection herewith or therewith. If any amount payable to any Grantor under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument in excess of $200,000 shall be immediately pledged and delivered to the Collateral Agent, duly endorsed in a manner satisfactory to the Collateral Agent, PROVIDED that promissory notes or instruments evidencing advances permitted under Section 6.04(d) of the Credit Agreement will not be required to be so pledged. Without limiting the generality of the foregoing, each Grantor hereby authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to supplement this Agreement by supplementing Schedule II, III, IV or V hereto or adding additional schedules hereto to specifically identify any asset or item that may constitute Copyrights, Licenses, Patents or Trademarks; PROVIDED, HOWEVER, that any Grantor shall have the right, exercisable within 10 days after it has been notified by the Collateral Agent of the specific identification of such Collateral, to advise the Collateral Agent in writing of any inaccuracy of the representations and warranties made by such Grantor hereunder with respect to such Collateral. Each Grantor agrees that it will use its best efforts to take such action as shall be necessary in order that all representations and warranties hereunder shall be true and correct in all material respects with respect to such Collateral within 30 days after the date it has been notified by the Collateral Agent of the specific identification of such Collateral. SECTION 4.04. INSPECTION AND VERIFICATION. The Collateral Agent and such persons as the Collateral Agent may reasonably designate shall have the right, at the Grantors' own cost and expense, to inspect the Collateral, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral is located, to discuss the Grantors' affairs with the officers of the Grantors and their independent accountants and to verify under reasonable procedures, in accordance with Section 5.11 of the Credit Agreement, the validity, amount, quality, quantity, value, condition and status of, or any other matter relating to, the Collateral, including, in the case of Accounts or Collateral in the possession of any third person, by contacting Account Debtors or the third person possessing such Collateral for the purpose of making such a verification. The Collateral Agent shall have the absolute right to share any information it gains from such inspection or verification with any Secured Party (it being understood that any such information shall be deemed to be "Information" subject to the provisions of Section 9.16 of the Credit Agreement). SECTION 4.05. TAXES; ENCUMBRANCES. At its option, the Collateral Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Collateral and not permitted pursuant to Section 6.02 of the Credit Agreement, and may pay for the maintenance and preservation of 13 the Collateral to the extent any Grantor fails to do so as required by the Credit Agreement or this Agreement, and each Grantor jointly and severally agrees to reimburse the Collateral Agent on demand for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization; PROVIDED, HOWEVER, that nothing in this Section 4.06 shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Collateral Agent or any Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. SECTION 4.06. ASSIGNMENT OF SECURITY INTEREST. If at any time any Grantor shall take a security interest in any property of an Account Debtor or any other person to secure payment and performance of an Account, such Grantor shall promptly assign such security interest to the Collateral Agent. Such assignment need not be filed of public record unless necessary to continue the perfected status of the security interest against creditors of and transferees from the Account Debtor or other person granting the security interest. SECTION 4.07. CONTINUING OBLIGATIONS OF THE GRANTORS. Each Grantor shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agreement or instrument relating to the Collateral, all in accordance with the terms and conditions thereof, and each Grantor jointly and severally agrees to indemnify and hold harmless the Collateral Agent and the Secured Parties from and against any and all liability for such performance. SECTION 4.08. USE AND DISPOSITION OF COLLATERAL. None of the Grantors shall make or permit to be made an assignment, pledge or hypothecation of the Collateral or shall grant any other Lien in respect of the Collateral or permit any notice to be filed under the Assignment of Claims Act except for any such notice in favor of the Collateral Agent, except as expressly permitted by Section 6.02 of the Credit Agreement. None of the Grantors shall make or permit to be made any transfer of the Collateral and each Grantor shall remain at all times in possession of the Collateral owned by it, except that (a) Inventory may be sold in the ordinary course of business and (b) unless and until the Collateral Agent shall notify the Grantors that an Event of Default shall have occurred and be continuing and that during the continuance thereof the Grantors shall not sell, convey, lease, assign, transfer or otherwise dispose of any Collateral (which notice may be given by telephone if promptly confirmed in writing), the Grantors may use and dispose of the Collateral in any lawful manner not inconsistent with the provisions of this Agreement, the Credit Agreement or any other Loan Document. Without limiting the generality of the foregoing, each Grantor agrees that it shall not permit any Inventory in excess of $500,000 to be in the possession or control of any warehouseman, bailee, agent or processor at any time unless such warehouseman, bailee, agent or processor shall have been notified of the Security Interest and shall have agreed in writing to hold the Inventory subject to the Security Interest and the instructions 14 of the Collateral Agent and to waive and release any Lien held by it with respect to such Inventory, whether arising by operation of law or otherwise. SECTION 4.09. LIMITATION ON MODIFICATION OF ACCOUNTS. None of the Grantors will, without the Collateral Agent's prior written consent, grant any extension of the time of payment of any of the Accounts Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any person liable for the payment thereof or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, compromises or settlements granted or made in the ordinary course of business and consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which such Grantor is engaged. SECTION 4.10. INSURANCE. The Grantors, at their own expense, shall maintain or cause to be maintained insurance covering physical loss or damage to the Inventory and Equipment in accordance with Section 5.02 of the Credit Agreement. Each Grantor irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of Collateral under policies of insurance, endorsing the name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. In the event that any Grantor at any time or times shall fail to obtain or maintain any of the policies of insurance required hereby or to pay any premium in whole or part relating thereto, the Collateral Agent may, without waiving or releasing any obligation or liability of the Grantors hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Collateral Agent deems advisable. All sums disbursed by the Collateral Agent in connection with this Section 4.11, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by the Grantors to the Collateral Agent and shall be additional Obligations secured hereby. SECTION 4.11. LEGEND. Each Grantor shall legend, in form and manner reasonably satisfactory to the Collateral Agent, its Accounts Receivable and its books, records and documents evidencing or pertaining thereto with an appropriate reference to the fact that such Accounts Receivable have been assigned to the Collateral Agent for the benefit of the Secured Parties and that the Collateral Agent has a security interest therein. SECTION 4.12. COVENANTS REGARDING PATENT, TRADEMARK AND COPYRIGHT COLLATERAL. (a) Each Grantor agrees that it will not, nor will it permit any of its licensees to, do any act, or omit to do any act, whereby any Patent which is material to the conduct of such Grantor's business may become invalidated or dedicated to the public, and agrees that it shall continue 15 to mark any products covered by a Patent with the relevant patent number as necessary and sufficient to establish and preserve its maximum rights under applicable patent laws. (b) Each Grantor (either itself or through its licensees or its sublicensees) will, for each Trademark material to the conduct of such Grantor's business, (i) maintain such Trademark in full force free from any claim of abandonment or invalidity for non-use, (ii) maintain the quality of products and services offered under such Trademark, (iii) display such Trademark with notice of Federal or foreign registration to the extent necessary and sufficient to establish and preserve its maximum rights under applicable law and (iv) not knowingly use or knowingly permit the use of such Trademark in violation of any third party rights. (c) Each Grantor (either itself or through licensees) will, for each work covered by a material Copyright, continue to publish, reproduce, display, adopt and distribute the work with appropriate copyright notice as necessary and sufficient to establish and preserve its maximum rights under applicable copyright laws. (d) Each Grantor shall notify the Collateral Agent immediately if it knows or has reason to know that any Patent, Trademark or Copyright material to the conduct of its business may become abandoned, lost or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, United States Copyright Office or any court or similar office of any country) regarding such Grantor's ownership of any Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same. (e) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for any Patent, Trademark or Copyright (or for the registration of any Trademark or Copyright) with the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision thereof, unless it promptly informs the Collateral Agent, and, upon request of the Collateral Agent, executes and delivers any and all agreements, instruments, documents and papers as the Collateral Agent may request to evidence the Collateral Agent's security interest in such Patent, Trademark or Copyright, and each Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable. (f) Each Grantor will take all necessary steps that it deems appropriate under the circumstances and are consistent with the practice in any proceeding before the United States Patent and Trademark Office, United States Copyright Office or any office or agency in any political subdivision of the United States or in any other country or any political subdivision 16 thereof, to maintain and pursue each material application relating to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant or registration) and to maintain each issued Patent and each registration of the Trademarks and Copyrights that is material to the conduct of any Grantor's business, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent with good business judgment, to initiate opposition, interference and cancelation proceedings against third parties. (g) In the event that any Grantor has reason to believe that any Collateral consisting of a Patent, Trademark or Copyright material to the conduct of any Grantor's business has been or is about to be infringed, misappropriated or diluted by a third party, such Grantor promptly shall notify the Collateral Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are appropriate under the circumstances to protect such Collateral. Such Grantor may discontinue or settle any such suit or other action if the Grantor deems such discontinuance or settlement to be appropriate in its reasonable business judgment. (h) Upon and during the continuance of an Event of Default, each Grantor shall, at the request of the Collateral Agent, use its best efforts to obtain all requisite consents or approvals by the licensor of each Copyright License, Patent License or Trademark License to effect the assignment of all of such Grantor's right, title and interest thereunder to the Collateral Agent or its designee. ARTICLE V COLLECTIONS SECTION 5.01. LOCKBOX SYSTEM. (a) The Grantors have established in the name of the Collateral Agent, and subject to the control of the Collateral Agent pursuant to the Lockbox and Depository Agreements, for the ratable benefit of the Collateral Agent and the other Secured Parties, a system of lockboxes and related deposit accounts (the "LOCKBOX SYSTEM") with one or more financial institutions that are reasonably satisfactory to the Collateral Agent into which the Proceeds of all Accounts Receivable and Inventory shall be deposited and forwarded to the Collateral Agent in accordance with the Lockbox and Depository Agreements. (b) All Proceeds of Inventory and Accounts Receivable that have been received on any Business Day through the Lockbox System will be transferred into the Concentration Account on such Business Day to the extent required by the applicable Lockbox and Depository Agreement. All Proceeds stemming from the sale of a substantial portion of the Collateral (other than Proceeds of Accounts) that have been received by a Grantor on any 17 Business Day will be transferred into the Concentration Account within one Business Day. All Proceeds received on any Business Day by the Collateral Agent pursuant to Section 5.02 will be transferred into the Concentration Account on such Business Day. (c) The Concentration Account is, and shall remain, under the sole dominion and control of the Collateral Agent. Each Grantor acknowledges and agrees that (i) such Grantor has no right of withdrawal from the Concentration Account, (ii) the funds on deposit in the Concentration Account shall continue to be collateral security for all of the Obligations and (iii) upon the occurrence and during the continuance of an Event of Default, at the Collateral Agent's election, the funds on deposit in the Concentration Account shall be applied as provided in Section 6.02. (d) Effective upon notice to the Grantors from the Collateral Agent after the occurrence and during the continuance of an Event of Default (which notice may be given by telephone if promptly confirmed in writing), the Concentration Account will, without any further action on the part of any Grantor, the Collateral Agent or any Sub-Agent, convert into a closed lockbox account under the exclusive dominion and control of the Collateral Agent in which funds are held subject to the rights of the Collateral Agent hereunder. Each Grantor irrevocably authorizes the Collateral Agent to notify each Sub-Agent (i) of the occurrence of an Event of Default and (ii) of the matters referred to in this paragraph (d). Following the occurrence of an Event of Default, the Collateral Agent may instruct each Sub-Agent to transfer immediately all funds held in each deposit account to the Concentration Account. SECTION 5.02. COLLECTIONS. (a) Each Grantor agrees (i) to notify and direct promptly each Account Debtor and every other person obligated to make payments on Accounts Receivable or in respect of any Inventory to make all such payments directly to the Lockbox System established in accordance with Section 5.01, (ii) to use all reasonable efforts to cause each Account Debtor and every other person identified in clause (i) above to make all payments with respect to Accounts Receivable and Inventory directly to such Lockbox System and (iii) to deposit all payments received by it on account of Accounts Receivable and Inventory, whether in the form of cash, checks, notes, drafts, bills of exchange, money orders or otherwise, in the Lockbox System in precisely the form in which received (but with any endorsements of such Grantor necessary for deposit or collection) within one Business Day of receipt thereof, and until they are so deposited such payments shall be held in trust by such Grantor for and as the property of the Collateral Agent. (b) Without the prior written consent of the Collateral Agent, no Grantor shall, in a manner adverse to the Lenders, change the general instructions given to Account Debtors in respect of payment on Accounts to be deposited in the Lockbox System. Until the Collateral Agent shall have advised the Grantors to the contrary, each Grantor shall, and the Collateral Agent hereby authorizes each Grantor to, enforce and collect all amounts owing on the Inventory and Accounts Receivable, for the benefit and on behalf of the Collateral Agent and the other Secured Parties; PROVIDED, HOWEVER, that such privilege may at the 18 option of the Collateral Agent be terminated upon the occurrence and during the continuance of any Event of Default. SECTION 5.03. POWER OF ATTORNEY. Each Grantor irrevocably makes, constitutes and appoints the Collateral Agent (and all officers, employees or agents designated by the Collateral Agent) as such Grantor's true and lawful agent and attorney-in-fact, and in such capacity the Collateral Agent shall have the right, with power of substitution for each Grantor and in each Grantor's name or otherwise, for the use and benefit of the Collateral Agent and the Secured Parties, upon the occurrence and during the continuance of an Event of Default (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading relating to any of the Collateral; (d) to send verifications of Accounts Receivable to any Account Debtor; (e) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Collateral or to enforce any rights in respect of any Collateral; (f) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Collateral; (g) to notify, or to require any Grantor to notify, Account Debtors to make payment directly to the Collateral Agent; and (h) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Collateral, and to do all other acts and things necessary to carry out the purposes of this Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Collateral for all purposes; PROVIDED, HOWEVER, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent or any Secured Party to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent or any Secured Party, or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken or omitted to be taken by the Collateral Agent or any Secured Party with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of any Grantor or to any claim or action against the Collateral Agent or any Secured Party. It is understood and agreed that the appointment of the Collateral Agent as the agent and attorney-in-fact of the Grantors for the purposes set forth above is coupled with an interest and is irrevocable. The provisions of this Section shall in no event relieve any Grantor of any of its obligations hereunder or under any other Loan Document with respect to the Collateral or any part thereof or impose any obligation on the Collateral Agent or any Secured Party to proceed in any particular manner with respect to the Collateral or any part thereof, or in any way limit the exercise by the Collateral Agent or any Secured Party of any other or further right which it may have on the date of this Agreement or hereafter, whether hereunder, under any other Loan Document, by law or otherwise. 19 ARTICLE VI REMEDIES SECTION 6.01. REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of Collateral to the Collateral Agent on demand, and it is agreed that the Collateral Agent shall have the right to take any of or all the following actions at the same or different times: (a) with respect to any Collateral consisting of Intellectual Property, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any of or all such Collateral by the applicable Grantors to the Collateral Agent, or to license or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any such Collateral throughout the world on such terms and conditions and in such manner as the Collateral Agent shall determine (other than in violation of any then-existing licensing arrangements to the extent that waivers cannot be obtained), and (b) with or without legal process and with or without prior notice or demand for performance, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral and, generally, to exercise any and all rights afforded to a secured party under the Uniform Com mercial Code or other applicable law. Without limiting the generality of the foregoing, each Grantor agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of all or any part of the Collateral, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall give the Grantors 10 days' written notice (which each Grantor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the State of New York or its equivalent in other jurisdictions) of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such 20 time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by law, private) sale made pursuant to this Section, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Grantor therefor. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and no Grantor shall be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. SECTION 6.02. APPLICATION OF PROCEEDS. The Collateral Agent shall apply the proceeds of any collection or sale of the Collateral, as well as any Collateral consisting of cash, as follows: FIRST, to the payment of all costs and expenses incurred by the Administrative Agent or the Collateral Agent (in its capacity as such hereunder or under any other Loan Document) in connection with such collection or sale or otherwise in connection with this Agreement, any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent hereunder or under any 21 other Loan Document on behalf of any Grantor and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document; SECOND, to the payment in full of the Obligations (the amounts so applied to be distributed among the Secured Parties pro rata in accordance with the amounts of the Obligations owed to them on the date of any such distribution); and THIRD, to the Grantors, their successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Administrative Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof. SECTION 6.03. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the purpose of enabling the Collateral Agent to exercise rights and remedies under this Article at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantors) to use, license or sub-license any of the Collateral consisting of Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Collateral Agent shall be exercised, at the option of the Collateral Agent, upon the occurrence and during the continuation of an Event of Default; PROVIDED that any license, sub-license or other transaction entered into by the Collateral Agent in accordance herewith shall be binding upon the Grantors notwithstanding any subsequent cure of an Event of Default. 22 ARTICLE VII MISCELLANEOUS SECTION 7.01. NOTICES. All communications and notices hereunder shall (except as otherwise expressly permitted herein) be in writing and given as provided in Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Subsidiary Guarantor shall be given to it at its address or fax number set forth on Schedule I, with a copy to the Borrower. SECTION 7.02. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent hereunder, the Security Interest and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Obligations or this Agreement. SECTION 7.03. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by any Grantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Secured Parties and shall survive the making by the Lenders of the Loans, and the execution and delivery to the Lenders of any notes evidencing such Loans, regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect until this Agreement shall terminate. SECTION 7.04. BINDING EFFECT; SEVERAL AGREEMENT. This Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Collateral Agent and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon such Grantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of such Grantor, the Collateral Agent and the other Secured Parties and their respective successors and assigns, except that no Grantor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein or in the Collateral (and any such assignment or transfer shall be void) except as expressly contemplated by this Agreement or the Credit Agreement. This Agreement shall be construed as a separate agreement with respect to each Grantor and may be amended, modified, supplemented, 23 waived or released with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder. SECTION 7.05. SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Grantor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. SECTION 7.06. COLLATERAL AGENT'S FEES AND EXPENSES; INDEMNIFICATION. (a) Each Grantor jointly and severally agrees to pay upon demand to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees, disbursements and other charges of its counsel and of any experts or agents, which the Collateral Agent may incur in connection with (i) the administration of this Agreement (including the customary fees and charges of the Collateral Agent for any audits conducted by it or on its behalf with respect to the Accounts Receivable or Inventory), (ii) the custody or preservation of, or the sale of, collection from or other realization upon any of the Collateral, (iii) the exercise, enforcement or protection of any of the rights of the Collateral Agent hereunder or (iv) the failure of any Grantor to perform or observe any of the provisions hereof. (b) Without limitation of its indemnification obligations under the other Loan Documents, each Grantor jointly and severally agrees to indemnify the Collateral Agent and the other Indemnitees against, and hold each of them harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable fees, disbursements and other charges of counsel, incurred by or asserted against any of them arising out of, in any way connected with, or as a result of, the execution, delivery or performance of this Agreement or any claim, litigation, investigation or proceeding relating hereto or to the Collateral, whether or not any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of any Indemnitee. (c) Any such amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section 7.06 shall remain operative and in full force and effect regardless of the termination of this Agreement or any other Loan Document, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Collateral Agent or any Secured Party. All amounts due under this Section 7.06 shall be payable on written demand therefor and shall bear interest at the rate specified in Section 2.06 of the Credit Agreement. 24 SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 7.08. WAIVERS; AMENDMENT. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the Lenders under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provisions of this Agreement or any other Loan Document or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Grantor in any case shall entitle such Grantor or any other Grantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Collateral Agent and the Grantor or Grantors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 9.08 of the Credit Agreement. SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09. SECTION 7.10. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a 25 particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7.11 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract (subject to Section 7.04), and shall become effective as provided in Section 7.04. Delivery of an executed signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. SECTION 7.12. HEADINGS. Article and Section headings used herein are for the purpose of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 7.13. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent, the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Grantor or its properties in the courts of any jurisdiction. (b) Each Grantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7.01. Nothing in this Agreement will affected the right of any party to this Agreement to serve process in any other manner permitted by law. 26 SECTION 7.14. TERMINATION. This Agreement and the Security Interest shall terminate when all the Obligations (other than wholly contingent indemnification obligations) then due and owing have been indefeasibly paid in full, the Lenders have no further commitment to lend, the L/C Exposure has been reduced to zero and the Issuing Bank has no further commitment to issue Letters of Credit under the Credit Agreement, at which time the Collateral Agent shall execute and deliver to the Grantors, at the Grantors' expense, all Uniform Commercial Code termination statements and similar documents which the Grantors shall reasonably request to evidence such termination. Any execution and delivery of termination statements or documents pursuant to this Section 7.14 shall be without recourse to or warranty by the Collateral Agent. A Subsidiary Guarantor shall automatically be released from its obligations hereunder and the Security Interest in the Collateral of such Subsidiary Guarantor shall be automatically released in the event that all the capital stock of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of to a person that is not an Affiliate of the Borrower in accordance with the terms of the Credit Agreement; PROVIDED that the Required Lenders shall have consented to such sale, transfer or other disposition (to the extent required by the Credit Agreement) and the terms of such consent did not provide otherwise. SECTION 7.15. ADDITIONAL GRANTORS. Upon execution and delivery by the Collateral Agent and a Subsidiary of an instrument in the form of Annex 3 hereto, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any such instrument shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement. 27 28 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ANTEON CORPORATION, by: ----------------------------- Name: Title: ANALYSIS & TECHNOLOGY, INC., by: ----------------------------- Name: Title: INTERACTIVE MEDIA CORP., by: ----------------------------- Name: Title: TECHMATICS, INC., by: ----------------------------- Name: Title: VECTOR DATA SYSTEMS, INC., 29 by: ----------------------------- Name: Title: 30 MELLON BANK, N.A., as Collateral Agent, by: ----------------------------- Name: Title: SCHEDULE I SUBSIDIARY GUARANTORS Analysis & Technology, Inc. Interactive Media Corp. Techmatics, Inc. Vector Data Systems, Inc. SCHEDULE II COPYRIGHTS SCHEDULE III LICENSES SCHEDULE IV PATENTS SCHEDULE V TRADEMARKS Annex 1 to the Security Agreement LOCKBOX AND DEPOSITORY AGREEMENT dated as of [ ], among [Name of Grantor], a [ ] corporation (the "GRANTOR"), MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (such term, and each other capitalized term used but not defined herein, having the meaning given it in the Security Agreement referred to below) and [ ], a [ ] banking corporation (the "SUB-AGENT"). A. The Grantor and the Collateral Agent are parties to a Security Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT"). Pursuant to the terms of the Security Agreement, the Grantor has granted to the Collateral Agent, for the ratable benefit of the Secured Parties, a security interest in its Accounts Receivable and other Collateral (including Inventory, cash, cash accounts and Proceeds) to secure the payment and performance of the Obligations and has irrevocably appointed the Collateral Agent as its agent to collect amounts due in respect of Accounts Receivable and Inventory. B. The Sub-Agent has agreed to act as collection sub-agent of the Collateral Agent to receive and forward payments with respect to the Accounts Receivable and Inventory on the terms and subject to the conditions set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Collateral Agent hereby appoints the Sub-Agent as its collection sub-agent under the Security Agreement and authorizes the Sub-Agent, on the terms and subject to the conditions set forth herein, to receive payments in respect of Collateral consisting of Accounts Receivable and Inventory. 2. The Sub-Agent has established and shall maintain deposit account number [ ] (including all subaccounts thereof) for the benefit of the Collateral Agent (such account being called the "COLLECTION DEPOSIT ACCOUNT"). The Collection Deposit Account shall be designated with the title "Mellon Bank, N.A., as Collateral Agent under the Anteon Corporation Security Agreement dated as of June 23, 1999" (or a similar title). [Subject to the Sub-Agent's Terms for Remittance Banking (Lockbox) Services attached hereto as Exhibit A, to the extent that the terms thereof relate to procedures or fees and to the extent not inconsistent with the terms hereof,] all payments received by the Sub-Agent in Lockbox Number [ ] and [ ] or any replacements in respect thereof (the "LOCKBOXES") shall be promptly deposited in the Collection Deposit Account and shall not be commingled with other funds. All funds at any time on deposit in the Collection Deposit Account shall be held by the Sub-Agent for application in accordance with the terms of this 2 Agreement. The Sub-Agent agrees to give the Collateral Agent prompt notice if the Collection Deposit Account shall become subject to any writ, judgment, warrant of attachment, execution or similar process. As security for the payment and performance of the Obligations, the Grantor hereby confirms and pledges, assigns and transfers to the Collateral Agent, and hereby creates and grants to the Collateral Agent, a security interest in the Collection Deposit Account, all property and assets held therein and all Proceeds thereof. 3. The Collection Deposit Account shall be under the sole dominion and control of the Collateral Agent, who shall possess all right, title and interest in all of the items from time to time in the Collection Deposit Account and their Proceeds. The Sub-Agent shall be the Collateral Agent's agent for the purpose of holding and collecting such items and their Proceeds. Neither the Grantor nor any person or entity claiming by, through or under the Grantor shall have any right, title or interest in, or control over the use of, or any right to withdraw any amount from, the Collection Deposit Account, except that the Collateral Agent shall have the right to withdraw amounts from the Collection Deposit Account. The Sub-Agent shall be entitled to rely on, and shall act in accordance with, all instructions given to it by the Collateral Agent with respect to the Collection Deposit Account. The Collateral Agent shall have the sole power to agree with the Sub-Agent as to specifications for Lockbox services. 4. On a daily basis, the Sub-Agent shall (subject to the Sub-Agent's right to request that the Collateral Agent furnish, in form satisfactory to the Sub-Agent, signature cards and/or other appropriate documentation) promptly transmit or deliver to the Collateral Agent at the office specified in paragraph 12 hereof (or such other office as the Collateral Agent shall specify) (a) all funds, if any, then on deposit in, or otherwise to the credit of, the Collection Deposit Account (PROVIDED that funds on deposit that are subject to collection may be transmitted promptly upon availability for withdrawal), (b) all checks, drafts and other instruments for the payment of money received in the Lockboxes and in the possession of the Sub-Agent, without depositing such checks, drafts or other instruments in the Collection Deposit Account or any other account and (c) any checks, drafts and other instruments for the payment of money received in the Lockboxes by the Sub-Agent after such notice, in whatever form received, PROVIDED that the Sub-Agent may retain a reasonable reserve in a separate deposit account with the Sub-Agent in respect of unpaid fees and amounts which may be subject to collection. 5. The Sub-Agent is hereby instructed and authorized to transfer by wire transfer or Automated Clearing House ("ACH") from the Collection Deposit Account all funds that are from time to time deposited or otherwise credited to such account (after such funds become available to the Sub-Agent, either through the Federal Reserve System or other clearing mechanism used by the Sub-Agent's branch and to the extent such funds exceed $[1,000]), to such account as the Collateral Agent may from time to time direct, PROVIDED that, unless the Collateral Agent otherwise instructs, no such transfer shall be required if such transfer 3 would result in the transfer of an amount less than $[1,000]. Unless otherwise directed by the Collateral Agent, such funds shall be transferred on each business day by wire transfer or ACH and shall be identified as follows: Mellon Bank, N.A. ABA Number 031-000-037 For Credit to Mellon Bank, N.A., Philadelphia, PA Account Number 2-410-074 Re: Anteon Cash Collateral Account These transfer instructions and authorizations may not be amended, altered or revoked by the Grantor without the prior written consent of the Collateral Agent. The Collateral Agent, however, shall have the right to amend or revoke these transfer instructions and authorizations at any time without the consent of the Grantor. 6. The Sub-Agent shall furnish the Collateral Agent with monthly statements setting forth the amounts deposited in the Collection Deposit Account and all transfers and withdrawals therefrom, and shall furnish such other information at such times as shall be reasonably requested by the Collateral Agent. 7. The fees for the services of the Sub-Agent shall be mutually agreed upon between the Grantor and the Sub-Agent and shall be the obligation of the Grantor; PROVIDED, HOWEVER, that, notwithstanding the terms of any agreement under which the Collection Deposit Account shall have been established with the Sub-Agent, the Grantor and the Sub-Agent agree not to terminate such Collection Deposit Account for any reason (including the failure of the Grantor to pay such fees) for so long as this Agreement shall remain in effect (it being understood that the foregoing shall not be construed to prohibit the resignation of the SubAgent in accordance with paragraph 9 below). Neither the Collateral Agent nor the Secured Parties shall have any liability for the payment of any such fees. The Sub-Agent may perform any of its duties hereunder by or through its agents, officers or employees. 8. The Sub-Agent hereby represents and warrants that (a) it is a banking corporation duly organized, validly existing and in good standing under the laws of [] and has full corporate power and authority under such laws to execute, deliver and perform its obligations under this Agreement and (b) the execution, delivery and performance of this Agreement by the Sub-Agent have been duly and effectively authorized by all necessary corporate action and this Agreement has been duly executed and delivered by the Sub-Agent and constitutes a valid and binding obligation of the Sub-Agent enforceable in accordance with its terms. 4 9. The Sub-Agent may resign at any time as Sub-Agent hereunder by delivery to the Collateral Agent of written notice of resignation not less than thirty days prior to the effective date of such resignation. The Sub-Agent may be removed by the Collateral Agent at any time, with or without cause, by written, fax or telephonic notice (which, in the case of telephonic notice, shall be promptly confirmed in writing or by fax) of removal delivered to the Sub-Agent. Upon receipt of such notice of removal, or delivery of such notice of resignation, the Sub-Agent shall (subject to the Sub-Agent's right to request that the Collateral Agent furnish, in form satisfactory to the Sub-Agent, signature cards and/or other appropriate documentation), promptly transmit or deliver to the Collateral Agent at the office specified in paragraph 12 (or such other office as the Collateral Agent shall specify) (a) all funds, if any, then on deposit in, or otherwise to the credit of, the Collection Deposit Account (PROVIDED that funds on deposit that are subject to collection may be transmitted promptly upon availability for withdrawal), (b) all checks, drafts and other instruments for the payment of money received in the Lockboxes and in the possession of the Sub-Agent, without depositing such checks, drafts or other instruments in the Collection Deposit Account or any other account and (c) any checks, drafts and other instruments for the payment of money received in the Lockboxes by the Sub-Agent after such notice, in what ever form received. 10. The Grantor consents to the appointment of the Sub-Agent and agrees that the Sub-Agent shall incur no liability to the Grantor as a result of any action taken pursuant to an instruction given by the Collateral Agent in accordance with the provisions of this Agreement. The Grantor agrees to indemnify and defend the Sub-Agent against any loss, liability, claim or expense (including reasonable attorneys' fees) arising from the Sub-Agent's entry into this Agreement and actions taken hereunder, except to the extent resulting from the Sub-Agent's gross negligence or willful misconduct. 11. The term of this Agreement shall extend from the date hereof until the earlier of (a) the date on which the Sub-Agent has been notified in writing by the Collateral Agent that the Sub-Agent has no further duties under this Agreement and (b) the date of termination specified in the notice of removal given by the Collateral Agent, or notice of resignation given by the Sub-Agent, as the case may be, pursuant to paragraph 9. The obligations of the Sub-Agent contained in the last sentence of paragraph 9 and in paragraph 15, and the obligations of the Grantor contained in paragraphs 7 and 10, shall survive the termination of this Agreement. 12. All notices and communications hereunder shall be in writing and shall be delivered by hand or by courier service, mailed by certified or registered mail or sent by fax (except where telephonic instructions or notices are authorized herein) and shall be effective on the day on which received (a) in the case of the Collateral Agent, to Mellon Bank, N.A., at [ ], Attention of [Collateral Monitoring Department], and (b) in the case of the SubAgent, addressed to [ ], Attention of [ ]. For 5 purposes of this Agreement, any officer of the Collateral Agent shall be authorized to act, and to give instructions and notices, on behalf of the Collateral Agent hereunder. 13. The Sub-Agent will not assign or transfer any of its rights or obligations hereunder (other than to the Collateral Agent) without the prior written consent of the other parties hereto, and any such attempted assignment or transfer shall be void. 14. Except as provided in paragraph 5 above, this Agreement may be amended only by a written instrument executed by the Collateral Agent, the Sub-Agent and the Grantor, acting by their duly authorized representative officers. 15. Except as otherwise provided in the Credit Agreement with respect to rights of set off available to the Sub-Agent in its capacity as a Lender (if and so long as the Sub-Agent is a Lender thereunder), the Sub-Agent hereby irrevocably waives any right to set off against, or otherwise deduct from, any funds held in the Collection Deposit Account and all items (and Proceeds thereof) that come into its possession in connection with the Collection Deposit Account any indebtedness or other claim owed by the Grantor or any affiliate thereof to the Sub-Agent; PROVIDED, HOWEVER, that this paragraph shall not limit the ability of the Sub-Agent to, and the Sub-Agent may, (a) exercise any right to set off against, or otherwise deduct from, any such funds to the extent necessary for the Sub-Agent to collect any fees owed to it by the Grantor in connection with the Collection Deposit Account, (b) charge back and net against the Collection Deposit Account any returned or dishonored items or other adjustments in accordance with the Sub-Agent's usual practices and (c) (i) establish the reserves contemplated in paragraph 4 in respect of unpaid fees and amounts which may be subject to collection and (ii) transfer funds in respect of such reserves from the Collection Deposit Account to the separate deposit account with the Sub-Agent as contemplated in paragraph 4. 16. This Agreement shall inure to the benefit of and be binding upon the Collateral Agent, the Sub-Agent, the Grantor and their respective permitted successors and assigns. 17. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Delivery of an executed signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. 18. EXCEPT TO THE EXTENT THE LAWS OF THE STATE OF [ ] GOVERN THE COLLECTION DEPOSIT ACCOUNT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 19. The Sub-Agent shall be an independent contractor. This Agreement does not give rise to any partnership, joint venture or fiduciary relationship. 6 20. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. [Name of Grantor], by: ----------------------- Name: Title: MELLON BANK, N.A., as Collateral Agent, by: ----------------------- Name: Title: [Sub-Agent], by: ----------------------- Name: Title: Annex 2 to the Security Agreement [Form Of] PERFECTION CERTIFICATE Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Anteon Corporation (the "BORROWER"), Azimuth Technologies, Inc. ("AZIMUTH"), the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as issuing bank, Mellon Bank, N.A., as collateral agent (in such capacity, the "COLLATERAL AGENT"), syndication agent and swingline lender, and Deutsche Bank AG, New York Branch, as documentation agent, (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "SUBSIDIARY GUARANTEE AGREEMENT"), among the Subsidiary Guarantors and the Collateral Agent, and (c) the Security Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "SECURITY AGREEMENT") among the Borrower, the Subsidiary Guarantors and the Collateral Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement or the Security Agreement, as applicable. The undersigned, a Financial Officer and the general counsel, respectively, of the Borrower, hereby certify to the Collateral Agent and each other Secured Party as follows: 1. NAMES. (a) The exact corporate name of each Grantor, as such name appears in its respective certificate of incorporation, is as follows: (b) Set forth below is each other corporate name each Grantor has had in the past five years, together with the date of the relevant change: (c) Except as set forth in Schedule 1 hereto, no Grantor has changed its identity or corporate structure in any way within the past five years. Changes in identity or corporate structure would include mergers, consolidations and acquisitions, as well as any change in the form, nature or jurisdiction of corporate organization. If any such change has occurred, include in Schedule 1 the information required by Sections 1 and 2 of this certificate as to each acquiree or constituent party to a merger or consolidation. (d) The following is a list of all other names (including trade names or similar appellations) used by each Grantor or any of its divisions or other business units in connection with the conduct of its business or the ownership of its properties at any time during the past five years: 2 (e) Set forth below is the Federal Taxpayer Identification Number of each Grantor: 2. CURRENT LOCATIONS. (a) The chief executive office of each Grantor is located at the address set forth opposite its name below: Grantor Mailing Address County State - ------- --------------- ------ ----- (b) Set forth below opposite the name of each Grantor are all locations where such Grantor maintains any books or records relating to any Accounts Receivable (with each location at which chattel paper, if any, is kept being indicated by an "*"): Grantor Mailing Address County State - ------- --------------- ------ ----- (c) Set forth below opposite the name of each Grantor are all the places of business of such Grantor not identified in paragraph (a) or (b) above: Grantor Mailing Address County State - ------- --------------- ------ ----- (d) Set forth below opposite the name of each Grantor are all the locations where such Grantor maintains any Collateral not identified above: Grantor Mailing Address County State - ------- --------------- ------ ----- (e) Set forth below opposite the name of each Grantor are the names and addresses of all persons other than such Grantor that have possession of any of the Collateral of such Grantor: Grantor Mailing Address County State - ------- --------------- ------ ----- 3 3. UNUSUAL TRANSACTIONS. All Accounts Receivable have been originated by the Grantors and all Inventory has been acquired by the Grantors in the ordinary course of business. 4. FILE SEARCH REPORTS. Attached hereto as Schedule 4(A) are true copies of file search reports from the Uniform Commercial Code filing offices where filings described in Section 3.19 of the Credit Agreement are to be made. Attached hereto as Schedule 4(B) is a true copy of each financing statement or other filing identified in such file search reports. 5. UCC FILINGS. Duly signed financing statements on Form UCC-1 in substantially the form of Schedule 5 hereto have been prepared for filing in the Uniform Commercial Code filing office in each jurisdiction where a Grantor has Collateral as identified in Section 2 hereof. 6. SCHEDULE OF FILINGS. Attached hereto as Schedule 6 is a schedule setting forth, with respect to the filings described in Section 5 above, each filing and the filing office in which such filing is to be made. 7. STOCK OWNERSHIP AND OTHER EQUITY INTERESTS. Attached hereto as Schedule 7 is a true and correct list of all the duly authorized, issued and outstanding stock, partnership interests, limited liability company membership interests or other equity interests of the Borrower and each Subsidiary and the record and beneficial owners of such equity interests. Also set forth on Schedule 7 is each equity investment of the Borrower and each Subsidiary that represents 50% or less of the equity of the entity in which such investment was made. 8. NOTES. Attached hereto as Schedule 8 is a true and correct list of all notes held by the Borrower and each Subsidiary and all intercompany notes between Azimuth, the Borrower and each Subsidiary and between each Subsidiary and each other Subsidiary. 9. INVESTMENT ACCOUNTS. Attached hereto as Schedule 9 is a true and correct list of all bank, brokerage and other deposits or securities investment accounts maintained by the Borrower and the Subsidiaries. 10. ASSIGNMENT OF CLAIMS ACT. Attached hereto as Schedule 10 is a true and correct list of all Government Contracts that as of the date hereof constitute Material Contracts, setting forth the contract number, name and address of contracting officer (or other party to whom a notice of assignment under the Assignment of Claims Act should be sent), contract start date and end date, agency with which the contract was entered into, and a description of the contract type. 11. ADVANCES. Attached hereto as Schedule 11 is a true and correct list of all advances made by the Borrower or any Subsidiary to Azimuth, the Borrower or any 4 Subsidiary, which advances will be on and after the date hereof evidenced by one or more intercompany notes pledged to the Collateral Agent under the Pledge Agreement. IN WITNESS WHEREOF, the undersigned have duly executed this certificate on this [ ] day of [ ]. ANTEON CORPORATION, by: ------------------------ Name: Title:[Financial Officer] by: ------------------------ Name: Title: [General Counsel] Annex 3 to the Security Agreement SUPPLEMENT NO. __ dated as of , to the Security Agreement dated as of June 23, 1999, among ANTEON CORPORATION, a Virginia corporation (the "BORROWER"), each subsidiary of the Borrower listed on Schedule I thereto (each such subsidiary individually a "SUBSIDIARY GUARANTOR" and collectively, the "SUBSIDIARY GUARANTORS"; the Subsidiary Guarantors and the Borrower are referred to collectively herein as the "GRANTORS") and MELLON BANK, N.A., a national banking association ("MELLON"), as collateral agent (in such capacity, the "COLLATERAL AGENT") for the Secured Parties (as defined herein). A. Reference is made to (a) the Credit Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower, the lenders from time to time party thereto (the "LENDERS"), Credit Suisse First Boston, a bank organized under the laws of Switzerland, acting through its New York branch ("CSFB"), as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT") and as issuing bank, Mellon, as Collateral Agent, syndication agent and swingline lender, and Deutsche Bank AG, New York Branch, as documentation agent, and (b) the Subsidiary Guarantee Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise modified from time to time, the "GUARANTEE AGREEMENT"), among the Subsidiary Guarantors and the Collateral Agent. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement or the Credit Agreement, as applicable. C. The Grantors have entered into the Security Agreement in order to induce the Lenders to make Loans and the Issuing Bank to issue Letters of Credit. Section 7.15 of Security Agreement provides that additional Subsidiaries of the Borrower may become Grantors under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the "NEW GRANTOR") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Grantor under the Security Agreement in order to induce the Lenders to make additional Loans and the Issuing Bank to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Collateral Agent and the New Grantor agree as follows: SECTION 1. In accordance with Section 7.15 of the Security Agreement, the New Grantor by its signature below becomes a Grantor under the Security Agreement with the same force and effect as if originally named therein as a Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the 2 foregoing, the New Grantor, as security for the payment and performance in full of the Obligations (as defined in the Security Agreement), does hereby create and grant to the Collateral Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and lien on all of the New Grantor's right, title and interest in and to the Collateral (as defined in the Security Agreement) of the New Grantor. Each reference to a "Grantor" in the Security Agreement shall be deemed to include the New Grantor. The Security Agreement is hereby incorporated herein by reference. SECTION 2. The New Grantor represents and warrants to the Collateral Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Grantor and the Collateral Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. The New Grantor hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Grantor and (b) set forth under its signature hereto, is the true and correct location of the chief executive office of the New Grantor. SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 7. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Security Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 3 SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 7.01 of the Security Agreement. All communications and notices hereunder to the New Grantor shall be given to it at the address set forth under its signature below. SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Collateral Agent. IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written. [Name Of New Grantor], by: -------------------------- Name: Title: Address: MELLON BANK, N.A., as Collateral Agent, by: -------------------------- Name: Title: SCHEDULE I to Supplement No.___ to the Security Agreement LOCATION OF COLLATERAL Description Location - ----------- -------- EX-10.9 16 FEE AGREEMENT Exhibit 10.9 FEE AGREEMENT FEE AGREEMENT (the "Agreement"), dated as of June 1, 1999, between ANTEON CORPORATION, a Virginia corporation (the "Company") and CAXTON-ISEMAN CAPITAL, INC., a Delaware corporation ("CIC"). WHEREAS, the Company desires for CIC to provide certain ongoing advisory and management services to the Company, and CIC is willing to provide such services subject to the terms and conditions contained herein. WHEREAS, all capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning ascribed to them in the Confidential Offering Circular of the Company, dated May 6, 1999, for its 12% Senior Subordinated Notes Due 2009. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1.SERVICES. During the term of this Agreement, CIC shall provide such acquisition and financial advisory services to the Company and its subsidiaries as the Board of Directors of the Company shall reasonably request, including without limitation: providing general business advice, including recommendations as to, and identification of, acquisitions and dispositions of operating entities; structuring and negotiating transactions and recommending positions in or securities of selected entities; identifying, structuring and obtaining bank, institutional and other sources of financing needed or appropriate in connection with any proposed transaction, arranging appropriate introductions and marketing the financing proposals; and supervising the preparation and review of all documents required to complete each transaction. 2.COMPENSATION. (a) In consideration of the services previously provided and to be provided in accordance with Section 1, the Company shall pay to CIC a management fee of $500,000 annually, commencing on January 1, 1998 and terminating upon the successful completion of the acquisition of Analysis & Technology, Inc., a Connecticut corporation ("A&T") by the Company (the "Acquisition"). Thereafter, the annual management fee shall be $1,000,000. All fees shall be pro-rated for partial years. (b) Immediately upon the successful completion of the Acquisition, the Company shall pay to CIC a transaction fee equal to $1,110,000. (c) Notwithstanding anything to the contrary in Section 2(a), the management fee payable in any fiscal year shall not exceed the amounts permitted under the Company's Credit Agreement, dated as of the date hereof, with the lenders named therein, Credit Suisse First Boston, as lead arranger and administrative agent, Mellon Bank, N.A., as co-arranger, collateral agent and syndication agent, and Deutsche Bank A.G., as documentation agent (as amended, the "Credit Agreement") or under the Indenture, dated May 11, 1999, governing the Company's 12% Senior Subordinated Notes; provided that on the first day in any fiscal year upon which the full amount payable under Section 2(a) with respect to such fiscal year shall be permitted to be paid, such amount shall be paid, and upon the first day upon which any amount that would have been payable under Section 2(a) with respect to any prior fiscal year except for the provisions of this Section 2(c), such amount shall be paid. (d) If the Company is involved in any acquisitions, financings or similar transactions with respect to which CIC provides services, an investment banking fee shall also be paid by the Company to CIC, subject to the agreement of both CIC and the Company. The amounts of all fees referred to in this Section 2(d) are subject to the consent of the Company's lenders under the Credit Agreement referred to in Section 2(c). 3.REIMBURSEMENT. CIC and its affiliates shall be entitled to reimbursement of all reasonable out-of-pocket expenses (including, without limitation, legal, accounting, consulting and travel fees and expenses) incurred in connection with the performance of this Agreement (other than salary expenses and associated overhead charges), which amounts shall be promptly reimbursed by the Company upon request. 4.INDEMNITY. (a) None of CIC, any of its Affiliates or any of their respective partners, officers, directors, stockholders, affiliates, agents or employees (each an "Indemnified Party") shall have any liability to the Company for any services provided pursuant to this Agreement, except as may result from such Indemnified Party's gross negligence or willful misconduct. (b) The Company hereby agrees to indemnify each Indemnified Party from and against all losses, liabilities, damages, deficiencies, demands, claims, actions, judgments or causes of action, assessments, costs or expenses (including, without limitation, interest, penalties and reasonable fees, expenses and disbursements of attorneys, experts, personnel and consultants reasonably incurred by the Indemnified Party in any action or proceeding between the Company and the Indemnified Party or between the Indemnified Party and any third party, or otherwise) based upon, arising out of or otherwise in respect of this Agreement or any Indemnified Party's equity interest in the Company. To the extent that the foregoing indemnification is not permitted by law, each of the Indemnified Parties and the Company shall be subject and entitled to contribution based upon the relative benefits (not to exceed in any event the amount of fees paid to CIC hereunder) received by each and, if legally required, based upon the relative fault of each of the Indemnified Parties and the Company. Section 5. ASSIGNMENT. This Agreement may not be assigned by any party hereto without the written consent of the other party; provided, that the Company 2 shall be entitled to assign this Agreement to any Person that is an Affiliate of the Company or that otherwise assumed or is a successor to substantially all of the assets and the liabilities of the Company. Section 6. MODIFICATION. This Agreement may not be modified or amended in any manner other than by an instrument in writing signed by both parties hereto, or their respective successors or assigns. Section 7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreement or understanding among them with respect to such subject matter. Section 8. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid and return receipt requested. Any such notice shall be deemed given when so delivered personally or sent by facsimile transmission or, if mailed, five (5) days after the date of deposit in the United States mails, as follows: (c) if to CIC, to: Caxton-Iseman Capital, Inc. 667 Madison Avenue, 10th Floor New York, NY 10021 Attention: Frederick J. Iseman Telephone: (212) 752-1850 Facsimile: (212) 832-9450 with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 Attention: Carl L. Reisner, Esq. Telephone: (212) 373-3017 Facsimile: (212) 373-2085 3 (d) if to the Company, to: Anteon Corporation 3211 Jermantown Road, Suite 700 Fairfax, VA 22030 Attention: Joseph Kampf Telephone: (703) 246-0300 Facsimile: (703) 246-0375 Any party may, by notice given in accordance with this Section to the other parties, designate another address or person for receipt of notices hereunder. Section 9. GOVERNING LAW; SUBMISSION TO JURISDICTION. All questions concerning the construction, validity and interpretation of this Agreement will be governed by and construed in accordance with the internal law (and not the law of conflicts) of the State of New York. Section 10. TERMINATION. This Agreement may be terminated by CIC or the Company at any time by written notice from one to the other. The provisions of Section 4 and the obligations of the Company under Sections 2 (including rights to future payment in accordance with Section 2(c)) and 3 with respect to any compensation or reimbursement for expenses shall survive any termination of this Agreement. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. ANTEON CORPORATION By: /s/ Carlton Crenshaw ----------------------------------- Name: Carlton Crenshaw Title: Senior Vice President, Chief Financial and Administrative Officer CAXTON-ISEMAN CAPITAL, INC. By: /s/ Frederick J. Iseman ----------------------------------- Name: Frederick J. Iseman Title: Chairman 5 EX-10.10 17 STOCK OPTION PLAN EXHIBIT 10.10 AMENDED AND RESTATED ANTEON CORPORATION OMNIBUS STOCK PLAN 1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS. Anteon Corporation hereby establishes the ANTEON CORPORATION OMNIBUS STOCK PLAN (the "Plan"). The purpose of the Plan is to promote the long-term growth and profitability of Anteon Corporation (the "Corporation") by (i) providing key people with incentives to improve stockholder value and to contribute to the growth and financial success of the Corporation, and (ii) enabling the Corporation to attract, retain and reward the best available persons for positions of substantial responsibility. The Plan permits the granting of stock options (including nonqualified stock options and incentive stock options qualifying under Section 422 of the Code), stock appreciation rights (including freestanding, tandem and limited stock appreciation rights), restricted or unrestricted stock awards, phantom stock, or any combination of the foregoing (collectively, "Awards"). The Plan is a compensatory benefit plan within the meaning of Rule 701 under the Securities Act of 1933 (the "Securities Act"). Except to the extent any other exemption from the Securities Act is expressly relied upon in connection with any agreement entered into pursuant to the Plan or the securities issuable hereunder are registered under the Securities Act, the issuance of Common Stock pursuant to the Plan is intended to qualify for the exemption from registration under the Securities Act provided by Rule 701. To the extent that an exemption from registration under the Securities Act provided by Rule 701 is unavailable, all unregistered offers and sales of Awards and shares of Common Stock issuable upon exercise of an Award are intended to be exempt from registration under the Securities Act in reliance upon the private offering exemption contained in Section 4(2) of the Securities Act, or other available exemption, and the Plan shall be so administered. 2. DEFINITIONS. Under this Plan, except where the context otherwise indicates, the following definitions apply: (a) "AFFILIATE" shall mean any person controlled by, controlling or under common control with the Corporation. (b) "AWARD" shall mean any stock option, stock appreciation right, stock award, or phantom stock award. (c) "BOARD" shall mean the Board of Directors of the Corporation. (d) "CHANGE IN CONTROL" shall mean (i) any sale, exchange or other disposition of substantially all of the Corporation's assets; or (ii) any merger, share exchange, consolidation or other reorganization or business combination in which the Corporation is not the surviving or continuing corporation, or in which the Corporation's stockholders become entitled to receive cash, securities of the Corporation other than voting common stock, or securities of another issuer other than an Affiliate. (e) "CODE" shall mean the Internal Revenue Code of 1986, as amended, and any regulations issued thereunder. (f) "COMMITTEE" shall mean the Board or committee of Board members appointed pursuant to Section 3 of the Plan to administer the Plan. (g) "COMMON STOCK" shall mean shares of the Corporation's Class 1 Common Stock, par value of five cents ($0.05) per share. (h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (i) "FAIR MARKET VALUE" of a share of the Corporation's Common Stock for any purpose on a particular date shall be determined in a manner such as the Committee shall in good faith determine to be appropriate; provided, however, that if the Common Stock is publicly traded, then the Fair Market Value shall mean the last reported sale price per share of Common Stock, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, or if the Common Stock is not so listed or admitted to trading or included for quotation, the last quoted price, or if the Common Stock is not so quoted, the average of the high bid and low asked prices, regular way, in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation system or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices, regular way, as furnished by a professional market maker making a market in the Common Stock as selected in good faith by the Committee or by such other source or sources as shall be selected in good faith by the Committee; and provided further, that in the case of incentive stock options, the determination of Fair Market Value shall be made by the Committee in good faith in compliance with the Treasury Regulations under Section 422 of the Code. If, as the case may be, the relevant date is not a trading day, the determination shall be made as of the next preceding trading day. As used herein, the term "trading day" shall mean a day on which public trading of securities occurs and is reported in the principal consolidated reporting system referred to above, or if the Common Stock is not listed or admitted to trading on a national securities exchange or included for quotation on the Nasdaq-National Market, any day other than a Saturday, a Sunday or a day in which banking institutions in the state of New York are closed. (j) "GRANT AGREEMENT" shall mean a written agreement between the Corporation and a grantee memorializing the terms and conditions of an Award granted pursuant to the Plan. (k) "GRANT DATE" shall mean the date on which the Committee formally acts to grant an Award to a grantee or such other date as the Committee shall so designate at the time of taking such formal action. (l) "PARENT" shall mean a corporation, whether now or hereafter existing, within the meaning of the definition of "Parent corporation" provided in Section 424(e) of the Code, or any successor thereto of similar import. (m) "RULE 16B-3" shall mean Rule 16b-3 as in effect under the Exchange Act on the effective date of the Plan, or any successor provision prescribing conditions necessary to exempt the issuance of securities under the Plan (and further transactions in such securities) from Section 16(b) of the Exchange Act. (n) "SUBSIDIARY" and "SUBSIDIARIES" shall mean only a corporation or corporations, whether now or hereafter existing, within the meaning of the definition of "subsidiary corporation" provided in Section 424(f) of the Code, or any successor thereto of similar import. 3. ADMINISTRATION. (a) PROCEDURE. The Plan shall be administered by the Board. In the alternative, the Board may appoint a Committee consisting of not less than three (3) members of the Board to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefore, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. In the event that the Board is the administrator of the Plan in lieu of a Committee, the term "Committee" as used herein shall be deemed to mean the Board. Members of the Board or Committee who are either eligible for Awards or have been granted Awards may vote on any matters, affecting the administration of the Plan or the grant of Awards pursuant to the Plan, except that no such member shall act upon the granting of an Award to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board or the Committee during which action is taken with respect to the granting of an Award to him or her. The Committee shall meet at such times and places and upon such notice as it may determine. A majority of the Committee shall constitute a quorum. Any acts by the Committee may be taken at any meeting at which a quorum is present and shall be by majority vote of those members entitled to vote. Additionally, any acts reduced to writing or approved in writing by all of the members of the Committee shall be valid acts of the Committee. (b) PROCEDURE AFTER REGISTRATION OF COMMON STOCK. Notwithstanding the provisions of subsection (a) above, in the event that the Common Stock or any other capital stock of the Corporation becomes registered under Section 12 of the Exchange Act, the members of the Committee shall be both "Non-Employee Directors" within the meaning of Rule 16b-3, and "outside directors" within the meaning of Section 162(m) of the Code. Upon and after the point in time that the Common Stock or any other capital stock of the Corporation becomes registered under Section 12 of the Exchange Act, the Board shall take all action necessary to cause the Plan to be administered in accordance with the then effective provisions of Rule 16b-3, provided that any amendment to the Plan required for compliance with such provisions shall be made in accordance with Section 13 of the Plan. (c) POWER OF THE COMMITTEE. The Committee shall have all the powers vested in it by the terms of the Plan, such powers to include the authority, in its sole and absolute discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards. The Committee shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to: (i) determine the eligible persons to whom, and the time or times at which Awards shall be granted, (ii) determine the types of Awards to be granted, (iii) determine the number of shares to be covered by or used for reference purposes for each Award, (iv) impose such terms, limitations, restrictions and conditions upon any such Award as the Committee shall deem appropriate, (v) modify, extend or renew outstanding Awards, accept the surrender of outstanding Awards and substitute new Awards, provided that no such action shall be taken with respect to any outstanding Award which would adversely affect the grantee without the grantee's consent, (vi) accelerate or otherwise change the time in which an Award may be exercised or becomes payable and to waive or accelerate the lapse, in whole or in part, of any restriction or condition with respect to such Award, including, but not limited to, any restriction or condition with respect to the vesting or exercisability of an Award following termination of any grantee's employment, and (vii) to establish objectives and conditions, if any, for earning Awards and determining whether Awards will be paid after the end of a performance period. The Committee shall have full power and authority to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Committee deems necessary or advisable and to interpret same, all within the Committee's sole and absolute discretion. (d) LIMITED LIABILITY. To the maximum extent permitted by law, no member of the Board or Committee shall be liable for any action taken or decision made in good faith relating to the Plan or any Award thereunder. (e) INDEMNIFICATION. To the maximum extent permitted by law, the members, including former members, of the Board and Committee shall be indemnified by the Corporation in respect of all their activities under the Plan. (f) EFFECT OF COMMITTEE'S DECISION. All actions taken and decisions and determinations made by the Committee on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Committee's sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Corporation, its stockholders, any participants in the Plan and any other employee of the Corporation, and their respective successors in interest. 4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS. Subject to adjustments as provided in Section 11 of the Plan, the shares of stock that may be delivered or purchased or used for reference purposes (with respect to stock appreciation rights, phantom stock units or performance awards payable in cash) with respect to Awards granted under the Plan, including with respect to incentive stock options intended to qualify under Section 422 of the Code, shall not exceed an aggregate of 250,000 shares of Common Stock of the Corporation. The Corporation shall reserve said number of shares for Awards under the Plan, subject to adjustments as provided in Section 11 of the Plan if any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable or is forfeited or otherwise terminated, surrendered or canceled as to any shares without the delivery of shares of Common Stock or other consideration, the shares subject to such Award shall thereafter be available for further Awards under the Plan. 5. PARTICIPATION. Participation in the Plan shall only be open to a designated class of employees, officers, directors and consultants of the Corporation, or of any Parent or Subsidiary of the Corporation, as set forth in Schedule A and as may be changed by the Committee in its sole and absolute discretion from time to time. Notwithstanding the foregoing, participation in the Plan with respect to Awards of incentive stock options shall be limited to employees of the Corporation or of any Parent or Subsidiary of the Corporation. To the extent necessary to comply with Rule 16b-3 or to constitute an "outside director" within the meaning of Section 162(m) of the Code, and only in the event that Rule 16b-3 or Section 162(m) of the Code is applicable to the Plan or an Award made thereunder, Committee members shall not be eligible to participate in the Plan while members of the Committee. Awards may be granted to such eligible persons and for or with respect to such number of shares of Common Stock as the Committee shall determine, subject to the limitations in Section 4 of the Plan. A grant of any type of Award made in any one year to an eligible person shall neither guarantee nor preclude a further grant of that or any other type of Award to such person in that year or subsequent years. 6. STOCK OPTIONS. Subject to the other applicable provisions of the Plan, the Committee may from time to time grant to eligible participants Awards of nonqualified stock options or incentive stock options as that term is defined in Section 422 of the Code. The stock option Awards granted shall be subject to the following terms and conditions. (a) GRANT OF OPTION. The grant of a stock option shall be evidenced by a Grant Agreement, executed by the Corporation and the grantee, stating the number of shares of Common Stock subject to the stock option evidenced thereby and the terms and conditions of such stock option, in such form as the Committee may from time to time determine. (b) PRICE. The price per share payable upon the exercise of each stock option ("exercise price") shall be determined by the Committee, provided, however, that in the case of incentive stock options, the exercise price shall not be less than 100% of the Fair Market Value of the shares on the date the stock option is granted. (c) PAYMENT. Stock options may be exercised in whole or in part by payment of the exercise price of the shares to be acquired in accordance with the provisions of the Grant Agreement, and/or such rules and regulations as the Committee may have prescribed, and/or such determinations, orders, or decisions as the Committee may have made. Payment may be made in cash (or cash equivalents acceptable to the Committee) or, unless otherwise determined by the Committee, in shares of Common Stock or a combination of cash and shares of Common Stock, or by such other means as the Committee may prescribe. The Fair Market Value of shares of Common Stock delivered on exercise of stock options shall be determined as of the date of exercise. Shares of Common Stock delivered in payment of the exercise price may be previously owned shares or, if approved by the Committee, shares acquired upon the exercise of the stock option. Any fractional share will be paid in cash. Subject to any restrictions imposed by the Corporation's lenders or creditors, the Corporation may make loans to grantees to assist grantees in exercising stock options and satisfying any related withholding tax obligations. If the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Committee, subject to such limitations as it may determine, may authorize payment of the exercise price, in whole or in part, by delivery of a properly executed exercise notice, together with irrevocable instructions, to: (i) a brokerage firm designated by the Corporation to deliver promptly to the Corporation the aggregate amount of sale or loan proceeds to pay the exercise price and any withholding tax obligations that may arise in connection with the exercise, and (ii) the Corporation to deliver the certificates for such purchased shares directly to such brokerage firm. (d) TERM OF OPTIONS. The term during which each stock option may be exercised shall be determined by the Committee and set forth in the Grant Agreement between the Corporation and the grantee. Prior to the exercise of the stock option and delivery of the shares certificates represented thereby, the grantee shall have none of the rights of a stockholder with respect to any shares represented by an outstanding stock option. (e) RESTRICTIONS ON INCENTIVE STOCK OPTIONS. Incentive stock option Awards granted under the Plan shall comply in all respects with Code Section 422 and, as such, shall meet the following additional requirements: (i) GRANT DATE. An incentive stock option must be granted within 10 years of the earlier of the Plan's adoption by the Board of Directors or approval by the Corporation's shareholders. (ii) EXERCISE PRICE AND TERM. The exercise price of an incentive stock option shall not be less than 100% of the Fair Market Value of the shares on the date the stock option is granted. Also, the exercise price of any incentive stock option granted to a grantee who owns (within the meaning of Section 422(b)(6) of the Code, after the application of the attribution rules in Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of shares of the Corporation or its Parent or Subsidiary corporations (within the meaning of Sections 422 and 424 of the Code) shall be not less than 110% of the Fair Market Value of the Common Stock on the grant date and the term of such stock option shall not exceed five years. (iii) MAXIMUM GRANT. The aggregate Fair Market Value (determined as of the Grant Date) of shares of Common Stock with respect to which all incentive stock options first become exercisable by any grantee in any calendar year under this or any other plan of the Corporation and its Parent and Subsidiary corporations may not exceed $100,000 or such other amount as may be permitted from time to time under Section 422 of the Code. To the extent that such aggregate Fair Market Value shall exceed $100,000, or other applicable amount, such stock options shall be treated as nonqualified stock options. In such case, the Corporation may designate the shares of Common Stock that are to be treated as stock acquired pursuant to the exercise of an incentive stock option by issuing a separate certificate for such shares and identifying the certificate as incentive stock option shares in the stock transfer records of the Corporation. (iv) GRANTEE. Incentive stock options shall only be issued to employees of the Corporation, or of a Parent or Subsidiary of the Corporation. (v) DESIGNATION. No stock option shall be an incentive stock option unless so designated by the Committee at the time of grant or in the Grant Agreement evidencing such stock option. (vi) OTHER TERMS AND CONDITIONS. Stock options may contain such other provisions, not inconsistent with the provisions of the Plan, as the Committee shall determine appropriate from time to time. 7. STOCK APPRECIATION RIGHTS. (a) Award of Stock Appreciation Rights. Subject to the other applicable provisions of the Plan, the Committee may at any time and from time to time grant stock appreciation rights ("SARs") to eligible participants, either on a free-standing basis (without regard to or in addition to the grant of a stock option) or on a tandem basis (related to the grant of an underlying stock option), as it determines. SARs granted in tandem with or in addition to a stock option may be granted either at the same time as the stock option or at a later time; provided, however, that a tandem SAR shall not be granted with respect to any outstanding incentive stock option Award without the consent of the grantee. SARs shall be evidenced by Grant Agreements, executed by the Corporation and the grantee, stating the number of shares of Common Stock subject to the SAR evidenced thereby and the terms and conditions of such SAR, in such form as the Committee may from time to time determine. The term during which each SAR may be exercised shall be determined by the Committee. The grantee shall have none of the rights of a stockholder with respect to any Shares of Common Stock represented by a SAR. (b) RESTRICTIONS OF TANDEM SARS. No incentive stock option may be surrendered in connection with the exercise of a tandem SAR unless the Fair Market Value of the Common Stock subject to the incentive stock option is greater than the exercise price for such incentive stock option. SARs granted in tandem with stock options shall be exercisable only to the same extent and subject to the same conditions as the stock options related thereto are exercisable. The Committee may, in its discretion, prescribe additional conditions to the exercise of any such tandem SAR. (c) AMOUNT OF PAYMENT UPON EXERCISE OF SARS. A SAR shall entitle the grantee to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one share of Common Stock over (B) the base price per share specified in the Grant Agreement, which shall be determined by the Committee but which shall not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant of the SAR, times (ii) the number of shares specified by the SAR, or portion thereof, which is exercised. In the case of exercise of a tandem SAR, such payment shall be made in exchange for the surrender of the unexercised related stock option (or any portion or portions thereof which the grantee from time to time determines to surrender for this purpose). (d) FORM OF PAYMENT UPON EXERCISE OF SARS. Payment by the Corporation of the amount receivable upon any exercise of an SAR may be made by the delivery of Common Stock or cash, or any combination of Common Stock and cash, as determined in the sole and absolute discretion of the Committee from time to time. If upon settlement of the exercise of an SAR a grantee is to receive a portion of such payment in shares of Common Stock, the number of shares shall be determined by dividing such portion by the Fair Market Value of a share of Common Stock on the exercise date. No Fractional shares shall be used for such payment and the Committee shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated. 8. STOCK AWARDS (INCLUDING RESTRICTED AND UNRESTRICTED SHARES AND PHANTOM STOCK). (a) STOCK AWARDS IN GENERAL. Subject to the other applicable provisions of the Plan, the Committee may at any time and from time to time grant stock Awards to eligible participants in such amount and for such consideration, including no consideration or such minimum consideration as may be required by law, as it determines. A stock Award may be denominated in shares of Common Stock or stock-equivalent units ("phantom stock"), and may be paid in Common Stock, in cash, or in a combination of Common Stock and cash, as determined in the sole and absolute discretion of the Committee from time to time. (b) RESTRICTED SHARES. Each stock Award shall, specify the applicable restrictions, if any, on such shares of Common Stock, the duration of such restrictions, and the time or times at which such restrictions shall lapse with respect to all or a specified number of shares of Common Stock that are part of the Award. Notwithstanding the foregoing, the Committee may reduce or shorten the duration of any restriction applicable to any shares of Common Stock awarded to any grantee under the Plan. Share certificates with respect to restricted shares of Common Stock granted pursuant to a stock Award may be issued at the time of grant of the Stock Award, subject to Forfeiture as defined in the Grant Agreement if the restrictions do not lapse, or upon lapse of the restrictions. If share certificates are issued at the time of grant of the stock Award, the certificates shall bear an appropriate legend with respect to the restrictions applicable to such stock Award or, alternatively, the grantee may be required to deposit the certificates with the Corporation during the period of any restriction thereon and to execute a blank stock power or other instrument of transfer therefor. Except as otherwise provided by the Committee, during such period of restriction following issuance of share certificates, the grantee shall have all of the rights of a holder of Common Stock, including but not limited to the rights to receive dividends (or amounts equivalent to dividends) and to vote with respect to the restricted shares. If share certificates are issued upon lapse of restrictions on a stock Award, the Committee may provide that the grantee will be entitled to receive any amounts per share pursuant to any dividend or distribution paid by the Corporation on its Common Stock to stockholders of record after grant of the stock Award and prior to the issuance of the share certificates. (c) PHANTOM STOCK. The grant of phantom stock units, if any, shall be evidenced by a Grant Agreement, executed by the Corporation and the grantee, that incorporates the terms of the Plan and states the number of Phantom stock units evidenced thereby and the terms and conditions of such Phantom stock units in such form as the Committee may from time to time determine. Phantom stock units granted to a grantee shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Corporation's assets. Phantom stock units may be exercised in whole or in part by delivery of an appropriate exercise notice to the Committee in accordance with the provisions of the Grant Agreement, and/or such rules and regulations as the Committee may prescribe, and/or such determinations, orders, or decisions as the Committee may make. Except as otherwise provided in the applicable Grant Agreement, the grantee shall have none of the rights of a stockholder with respect to any shares of Common Stock represented by a phantom stock unit as a result of the grant of a phantom stock unit to the grantee. Phantom stock units may contain such other provisions, not inconsistent with the provisions of the Plan, as the Committee shall determine appropriate from time to time. 9. WITHHOLDING OF TAXES. The Corporation may require, as a condition to the grant of any Award under the Plan or exercise pursuant to such Award or to the delivery of certificates for shares issued or payments of cash to a grantee pursuant to the Plan or a Grant Agreement (hereinafter collectively referred to as a "taxable event"), that the grantee pay to the Corporation, in cash or, unless otherwise determined by the Corporation, in shares of Common Stock, including shares acquired upon grant of the Award or exercise of the Award, valued at Fair Market Value on the date as of which the withholding tax liability is determined, any federal, state or local taxes of any kind required by law to be withheld with respect to any taxable event under the Plan. The Corporation, to the extent permitted or required by law, shall have the right to deduct from any payment of any kind (including salary or bonus) otherwise due to a grantee any federal, state or local taxes of any kind required by law to be withheld with respect to any taxable event under the Plan, or to retain or sell without notice a sufficient number of the shares to be issued to such grantee to cover any such taxes. 10. TRANSFERABILITY. To the extent required to comply with Rule 16b-3, if applicable, and in any event in the case of an incentive stock option or a stock appreciation right granted with respect to an incentive stock option, no Award granted under the Plan shall be transferable by a grantee otherwise than by will or the laws of descent and distribution. Unless otherwise determined by the Committee in accord with the provisions of the immediately preceding sentence, an Award may be exercised during the lifetime of the grantee, only by the grantee or, during the period the grantee is under a legal disability, by the grantee's guardian or legal representative. 11. ADJUSTMENTS; BUSINESS COMBINATIONS. In the event of a reclassification, recapitalization, stock split, stock dividend, combination of shares, or other similar event, the maximum number and kind of shares reserved for issuance or with respect to which Awards may be granted under the Plan as provided in Section 4 shall be adjusted to reflect such event, and the Committee shall make such adjustments as it deem appropriate and equitable in the number, kind and price of shares covered by outstanding Awards made under the Plan, and in any other matters which relate to Awards and which are affected by the changes in the Common Stock referred to above. In the event of any proposed Change in Control, the Committee shall take such action as it deems appropriate and equitable to effectuate the purposes of this Plan and to protect the grantees of Awards, which action shall include, but without limitation, the following: (i) acceleration or change of the exercise dates of any Award so that the unvested portion of any Award shall become 100% vested and immediately exercisable; (ii) arrangements with grantees for the payment of appropriate consideration to them for the cancellation and surrender of any Award, which shall not be less than consideration paid for other Common Stock of the Corporation which is acquired, sold, transferred, or exchanged because of the proposed Change in Control; and (iii) in any case where equity securities other than Common Stock of the Corporation are proposed to be delivered in exchange for or with respect to Common Stock of the Corporation, arrangements providing that any Award shall become one or more Awards with respect to such other equity securities. The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in the preceding two paragraphs of this Section 12) affecting the Corporation, or the financial statements of the Corporation or any Subsidiary, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. In the event the Corporation dissolves and liquidates (other than pursuant to a plan of merger or reorganization), then notwithstanding any restrictions on exercise set forth in this Plan or any Grant Agreement, or other agreement evidencing a stock option, stock appreciation right or restricted stock Award: (i) each grantee shall have the right to exercise his stock option or stock appreciation right, or to require delivery of share certificates representing any such restricted stock Award, at any time up to ten (10) days prior to the effective date of such liquidation and dissolution; and (ii) the Committee may make arrangements with the grantee for the payment of appropriate consideration to him or her for the cancellation and surrender of any unvested stock option, stock appreciation right or restricted stock Award that is so canceled or surrendered at any time up to ten (10) days prior to the effective date of such liquidation and dissolution. The Committee may establish a different period (and different conditions) for such exercise, delivery, cancellation, or surrender to avoid subjecting the grantee to liability under Section 16(b) of the Exchange Act. Any stock option or stock appreciation right not so exercised, canceled, or surrendered shall terminate on the last day for exercise prior to such effective date; and any restricted stock as to which there has not been such delivery of share certificates or that has not been so canceled or surrendered, shall be forfeited on the last day prior to such effective date. The Committee shall give to each grantee written notice of the commencement of any proceedings for such liquidation and dissolution of the Corporation and the grantee's rights with respect to his outstanding Award. 12. TERMINATION AND MODIFICATION OF THE PLAN. The Board, without further approval of the stockholders, may modify or terminate the Plan or any portion thereof at any time, except that no modification shall become effective without prior approval of the stockholders of the Corporation if stockholder approval is necessary to comply with any tax or regulatory requirement or rule of any exchange or Nasdaq System upon which the Common Stock is listed or quoted, including for this purpose stockholder approval that is required for continued compliance with Rule 16b-3 or stockholder approval that is required to enable the Committee to grant incentive stock options pursuant to the Plan. The Committee shall be authorized to make minor or administrative modifications to the Plan as well as modifications to the Plan that may be dictated by requirements of federal or state laws applicable to the Corporation or that may be authorized or made desirable by such laws. The Committee may amend or modify the grant of any outstanding Award in any manner to the extent that the Committee would have had the authority to make such Award as so modified or amended. 13. NON-GUARANTEE OF EMPLOYMENT. Nothing in the Plan or in any Grant Agreement thereunder shall confer any right on an employee to continue in the employ of the Corporation or shall interfere in any way with the right of the Corporation to terminate an employee at any time. 14. TERMINATION OF EMPLOYMENT. For purposes of maintaining a grantee's continuous status as an employee and accrual of rights under any Award, transfer of an employee among the Corporation and the Corporation's Parent or Subsidiaries shall not be considered a termination of employment. Nor shall it be considered a termination of employment for such purposes if an employee is placed on military or sick leave or such other leave of absence which is considered as continuing intact the employment relationship; in such a case, the employment relationship shall be continued until the date when an employee's right to reemployment shall no longer be guaranteed either by law or contract. 15. WRITTEN AGREEMENT. Each Grant Agreement entered into between the Corporation and a grantee with respect to an Award granted under the Plan shall incorporate the terms of this Plan and shall contain such provisions, consistent with the provisions of the Plan, as may be established by the Committee, including a requirement that the grantee enter into a stockholder's agreement on such terms as the Committee, in its sole and absolute discretion, may decide from time to time. 16. NON-UNIFORM DETERMINATIONS. The Committee's determinations under the Plan (including without limitation determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. 17. LIMITATION ON BENEFITS. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 18. LISTING AND REGISTRATION. If the Corporation determines that the listing, registration or qualification upon any securities exchange or upon any listing or quotation system established by the National Association of Securities Dealers, Inc. ("Nasdaq System") or under any law, of shares subject to any Award is necessary or desirable as a condition of, or in connection with, the granting of same or the issue or purchase of shares thereunder, no such Award may be exercised in whole or in part and no restrictions on such Award shall lapse, unless such listing, registration or qualification is effected free of any conditions not acceptable to the Corporation. 19. COMPLIANCE WITH SECURITIES LAW. The Corporation may require that a grantee, as a condition to exercise of an Award, and as a condition to the delivery of any share certificate, provide to the Corporation, at the time of each such exercise and each such delivery, a written representation that the shares of Common Stock being acquired shall be acquired by the grantee solely for investment and will not be sold or transferred without registration or the availability of an exemption from registration under the Securities Act and applicable state securities laws. The Corporation may also require that a grantee submit other written representations which will permit the Corporation to comply with federal and applicable state securities laws in connection with the issuance of the Common Stock, including representations as to the knowledge and experience in financial and business matters of the grantee and the grantee's ability to bear the economic risk of the grantee's investment. The Corporation may require that the grantee obtain a "purchaser representative" as that term is defined in applicable federal and state securities laws. The stock certificates for any shares of Common Stock issued pursuant to this Plan shall bear a legend restricting transferability of the shares of Common Stock unless such shares are registered or an exemption from registration is available under the Securities Act and applicable state securities laws. The Corporation may notify its transfer agent to stop any transfer of shares of Common Stock not made in compliance with these restrictions. Common Stock shall not be issued with respect to an Award granted under the Plan unless the exercise of such Award and the issuance and delivery of share certificates for such Common Stock pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any national securities exchange or Nasdaq System upon which the Common Stock may then be listed or quoted, and shall be further subject to the approval of Counsel for the Corporation with respect to such compliance to the extent such approval is sought by the Committee. 20. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Corporation or its Parent or Subsidiary corporations from adopting or continuing in effect other compensation arrangements (whether such arrangements be generally applicable or applicable only in specific cases) as the Committee in its sole and absolute discretion determines desirable, including without limitation the granting of stock options, stock awards, stock appreciation rights or phantom stock units otherwise than under the Plan. 21. NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation and a grantee or any other person. To the extent that any grantee or other person acquires a right to receive payments from the Corporation pursuant to an Award, such right shall be no greater that the right of any unsecured general creditor of the Corporation. 22. GOVERNING LAW. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Board or Committee relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with applicable federal laws and the laws of the Commonwealth of Virginia without regard to its conflict of laws rules and principles. 23. PLAN SUBJECT TO CHARTER AND BY-LAWS. This Plan is subject to the Charter and By-Laws by the Corporation, as they may be amended from time to time. 24. EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of the date on which the Plan was adopted by the Board, subject to approval of the stockholders within twelve months before or after such date. No Award shall be granted under the Plan after the close of business on the day immediately preceding the tenth anniversary of the effective date of the Plan. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards. EX-12.1 18 COMP. OF EARNINGS TO FIXED CHARGES Exhibit 12.1 ANTEON RATIO OF EARNINGS TO FIXED CHARGES (CONSOLIDATED ANTEON) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
SUCCESSOR PREDECESSOR PERIOD PERIOD SIX MONTHS ENDED SUCCESSOR YEAR APRIL 1 TO JANUARY 1 TO PREDECESSOR YEAR JUNE 30, ENDED DECEMBER 31, DECEMBER 31, MARCH 31, ENDED DECEMBER 31, --------------- ------------------ ------------ ------------ ------------------- 1999 1998 1998 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------------ ------------ ------- ------- Fixed charges: Interest expense, net of capitalized interest $6,312 $1,818 $ 5,733 $2,413 $1,486 $- $ 135 $ 958 Capitalized interest - - - - - - - - Portion of rent expense representative of interest (1) 1,333 708 1,879 1,122 662 215 843 945 ------ ------ ------- ------ ------ ----- ------ ------- Total fixed charges $7,645 $2,526 $ 7,612 $3,535 $2,148 $215 $ 978 $ 1,903 Earnings (loss): Income (loss) before income taxes $1,147 $3,259 $ 4,821 $2,702 $1,223 $757 $ 826 $(6,040) Fixed charges, less capitalized interest 7,645 2,526 7,612 3,535 2,148 215 978 1,903 ------ ------ ------- ------ ------ ----- ------ ------- Earnings (losses) adjusted for fixed charges $8,792 $5,785 $12,433 $6,237 $3,371 $972 $1,804 $(4,137) Ratio of earnings (losses) to fixed charges 1.15x 2.29x 1.63x 1.76x 1.57x 4.52x 1.84x - Deficiency of earnings to cover fixed charges - - - - - - - (6,040)
(1) One-third of rent expense is deemed to be representative of interest. EX-21.1 19 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SUBSIDIARIES OF ANTEON CORPORATION - ------------------------------------------------------------------------------- NAME OF SUBSIDIARY STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION - ------------------------------------------------------------------------------- Vector Data Systems, Inc. Virginia - ------------------------------------------------------------------------------- Techmatics, Inc. Virginia - ------------------------------------------------------------------------------- Analysis & Technology, Inc. Connecticut - ------------------------------------------------------------------------------- Interactive Media Corp. Delaware - ------------------------------------------------------------------------------- Anteon VDS Foreign Enterprises, LLC Delaware - ------------------------------------------------------------------------------- Anteon VDS Foreign Investments, LLC Delaware - ------------------------------------------------------------------------------- Vector Research Company, Inc. Maryland - ------------------------------------------------------------------------------- UP, Inc. Virginia - ------------------------------------------------------------------------------- Analysis & Technology International Delaware Corporation - ------------------------------------------------------------------------------- EX-23.1 20 CONSENT OF KPMG Exhibit 23.1 ACCOUNTANTS' CONSENT The Board of Directors Anteon Corporation and subsidiaries We consent to the use of our reports dated February 19, 1999, except as to note 13, which is as of April 14, 1999, on the consolidated financial statements of Anteon Corporation and subsidiaries (Successor) as of December 31, 1998 and 1997, and for the years ended December 31, 1998 and 1997, and for the period from April 1, 1996 to December 31, 1996, and the financial statements of Ogden Professional Services Corporation (Predecessor) for the period from January 1, 1996 to March 31, 1996, included herein and to the references to our firm under the headings "Summary Consolidated Financial Data--Anteon Corporation," "Selected Consolidated Financial Data--Selected Consolidated Financial Data of Anteon Corporation" and "Experts" in the prospectus. We also consent to the use of our report dated April 30, 1999, on the consolidated financial statements of Analysis & Technology, Inc. and subsidiaries as of March 31, 1999 and 1998, and for each of the years in the three-year period ended March 31, 1999, and to the references to our firm under the headings "Summary Consolidated Financial Data--Analysis & Technology, Inc.," "Selected Consolidated Financial Data--Selected Consolidated Financial Data of Analysis & Technology, Inc." and "Experts" in the prospectus. KPMG LLP McLean, Virginia August 9, 1999 EX-23.2 21 CONSENT OF ARTHUR ANDERSEN Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in, or made part of, this registration statement. Arthur Andersen LLP Washington, D.C. August 6, 1999 EX-23.3 22 CONSENT OF GRANT THORNTON Exhibit 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated August 8, 1997 (except for Note C, as to which the date is August 31, 1997), accompanying the consolidated financial statements of Techmatics, Inc., contained in the registration statement. We consent to the use of the aforementioned report in the registration statement and to the use of our name as it appears under the caption "Experts." Grant Thornton LLP Vienna, Virginia August 6, 1999 EX-25.1 23 STATEMENT OF ELIGIBILITY Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305-(b) (2) --------- IBJ WHITEHALL BANK & TRUST COMPANY (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) New York 13-5375195 (State of Incorporation (I.R.S. Employer if not a U.S. national bank) Identification No.) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) IBJ Whitehall Bank & Trust Company One State Street New York, New York 10004 (212) 858-2000 (Name, Address and Telephone Number of Agent for Service) Anteon Corporation (Exact name of each registrant as specified in its charter) Virginia 54-1023915 (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3211 Jermantown Road 22030-2801 Suite 700 (Zip Code) Fairfax, Virginia (Address of principal executive office) 12% Senior Subordinated Notes due 2009 (Title of Indenture Securities) Item 1. General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, Two Rector Street, New York, New York Federal Deposit Insurance Corporation, Washington, D.C. Federal Reserve Bank of New York Second District, 33 Liberty Street, New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligors. If the obligors are an affiliate of the trustee, describe each such affiliation. The obligors are not an affiliate of the trustee. 2 Item 13. Defaults by the Obligors. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligors are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None Item 16. List of exhibits. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Whitehall Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460 & 333-46849). *2. A copy of the Certificate of Authority of the trustee to Commence Business (Included in Exhibit 1 above). *3. A copy of the Authorization of the trustee to exercise corporate trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 3 *4. A copy of the existing By-Laws of the trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 333-46849). 5. Not Applicable 6. The consent of United States institutional trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. NOTE In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligors and its directors or officers, the trustee has relied upon information furnished to it by the obligors. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item is based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee as indicated in Item 13, the obligors are not in default under any indenture under which the applicant is trustee. 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 6th day of August, 1999. IBJ WHITEHALL BANK & TRUST COMPANY By: ------------------------------- Stephen J. Giurlando Vice President 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Whitehall Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 6th day August, 1999. IBJ WHITEHALL BANK & TRUST COMPANY By: /s/Stephen J. Giurlando ------------------------------- Stephen J. Giurlando Vice President 6 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by Anteon Corporation of it's 12% Senior Subordinated Notes due 2009, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ WHITEHALL BANK & TRUST COMPANY By: /s/Stephen J. Giurlando ------------------------------- Stephen J. Giurlando Vice President Dated: August 6, 1999 7 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by Anteon Corporation of it's 12% Senior Subordinated Notes due 2009, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ WHITEHALL BANK & TRUST COMPANY By: ------------------------------ Stephen J. Giurlando Vice President Dated: August 6, 1999 8 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ WHITEHALL BANK & TRUST COMPANY OF NEW YORK, NEW YORK AND FOREIGN AND DOMESTIC SUBSIDIARIES REPORT AS OF MARCH 31, 1999
Dollar Amounts in Thousands -------------- ASSETS ------ 1. Cash and balance due from depository institutions: a. Non-interest-bearing balances and currency and coin ....................................................$ 21,794 b. Interest-bearing balances.................................................................................$ 24,039 2. Securities: a. Held-to-maturity securities...............................................................................$ -0- b. Available-for-sale securities.............................................................................$ 192,664 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs Federal Funds sold and Securities purchased under agreements to resell........................................$ 90,207 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income................................................$ 2,045,440 b. LESS: Allowance for loan and lease losses...............................................$ 64,777 c. LESS: Allocated transfer risk reserve...................................................$ -0- d. Loans and leases, net of unearned income, allowance, and reserve..........................................$ 1,980,663 5. Trading assets held in trading accounts.......................................................................$ 783 6. Premises and fixed assets (including capitalized leases)......................................................$ 6,188 7. Other real estate owned.......................................................................................$ -0- 8. Investments in unconsolidated subsidiaries and associated companies...........................................$ -0- 9. Customers' liability to this bank on acceptances outstanding..................................................$ 615 10. Intangible assets.............................................................................................$ 12,786 9 11. Other assets..................................................................................................$ 61,758 12. TOTAL ASSETS..................................................................................................$ 2,391,497 LIABILITIES ----------- 13. Deposits: a. In domestic offices.......................................................................................$ 722,967 (1) Noninterest-bearing ....................................................................$ 155,445 (2) Interest-bearing .........................................................................................$ 567,522 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................$ 1,111,757 (1) Noninterest-bearing ......................................................................................$ 14,819 (2) Interest-bearing .........................................................................................$ 1,096,938 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase....................................$ 105,000 15. a. Demand notes issued to the U.S. Treasury..................................................................$ 3,000 b. Trading Liabilities.......................................................................................$ 468 16. Other borrowed money: a. With a remaining maturity of one year or less.............................................................$ 25,002 b. With a remaining maturity of more than one year...........................................................$ 1,375 c. With a remaining maturity of more than three years........................................................$ 3,550 17. Not applicable. 18. Bank's liability on acceptances executed and outstanding......................................................$ 615 19. Subordinated notes and debentures.............................................................................$ 100,000 20. Other liabilities.............................................................................................$ 68,528 21. TOTAL LIABILITIES.............................................................................................$ 2,142,262 22. Limited-life preferred stock and related surplus..............................................................$ N/A 10 EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.................................................................$ -0- 24. Common stock..................................................................................................$ 28,958 25. Surplus (exclude all surplus related to preferred stock)......................................................$ 210,319 26. a. Undivided profits and capital reserves....................................................................$ 9,707 b. Net unrealized gains (losses) on available-for-sale securities............................................$ 251 c. Accumulated net gains (losses) on cash flow hedges........................................................$ -0- 27. Cumulative foreign currency translation adjustments...........................................................$ -0- 28. TOTAL EQUITY CAPITAL..........................................................................................$ 249,235 29. TOTAL LIABILITIES AND EQUITY CAPITAL..........................................................................$ 2,391,497
11 EX-27.1 24 FINANCIAL DATA SCHEDULE
5 0001090709 ANTEON CORPORATION 6-MOS DEC-31-1999 JUN-30-1999 2,764 10,533 102,469 (3,527) 0 106,459 24,216 (5,569) 287,107 (62,857) (174,727) 0 0 0 48 287,107 0 145,609 (128,576) (138,961) 0 0 (6,312) 1,131 597 534 0 (463) 0 71 0 0
EX-99.1 25 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL ANTEON CORPORATION OFFER TO EXCHANGE $100,000,000 OF ITS 12% SENIOR SUBORDINATED NOTES DUE 2009 (THE "EXCHANGE NOTES") WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR $100,000,000 OF ITS OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 (THE "INITIAL NOTES") PURSUANT TO THE PROSPECTUS, DATED , 1999 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). The Exchange Agent for the Exchange Offer is: IBJ WHITEHALL BANK & TRUST COMPANY BY REGISTERED OR CERTIFIED MAIL: IBJ Whitehall Bank & Trust Company P.O. Box 84 Bowling Green Station New York, NY 10274-0084 Attn: Reorganization Operations Department BY HAND OR OVERNIGHT DELIVERY: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attn: Securities Processing Window, Subcellar One, (SC-1) BY FACSIMILE FOR ELIGIBLE INSTITUTIONS: (212) 858-2611 FOR CONFIRMATION AND/OR INFORMATION CALL: (212) 858-2103 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW ------------------------- List below the Initial Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Initial Notes should be listed on a separate signed schedule affixed hereto.
------------------------------------------------------------------------------------------- DESCRIPTION OF INITIAL NOTES (1) (2) (3) - --------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF INITIAL NOTES NAME(S) AND ADDRESS(ES) OF REGISTERED PRINCIPAL TENDERED HOLDER(S) CERTIFICATE AMOUNT OF (IF LESS THAN (PLEASE FILL IN, IF BLANK) NUMBER(S)* INITIAL NOTES ALL)** ---------------------------------------------------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Initial Notes. The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated , 1999 (the "Prospectus"), of Anteon Corporation, a Virginia corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal" or this "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange up to $100,000,000 aggregate principal amount of its 12% Senior Subordinated Notes due 2009 (the "Exchange Notes") for a like principal amount of the Company's issued and outstanding 12% Senior Subordinated Notes due 2009 (collectively, the "Initial Notes"). The undersigned has completed the appropriate boxes above and below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. This Letter is to be used either if certificates of Initial Notes are to be forwarded herewith or if delivery of Initial Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company, pursuant to the procedures set forth in "The Exchange Offer-- Procedures for Tendering Initial Notes" in the Prospectus. Delivery of this Letter and any other required documents should be made to the Exchange Agent. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. Holders whose Initial Notes are not immediately available or who cannot deliver their Initial Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their Initial Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Initial Notes--Guaranteed Delivery Procedure." See Instruction 1. / /CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution _________________ / / The Depository Trust Company Account Number _________________________________________________________________ Transaction Code Number ________________________________________________________ 2 / /CHECK HERE IF INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) ___________________________________________________ Name of Eligible Institution that Guaranteed Delivery __________________________ If delivered by book-entry transfer: Account Number _________________________________________________________________ Date of execution of Notice of Guaranteed Delivery _____________________________ / /CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: __________________________________________________________________________ Address: _______________________________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is acquiring the Exchange Notes in the ordinary course of business of the undersigned, that it is not engaged in, and does not intend to engage in, or has no arrangement or understanding with any person to participate in, a distribution of Exchange Notes and that it is not an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"). If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Initial Notes that were acquired as a result of market-making activities or other trading activities, it may be deemed to be an "underwriter" within the meaning of the Securities Act and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 3 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Initial Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Initial Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Initial Notes as are being tendered hereby. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Initial Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the Initial Notes tendered hereby. The undersigned also acknowledges that this Exchange Offer is being made in reliance on the Company's belief, based on interpretations by the staff of the Securities and Exchange Commission (the "SEC") to third parties in unrelated transactions, that the Exchange Notes issued in exchange for the Initial Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or (ii) any broker-dealer that purchases Notes from the Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other available exemption) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes and are not participating in, and do not intend to participate in, the distribution of such Exchange Notes. The undersigned acknowledges that any holder of Initial Notes using the Exchange Offer to participate in a distribution of the Exchange Notes (i) cannot rely on the position of the staff of the SEC enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar letters and (ii) must comply with the registration and prospectus requirements of the Securities Act in connection with a secondary resale transaction. The undersigned represents that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, (ii) such holder or such other person has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes within the meaning of the Securities Act and is not participating in, and does not intend to participate in, the distribution of such Exchange Notes within the meaning of the Securities Act, and (iii) such holder or such other person is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or, if such holder or such other person is an affiliate, such holder or such other person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. The undersigned, if a California resident, hereby further represents and warrants that the undersigned (or the beneficial owner of the Initial Notes tendered hereby, if not the undersigned) (i) is a bank, savings and loan association, trust company, insurance company, investment company registered under the Investment Company Act of 1940, pension or profit-sharing trust (other than a pension or profit-sharing trust of the Company, a self-employed individual retirement plan, or individual retirement account), or a corporation which has a net worth on a consolidated basis according to its most recent audited financial statement of not less than $14,000,000, and (ii) is acquiring the Exchange Notes for its own account for 4 investment purposes (or for the account of the beneficial owner of such Exchange Notes for investment purposes). All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the instructions contained in this Letter. The undersigned understands that tenders of the Initial Notes pursuant to any one of the procedures described under "The Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus under "The Exchange Offer--Conditions to the Exchange Offer," the Company may not be required to accept for exchange any of the Initial Notes tendered. Initial Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please issue the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Initial Notes for any Initial Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Initial Notes." THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN INITIAL NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO SUCH INITIAL NOTES AS OF THE DATE OF TENDER OF SUCH INITIAL NOTES TO EXECUTE AND DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD. ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 5 PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) Dated: SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED SIGNATORY DATE Area Code and Telephone Number
If a holder is tendering any Initial Notes, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Initial Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Names __________________________________________________________________________ _______________________________________ (PLEASE TYPE OR PRINT) Capacity: ______________________________________________________________________ _______________________________________ Address ________________________________________________________________________ _______________________________________ (INCLUDE ZIP CODE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: _______________________________________________________ (AUTHORIZED SIGNATURE) ________________________________________________________________________________ (TITLE) ________________________________________________________________________________ (NAME OF FIRM) Dated: _________________________________________________________________________ 6 - ------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Exchange Notes are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear on this Letter above. Issue: Exchange Notes to: Name(s): ___________________________________________________________________ (PLEASE TYPE OR PRINT) ____________________________________________________________________________ (PLEASE TYPE OR PRINT) Address: ___________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) Social Security Number: ____________________________________________________ (COMPLETE SUBSTITUTE FORM W-9) - ------------------------------------------------------ - ------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Exchange Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled "Description of Initial Notes" on this Letter above. Mail: Exchange Notes to: Name(s): ___________________________________________________________________ (PLEASE TYPE OR PRINT) __________________________________________________________________________ (PLEASE TYPE OR PRINT) Address: ___________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) - ----------------------------------------------------- IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH THE CERTIFICATE(S) FOR INITIAL NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND INITIAL NOTES; GUARANTEED DELIVERY PROCEDURE. This Letter is to be used to forward, and must accompany, all certificates representing Initial Notes tendered pursuant to the Exchange Offer unless such certificates are accompanied by an Agent's Message (as defined in the Prospectus) in which case you need not submit this Letter to the Exchange Agent. Certificates representing the Initial Notes in proper form for transfer (or a confirmation of book-entry transfer of such Initial Notes into the Exchange Agent's account at the book-entry transfer facility) must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. A tender will not be deemed to have been timely received when the tendering holder's properly completed and duly signed Letter or an Agent's Message accompanied by the Initial Notes is mailed prior to the Expiration Date but is received by the Exchange Agent after the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER, THE INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. If a holder desires to tender Initial Notes and such holder's Initial Notes are not immediately available or time will not permit such holder's Letter of Transmittal, Initial Notes (or a confirmation of book-entry transfer of Initial Notes into the Exchange Agent's account at the book-entry transfer facility with an Agent's Message) or other required documents to reach the Exchange Agent on or before the Expiration Date, such holder may still tender in the Exchange Offer if: (a) the tender is made through an Eligible Institution (as defined below); (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by us (by facsimile transmission, mail or hand delivery), setting forth your name and address as holder of the Initial Notes and the amount of Initial Notes tendered, stating that the tender is being made thereby and guaranteeing that within three business days after the Expiration Date the certificates for all physically tendered Initial Notes, in proper form for transfer, or a book-entry confirmation with an Agent's Message, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) the certificates for all physically tendered Initial Notes, in proper form for transfer, or a book-entry confirmation as the case may be, and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within three business days after the Expiration Date. See "The Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus. 2. WITHDRAWALS. Any holder who has tendered Initial Notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by telegram, facsimile (receipt confirmed by telephone and an original delivered by guaranteed overnight courier)) to the Exchange Agent prior to the close of business on the Expiration Date and prior to acceptance for exchange thereof by us. For a withdrawal to be effective, a written notice of withdrawal must (i) specify the name of the person having tendered the Initial Notes to be withdrawn (the "Depositor"), (ii) identify the Initial Notes to be withdrawn (including the certificate number or numbers and principal amount of such Initial Notes), (iii) signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Initial Notes were tendered or 8 as otherwise set forth in Instruction 3 below (including any required signature guarantees), or be accompanied by documents of transfer sufficient to have the trustee for the indenture governing the Initial Notes register the transfer of such Initial Notes pursuant to the terms of such indenture into the name of the person withdrawing the tender and (iv) specify the name in which any such Initial Notes are to be registered, if different from that of the Depositor. If Initial Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the participant's account at the book-entry transfer facility to be credited, if different from that of the Depositor, with the withdrawn Initial Notes or otherwise comply with the book-entry transfer facility's procedures. See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus. 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the Initial Notes tendered hereby, the signature must correspond with the name as written on the face of the certificates without alteration, enlargement or any change whatsoever. If this Letter is signed by a participant in DTC, the signature must correspond with the name as it appears on the security position listing as the holder of the Initial Notes. If this Letter or any Initial Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, evidence satisfactory to us of their authority to so act must also be submitted with the Letter of Transmittal. If any tendered Initial Notes are owned of record by two or more joint owners, all such owners must sign this Letter. The signatures on this Letter or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended--(each, an "Eligible Institution"), unless the Initial Notes are tendered: (i) by a registered holder (or by a participant in DTC whose name appears on a security position listing as the owner) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter and the Exchange Notes are being issued directly to such registered holder (or deposited into the participant's account at DTC), or (ii) for the account of an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Initial Notes should indicate in the applicable box the name and address to which Exchange Notes issued pursuant to the Exchange Offer are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, any Exchange Notes will be issued in the name of, and delivered to, the name or address of the person signing this Letter and any Initial Notes not accepted for exchange will be returned to the name or address of the person signing this Letter. 5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the 9 holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9, and sign the Certification of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with his or her TIN within sixty (60) days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty (60) day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with his or her TIN within such sixty (60) day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Initial Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Initial Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Initial Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Initial Notes not exchanged or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Initial Notes tendered hereby, or if tendered Initial Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Initial Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Initial Notes specified in this Letter. 10 7. WAIVER OF CONDITIONS. Conditions enumerated in the Prospectus may be waived by the Company, in whole or in part, at any time from time to time in its reasonable discretion. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Initial Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Initial Notes for exchange. Neither the Company nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 9. INADEQUATE SPACE. If the space provided herein is inadequate, the aggregate principal amount of Initial Notes being tendered and the certificate number or numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter. 10. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES. If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify the IBJ Whitehall Bank & Trust Company at the telephone number indicated above. The holder will then be instructed as to the steps that must be taken to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the Initial Notes have been replaced. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, may be directed to the IBJ Whitehall Bank & Trust Company at the address and telephone number indicated above. 11 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYER'S NAME: ANTEON CORPORATION - ------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART I--Taxpayer Identification Number ------------------------------------ FORM W-9 Enter your taxpayer identification Social Security Number Department of the Treasury number in the appropriate box. For most OR Internal Revenue Service individuals, this is your social ------------------------------------ security number. If you do not have a Employer Identification Number number, see how to obtain a "TIN" in the enclosed Guidelines. NOTE: If the account is in more than one name, see the chart on page 2 of the enclosed Guidelines to determine what number to give. -------------------------------------------------------------------------------- PART II--For Payees Exempt From Backup Withholding (see enclosed Guidelines) -------------------------------------------------------------------------------- Payer's Request for CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: Taxpayer Identification (1) the number shown on this form is my correct Taxpayer Identification Number Number (TIN) and (or I am waiting for a number to be issued to me), and Certification (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. -------------------------------------------------------------------------------- Signature Date --------------------------------------- --------------------------------------- - ------------------------------------------------------------------------------------------------------------- CERTIFICATION GUIDELINES--YOU MUST CROSS OUT ITEM (2) OF THE ABOVE CERTIFICATION IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDER REPORTING OF INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2). --------------------------------------------------------------------------------------------
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payer, 31 percent of all payments made to me on account of the Exchange Notes shall be retained until I provide a Taxpayer Identification Number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty (60) days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31 percent of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE ________________________________________________ DATE _______________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR 12 CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 13 EX-99.2 26 NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR TENDER OF OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR 12% SENIOR SUBORDINATED NOTES DUE 2009 REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF ANTEON CORPORATION Registered holders of outstanding 12% Senior Subordinated Notes due 2009 (the "Initial Notes") who wish to tender their Initial Notes in exchange for a like principal amount of 12% Senior Subordinated Notes due 2009 (the "Exchange Notes") and whose Initial Notes are not immediately available or who cannot deliver their Initial Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to IBJ Whitehall Bank & Trust Company (the "Exchange Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or letter to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Initial Notes" in the Prospectus. The Exchange Agent for the Exchange Offer is: IBJ WHITEHALL BANK & TRUST COMPANY BY REGISTERED OR CERTIFIED MAIL: IBJ Whitehall Bank & Trust Company P.O. Box 84 Bowling Green Station New York, NY 10274-0084 Attn: Reorganization Operations Department BY HAND OR OVERNIGHT DELIVERY: IBJ Whitehall Bank & Trust Company One State Street New York, NY 10004 Attn: Securities Processing Window, Subcellar One, (SC-1) BY FACSIMILE FOR ELIGIBLE INSTITUTIONS: (212) 858-2611 FOR CONFIRMATION AND/OR INFORMATION CALL: (212) 858-2103 Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of instructions via a facsimile transmission to a number other than as set forth above will not constitute a valid delivery. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution (as defined in the Prospectus), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. Ladies and Gentlemen: The undersigned hereby tenders the principal amount of Initial Notes indicated below, upon the terms and subject to the conditions contained in the Prospectus dated , 1999 of Anteon Corporation, receipt of which is hereby acknowledged. DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS ON THE 12% SENIOR SUBORDINATED CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF NOTES DUE 2009 ("INITIAL OF AMOUNT REPRESENTED BY INITIAL NOTES NOTES") (PLEASE PRINT) INITIAL NOTES TENDERED INITIAL NOTES TENDERED - ---------------------------------- ----------------- ---------------- --------------- - ---------------------------------- ----------------- ---------------- --------------- - ---------------------------------- ----------------- ---------------- --------------- - ---------------------------------- ----------------- ---------------- --------------- - ---------------------------------- ----------------- ---------------- ---------------
2 THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office, branch, agency or correspondent in the United States, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the certificates representing the Initial Notes, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. NAME OF FIRM: __________________________________________________________________ (AUTHORIZED SIGNATURE) ADDRESS: ________________________________TITLE: ________________________________ ______________________________________________ NAME: ___________________________ (ZIP CODE) (PLEASE TYPE OR PRINT) AREA CODE AND TELEPHONE NUMBER: _____________________ DATE: ____________________ NOTE: DO NOT SEND INITIAL NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. INITIAL NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 -----END PRIVACY-ENHANCED MESSAGE-----