-----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, H9re8RoayGK/vmp3UkqKnqBRkb3rnG0LCFbWo8EvP2xCp9vSG+/0vP0Q1y0s9OcK lIqXBIZINEBT6M1jH8lSWw== 0000912057-02-004100.txt : 20020414 0000912057-02-004100.hdr.sgml : 20020414 ACCESSION NUMBER: 0000912057-02-004100 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20020205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANTEON INTERNATIONAL CORP CENTRAL INDEX KEY: 0001163842 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 133880755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-75884 FILM NUMBER: 02527756 BUSINESS ADDRESS: STREET 1: 3211 JERMANTOWNE ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 BUSINESS PHONE: (703) 246-0200 MAIL ADDRESS: STREET 1: 3211 JERMANTOWN ROAD STREET 2: SUITE 700 CITY: FAIRFAX STATE: VA ZIP: 22030-2801 FORMER COMPANY: FORMER CONFORMED NAME: AZIMUTH TECHNOLOGIES INC DATE OF NAME CHANGE: 20011219 S-1/A 1 a2069486zs-1a.txt S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 2001 REGISTRATION NO. 333-75884 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------------------ ANTEON INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 7379 13-3880755 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer incorporation or organization) Classification Code Number) Identification Number)
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. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY ANTEON INTERNATIONAL 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: JOHN C. KENNEDY, ESQ. STEPHEN L. BURNS, ESQ. CARL L. REISNER, ESQ. CRAVATH, SWAINE & MOORE PAUL, WEISS, RIFKIND, WHARTON & GARRISON WORLDWIDE PLAZA 1285 AVENUE OF THE AMERICAS 825 EIGHTH AVENUE NEW YORK, NEW YORK 10019-6064 NEW YORK, NEW YORK 10019 (212) 373-3000 (212) 474-1000
------------------------------ Approximate date of commencement of proposed sale of the securities to the public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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, 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: / / _________ If this form is a post-effective amendment filed pursuant to Rule 462(d) 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: / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE Common Stock, $0.01 par value per share..................... $230,000,000 $21,160 Preferred stock purchase rights (2)......................... -- -- Total....................................................... $230,000,000 $21,160*
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). (2) The preferred stock purchase rights initially will trade together with the common stock. The value attributable to the preferred stock purchase rights, if any, is reflected in the offering price of the common stock. * A fee of $54,970 was previously paid. ------------------------------ 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION. DATED FEBRUARY 5, 2002. SHARES ANTEON INTERNATIONAL CORPORATION COMMON STOCK ----------- This is an initial public offering of shares of Common Stock of Anteon International Corporation. Anteon is offering of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional shares. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. Prior to this offering, there has been no public market for our Common Stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Anteon intends to list the Common Stock on the New York Stock Exchange under the symbol "ANT". SEE "RISK FACTORS" ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. ----------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per Share Total --------- ----- Initial public offering price............................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to Anteon........................ $ $ Proceeds, before expenses, to the selling stockholders...... $ $
To the extent that the underwriters sell more than shares of Common Stock, the underwriters have the option to purchase up to an additional shares from the selling stockholders at the initial public offering price less the underwriting discount. ----------------- The underwriters expect to deliver the shares against payment in New York, New York on , 2002. GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS MERRILL LYNCH & CO. ----------------- Prospectus dated , 2002. Inside Left Page The Anteon logo is in the upper middle of the page. The logo is a stylized representation of the letter "A" followed by the remaining letters in black. Beneath the logo is a caption reading "Providing Solutions, Producing Results." Below the logo are two pictures depicting the following: - Left, titled "Intelligence Systems"--Graphic depiction of the world linked together by a network of computers. Under the picture is the phrase "LOCE's Sphere of Influence." - Right, titled "National Emergency Response Systems"--Picture of emergency response fire fighters putting out a large fire. Under the picture is the phrase "National Emergency Management Information System." Below the two pictures is a list of Anteon's capabilities in Information Technology and Engineering Services. The list is as follows: Information Technologies; Requirements Definition; Process Reengineering; Software Development; Middleware and Integration; Network Design; System Maintenance; COTS Integration; Mission Area/Threat Analysis, Systems Engineering and Design Engineering; Acquisition and Program Management; and System Integration and Testing. The lower third of the page contains two additional pictures. From the left they depict the following: - Left, titled "Logistics Modernization"--A graphic depiction of the world linked together by a network of computers. The following words describing the facets of logistic modernization are on the graphic: In-transit Visibility, Force Projection, Deployable Integrated Design Specification for Sustainment, On-screen Command and Control, Deployment Planning and Execution, and Personnel and Cargo. - Right, untitled--A picture of a man in front of a computer. On the computer screen are pictures of three people in Postal Service uniforms and the USPS logo. The background of the picture consists of the repeated use of the word "eBuy." YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE. i PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." UNLESS WE STATE OTHERWISE, THE TERMS "ANTEON," "WE," "US," AND "OUR" REFER TO BOTH ANTEON INTERNATIONAL CORPORATION AND OUR CONSOLIDATED SUBSIDIARIES. UNLESS OTHERWISE INDICATED, INDUSTRY DATA IN THIS PROSPECTUS IS DERIVED FROM PUBLICLY AVAILABLE SOURCES, WHICH WE HAVE NOT INDEPENDENTLY VERIFIED. SOME OF THE STATEMENTS IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS." WHEN WE STATE THAT INFORMATION IS PRESENTED ON A PRO FORMA BASIS, WE HAVE TAKEN INTO ACCOUNT THE TRANSACTIONS DESCRIBED UNDER "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION." THE COMPANY We are a leading provider of information technology solutions and advanced engineering services to government clients as measured by revenue. We design, integrate, maintain and upgrade state-of-the-art information systems for national defense, intelligence, emergency response and other high priority government missions. We also provide many of our government clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. We have focused our business on several service competencies that include intelligence systems, emergency response management, logistics modernization, training, platform and weapons systems engineering support, ballistic missile defense, healthcare services and government enterprise solutions. We currently serve over six hundred U.S. federal government clients, as well as state and foreign governments. As of December 31, 2001, 89% of our revenue was from contracts where we were the lead, or "prime," contractor. Our contracts typically have average terms of four to five years. Additionally, we have contracts with an estimated contract value of $3.5 billion as of December 31, 2001 of which $309.4 million is funded backlog. See "Business--Estimated Contract Value and New Business Development." From January 1, 1996 to December 31, 2001, we increased revenues at a compound annual growth rate of 38%. Over the same period, revenue grew organically (excluding the contribution of acquisitions) at a 15% compound annual rate. Our pro forma revenues for the twelve months ended December 31, 2001 were $706.6 million, an increase of 20.9% over the corresponding period in 2000. The U.S. federal government is the largest single customer for information technology solutions and engineering services in the United States. U.S. federal government technology services procurement is large and growing, with total expenditures of more than $100 billion in the federal government's fiscal year 2000. Government agency budgets for technology services are forecast to expand at least 5% annually through government fiscal year 2005, with expenditures for information technology solutions projected to increase 11% annually over the same period. Additionally, technology services spending growth over the next five years is anticipated in the areas emphasized by the U.S. government's evolving military strategy, including homeland defense, ballistic missile defense, information security, logistics management systems modernization, weapon systems design improvements and military personnel training. Defense spending is projected to grow 12% in the government's fiscal year 2002 and 14% in its fiscal year 2003. 1 OUR STRENGTHS - OUTSTANDING TECHNICAL PERFORMANCE. We frequently rank among the top five performing information technology and engineering service providers to federal government clients based on third party customer evaluations of such factors as performance, price and technical capability, and we have received numerous industry awards for performance excellence. We believe our win rate of more than 90% over the past four years on our contract recompetitions demonstrates our high level of customer satisfaction. Through our focus on quality and our track record for performance, we have become the second largest independent supplier of information technology services and the largest independent supplier of engineering services through General Services Administration, Federal Supply Schedule contracts, or "GSA Schedule contracts." - COMPREHENSIVE SKILLS. We service a broad spectrum of the federal government's information technology and advanced engineering requirements. We integrate our offerings and draw on the full breadth and depth of our technical resources, customer relationships and contract vehicles. - BROAD CUSTOMER REACH--PREFERRED PROVIDER OF SERVICES UNDER GSA CONTRACT VEHICLES. Our government clients include all branches of the military, the Department of Defense and most cabinet-level agencies. We are a prime contractor on four of the five largest Government Wide Acquisition Contracts, or "GWACs," based on overall contract ceiling value and hold GSA Schedule contracts covering the full range of our solutions and service offerings. As a result, we have the opportunity to quickly and cost-effectively provide our solutions and services to any federal agency client. In addition, the General Services Administration, or "GSA," projects growth in its GWACs and GSA Schedule contracts at 14% annually over the next three years. - PREDICTABLE AND GROWING REVENUES AND PROFITABILITY. The combination of our long-term customer contracts and low incidence of contract cancellations provides us with relatively predictable revenues. Our track record of past performance and our incumbent position with a large number of government customers provides a solid foundation to win new contracts and continue growing backlog and revenue. Because our contract mix is weighted towards cost-plus and time and materials contract types, our profitability is more predictable. In addition, we generally do not pursue fixed price software development work that may create material financial risk. - COMPETITIVE COST STRUCTURE. Through our focus on reducing operating costs, we believe we have achieved one of the most efficient cost structures in the industry. Our competitive cost structure combined with our reputation for performance helps us to win business in an environment that emphasizes providing the best value for our government customers. We have achieved a win rate of over 60% on all contract dollars bid since 1997. - STRONG MANAGEMENT TEAM AND WORKFORCE. We have recruited a talented work force that has a wide range of critical skills to serve our clients. We have approximately 5,400 employees, 90% of whom are billable and 75% of whom hold security clearances. Additionally, several members of senior management and our board of directors are former military officers or senior government officials who are familiar with the information technology requirements of government agencies. OUR GROWTH STRATEGY - CONTINUE TO INCREASE MARKET PENETRATION. In the past 10 years, the federal government's shift towards using significantly larger, more comprehensive contracts, such as GWACs, has 2 favored companies with a broad range of technical capabilities and proven track-records. As a prime contractor on four of the five largest GWACs for information technology services based on overall contract ceiling value, we have benefited from these changes. We will continue to expand our role with current customers on existing programs while also pursuing new opportunities only available through these larger contracts. - CAPITALIZE ON INCREASED EMPHASIS ON INFORMATION SECURITY, HOMELAND DEFENSE AND INTELLIGENCE. The Bush Administration's budget, coupled with recent government initiatives, is expected to result in a 12% increase in Department of Defense spending for government fiscal year 2002, reaching $332 billion. We believe that many of the key operational goals of the Administration correlate with our expertise, including developing a national missile defense system, increasing homeland security, protecting information systems from attack, conducting effective intelligence operations and training for new approaches to warfare through simulation. Additionally, the Administration recently has requested $379 billion in defense appropriations for government fiscal year 2003, a 14% increase over 2002. - CROSS-SELL OUR FULL RANGE OF SERVICES TO EXISTING CUSTOMERS. We plan to continue expanding the scope of existing customer relationships by marketing and delivering the full range of our capabilities to each customer. Having developed a high level of customer satisfaction and critical domain knowledge as the incumbent on many long-term contracts, we have a unique advantage and opportunity to cross-sell our services and capture additional contract opportunities. For example, we believe our strong performance record and detailed understanding of customer requirements developed on the U.S. Air Force Cargo Movement Operations System led directly to our being awarded a contract relating to the Joint Logistics Warfighting Initiative. - CONTINUE OUR DISCIPLINED ACQUISITION STRATEGY. We employ a disciplined methodology to evaluate and select acquisition candidates. We have completed and successfully integrated five strategic acquisitions since 1997. Our industry remains highly fragmented and we believe the changing government procurement environment will continue to provide additional opportunities for industry consolidation. We will continue to selectively review acquisition candidates with a focus on companies with complementary skills or market focus. There are a number of risks and uncertainties associated with an investment in our common stock. For example, we are reliant on the U.S. federal government as a major source of contract revenues, and our contracts with the U.S. federal government are subject to complex government procurement laws and regulations and may be affected by provisions favorable to the government. Also, our ability to integrate effectively any acquisitions we may make in the future, to retain our senior management team and to remain competitive in obtaining and retaining skilled employees are all important to our future growth and cannot be assured. For a discussion of these and other risks related to our business and investment in our common stock, see "Risk Factors." We are a Delaware corporation, incorporated in Delaware in 1996, and our predecessor, Anteon International Corporation, a Virginia corporation, which we refer to in this prospectus as "Anteon Virginia," was incorporated in Virginia in 1976. Our principal executive offices are located at 3211 Jermantown Road, Suite 700, Fairfax, Virginia 22030, and our telephone number is (703) 246-0200. Immediately prior to the consummation of this offering, we will enter into certain related reorganization transactions, including the merger of our subsidiary, Anteon Virginia into us, as more fully described in "Business--History and Organization" and "Certain Relationships--Reorganization Transactions." Anteon Virginia has publicly traded debt and is required to file periodic reports under the Securities Exchange Act of 1934. Unless we specifically indicate otherwise, all information in this prospectus gives effect to these reorganization transactions. 3 THE OFFERING Common stock offered................... shares by us shares by the selling stockholders Common stock to be outstanding immediately after this offering........ shares Use of proceeds........................ Net proceeds from this offering to us will be approximately $67.5 million. We intend to use the net proceeds from the sale of shares by us: - to repay or repurchase a portion of our outstanding debt; and - for working capital and general corporate purposes. We will not receive any of the proceeds from the sale of shares by the selling stockholders. Dividends.............................. We have not in the past distributed any cash dividends on our common stock and currently have no plans to do so. The declaration of future dividends is, however, subject to the discretion of our board of directors in light of all relevant factors, including earnings, financial conditions and capital requirements. In addition, our ability to declare and pay dividends on our common stock is restricted by covenants in our credit facility and the indenture governing our 12% senior subordinated notes due 2009, or the "12% Notes." Proposed New York Stock Exchange symbol................................. ANT
Unless we specifically state otherwise, the information in this prospectus: - assumes that our common stock will be sold at $ per share, which is the mid-point of the range set forth on the cover of this prospectus; - assumes that the underwriters will not exercise the over-allotment option granted to them by the selling stockholders; - assumes a -for-1 split of our common stock effected , 2002, the merger of our subsidiary, Anteon Virginia, with and into us, and the related reorganization transactions described more fully in "Certain Relationships--Reorganization Transactions;" and - excludes, in the number of shares of common stock to be outstanding after this offering, options to purchase shares of common stock outstanding at , 2002, at a weighted-average exercise price of $ per share. 4 SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED AND OTHER FINANCIAL DATA Set forth in the following tables are certain unaudited pro forma and historical consolidated and other financial data as of and for each of the periods specified. The unaudited pro forma condensed consolidated financial data has been prepared by management and gives effect to the transactions described in "Unaudited Pro Forma Condensed Consolidated Financial Information." The accompanying unaudited pro forma and historical consolidated and other financial data should also be read in conjunction with "Selected Consolidated Financial Data," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and the historical and pro forma consolidated financial statements and the notes thereto for us and the training systems division of SIGCOM, Inc., or "SIGCOM Training," included in this prospectus. SUMMARY UNAUDITED PRO FORMA CONSOLIDATED AND OTHER FINANCIAL DATA
PRO FORMA ------------------- YEAR ENDED DECEMBER 31, 2001 ------------------- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS: Revenues.................................................... $706,635 Costs of revenues........................................... 615,222 -------- Gross profit................................................ 91,413 General and administrative expenses, excluding amortization and acquisition-related costs................................. 45,037 Amortization of goodwill and other intangibles.............. 8,298 -------- Total operating expenses.................................... 53,335 -------- Operating income............................................ 38,078 Gains on sale and closures of businesses.................... 487 Interest expense, net of interest income.................... 17,249 Minority interest in (earnings) losses of subsidiaries...... (38) -------- Income (loss) before provision for (benefit from) income taxes..................................................... 21,278 Provision for (benefit from) income taxes................... 11,010 -------- Net income (loss)........................................... $ 10,268 ======== Basic earnings (loss) per common share...................... Diluted earnings (loss) per common share.................... Shares outstanding.......................................... OTHER FINANCIAL AND OPERATING DATA: EBITDA(a)................................................... $ 53,597 MARGIN.................................................... 7.6% Adjusted EBITDA(b).......................................... $ 56,451 MARGIN.................................................... 8.0% Capital expenditures........................................ $ 2,110 Depreciation................................................ 6,772 --------
PRO FORMA -------------------- AS OF DECEMBER 31, 2001 -------------------- ($ IN THOUSANDS) BALANCE SHEET DATA Cash and cash equivalents................................... $ 1,930 Working capital............................................. 40,306 Total assets................................................ 306,696 Long-term debt, including current portion................... 115,905 Total stockholders' equity.................................. 84,112
5 SUMMARY HISTORICAL CONSOLIDATED AND OTHER FINANCIAL DATA
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS: Revenues.................................................. $176,292 $249,776 $400,850 $542,807 $715,023 Growth.................................................. N/A 41.7% 60.5% 35.4% 31.7% Costs of revenues......................................... 159,539 221,588 353,245 474,924 627,342 -------- -------- -------- -------- -------- Gross profit.............................................. 16,753 28,188 47,605 67,883 87,681 General and administrative expenses, excluding amortization and acquisition-related costs.............. 8,061 15,286 25,610 38,506 51,442 Amortization of goodwill and other intangibles............ 3,028 2,344 4,349 8,253 9,374 Costs of acquisitions/acquisition-related severance costs................................................... 584 115 2,316 86 -- -------- -------- -------- -------- -------- Total operating expenses.................................. 11,673 17,745 32,275 46,845 60,816 -------- -------- -------- -------- -------- Operating income.......................................... 5,080 10,443 15,330 21,038 26,865 Gains on sales and closures of business................... -- -- -- -- 4,046 Gains on sales of investments and other, net.............. -- 2,585 -- -- Interest expense, net of interest income.................. 3,836 6,893 18,230 26,513 26,872 Minority interest in (earnings) losses of subsidiaries.... (13) (26) (39) 32 (38) -------- -------- -------- -------- -------- Income (losses) before provision for (benefit from) income taxes and extraordinary gain (loss)..................... 1,231 3,524 (354) (5,443) 4,001 Provision for (benefit from) income taxes................. 480 1,852 710 (153) 4,413 -------- -------- -------- -------- -------- Income (loss) before extraordinary gain (loss)............ 751 1,672 (1,064) (5,290) (412) Extraordinary gain (loss), net of tax..................... -- -- (463) -- 330 -------- -------- -------- -------- -------- Net income (loss)......................................... $ 751 $ 1,672 $ (1,527) $ (5,290) $ (82) ======== ======== ======== ======== ======== Basic and diluted earnings (loss) per common share........ Shares outstanding........................................ OTHER FINANCIAL AND OPERATING DATA: EBITDA(a)................................................. $ 9,579 $ 15,869 $ 25,978 $ 36,349 $ 47,357 MARGIN.................................................. 5.4% 6.4% 6.5% 6.7% 6.6% Capital expenditures...................................... 817 $ 2,089 $ 4,761 $ 6,584 $ 2,181 Depreciation.............................................. 867 1,837 3,623 7,024 7,110
AS OF DECEMBER 31, --------------------------------------------------------- 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- ($ IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................. $ 652 $ 157 $ 1,209 $ 1,434 $ 1,930 Working capital........................................... 11,476 33,857 48,818 56,841 27,559 Total assets.............................................. 67,527 136,544 278,691 324,423 306,651 Long-term debt, including current portion................. 40,099 90,851 212,301 237,695 202,905 Total stockholders' equity (deficit)...................... 3,346 5,603 3,672 (1,576) (3,442)
- ------------------------------ (a) "EBITDA" as defined represents income before income taxes plus depreciation, amortization and net interest expense. EBITDA is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with accounting principles generally accepted in the United States of America). We believe that EBITDA is a useful supplement to net income and other income statement data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, the EBITDA measures presented may not be comparable to similarly titled measures of other companies. The computations of EBITDA are as follows:
PRO FORMA YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ---------------------------------------------------- -------------- 1997 1998 1999 2000 2001 2001 -------- -------- -------- -------- -------- -------------- ($ IN THOUSANDS) Income (loss) before provision for (benefit from) income taxes and extraordinary gain (loss).............. $1,231 $ 3,524 $ (354) $(5,443) $ 4,001 $21,278 Interest expense......................... 3,836 6,893 18,230 26,513 26,872 17,249 Depreciation and amortization............ 4,512 5,452 8,102 15,279 16,484 15,070 ------ ------- ------- ------- ------- ------- EBITDA................................... $9,579 $15,869 $25,978 $36,349 $47,357 $53,597 ====== ======= ======= ======= ======= =======
6 (b) Adjusted EBITDA for the twelve months ended December 31, 2001 has been further adjusted to eliminate certain expenses and a gain, including $1.1 million of legal and settlement expenses recorded in 2001 for a matter related to a former subcontractor, $0.75 million related to the write-down of real property we intend to sell, $1.3 million of compensation and fringe expenses recorded in 2001 related to certain indirect employees terminated as part of integration of acquisitions and $0.2 million of expenses recorded during 2001 related to severance payments made to certain former Analysis & Technology, Inc. employees, which will not continue beyond 2001, partially offset by the elimination of the $487,000 gain on the closure of CITI. Adjusted EBITDA for 2001 is computed as follows:
($ IN THOUSANDS) EBITDA...................................................... $53,597 Eliminate certain expenses and gain: Legal and settlement expenses............................. 1,097 Write-down of real property............................... 750 Compensation for terminated employees..................... 1,313 Executive severance expenses.............................. 181 Gain on closure of CITI................................... (487) ------- Adjusted EBITDA............................................. $56,451 =======
7 RISK FACTORS AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE BUYING SHARES OF OUR COMMON STOCK. ANY OF THE RISK FACTORS WE DESCRIBE BELOW COULD SEVERELY HARM OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE IF ONE OR MORE OF THESE RISKS AND UNCERTAINTIES DEVELOP INTO ACTUAL EVENTS. YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. SOME OF THE STATEMENTS IN "RISK FACTORS" ARE FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS." RISKS RELATED TO OUR BUSINESS FEDERAL GOVERNMENT CONTRACTING RISKS--OUR BUSINESS COULD BE ADVERSELY AFFECTED BY SIGNIFICANT CHANGES IN THE CONTRACTING 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 government's 1996 fiscal year) and other potential delays in the government appropriations process; - delays in the payment of our invoices by government payment offices due to problems with, or upgrades to, government information systems, or for other reasons; - 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 and operating results. Many of our federal government customers are subject to 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. EARLY TERMINATION OF CONTRACTS--OUR FEDERAL GOVERNMENT CONTRACTS MAY BE TERMINATED BY THE GOVERNMENT AT ANY TIME PRIOR TO THEIR COMPLETION, AND IF WE DO NOT REPLACE THEM, OUR OPERATING RESULTS MAY BE HARMED. We derive substantially all of our revenues from U.S. federal government contracts and subcontracts under federal government prime contracts that typically are awarded through 8 competitive processes and span one or more base years and one or more option years. The option periods typically 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. See "--Contracts Subject to Audit." Upon contract expiration, if the customer requires further services of the type provided by 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. 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 harm operating results for those periods. Most federal government contract awards are subject to protest by competitors. If specified legal requirements are satisfied, these protests require the federal agency to suspend the contractor's performance of the newly awarded contract pending the outcome of the protest. These protests could also result in a requirement to resubmit bids for the contract or in the termination, reduction or modification of the awarded contract. 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, or the "DCAA," and other government agencies routinely audit and investigate government contracts. These agencies review a contractor's performance on its contract, cost structure and compliance with applicable laws, regulations and standards. The DCAA also reviews the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. Therefore, a DCAA audit could materially affect our competitive position and result in a substantial adjustment to our revenues. 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. If we were suspended or debarred from contracting with the federal government generally, or any significant agency in the intelligence community or Department of Defense, if our reputation or relationship with government agencies were impaired, or if the government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our operating results would be materially harmed. CONTRACT TYPES AND RISKS--OUR ESTIMATES OF THE TIME, RESOURCES AND EXPENSES REQUIRED TO COMPLETE OUR CONTRACTUAL COMMITMENTS MAY NOT BE ACCURATE. We enter into three principal types of contracts with the federal government: cost-plus, time and materials and fixed price. As of December 31, 2001, approximately 37% of our federal contracts are cost-plus, 34% are time and materials and 29% are fixed price. Under cost-plus type contracts, which are subject to a contract ceiling amount, we are reimbursed for allowable costs and paid a fee, which may be fixed or performance based. However, if our costs exceed the contract ceiling or 9 are not allowable under the provisions of the contract or applicable regulations, we may not be able to obtain reimbursement for all such costs. Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses. There is financial risk to us should our costs to perform time and materials contracts exceed the negotiated hourly billing rates. Under fixed price contracts, we are required to perform the contract tasks at a fixed price irrespective of the actual costs we incur, and consequently, any costs in excess of the fixed price are absorbed by us. Fixed price contracts, in comparison to cost-plus contracts, typically offer higher profit opportunities because we bear the risk of cost-overruns and receive the benefit of cost savings. For all contract types, there is risk associated with the assumptions we use to formulate our pricing of the proposed work. In addition, when we serve as a subcontractor under our contracts, we are exposed to the risks of delays in payment from the prime contractor for the services we provide. RISKS UNDER INDEFINITE DELIVERY/INDEFINITE QUANTITY CONTRACTS, GSA SCHEDULE CONTRACTS AND GWACS--MANY OF OUR U.S. FEDERAL GOVERNMENT CUSTOMERS SPEND THEIR PROCUREMENT BUDGETS THROUGH INDEFINITE DELIVERY/INDEFINITE QUANTITY CONTRACTS, GSA SCHEDULE CONTRACTS AND GWACS UNDER WHICH 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, or "ID/IQ," contracts, GSA Schedule contracts and other multiple award and/or GWAC 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 harm our operating results. GOVERNMENT REGULATIONS--WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF PROCUREMENT RULES AND REGULATIONS. CHANGES IN GOVERNMENT REGULATIONS COULD HARM OUR OPERATING RESULTS. Our defense and federal civil agency businesses must comply with and are affected by various government regulations. Among the most significant regulations are: - the Federal Acquisition Regulations, and agency regulations supplemental to 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. In addition, we are subject to industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against foreigners' access to classified information. If we were to come under foreign ownership, control or influence, our federal government customers could terminate or decide not to renew our contracts, and it could impair our ability to obtain new contracts. Any changes in applicable laws and regulations could also harm our operating results. Any failure to comply with applicable laws and 10 regulations could result in contract termination, price or fee reductions or suspension or debarment from contracting with the federal government. RISKS RELATING TO 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. Department of Defense, including under subcontracts having the Department of Defense as the ultimate purchaser, represented approximately 69% of our sales in the twelve months ended December 31, 2001. The U.S. defense budget declined from time to time in the late 1980s and the early 1990s, resulting in a slowing of new program starts, program delays and program cancellations. These reductions caused most defense-related government contractors to experience declining revenues, increased pressure on operating margins and, in some cases, net losses. While spending authorizations for defense-related programs by the government have increased in recent years, and in particular after the September 11, 2001 terrorist attacks, these spending levels may not be sustainable, and future levels of expenditures and authorizations for those programs may decrease, remain constant or shift to programs in areas where we do not currently provide services. A general significant decline in military expenditures could harm our operating results. WE ARE NOT ABLE TO GUARANTEE THAT CONTRACT ORDERS INCLUDED IN OUR ESTIMATED CONTRACT VALUE WILL RESULT IN ACTUAL REVENUES IN ANY PARTICULAR FISCAL PERIOD OR THAT THE ACTUAL REVENUES FROM SUCH CONTRACTS WILL EQUAL OUR ESTIMATED CONTRACT VALUE. There can be no assurance that any contracts included in our estimated contract value presented in this prospectus will result in actual revenues in any particular period or that the actual revenues from such contracts will equal our estimated contract value. Further, there can be no assurance that any contract included in our estimated contract value that generates revenue will be profitable. Our estimated contract value consists of funded backlog, which is based upon amounts actually appropriated by a customer for payment of goods and services, and unfunded contract value, which is based upon management's estimate of the future potential of our existing contracts (including contract options) to generate revenues. These estimates are based on our experience under such contracts and similar contracts, and we believe such estimates to be reasonable. However, there can be no assurances that all of such estimated contract value will be recognized as revenue. In addition, the federal government's ability to select multiple winners under ID/IQ contracts and GWACs, as well as its right to award subsequent task orders among such multiple winners, means that there is no assurance that certain of our existing contracts will result in actual orders. Further, the federal government enjoys broad rights to unilaterally modify or terminate such contracts, including the right not to exercise options to extend multi-year contracts through the end of their potential terms. Accordingly, most of our existing contracts are 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. GOVERNMENT INTENT TO REPLACE LEGACY SYSTEMS--OUR BUSINESS WILL BE HARMED IF GOVERNMENT AGENCIES ARE UNWILLING TO REPLACE OR SUPPLEMENT EXPENSIVE LEGACY SYSTEMS. Government agencies have spent substantial resources over an extended period of time to develop computer systems and to train their personnel to use them. These agencies may be reluctant to abandon or supplement these legacy systems with Internet and other advanced technology systems because of the cost of developing them or the additional cost of re-training 11 their personnel. Such reluctance would make it more difficult to acquire new contracts which would harm our business prospects. 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 our contract for default. A default termination could expose us 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 PERSONNEL--IF WE LOSE OUR TECHNICAL PERSONNEL OR MEMBERS OF SENIOR MANAGEMENT, 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 technical employees in the future could have a material adverse effect on our ability to win new business and could harm our operating results. In addition, we believe that the success of our business strategy and our ability to operate profitably depends on the continued employment of our senior management team, led by Joseph M. Kampf. None of our senior management team has an employment contract with us. If Mr. Kampf or other members of our senior management team become unable or unwilling to continue in their present positions, our business and financial results could be materially adversely affected. SECURITY CLEARANCE--IF WE CANNOT OBTAIN THE NECESSARY SECURITY CLEARANCES, WE MAY NOT BE ABLE TO PERFORM CLASSIFIED WORK FOR THE GOVERNMENT AND OUR REVENUES MAY SUFFER. Certain government contracts require us, and some of our employees, to maintain security clearances. If we lose or are unable to obtain security clearances, the client can terminate the contract or decide not to renew it upon its expiration. As a result, to the extent we cannot obtain the required security clearances for our employees working on a particular contract, we may not derive the revenue anticipated from the contract, which, if not replaced with revenue from other contracts, could seriously harm our operating results. SECURITY ISSUES--SECURITY BREACHES IN SENSITIVE GOVERNMENT SYSTEMS COULD RESULT IN THE LOSS OF CLIENTS AND NEGATIVE PUBLICITY. Many of the systems we develop involve managing and protecting information involved in national security and other sensitive government functions. A security breach in one of these systems could cause serious harm to our business, could result in negative publicity and could 12 prevent us from having further access to such critically sensitive systems or other similarly sensitive areas for other governmental clients. CLIENT EXPECTATIONS--WE COULD LOSE REVENUES AND CLIENTS AND EXPOSE OUR COMPANY TO LIABILITY IF WE FAIL TO MEET CLIENT EXPECTATIONS. We create, implement and maintain technology solutions that are often critical to our clients' operations. If our technology solutions or other applications have significant defects or errors or fail to meet our clients' expectations, we may: - lose future contract opportunities due to receipt of poor past performance evaluations from our customers; - have contracts terminated for default and be liable to our customers for reprocurement costs and other damages; - receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and - suffer claims for substantial damages against us, regardless of our responsibility for the failure. While many of our contracts limit our liability for damages that may arise from negligent acts, errors, mistakes or omissions in rendering services to our clients, we cannot be sure that these contractual provisions will protect us from liability for damages if we are sued. Furthermore, our general liability insurance coverage may not continue to be available on reasonable terms or in sufficient amounts to cover one or more large claims, or the insurer may disclaim coverage as to any future claim. The successful assertion of any large claim against us could seriously harm our business. Even if not successful, such claims could result in significant legal and other costs and may be a distraction to management. ACQUISITION STRATEGY--WE INTEND TO PURSUE FUTURE ACQUISITIONS WHICH MAY ADVERSELY AFFECT OUR BUSINESS IF WE CANNOT EFFECTIVELY INTEGRATE THESE NEW OPERATIONS. We have completed and substantially integrated five strategic acquisitions since 1997. The federal government information technology solutions and engineering services industry remains fragmented, and we believe that acquisition and consolidation opportunities will continue to present themselves periodically. We intend to continue to selectively review acquisition candidates with a focus on companies with complementary skills or market focus. Our continued success will depend upon our ability to integrate any businesses we may acquire in the future. The integration of such businesses into our operations may result in unforeseen operating difficulties, may absorb significant management attention and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our business. Such difficulties of integration may involve the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and reconciling different corporate cultures. In addition, in certain acquisitions, federal acquisition regulations may require us to enter into government novation agreements, a potentially time-consuming process. Government agencies may delay in recognizing us as the successor contractor in these situations, thereby possibly preventing our realization of some of the anticipated benefits of such acquisitions. There can be no assurance that acquired entities will operate profitably, that we will realize anticipated synergies or that these acquisitions will cause our operating performance to improve. 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 13 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. POTENTIAL UNDISCLOSED LIABILITIES ASSOCIATED WITH ACQUISITIONS--WE MAY BE SUBJECT TO CERTAIN LIABILITIES ASSUMED IN CONNECTION WITH OUR ACQUISITIONS THAT COULD HARM OUR OPERATING RESULTS. We conduct due diligence in connection with each of our acquisitions. In connection with any 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 or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to the federal government or other customers, we, as the successor owner, may be financially responsible for these violations and failures and may suffer reputational harm or otherwise be adversely affected. The discovery of any material liabilities associated with our acquisitions could harm our operating results. OUR EMPLOYEES MAY ENGAGE IN IMPROPER ACTIVITIES WITH ADVERSE CONSEQUENCES TO OUR BUSINESS. As with other government contractors, we are faced with the possibility that our employees may engage in misconduct, fraud or other improper activities that may have adverse consequences to our prospects and results of operations. Misconduct by employees could include failures to comply with federal government procurement regulations, violation of federal requirements concerning the protection of classified information, improper labor and cost charging to contracts and misappropriation of government or third party property and information. The occurrence of any such employee activities could result in our suspension or debarment from contracting with the federal government, as well as the imposition of fines and penalties, which would cause material harm to our business. 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 HARM OUR OPERATING RESULTS. In connection with our international operations, which generated 1.2% of our revenues for the twelve months ended December 31, 2001, 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. Although our international operations are not currently substantial, 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 harmed our operating results in the past, no assurance can be given that such risks will not harm our operating results in the future. 14 RISKS RELATED TO OUR CAPITAL STRUCTURE SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH. We have a significant amount of debt outstanding. As of December 31, 2001, after giving effect to this offering, the application of the net proceeds as described under "Use of Proceeds," the merger of our subsidiary, Anteon Virginia, with and into us and the related transactions described more fully in "Certain Relationships--Reorganization Transaction," our debt would have been $115.9 million. You should be aware that this level of debt could have important consequences to you as a holder of shares. 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 DEBT 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 governing our 12% Notes and of our credit facility limit but do not prohibit us or our subsidiaries from doing so. As of December 31, 2001, after giving effect to this offering, the application of the net proceeds as described under "Use of Proceeds," the merger of our subsidiary, Anteon Virginia, with and into us and the related transactions described more fully in "Certain Relationships--Reorganization Transaction," our credit facility would have permitted additional borrowings of up to $93.7 million. If new debt is added by us or our subsidiaries, the related risks that we and they now face could intensify. ABILITY TO SERVICE DEBT--TO SERVICE OUR DEBT, 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; - budgetary constraints affecting federal government spending, and changes in fiscal policies or available funding; - federal government shutdowns and other potential delays in the government appropriations process; - delays in the payment of our invoices by government payment offices due to problems with, or upgrades to, government information systems, or for other reasons; - any operating difficulties, operating costs or pricing pressures we may experience; - the passage of legislation or other regulatory developments that affect 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 debt obligations. If we are 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. 15 Also, certain alternative strategies would require the consent of our senior secured lenders before we engage in any such strategy. RESTRICTIVE DEBT COVENANTS--THE TERMS OF OUR CREDIT FACILITY AND THE INDENTURE GOVERNING OUR 12% NOTES IMPOSE SIGNIFICANT RESTRICTIONS ON OUR ABILITY AND THAT OF OUR SUBSIDIARIES TO TAKE CERTAIN ACTIONS, WHICH MAY HAVE AN IMPACT ON OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION. The indenture and our credit facility 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 debt; - 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. The failure to comply with any of these covenants would cause a default under the indenture and our credit agreement. A default, if not waived, could result in acceleration of our debt, 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 stockholders such as yourself. CONCENTRATION OF OWNERSHIP--WE WILL BE CONTROLLED BY ENTITIES UNDER THE CONTROL OF MR. ISEMAN, WHOSE INTERESTS MAY NOT BE ALIGNED WITH YOURS. Caxton-Iseman Capital, Inc. is a leveraged buy-out firm based in New York. Affiliates of and companies managed by Caxton-Iseman Capital, Inc., including Azimuth Technologies, L.P., Azimuth Tech. II LLC and Frederick J. Iseman, which we refer to collectively as the "Caxton-Iseman stockholders," will beneficially own approximately % of our capital stock upon consummation of this offering. Because the Caxton-Iseman stockholders are controlled by Frederick J. Iseman and because of certain voting arrangements, Mr. Iseman can control the election of our directors and the outcome of all matters submitted to a vote of our stockholders, as well as our management, operations and policies, and may be deemed to beneficially own the capital stock held by the Caxton-Iseman stockholders. In addition, our amended and restated certificate of incorporation provides that the Caxton-Iseman stockholders have the right to nominate a number of persons for election as director in proportion to their beneficial ownership of our common stock so long as they beneficially own at least 10% of our common stock. Currently, there are three Caxton-Iseman directors. Effective as of the consummation of this offering, we will increase the size of our board to twelve, thereby creating four vacancies. Pursuant to the provisions of our amended and restated certificate of incorporation, the Caxton-Iseman stockholders may fill three of these four vacancies. 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. The Caxton-Iseman stockholders can sell all or a portion of their stock without providing other stockholders the opportunity to sell their stock. In addition, the terms of our rights plan exclude transactions with the Caxton-Iseman stockholders and any of their transferees. The concentration of ownership also may delay, defer or even prevent a change in control of our company, and make some transactions more difficult or impossible without the support of the 16 Caxton-Iseman stockholders. These transactions might include proxy contests, tender offers, mergers or other purchases of common stock that could give you the opportunity to realize a premium over the then-prevailing market price for shares of our common stock. RISKS RELATED TO THE OWNERSHIP OF OUR COMMON STOCK FLUCTUATIONS IN OUR OPERATING RESULTS--OUR QUARTERLY REVENUES AND OPERATING RESULTS COULD BE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO FLUCTUATE. Our quarterly revenues and operating results may fluctuate significantly in the future. In particular, if the federal government does not adopt, or delays adoption of, a budget for each fiscal year beginning on October 1, or fails to pass a continuing resolution, federal agencies may be forced to suspend our contracts and delay the award of new and follow-on contracts and orders due to a lack of funding. Consequently, we may realize lower revenues in the quarter ending December 31. Further, the rate at which the federal government procures technology may be negatively affected following changes in presidential administrations and senior government officials. As a result, our operating results could be volatile and difficult to predict and period-to-period comparisons of our operating results may not be a good indication of our future performance. Our quarterly operating results may not meet the expectations of securities analysts or investors, which in turn may have an adverse effect on the market price of our common stock. OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY BE UNABLE TO RESELL YOUR SHARES AT OR ABOVE THE OFFERING PRICE. Prior to this offering, there has not been a public market for our common stock. We cannot predict whether a liquid trading market will develop. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations as a result of many factors, including those listed in this "Risk Factors" section of this prospectus. In recent years, the stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of specific companies. Our market price may fluctuate based on a number of factors, including: - our operating performance and the performance of other similar companies; - federal government spending levels, both generally and by our particular customers; - delays in the payment of our invoices by government payment offices, resulting in potentially reduced earnings during a particular fiscal quarter; - news announcements relating to us, our industry or our competitors; - changes in earnings estimates or recommendations by research analysts; - changes in general economic conditions; - the number of shares to be publicly traded after this offering; - actions of our current stockholders; - the passage of legislation or other regulatory developments that affect us adversely; and - other developments affecting us, our industry or our competitors. DILUTION--PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE DILUTION AS THE NET TANGIBLE BOOK VALUE OF THE SHARES OF COMMON STOCK WILL BE SUBSTANTIALLY LOWER THAN THE OFFERING PRICE. The initial public offering price of the shares of common stock is substantially higher than the pro forma net tangible book value per share of the outstanding common stock. As a result, if we were liquidated for book value immediately following this offering, each stockholder purchasing in this offering would experience immediate dilution of $ per share of common stock. 17 Dilution is the difference between the offering price per share and the pro forma net tangible book value per share of our common stock. See "Dilution" for a discussion about how pro forma net tangible book value is calculated. SALE OF SHARES BY EXISTING STOCKHOLDERS--A LARGE NUMBER OF OUR SHARES ARE OR WILL BE ELIGIBLE FOR FUTURE SALE WHICH COULD DEPRESS OUR STOCK PRICE. Sales of a substantial number of shares of our common stock, or the perception that a large number of shares will be sold, could depress the market price of our common stock. After this offering, our current stockholders will own beneficially approximately % of the outstanding shares of our common stock, or approximately % if the underwriters' over-allotment option is exercised in full. Immediately following the consummation of this offering, current stockholders holding shares will be entitled to dispose of their shares and, following the expiration of a 180-day "lock-up" period to which the remainder of our current stockholders, directors, executive officers and members of senior management are subject, these holders will be entitled to dispose of their shares, although the shares of common stock held by our affiliates will continue to be subject to the volume and other restrictions of Rule 144 under the Securities Act. In addition, Goldman, Sachs & Co. may, in its sole discretion and at any time without notice, release all or any portion of the shares subject to the lock-up. After this offering, the holders of approximately shares of our common stock (including shares issuable upon the exercise of outstanding options) will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. By exercising their registration rights and selling a large number of shares, these holders could cause the price of our common stock to decline. In addition, immediately following this offering, we intend to file a registration statement registering under the Securities Act the shares reserved for issuance under our employee stock option plans or issued to employees upon exercise of options. OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS AND OUR STOCKHOLDERS' RIGHTS PLAN CONTAIN PROVISIONS THAT MAY DISCOURAGE A TAKEOVER ATTEMPT. Provisions contained in our amended and restated certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. Provisions of our amended and restated certificate of incorporation and bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect some corporate actions. For example, our amended and restated certificate of incorporation authorizes our board to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. Thus, our board can authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of our common stock. These rights may have the effect of delaying or deterring a change of control of our company, and could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, a change of control of our company may be delayed or deferred as a result of our having three classes of directors or the stockholders' rights plan adopted by our board. Our stockholders' rights plan is designed to enable all stockholders to receive fair and equal treatment in any proposed takeover and to guard against partial or two-tiered tender offers, open market accumulations and other abusive tactics to gain control of Anteon. The provisions of the plan might make an unsolicited takeover more difficult or less likely to occur or might prevent such a takeover, even though such a takeover might offer our stockholders the opportunity to sell their stock at a price above the prevailing market price and might be favored by a majority of our stockholders. See "Description of Capital Stock" for additional information on the anti-takeover measures applicable to us. 18 FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward-looking statements. Forward-looking statements relate to future events or our future financial performance. All projections contained in this prospectus are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology like "may," "will," "should," "expects," "plans," "projects," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements include, but are not limited to: - funded backlog; - estimated contract value; - our expectations regarding the federal government's procurement budgets and reliance on outsourcing of services; and - our financial condition and liquidity, as well as future cash flows and earnings. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results and do not intend to do so. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the following: - the integration of acquisitions without disruption to our other business activities; - changes in general economic and business conditions; - changes in federal government procurement laws, regulations, policies and budgets; - the number and type of contracts and task orders awarded to us; - technological changes; - the ability to attract and retain qualified personnel; - competition; - our ability to retain our contracts during any rebidding process; and - the other factors outlined under "Risk Factors." 19 USE OF PROCEEDS The net proceeds from the sale of the shares of common stock offered by us will be approximately $67.5 million, based on an assumed initial public offering price of $ per share and after deducting the underwriting discounts and commissions and estimated offering expenses. We will not receive any proceeds from the sale of the shares to be sold by the selling stockholders or the shares to be sold by the selling stockholders if the underwriters exercise their over-allotment option. Based on our expected obligations as of March 1, 2002, we expect to use the net proceeds from this offering to: - repay approximately $8.9 million of our debt outstanding under the term loan portion of our credit facility; - repay approximately $16.3 million of debt outstanding under the revolving loan portion of our credit facility, without permanently reducing our borrowing availability under this facility; - repurchase, in open market or privately negotiated transactions, or otherwise, or redeem approximately $25.0 million principal amount of our 12% Notes; - repay in full our $2.5 million principal amount promissory note held by former stockholders of Sherikon, Inc., or "Sherikon," a company acquired by us in October 2000; - repay in full our $7.5 million principal amount subordinated promissory note held by Azimuth Technologies, L.P., one of our principal stockholders, and $50,000 aggregate principal amount of our subordinated promissory notes held by present members of our management, referred to as the "Management Notes;" and - repay approximately $4.4 million of our subordinated note payable-related party, relating to accrued interest on our $22.5 million principal amount subordinated convertible promissory note held by Azimuth Tech. II LLC, one of our principal stockholders. We expect to use the remainder of the net proceeds, if any, for general corporate purposes, including working capital. Our promissory note held by former stockholders of Sherikon bears no interest and matures in October 2002; our Management Notes and the subordinated promissory note held by Azimuth Technologies, L.P. bear interest at 6% per year and mature in April 2004; our subordinated convertible promissory note held by Azimuth Tech. II LLC bears interest at 12% per year and matures in June 2010, but will be converted immediately prior to the completion of this offering; and our 12% Notes bear interest at 12% per year, payable in cash semi-annually on each May 15 and November 15, and mature on May 15, 2009. Each of the facilities under our existing credit facility bears interest at a variable rate based upon LIBOR or prime lending rates, at our option. As of December 31, 2001, the weighted-average interest rate on our borrowings under the credit facility was 5.6%. Our credit facility has a final maturity date of June 2005. We used a portion of the proceeds from our borrowings under our credit facility to acquire Sherikon in October 2000 and SIGCOM in July 2001. 20 DIVIDEND POLICY We have not in the past paid, and do not expect for the foreseeable future to pay, dividends on our common stock. Instead, we anticipate that all of our future earnings, if any, will be used in the operation and expansion of our business, for working capital, and other general corporate purposes. Our board will determine whether to pay dividends in the future based on conditions then existing, including our earnings, financial condition and capital requirements, as well as economic and other conditions as the board may deem relevant. In addition, our ability to declare and pay dividends on our common stock is restricted by covenants in our credit facility and the indenture governing our 12% Notes. 21 CAPITALIZATION The following table sets forth our cash position and capitalization as of December 31, 2001: - on an actual basis giving effect to the merger of Anteon Virginia into us; and - on a pro forma as adjusted basis to give effect to the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses, the application of the net proceeds of this offering as described under "Use of Proceeds" and the conversion of the subordinated convertible note held by one of our principal stockholders. You should read this information in conjunction with "Selected Consolidated Financial Data," "Management's Discussion & Analysis of Financial Condition and Results of Operations," our consolidated financial statements and our pro forma financial statements and the related notes appearing elsewhere in this prospectus.
AS OF DECEMBER 31, 2001 --------------------------- ACTUAL PRO FORMA(A) --------- ------------ (IN THOUSANDS) Cash and cash equivalents......................... $ 1,930 $ 1,930 Long term debt, including current portions Revolving facility(b)........................... 18,700 2,427 Term loan(b).................................... 47,054 38,195 12% Notes....................................... 100,000 75,000 Azimuth Tech. II LLC notes(c)................... 26,869 -- Business purchase consideration payable......... 515 283 Subordinated notes payable to stockholders(d)... 7,499 -- Subordinated notes payable...................... 2,268 -- -------- -------- Total long term debt.............................. $202,905 $115,905 Stockholders' equity (deficit): Common stock, $0.01 par value per share, shares authorized; shares issued and outstanding (actual); shares issued and outstanding (as adjusted)..................... -- -- Additional paid-in capital, net of subscriptions................................. $ 2,592 $ 92,592 Accumulated other comprehensive income (loss)... (1,747) (1,747) Retained earnings (accumulated deficit)......... (4,287) (6,733) -------- -------- Total stockholders' equity (deficit)............ (3,442) 84,112 -------- -------- Total capitalization.............................. $199,463 $200,017 ======== ========
- ------------------------ (a) Reflects the receipt of the net proceeds from this offering of $67.5 million and the use of the net proceeds from this offering to repay approximately $8.9 million of our debt outstanding under the term loan, repay approximately $16.3 million of debt outstanding under the revolving loan portion of our credit facility, repurchase or redeem approximately $25.0 million principal amount of our 12% Notes, repay in full our $2.5 million principal amount promissory note held by former stockholders of Sherikon, repay in full our $7.5 million principal amount subordinated promissory notes held by certain stockholders and repay approximately $4.4 million of subordinated notes payable related to accrued interest on our $22.5 million principal amount subordinated convertible promissory note held by Azimuth Tech. II LLC. In addition, reflects the conversion of the promissory note held by Azimuth Tech. II LLC to our common stock, and the charges, net of taxes, associated with the write-off of deferred financing fees and an early retirement premium associated with the permanent reduction of long-term debt. 22 (b) Because our working capital fluctuates based on our seasonal needs, the amount borrowed under our revolving credit facility may vary. The aggregate amount available for borrowing under our revolving credit facility is determined based on a portion of eligible accounts receivable. Following the consummation of this offering, we expect to have $2.4 million of debt outstanding under our revolving credit facility and an additional $93.7 million of borrowing availability under this facility. Our term loan consists of a six-year, $60 million term loan facility. See "Description of Indebtedness--Credit Facility." (c) Represents a subordinated convertible promissory note held by Azimuth Tech. II LLC. The $22.5 million principal amount of this note will be converted into shares of our common stock immediately prior to the consummation of this offering, and approximately $4.4 million of accrued interest on this note will be paid with a portion of the net proceeds of this offering. (d) Represents the $7.5 million aggregate principal amount of our subordinated promissory note held by Azimuth Technologies, L.P., and $50,000 principal amount of our Management Notes. 23 DILUTION Our pro forma net tangible book value at December 31, 2001, which reflects the merger of our subsidiary, Anteon Virginia, with and into us and the related reorganization transactions but not this offering, was approximately $ million, or approximately $ per share. Net tangible book value per share represents the amount of our total tangible assets, meaning total assets less intangible assets, reduced by our total liabilities, divided by the number of shares of our common stock outstanding. After giving effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, deducting the estimated underwriting discounts and commissions and our estimated offering expenses of $ million and applying our estimated net proceeds, our adjusted net tangible book value as of December 31, 2001 would have been approximately $ million, or $ per share. This represents an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share before this offering.................................................. Increase in pro forma net tangible book value per share attributable to this offering............................. Pro forma net tangible book value per share after this offering.................................................. ----------- Dilution per share to new investors......................... $ ===========
The following table summarizes, on the adjusted pro forma basis discussed above, as of December 31, 2001, the difference between the number of shares of common stock purchased, the total consideration paid and the average price per share paid by our existing stockholders and by new investors.
SHARES PURCHASED TOTAL CONSIDERATION ------------------- ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE -------- -------- -------- -------- ------------- Existing Stockholders....................... New Investors............................... Total.......................................
The discussion and tables above assume no exercise of stock options outstanding as of December 31, 2001. As of the consummation of this offering, we expect to have options outstanding to purchase a total of shares of common stock, with a weighted-average exercise price of $ per share. To the extent that any of these options are exercised, there will be further dilution to new investors. See "Description of Capital Stock" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. 24 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The unaudited pro forma condensed consolidated financial information has been prepared by management and gives effect to our acquisition of SIGCOM Training in July 2001, our sale of Center for Information Technology Education, or "CITE," in June 2001, our sale of Interactive Media Corp., or "IMC," in July 2001, the closure of our operations of DisplayCheck in August 2001, the closure of our operations of South Texas Ship Repair, Inc., or "STSR," in December 2001, the planned conversion of our $22.5 million principal amount subordinated convertible promissory note (and repayment of accrued interest thereon) held by Azimuth Tech. II LLC, one of our principal stockholders, the offering and the use of the estimated net proceeds to us from this offering. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2001 has been prepared to give effect to the transactions described above as if they had occurred on January 1, 2001. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2001 has been prepared to give effect to the planned conversion of our $22.5 million principal amount subordinated convertible promissory note (and repayment of accrued interest thereon), this offering and the use of the estimated net proceeds to us from this offering as if they had occurred as of December 31, 2001. The pro forma adjustments, which are based on available information and certain assumptions that we believe are reasonable under the circumstances, are applied to our historical consolidated financial statements. The acquisition is accounted for under the purchase method of accounting. The allocation of the SIGCOM Training purchase price is based upon the preliminary estimated fair value of assets acquired and liabilities assumed. The purchase price allocations for the SIGCOM Training acquisition reflected in the accompanying unaudited pro forma condensed consolidated statement of operations may be different from the final allocation of the purchase price, and any such differences may be material. The unaudited pro forma condensed consolidated financial information is provided for informational purposes only and does not purport to represent what our financial position or results of operations would actually have been had the acquisition and dispositions occurred on such dates or to project our results of operations or financial position for any future period. The accompanying unaudited pro forma condensed consolidated financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and the notes thereto for us and SIGCOM Training included elsewhere in this prospectus. 25 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 (IN THOUSANDS, EXCEPT SHARE DATA)
HISTORICAL ------------------------ BUSINESS PRO FORMA FOR SIGCOM DISPOSITION ACQUISITIONS ANTEON TRAINING ACQUISITION ADJUSTMENTS AND OFFERING PRO FORMA ANTEON INTERNATIONAL (A) ADJUSTMENTS (F) DISPOSITIONS ADJUSTMENTS INTERNATIONAL ------------- -------- ----------- ----------- ------------- ----------- ---------------- Revenues.................. $715,023 $8,475 $ -- $(16,863) $706,635 $ -- $706,635 Costs of revenues......... 627,342 7,089 (554)(b) (18,655) 615,222 -- 615,222 -------- ------ ----- -------- -------- ------- -------- Gross profit.......... 87,681 1,386 554 1,792 91,413 -- 91,413 -------- ------ ----- -------- -------- ------- -------- Operating expenses: General and administrative expenses, excluding acquisition-related costs................. 51,442 693 (636)(b) (1,862) 49,637 (4,600)(g) 45,037 Amortization of noncompete agreements............ 349 -- -- -- 349 -- 349 Goodwill amortization... 6,704 -- -- (1,185) 5,519 -- 5,519 Other intangibles amortization.......... 2,321 -- 128 (c) (19) 2,430 -- 2,430 -------- ------ ----- -------- -------- ------- -------- Total operating expenses.............. 60,816 693 (508) (3,066) 57,935 (4,600) 53,335 -------- ------ ----- -------- -------- ------- -------- Operating income.......... 26,865 693 1,062 4,858 33,478 4,600 38,078 Gains on sales and closures of businesses.............. 4,046 -- -- (3,559) 487 -- 487 Interest expense, net of interest income......... 26,872 -- 647 (d) (713) 26,806 (9,557 )(h)(i) 17,249 Minority interest in (earnings) losses of subsidiaries............ (38) -- -- -- (38) -- (38) -------- ------ ----- -------- -------- ------- -------- Income (loss) before provision for income taxes and extraordinary gain (loss)............. 4,001 693 415 2,012 7,121 14,157 21,278 Provision for (benefit from) income taxes...... 4,413 -- 454 (e) 339 5,206 5,804 (e) 11,010 -------- ------ ----- -------- -------- ------- -------- Income (loss) before extraordinary gain (loss) (j).............. $ (412) $ 693 $ (39) $ 1,673 $ 1,915 $ 8,353 $ 10,268 ======== ====== ===== ======== ======== ======= ======== Income (loss) before extraordinary gain (loss) per common share (i)(j): Basic and diluted Weighted average shares outstanding: Basic and diluted
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations. 26 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS The following adjustments have been reflected in the Unaudited Pro Forma Condensed Consolidated Statement of Operations: (a) To reflect the historical results of operations of SIGCOM Training for the period from January 1, 2001 to its acquisition date of July 20, 2001. The historical results of operations for SIGCOM Training are included in our historical results of operations for the period from July 20, 2001 to December 31, 2001. (b) To reflect the reduction in historical overhead and general and administrative costs allocated by SIGCOM Training's former parent for the period from January 1, 2001 to July 20, 2001 associated with functions not acquired by us. Our personnel are now performing such functions without additional staffing as a result of the acquisition. (c) To reflect amortization expense related to the preliminary estimate of the fair value of the identifiable intangible asset associated with the acquisition of SIGCOM Training, as follows:
PRO FORMA ADJUSTMENT FOR THE ALLOCATED ESTIMATED YEAR ENDED AMOUNT LIFE DECEMBER 31, 2001 --------- --------- ------------------ Contract backlog.............................. $440,000 2 years $128,000
(d) To reflect interest expense of $647,000 for the year ended December 31, 2001, at an average rate of 10.14%, based on our average incremental borrowing rate for the period, related to the additional average borrowings of $11.0 million from the SIGCOM Training acquisition. (e) To reflect federal and state income taxes at a combined rate of 41%, after adjusting income (loss) before taxes for non-deductible expenses, primarily goodwill amortization expense. (f) To remove the historical results of operations for businesses disposed of or sold, including the sale of CITE (June 29, 2001), the closure of our operations of DisplayCheck (August 1, 2001), the sale of IMC (July 20, 2001) and the closure of STSR (December 14, 2001). The historical results of these operations are as follows:
NON- USE OF TOTAL OPERATING PROCEEDS BUSINESS DISPOSITION FROM IMC DISPOSITION CITE DISPLAYCHECK STSR IMC ADJUSTMENTS SALE ADJUSTMENTS -------- ------------- -------- -------- ------------ --------- ------------ Revenues............................... $1,169 $ 664 $ 3,289 $11,741 $ -- $ -- $16,863 Costs of revenues...................... 1,924 415 5,396 10,920 -- -- 18,655 ------ ----- ------- ------- ------ ----- ------- Gross profit (loss).................. (755) 249 (2,107) 821 -- -- (1,792) ------ ----- ------- ------- ------ ----- ------- Operating expenses: General & administrative expenses......................... 345 656 -- 861 -- -- 1,862 Goodwill amortization.............. -- -- -- -- 1,185 -- 1,185 Other intangibles amortization..... -- -- -- -- 19 -- 19 ------ ----- ------- ------- ------ ----- ------- Total operating expenses......... 345 656 -- 861 1,204 -- 3,066 ------ ----- ------- ------- ------ ----- ------- Operating income (loss)................ (1,100) (407) (2,107) (40) (1,204) -- (4,858) Gains on sales and closures of businesses........................... 100 -- -- -- 3,459 -- 3,559 Interest expense, net of interest income............................... -- -- 1 2 -- (710) (713) ------ ----- ------- ------- ------ ----- ------- Income (loss) before provision for (benefit from) income taxes.......... (1,000) (407) (2,108) (42) 2,255 (710) (2,012) Provision for (benefit from) income taxes................................ (410) (167) (864) (17) 1,410 (291) (339) ------ ----- ------- ------- ------ ----- ------- Income (loss) before extraordinary gain (loss)............................... $ (590) $(240) $(1,244) $ (25) $ 845 $(419) $(1,673) ====== ===== ======= ======= ====== ===== =======
The "Non-operating disposition adjustments" include goodwill amortization expense of approximately $1.0 million related to the write-off of goodwill associated with the closure of STSR; historical goodwill amortization expense of $50,000 related to STSR and $93,000 related 27 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED) to IMC from January 1, 2001 through the dates of disposal. Also included in this column is the gain on the sale of IMC of $3,459,000, which was recorded in 2001. The "Use of proceeds from IMC sale" adjustment is a reduction of interest expense of $713,000 for the year ended December 31, 2001, related to the use of the $12,069,000 net proceeds from the sale of IMC to reduce borrowings under our revolving credit facility. The reduction in interest expense, based on our average incremental borrowing rate for the period, is recognized at a rate of 10.14%. (g) To reflect the elimination of the $1.0 million annual management fee paid to Caxton-Iseman Capital, Inc., which fee is no longer due pursuant to a management fee agreement which was terminated effective December 31, 2001, and a one-time $3.6 million fee payable to Caxton-Iseman Capital, Inc. to terminate the management fee agreement, which was recognized in 2001. (h) To reflect the adjustment to decrease interest expense by $9,042,000 associated with our use of the estimated net proceeds and conversion of the subordinated note payable to us from this offering to reduce long-term debt are as follows:
AVERAGE BORROWING RATE FOR THE YEAR ENDED PRINCIPAL DECEMBER 31, REDUCTION 2001 ----------- ----------------- Revolving credit facility............................ $16,273,000 8.94% Term loan............................................ 8,859,000 7.03% Subordinated notes payable to stockholders........... 7,499,000 6.00% Conversion of subordinated note payable.............. 22,500,000 12.00% Subordinated notes payable-related party............. 4,369,000 12.00% Subordinated notes payable........................... 2,500,000 11.75% 12% Notes payable.................................... 25,000,000 12.00% ----------- $87,000,000 ===========
(i) To reflect the decrease in interest expense of $515,000 related to the elimination of the amortization expense of deferred financing fees associated with the long-term debt which will be permanently reduced with the net proceeds to us from this offering. The early permanent reduction of long-term debt will also result in extraordinary losses of approximately $4,134,000 ($2,439,000 net of taxes) not reflected in the accompanying pro forma condensed consolidated statement of operations. Under currently adopted accounting principles generally accepted in the United States of America, losses upon the early extinguishment of long-term debt are classified as extraordinary. However, during November 2001, the Financial Accounting Standards Board released an Exposure Draft that would amend current principles and may result in a reclassification of the early extinguishment of long-term debt as described above as a component of interest expense. (j) Excludes the historical extraordinary gain, net of tax, from the early retirement of a subordinated note issued in connection with our acquisition of Anteon Virginia in 1996. On July 20, 2001, the Financial Accounting Standards Board issued Statement No. 141 ("SFAS No. 141"), "Business Combinations," and Statement No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142 28 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED) addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic evaluations of impairment of goodwill balances. SFAS No. 142 is effective January 1, 2002. The pro forma financial information gives effect to the acquisition of SIGCOM Training using the provisions of SFAS No. 141 and SFAS No. 142. Accordingly, acquired goodwill and intangibles with indefinite lives have not been amortized. The acquired intangible asset for contract backlog is being amortized over a two-year period. For our acquisitions consummated prior to July 1, 2001, no pro forma adjustments have been included to apply the provisions of SFAS No. 141 and SFAS No. 142 to goodwill or separately identifiable intangible assets, or related amortization expense. Beginning January 1, 2002, we will no longer amortize goodwill and intangibles with indefinite lives related to such acquisitions. Had the provisions of SFAS No. 142 been applied in the accompanying unaudited pro forma condensed consolidated statement of operations to acquisitions consummated prior to July 1, 2001, pro forma amortization expense would have decreased and pro forma income before extraordinary items would have increased by $6,208,000. Our pro forma income before extraordinary items per common share would have been $ . The accompanying unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2001 excludes gains on the sales of CITE and IMC of approximately $100,000 and $3,500,000, respectively, since such gains are considered non-recurring in nature. An increase of 1/8% in the interest rates for the additional average borrowings described in note (d) above will result in an increase in pro forma interest expense and a decrease in pro forma net income of approximately $8,000 and $4,000, respectively, for the year ended December 31, 2001. 29 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001 (IN THOUSANDS)
HISTORICAL PRO FORMA ANTEON OFFERING ANTEON INTERNATIONAL ADJUSTMENTS INTERNATIONAL ------------- ----------- ------------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,930 $ 75,000 (a) $ 1,930 (7,500)(a) (64,500)(b) (3,000)(c) Accounts receivable, net.................................. 131,345 -- 131,345 Prepaid expenses and other current assets................. 6,992 (312)(c) 6,680 Income tax receivable..................................... -- 1,191 (c) 1,191 Deferred tax assets, net.................................. 4,151 -- 4,151 -------- -------- -------- Total current assets.................................... 144,418 879 145,297 Property and equipment, net............................... 12,744 -- 12,744 Goodwill, net............................................. 136,622 -- 136,622 Intangibles and other assets, net......................... 12,867 (834)(c) 12,033 -------- -------- -------- Total assets............................................ $306,651 $ 45 $306,696 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: $ (8,859) Term loan, current portion................................ $ 17,266 (b) $ 8,407 Subordinated notes and business consideration payable, current portion......................................... 2,783 (2,500)(b) 283 Accounts payable.......................................... 28,628 -- 28,628 Accrued expenses.......................................... 56,041 56,041 Income tax payable........................................ 509 (509)(c) -- Other current liabilities, net............................ 2,889 -- 2,889 Deferred revenue.......................................... 8,743 -- 8,743 -------- -------- -------- Total current liabilities............................... 116,859 (11,868) 104,991 Term loan, less current portion............................. 29,788 -- 29,788 Revolving facility.......................................... 18,700 (16,273)(b) 2,427 12% Notes................................................... 100,000 (25,000)(b) 75,000 Subordinated notes payable to stockholders.................. 7,499 (7,499)(b) -- Subordinated convertible note payable-related party......... 22,500 (22,500)(d) -- Subordinated notes payable-related party.................... 4,369 (4,369)(b) -- Non-current deferred tax liabilities, net................... 9,261 -- 9,261 Other long term liabilities................................. 690 -- 690 -------- -------- -------- Total liabilities....................................... 309,666 (87,509) 222,157 Minority interest in subsidiaries........................... 427 -- 427 Stockholders' equity (deficit): Common stock.............................................. -- -- -- Additional paid-in capital, net of subscriptions.......... 2,592 22,500 (d) 92,592 67,500 (a) Accumulated other comprehensive income (loss)............. (1,747) -- (1,747) Retained earnings (accumulated deficit)................... (4,287) (2,446)(c) (6,733) -------- -------- -------- Total stockholders' equity (deficit).................... (3,442) 87,554 84,112 -------- -------- -------- Total liabilities and stockholders' equity (deficit).... $306,651 $ 45 $306,696 ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet. 30 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The following adjustments have been reflected in the Unaudited Pro Forma Condensed Consolidated Balance Sheet: (a) To reflect the receipt of proceeds from this offering, net of underwriting discounts and related expenses of approximately $7.5 million. (b) To reflect the estimated use of the net proceeds from this offering to repay (i) long-term debt and (ii) accrued interest on the subordinated convertible note held by Azimuth Tech. II LLC, one of our principal stockholders. (c) To reflect the removal of deferred financing fees and payment of an early retirement premium associated with the early permanent reductions of long-term debt from the use of the net proceeds to us from the offering. The write-off of these deferred fees and early retirement premium is reflected as a charge against retained earnings, net of income taxes. (d) To reflect the conversion into common stock of our $22.5 million principal amount subordinated convertible promissory note held by Azimuth Tech. II LLC. 31 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below have been derived from our audited consolidated financial statements as of and for the years ended December 31, 2001, 2000, 1999, 1998 and 1997. These results are not necessarily indicative of the results that may be expected for any future period and are not comparable between prior periods as a result of business acquisitions consummated in 1997, 1998, 1999, 2000 and 2001. Results of operations of these acquired businesses are included in our consolidated financial statements for the periods subsequent to the respective dates of acquisition. You should read the selected financial and operating data presented below in conjunction with "Unaudited Pro Forma Condensed Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and our financial statements and their related notes appearing elsewhere in this prospectus. 32
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Revenues.................................................... $176,292 $249,776 $400,850 $ 542,807 $715,023 Costs of revenues........................................... 159,539 221,588 353,245 474,924 627,342 -------- -------- -------- --------- -------- Gross profit................................................ 16,753 28,188 47,605 67,883 87,681 General and administrative expenses, excluding acquisition-related costs................................. 8,061 15,286 25,610 38,506 51,442 Amortization of non-compete agreements...................... 2,286 530 909 866 349 Goodwill amortization....................................... 742 1,814 3,440 4,714 6,704 Other intangibles amortization.............................. -- -- -- 2,673 2,321 Costs of acquisitions/acquisition-related severance costs... 584 115 2,316 86 -------- -------- -------- --------- -------- Operating income............................................ 5,080 10,443 15,330 21,038 26,865 Gains on sales and closures of businesses................... -- -- -- -- 4,046 Gains on sales of investments and other, net................ -- -- 2,585 -- -- Interest expense, net of interest income.................... 3,836 6,893 18,230 26,513 26,872 Minority interest in (earnings) losses of subsidiaries...... 13 (26) (39) 32 (38) -------- -------- -------- --------- -------- Income (loss) before provision for (benefit from) income taxes and extraordinary gain (loss), net of tax........... 1,231 3,524 (354) (5,443) 4,001 Provision for (benefit from) income taxes................... 480 1,852 710 (153) 4,413 -------- -------- -------- --------- -------- Income (loss) before extraordinary gain (loss)............ 751 1,672 (1,064) (5,290) (412) Extraordinary gain (loss), net of tax..................... -- -- (463) -- 330 -------- -------- -------- --------- -------- Net income (loss)........................................... $ 751 $ 1,672 $ (1,527) $ (5,290) (82) ======== ======== ======== ========= ======== Basic and diluted earnings (loss) per common share: Income (loss) before extraordinary loss................... $ $ $ $ $ Extraordinary loss, net of tax............................ Net income (loss)......................................... Weighted average shares outstanding....................... OTHER DATA: EBITDA(a)................................................... $ 9,579 $ 15,869 $ 25,978 $ 36,349 $ 47,357 EBITDA margin............................................... 5.4% 6.4% 6.5% 6.7% 6.6% Cash flow from (used in) operating activities............... $ 13,894 $ (8,503) $ 11,767 $ 17,101 $ 37,879 Capital expenditures........................................ 817 2,089 4,761 6,584 2,181 BALANCE SHEET DATA (AS OF DECEMBER 31): Current assets.............................................. $ 35,879 $ 73,557 $118,583 $ 148,420 $144,418 Working capital............................................. 11,476 33,857 48,818 56,841 27,559 Total assets................................................ 67,527 136,544 278,691 324,423 306,651 Long-term debt, including current portion................... 40,099 90,851 212,301 237,695 202,905 Net debt(b)................................................. 39,447 84,721 211,092 236,261 200,975 Stockholders' equity (deficit).............................. 3,346 5,603 3,672 (1,576) (3,442)
- ---------------------------------- (a) "EBITDA" as defined represents income before income taxes plus depreciation, amortization and net interest expense. EBITDA is a key financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with accounting principles generally accepted in the United States of America). We believe that EBITDA is a useful supplement to net income and other income statement data in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, the EBITDA measures presented may not be comparable to similarly titled measures of other companies. The computations of EBITDA are as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1997 1998 1999 2000 2001 -------- -------- -------- -------- -------- ($ IN THOUSANDS) Income (loss) before provision for (benefit from) income taxes and extraordinary gain (loss)........................................ $1,231 $ 3,524 $ (354) $(5,443) $ 4,001 Interest expense................................ 3,836 6,893 18,230 26,513 26,872 Depreciation and amortization................... 4,512 5,452 8,102 15,279 16,484 ------ -------- ------- ------- ------- EBITDA.......................................... $9,579 $ 15,869 $25,978 $36,349 $47,357 ====== ======== ======= ======= =======
(b) Net debt represents total indebtedness less cash and investments in marketable securities. 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH "SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. SOME OF THE STATEMENTS IN THE FOLLOWING DISCUSSION ARE FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS." GENERAL We provide information technology solutions and advanced engineering services to government clients. We design, integrate, maintain and upgrade state-of-the-art information systems for national defense, intelligence, emergency response and other high priority government missions. We also provide many of our government clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. We currently serve over six hundred U.S. federal government clients, as well as state and foreign governments. As of December 31, 2001, 89% of our revenue was from contracts where we were the lead, or "prime," contractor. We provide our services under long-term contracts that generally have terms of four to five years. We have obtained ISO 9001 registration for our quality control systems and have achieved Software Engineering Institute (SEI) Level 3 certification for our software development facility's processes. Our contract base is well diversified among government agencies, and in the twelve months ended December 31, 2001 we performed work on more than 3,000 task orders under more than 400 contracts. Management estimates that no single award contract or task order accounted for more than 3.8% of revenues for the twelve months ended December 31, 2001. During the twelve months ended December 31, 2001, 96% of our revenues were derived from services and 4% from product sales. Services are performed under contracts that may be categorized into three primary types: time and materials, cost-plus reimbursement and firm fixed price. Revenue for time and materials contracts is recognized as time is spent at hourly rates, which are negotiated with the customer. Time and materials contracts are typically more profitable than cost-plus contracts because of our ability to negotiate rates and manage costs on those contracts. 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 costs or as a performance-based award fee. Cost-plus type contracts provide relatively less risk than other contract types because we are reimbursed for all direct costs and certain indirect costs, such as overhead and general and administrative expenses, and are paid a fee for work performed. For award fee type contracts, we recognize the expected fee to be awarded by the customer at the time such fee can be reasonably estimated. Revenues are recognized under fixed price contracts based on the percentage-of-completion basis, using the cost-to-cost or units-of-delivery methods. We may be exposed to variations in profitability, including potential losses, if we encounter variances from estimated fees earned under award fee contracts and estimated costs under fixed price contracts. We generally do not pursue fixed price software development work that may create material financial risk. We do, however, perform under fixed price labor hour and fixed price level of effort contracts which represent similar levels of risk as time and materials contracts. Our contract mix was approximately 34% time and materials, 37% cost-plus and 29% fixed price during the twelve months ended December 31, 2001, and can change over time depending on contract awards and acquisitions. Under cost-plus contracts, operating profits are statutorily limited to 15% but typically range from 5% to 7%. Under fixed price and time and materials contracts, margins are not subject 34 to statutory limits. However, the federal government's objective in negotiating such contracts is to seldom allow for operating profits in excess of 15% and, due to competitive pressures, operating profits on such contracts are often less than 10%. Our costs are categorized as either direct or indirect costs. Direct costs are those that can be identified with and allocated to specific contracts and tasks. They include labor, fringe (vacation time, medical/dental, 401K plan matching contribution, tuition assistance, employee welfare, workman's compensation and other benefits), subcontractor costs, consultant fees, travel expenses and materials. Indirect costs are either overhead or general and administrative expenses. Indirect costs cannot be identified with specific contracts or tasks, and to the extent that they are allowable, they are allocated to contracts and tasks using appropriate government-approved methodologies. Costs determined unallowable under the Federal Acquisition Regulations cannot be allocated to projects. Our principal unallowable costs are interest expense, amortization expense for goodwill and intangibles from acquisitions, management fees paid to Caxton-Iseman Capital, Inc., an affiliate of our principal stockholders, and certain general and administrative expenses. A key element to our success has been our ability to control indirect and unallowable costs, enabling us to profitably execute our existing contracts and successfully bid for new contracts. In addition, with the acquisition of new companies we have been able to manage our indirect costs and improve operating margins by integrating the indirect cost structures and realizing opportunities for cost synergies. The following is a description of certain line items from our statement of operations. Costs of revenues includes direct labor and fringe costs for program personnel and direct expenses incurred to complete contracts and task orders. Costs of revenues also includes subcontract work, consultant fees, materials, depreciation and overhead. Overhead consists of indirect costs relating to operational managers, rent/facilities, administration, travel and other expenses. General and administrative expenses are primarily for corporate functions such as management, legal, finance and accounting, contracts and administration, human resources, company management information systems and depreciation, and also include other unallowable costs such as marketing, certain legal fees and reserves. Amortization expenses relate to the costs associated with goodwill and intangible assets from our acquisitions. These intangible assets represent the value assigned to employee workforce and contract backlog as part of our acquisitions of A&T, Sherikon and SIGCOM Training. Amortization expenses also include costs associated with certain non-compete agreements entered into in connection with acquisitions. Interest expense is primarily for our 12% Notes, our term loan and revolving credit facility, our subordinated and subordinated convertible promissory notes held by our stockholders, and other miscellaneous interest costs. Other income is from non-core business items such as gains on the sales and closures of businesses and investments. Each year a significant portion of our revenue is derived from existing contracts with our government clients, and a portion of this revenue 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 our overall financial success and we believe that we manage costs effectively, making us competitive on price. We believe that our demonstrated performance record and service excellence have enabled us to maintain our position as an 35 incumbent service provider on more than 90% of our contracts that have been recompeted over the past four years. We have increased our total estimated contract value from $2.1 billion at December 31, 1999 to $3.5 billion at December 31, 2001, of which $309.4 million was funded backlog as of December 31, 2001. Our total estimated contract value represents the aggregate estimated contract revenue to be earned by us at a given time over the remaining life of our contracts. When more than one company is awarded a contract for a given work requirement, we include in total estimated contract value only our estimate of the contract revenue we expect to earn over the remaining term of the contract. Funded backlog is based upon amounts actually appropriated by a customer for payment of goods and services. Because the federal government operates under annual appropriations, agencies of the federal government typically fund contracts on an incremental basis. Accordingly, the majority of the total estimated contract value is not funded backlog. Our estimated contract value is based on our experience under contracts and we believe our estimates to be reasonable. However, there can be no assurance that our existing contracts will result in actual revenues in any particular period or at all. These amounts could vary depending upon government budgets and appropriations. In addition, we are periodically asked to work at-risk on projects. At-risk means that the customer has asked us to work, or to continue working, on a project even though there are no funds appropriated and released for payment. In most cases, the government is in the process of funding the contract or task and makes the request to avoid disruptions to the project. Historically, these amounts have been immaterial and we have not recorded any significant write-offs because funding was not ultimately made. ACQUISITIONS, DIVESTITURES AND BUSINESS CLOSURES The following table summarizes our acquisitions, divestitures and business closures.
REVENUES FOR THE TWELVE MONTHS ENDED PRIOR TO NAME STATUS DATE ACQUISITION/CLOSE - ---- --------- --------------- ------------------- (IN THOUSANDS) ACQUISITIONS Anteon............................................... Acquired April 1996 $108,500 Vector Data Systems.................................. Acquired August 1997 21,400 Techmatics........................................... Acquired May 1998 70,900 Analysis & Technology................................ Acquired June 1999 157,100 Sherikon............................................. Acquired October 2000 57,200 SIGCOM Training...................................... Acquired July 2001 13,700 DIVESTITURES/CLOSURES CITE................................................. Sold June 2001 2,411 IMC.................................................. Sold July 2001 21,170 DisplayCheck......................................... Closed August 2001 1,170 STSR................................................. Closed December 2001 3,427
ACQUISITIONS ANTEON--In 1996, we were formed by certain of the Caxton-Iseman stockholders. On April 1, 1996, we acquired all of the outstanding stock of Anteon Virginia (then known as Ogden Professional Services Corporation) from Ogden Corporation in a leveraged transaction. Anteon Virginia provided information technology and network system services primarily to the U.S. government and its agencies. We paid an aggregate consideration of approximately $40.4 million to Ogden, including transaction costs. The acquisition was accounted for using the purchase method of accounting. 36 VECTOR DATA SYSTEMS--On August 29, 1997, we acquired all of the outstanding stock of Vector Data Systems, Inc., or "Vector Data," including Vector Data's eighty percent equity interest in Vector Data Systems (UK) Limited, collectively, "Vector." Vector supplied specialized information systems and services for the collection, analysis and distribution of military intelligence data. The aggregate consideration paid by us was approximately $19.0 million, including transaction costs. The acquisition was accounted for using the purchase method of accounting. TECHMATICS--On May 29, 1998, we acquired all of the outstanding stock of Techmatics, an established provider of engineering and program management services for large-scale military system development, including the Navy's surface ship fleet, on-ship combat systems and missile defense programs. The aggregate consideration paid by us was approximately $45.9 million, including transaction costs. The acquisition was accounted for using the purchase method of accounting. ANALYSIS & TECHNOLOGY--On June 23, 1999, we acquired all of the outstanding stock of Analysis & Technology, Inc., or "A&T," a provider of systems and engineering technologies, technology-based training systems, and information technologies to the U.S. government and commercial customers, for an aggregate consideration, including transaction costs, of approximately $115.6 million. The acquisition was accounted for using the purchase method of accounting. SHERIKON--On October 20, 2000, we purchased all of the outstanding stock of Sherikon, a technology solutions and services firm, for an aggregate consideration, including transaction costs, of approximately $34.8 million. The acquisition was accounted for using the purchase method of accounting. We issued $7.5 million principal amount subordinated promissory notes in favor of former shareholders of Sherikon of which $2.5 million remains outstanding. We intend to repay the $2.5 million principal amount note outstanding in full using a portion of the proceeds of this offering. SIGCOM TRAINING--On July 20, 2001, we acquired the assets, contracts and personnel of the training systems division of SIGCOM, Inc., for an aggregate consideration of $11.1 million, including transaction costs. The training systems division of SIGCOM, Inc. is a provider of sophisticated simulation systems used by the most advanced military and government organizations around the world, including the U.S. Army, United States Marine Corps, Navy Seals, the FBI, SWAT teams, British Special Forces and NATO troops, to help acclimate members of the armed forces to combat conditions in urban areas. The acquisition was accounted for using the purchase method of accounting. DIVESTITURES/CLOSURES In June 2001, our management made a strategic decision to focus our resources on our core services business. As a result, we have sold, closed or substantially curtailed several small businesses. CENTER FOR INFORMATION TECHNOLOGY EDUCATION--We established CITE in 1999 to conduct training for adults in the metropolitan Washington D.C. area who were interested in information technology as a second career. CITE offered ORACLE database and JAVA training. While initially profitable, the business was impacted by the slowdown of the general economy. On June 29, 2001 we sold the business for $100,000, of which $50,000 was paid in cash and the remainder was required to be paid in equal monthly installments of approximately $8,300 beginning August 1, 2001. In addition, we retained the tuition from courses that were already underway prior to the sale on June 29, 2001. CITE's losses from operations, after closeout, totaled $1.1 million for the twelve 37 months ended December 31, 2001 on revenue of $1.2 million. CITE's income from operations totaled $414,000 for the year ended December 31, 2000 on revenues of $2.5 million. CITI-SIUSS LLC--We established a joint venture, CITI-SIUSS LLC (formerly known as Anteon-CITI LLC), with Criminal Investigative Technology, Inc. in 1999 to participate in the law enforcement software development and services market. After two years of investment in software and business development expenses, the joint venture had not generated a sufficient customer base to create a self-supporting business. In June 2001, we decided to cease software development operations but to continue to support existing customers. For the twelve months ended December 31, 2001, the joint venture generated operating losses of $2.6 million on revenues of approximately $1.5 million, compared with operating losses of $2.5 million on revenues of $879,000 for the twelve months ended December 31, 2000. However, due to the events of September 11, 2001, we have been approached by several prospective customers about potential opportunities which could lead to revenue. We do not intend to make any additional investment in developing or enhancing the existing software as a result of these events. Moreover, we are terminating the joint venture. While nothing of substance has materialized in the form of possible sales, management has decided to remove CITI-SIUSS from a closed business classification. POCKETMULTIMEDIA--Through our acquisition of A&T, we acquired video compression technology with potential applications via attachments that can playback or receive video on wireless personal data assistants. We decided to discontinue our development of this technology as of June 30, 2001. During the six months ended June 30, 2001, we incurred $353,000 in operating losses developing the technology on revenues of $18,000. In 2000, PocketMultimedia produced an operating loss of $270,000 on revenue of $159,000. Recent business opportunities have emerged from the U.S. government to utilize the video compression algorithim. Consequently, we have decided to remove PocketMultimedia from its discontinued status. INTERACTIVE MEDIA CORP.--On July 20, 2001, we sold all of our stock in IMC for $13.5 million in cash, subject to adjustment based on the amount of working capital as of the day of sale. IMC specializes in providing training services to customers primarily in the commercial marketplace. Prior to the sale, IMC transferred to us the assets of the government division of IMC, which specializes in training services primarily to the government marketplace. For the commercial division, revenues were approximately $11.7 million for the twelve months ended December 31, 2001, as compared to $18.1 million for the twelve months ended December 31, 2000. Operating loss was approximately $41,000 for the twelve months ended December 31, 2001, as compared to operating income of $686,000 for the twelve months ended December 31, 2000. The total gain from the sale recorded in the third quarter was approximately $3.5 million. DISPLAYCHECK--Through our acquisition of A&T in June 1999, we acquired expertise in electronic testing of liquid crystal displays and other microdisplay products that utilize liquid crystal on silicon technologies. This newly emergent market was pursued to determine business feasibility. While we were successful in generating a limited amount of revenue from our test equipment products, we decided not to make any further investments in this market. Operations ceased in August 2001. Operating losses of $407,000 on revenues of $664,000 were incurred in the twelve months ended December 31, 2001. DisplayCheck generated an operating loss of $15,000 on revenue of $703,000 in 2000. SOUTH TEXAS SHIP REPAIR--Through our acquisition of Sherikon in October 2000, we acquired STSR. STSR specialized in performing ship repair projects for government, commercial and private customers. The market conditions for this type of work deteriorated significantly in late 2000 and early 2001. Management decided to cease the operations of STSR in December 2001. During the twelve months ended December 31, 2001, we incurred operating losses of $2.1 million on revenues 38 of $3.3 million. We also wrote off approximately $1.0 million in goodwill, which was part of the original goodwill from the Sherikon acquisition. RESULTS OF OPERATIONS Our historical consolidated financial statements do not reflect the full-year impact of the operating results of a number of our acquisitions, divestitures and closures, since their operating results are only included or excluded from our results from the date of acquisition, divestiture or closure, as applicable. In addition, our operating results from period to period may not be comparable with future results because of the incurrence of a number of expenses as discussed below, the impact of the allocation and amortization principles of SFAS 141 and SFAS 142 (discussed below), and the impact of the offering and our intended use of proceeds from the offering. The following table sets forth our results of operations based on the amounts and percentage relationship of the items listed to contract revenues during the period shown:
2001 2000 1999 -------------------- -------------------- -------------------- ($ IN THOUSANDS) ------------------------------------------------------------------ Revenues...................................... $715,023 100.0% $542,807 100.0% $400,850 100.0% Cost of Revenues.......................... 627,342 87.7 474,924 87.5 353,245 88.1 -------- ----- -------- ----- -------- ----- Gross Profit.................................. 87,681 12.3 67,883 12.5 47,605 11.9 Costs and expenses: General and administrative................ 51,442 7.2 38,592 7.1 27,926 7.0 Amortization and other(1)................. 9,374 1.3 8,253 1.5 4,349 1.1 -------- ----- -------- ----- -------- ----- Total Operating Expenses...................... 60,816 8.5 46,845 8.6 32,275 8.1 -------- ----- -------- ----- -------- ----- Income from operations........................ 26,865 3.8 21,038 3.9 15,330 3.8 Interest expense, net......................... 26,872 3.8 26,513 4.9 18,230 4.5 Other (income) expense, net................... (4,046) (0.6) -- 0.0 (2,585) (0.6) -------- ----- -------- ----- -------- ----- Income before taxes and minority interest..... 4,039 0.6 (5,475) (1.0) (315) (0.1) Provision (benefit) for income taxes.......... 4,413 0.6 (153) 0.0 710 0.2 Minority interest............................. (38) 0.0 32 0.0 (39) 0.0 -------- ----- -------- ----- -------- ----- Loss before extraordinary items............... (412) (0.1) (5,290) (1.0) (1,064) (0.3) Extraordinary gain (loss) on early extinguishment of debt...................... 330 0.0 -- 0.0 (463) (0.1) -------- ----- -------- ----- -------- ----- Net income (loss)............................. $ (82) 0.0% $ (5,290) (1.0)% $ (1,527) (0.4)% ======== ===== ======== ===== ======== =====
- -------------------------- (1) Includes amortization of non-compete agreements, goodwill amortization and intangibles. Costs arising from uncompleted acquisitions are expensed when we determine that the proposed acquisition will not be consummated, and are included in costs of acquisitions in our consolidated statements of operations. 2001 COMPARED WITH 2000 REVENUES For the twelve month period ended December 31, 2001, revenues increased to $715.0 million, or 31.7%, from $542.8 million for the twelve month period ended December 31, 2000. The increase in revenues was attributable to internal growth, a full year of revenue from Sherikon, which was acquired in October 2000, and the acquisition of SIGCOM Training. These increases were offset in part by the sale of the commercial business of IMC on July 20, 2001. For the twelve month period 39 ended December 31, 2001, internal growth was 21% or $110.9 million. This growth was driven in part by the expansion of work on several large contracts with the U.S. Army, Federal Emergency Management Agency, Office of the Secretary of Defense, GSA and U.S. Postal Service. In addition, we won several new contracts including contracts with the Secretary of the Air Force, the U.S. Army Battle Simulation Center and the U.S. Navy. Sherikon provided $65.5 million in revenue during the twelve month period ended December 31, 2001, which was an increase of $50.3 million from the twelve month period ended December 31, 2000, during which Sherikon was only included for the period subsequent to its acquisition. SIGCOM Training, which was acquired in July 2001, provided an additional $7.9 million in revenue subsequent to its acquisition. IMC's revenues for the commercial division were $11.7 million during the twelve month period ended December 31, 2001, compared with $18.1 million during the twelve month period ended December 31, 2000. IMC was sold in July 2001. COSTS OF REVENUES For the twelve month period ended December 31, 2001, costs of revenues increased by $152.4 million, or 32.1%, to $627.3 million from $474.9 million for the twelve month period ended December 31, 2000. Costs of revenues as a percentage of revenues grew from 87.5% to 87.7%. The costs of revenues growth was due primarily to the corresponding growth in revenues resulting from internal growth, the inclusion of a full year of Sherikon's revenues, and the acquisition of SIGCOM Training. The majority of this growth was due to a $47.8 million increase in direct labor and fringe and an $84.1 million increase in other direct contract costs. Our gross margin declined from 12.5% to 12.3% primarily due to an increase in the portion of our revenues generated through subcontractors, which generally result in a lower margin. GENERAL AND ADMINISTRATIVE EXPENSES For the twelve month period ended December 31, 2001, general and administrative expenses increased $12.9 million, or 33.3%, to $51.4 million from $38.6 million for the twelve month period ended December 31, 2000. General and administrative expenses as a percentage of revenues increased to 7.2% from 7.1%. The increase in expenses was due to additional costs related to our growth, and included $3.8 million in general and administrative costs reflecting a full year of operations from Sherikon, which was acquired on October 20, 2000. This increase was offset by cost savings from the integration of A&T, Sherikon and SIGCOM Training. Expenses in 2001 included a $3.6 million fee payable to Caxton-Iseman Capital, Inc. in connection with the termination of our management fee agreement as of December 31, 2001; a $1.0 million management fee paid to Caxton-Iseman Capital, Inc. for 2001; a $750,000 write-down of the carrying value of our North Stonington, Connecticut facility; a $600,000 settlement and $497,000 in legal fees incurred during the first quarter of 2001 for matters relating to a dispute with a former subcontractor (see Note 15(c) to our historical consolidated financial statements included elsewhere in this prospectus); and a $181,000 severance charge relating to the termination of a former A&T executive. Excluding the aggregate $6.6 million expenses mentioned above, our general and administrative expenses for the twelve months ended December 31, 2001 would have represented 6.3% of our revenues for the same period. General and administrative expenses for the twelve months ended December 31, 2001 also included costs related to several businesses which were either sold or closed during the year, including IMC, CITE, DisplayCheck and STSR. AMORTIZATION For the twelve month period ended December 31, 2001, amortization expenses increased $1.1 million or 13.6%, to $9.4 million from $8.3 million for the prior period. Amortization as a 40 percentage of revenues decreased to 1.3% from 1.5%. The increase in amortization expenses was primarily attributable to a $1.2 million increase in amortization expense due to the inclusion of a full year of Sherikon goodwill and intangibles amortization, as well as $100,000 for six months of SIGCOM Training intangible amortization expense. In addition, we wrote off $1.0 million in goodwill relating to the shutdown of STSR. These amounts were offset by a $500,000 decrease in non-compete amortization and a $800,000 decrease due to a large one-time adjustment resulting from the reclassification of a portion of A&T's goodwill to intangibles, which occurred in 2000. With the implementation of SFAS 141 and SFAS 142, we anticipate that our goodwill amortization expense will decrease by approximately $6.2 million in 2002. OPERATING INCOME For the twelve month period ended December 31, 2001, operating income increased $5.8 million, or 27.7%, to $26.9 million from $21.0 million. Operating income as a percentage of revenue decreased to 3.8% for the twelve months ended December 31, 2001 from 3.9% for the same period in fiscal 2000. Absent $6.6 million in non-recurring items detailed in general and administrative expenses, $1.0 million for the write-off of goodwill as a result of the shutdown of STSR, assuming the allocation and amortization principles of SFAS 141 and SFAS 142 (discussed below) had been in effect as of January 1, 2001, and assuming the elimination of our sold or closed operations for the entire twelve month period ended December 31, 2001, our operating income would have been $44.6 million for the twelve month period ended December 31, 2001 and our operating margin would have been 6.4%. INTEREST EXPENSE For the twelve month period ended December 31, 2001, interest expense, net of interest income, increased $360,000, or 1.4%, to $26.9 million from $26.5 million for the twelve month period ended December 31, 2000. The increase in interest expense was due primarily to increased borrowings on our revolving line of credit relating primarily to the purchases of Sherikon in October 2000 and SIGCOM Training in July 2001, net of proceeds from the sale of IMC used to reduce our borrowings under the revolving loan portion of our credit facility. OTHER INCOME For the twelve month period ended December 31, 2001, other income, which includes gains on sales and closures of businesses, was $4.0 million. We sold IMC in the third quarter at a gain of $3.5 million. In addition, other income includes a $100,000 gain on the sale of CITE's assets and a $487,000 gain resulting from the closure of the CITI joint venture. We anticipate that, upon liquidation of the joint venture, there will be no excess proceeds available to us or the minority interest. Accordingly, the remaining minority interest has been written off to other income. Our effective tax rate for the twelve month period ended December 31, 2001 was 110.3%, compared with a benefit of 2.8% for the twelve month period ended December 31, 2000 due to an increase in non-deductible goodwill associated with the acquisition of Sherikon and the increase of our effective federal tax rate from 34% to 35%. In 2002, we expect our marginal tax rate will drop to 39%, reflecting the impact of SFAS 141 and SFAS 142. 41 2000 COMPARED WITH 1999 REVENUES For the twelve month period ended December 31, 2000, revenues increased by $142.0 million, or 35.4%, to $542.8 million from $400.9 million for the twelve month period ended December 31, 1999. This increase was due primarily to internal growth and acquisitions, partially offset by the negative impact of a reduction in Oracle product sales. Growth from acquisitions was due to the inclusion of a full year of A&T revenues, which contributed $196.9 million for the twelve month period ended December 31, 2000. In 1999, A&T contributed $93.0 million in revenue from the date of acquisition, June 23, 1999, through December 31, 1999. Sherikon, which was purchased on October 20, 2000, contributed $15.2 million in revenue for the fourth quarter of fiscal year 2000. COSTS OF REVENUES For the twelve month period ended December 31, 2000, costs of revenues increased by $121.7 million, or 34.4%, to $474.9 million in 2000 from $353.2 million for the twelve month period ended December 1999. As a percentage of revenues, costs of revenues decreased to 87.5% in 2000 from 88.1% in 1999. The improvement in gross margins was primarily attributable to indirect cost savings as well as improved absorption of indirect overhead expenses. Costs of revenues also decreased by $4.4 million due to the reorganization of certain functions described below. GENERAL AND ADMINISTRATIVE EXPENSES For the twelve month period ended December 31, 2000, general and administrative expenses increased by $10.7 million, or 38.2%, to $38.6 million in 2000 from $27.9 million for the twelve month period ended December 1999. As a percentage of revenues, general and administrative expenses increased to 7.1% in 2000 from 7.0% in 1999. Of the total increase, $4.4 million of the increase was attributable to the reorganization during 2000 of certain accounts receivable, accounts payable, general ledger, production, and security functions to corporate. Excluding the impact of this reorganization, general and administrative costs decreased to 6.3% of revenues in 2000 from 6.4% in 1999. AMORTIZATION For the twelve month period ended December 31, 2000, amortization expenses increased $3.9 million, or 89.8%, to $8.3 million from $4.3 million for the twelve month period ended December 31, 1999. Amortization as a percentage of revenues increased to 1.5% from 1.1%. The increase was primarily attributable to the addition of a full year of amortization of A&T goodwill and intangibles, as well as amortization related to Sherikon from the date of its acquisition on October 20, 2000. OPERATING INCOME For the twelve month period ended December 31, 2000, operating income increased by $5.7 million, or 37.2%, to $21.0 million in 2000 from $15.3 million for the twelve month period ended December 31, 1999. As a percentage of revenues, operating income increased to 3.9% in 2000 from 3.8% in 1999. The $21.0 million of operating income in 2000 included $1.2 million associated with two months of Sherikon operations since its date of acquisition. 42 INTEREST EXPENSE For the twelve month period ended December 31, 2000, net interest expense increased by $8.3 million, or 45.4%, to $26.5 million in 2000 from $18.2 million for the twelve month period ended December 31, 1999. This increase was due in part to the inclusion of a full year of interest payments due on our $100 million principal amount 12% Notes, which were issued in May 1999. Interest expense on the 12% Notes was $12.0 million and $7.5 million for 2000 and 1999, respectively. In addition, we incurred $5.8 million in interest expense in 2000, reflecting a full year of interest on the term loan portion of our credit facility, compared with $2.9 million for six months in 1999. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001 AND FOR 2000 We generated $37.9 million in cash from operations for the twelve month period ended December 31, 2001. By comparison, we generated $17.1 million in cash from operations for the twelve month period ended December 31, 2000. This improvement in cash flow was primarily attributable to an improvement in working capital management and net income. Changes in accounts receivable provided $1.3 million of operating cash flow over the twelve months ended December 31, 2001 while revenue increased by $172.2 million over the same period. This improvement was accomplished through a management-led initiative which reduced days sales outstanding from 73 days in 2000 to 66 days in 2001. Contract receivables totaled $131.3 million at December 31, 2001 and represented 42.8% of total assets at that date. Additionally, we generated an increase of $10.8 million in accounts payable and accrued liabilities, a 15.3% increase, reflecting the growth in our business. Net loss was $5.3 million and $82,000 for the twelve months ended December 31, 2000 and 2001, respectively. For the twelve months ended December 31, 2001, net cash used by investing activities was $1.7 million, which was attributable to the use of $11.0 million for the acquisition of SIGCOM Training and $2.2 million for purchases of property, plant and equipment, offset by proceeds of $11.5 million relating to sales of businesses. Cash used by financing activities was $35.7 million. The primary uses of cash in the twelve month period ended December 31, 2001 were payments, net of proceeds, under the revolving loan and term loan portions of our credit facility, acquisition of a $3.2 million, 9% senior subordinated note payable from Ogden Technology Services Corporation, and the repayment of a $5.0 million note held by former shareholders of Sherikon. We used the proceeds from our sale of IMC in July 2001 to pay down amounts outstanding under the revolving loan portion of our credit facility. We funded our acquisition of SIGCOM Training (described above) by drawing on the revolving loan portion of our credit facility. For further details, see our consolidated financial statements and the related notes appearing elsewhere in this prospectus. For the twelve months ended December 31, 2000, net cash provided by operating activities was $17.1 million. For the twelve months ended December 31, 2000, net cash used by investing activities was $28.9 million. The primary use of cash during this period was for the purchase of Sherikon in October 2000. For the twelve months ended December 31, 2000, the net cash provided by financing activities was $12.0 million. The primary source of cash from financing activities for this period was from net borrowings under our credit facility. LIQUIDITY AND CAPITAL RESOURCES Historically, our primary liquidity requirements have been for debt service under our existing credit facility, acquisitions and working capital requirements. We have funded these requirements through internally generated cash flow and funds borrowed under our existing credit facility. After 43 giving effect to this offering, our existing credit facility is a three-year line of credit that expires June 29, 2005. The facility consists of a term loan and a revolving line of credit of up to $120.0 million. Borrowings from the revolving line of credit can be made based upon a borrowing base consisting of our billed and unbilled receivable balances. In addition, the credit facility requires us to meet certain quarterly financial covenants. The key covenants are the leverage ratio, senior leverage ratio, fixed charge coverage ratio and interest coverage ratio. For the period ended December 31, 2001, we complied with all the ratios. At December 31, 2001, total debt outstanding under our credit facility was approximately $65.8 million, consisting of $47.1 million in term loans, and $18.7 million outstanding under our revolving credit facility. The total funds available to us under the revolving loan portion of our credit facility as of December 31, 2001 were $82.9 million. Due to excess cash flows generated during 2001, we are required to make an additional principal payment of $10,693,000 under the term loan portion of our credit facility by March 31, 2002. In addition, loans under the credit facility mature on June 23, 2005, and we are scheduled to pay quarterly installments of $2.5 million until the credit facility maturity on June 23, 2005. We had $100 million principal amount of our 12% Notes outstanding at December 31, 2001 and $2.3 million principal amount of subordinated notes outstanding issued in prior acquisitions. We also had $7.5 million principal amount subordinated notes and a $26.9 million principal amount subordinated convertible note outstanding held by entities which are among our principal stockholders. As of December 31, 2001 we did not have any capital commitments greater than $1.0 million. See "Description of Indebtedness." Our principal working capital need is for funding accounts receivable, which has increased with the growth in our business. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our revolving credit facility. Net cash provided by operations for 2001 was $37.9 million, reflecting a reduction in our working capital and an improvement in income. We have relatively low capital investment requirements. Capital expenditures were $4.8 million, $6.6 million and $2.2 million in 1999, 2000 and 2001, respectively. In 2000, $3.5 million of capital expenditures were related to a business which has been closed as of June 30, 2001, and $3.1 million related primarily to leasehold improvements and office equipment. We estimate that for fiscal 2002, approximately $2.5 million of capital expenditures will be required, primarily for leasehold improvements and office equipment. We use some off-balance sheet financing, primarily to finance certain capital expenditures. Operating leases are used primarily to finance the purchase of computers, servers, phone systems and to a lesser extent, other fixed assets like furnishings. As of December 31, 2001, we had financed $14.1 million in advances from these types of financings. Had we not used operating leases, we would have used our existing line of credit to purchase these assets. Other than the operating leases described above, and facilities leases, we do not have any other "off balance sheet" financing. Our business acquisition expenditures were $115.6 million in 1999, $24.0 million in 2000 and $11.0 million in 2001. During 1999, we acquired A&T. During 2000, we acquired Sherikon. In 2001, we acquired SIGCOM Training. These acquisitions were financed through a combination of bank debt, subordinated public and private debt and equity investments. We expect to be able to finance any future acquisition either with cash provided from operations, borrowings under our credit facility, bank loans, debt or equity offerings, or some combination of the foregoing. We intend to use approximately $67.5 million in net proceeds from this offering to repay approximately $8.0 million of indebtedness under the term loan portion of our credit facility; to repay approximately $17.1 million of indebtedness under the revolving loan portion of our credit 44 facility, without permanently reducing our borrowings availability under this facility; to repurchase, in open market or privately negotiated transactions, or otherwise, or redeem approximately $25.0 million principal amount of our 12% Notes; to repay in full our $2.5 million note held by former stockholders of Sherikon; to repay in full our $7.5 million principal amount subordinated promissory note held by Azimuth Technologies, L.P., one of our principal stockholders, and $50,000 aggregate principal amount Management Notes; and to repay approximately $4.4 million of accrued interest on our $22.5 million subordinated convertible promissory note held by Azimuth Tech. II LLC, one of our principal stockholders. For more information, please see "Use of Proceeds," and "Description of Indebtedness." We intend to fund our future operating cash, capital expenditure and debt service requirements through cash flow from operations and borrowings under our credit facility. At December 31, 2001, on a pro forma basis, after giving effect to this offering, we would have had $93.7 million of undrawn availability under the revolving loan portion of our credit facility, excluding outstanding letters of credit. For more information, please see "Description of Indebtedness." Over the next twelve months, we expect to be able to meet our working capital, capital expenditure and debt service requirements through cash flow from operations and borrowings under the revolving loan portion of our credit facility. Over the longer term, our ability to generate sufficient cash flow from operations to make scheduled payments on our debt obligations will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside our control. See "Risk Factors." INFLATION We do not believe that inflation has had a material effect on our business in 2001, 2000 or in 1999. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have interest rate exposure relating to certain of our long-term obligations. While the interest rate on the $100 million principal amount of our 12% Notes is fixed at 12%, the interest rate on both the term and revolving portions of our credit facilities is affected by changes in the market interest rates. We manage these fluctuations through interest rate swaps that are currently in place and our focus on reducing the amount of outstanding debt through cash flow. In addition, we have implemented a cash flow management plan focusing on billing and collecting receivables to pay down debt. A 1% change in interest rates on variable rate debt would have resulted in our interest expense fluctuating by approximately $507,000 for 1999, $313,000 for 2000 and $180,000 for 2001, respectively. RECENT ACCOUNTING PRONOUNCEMENTS On July 20, 2001, the Financial Accounting Standards Board issued Statement No. 141 ("SFAS No. 141"), BUSINESS COMBINATIONS, and Statement No. 142 ("SFAS No. 142"), GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic evaluations of impairment of goodwill balances. SFAS No. 141 and 142 are effective January 1, 2002, except for acquisitions occurring on or after July 1, 2001, for which the provisions of SFAS No. 141 and 142 are 45 applicable. Accordingly, through December 31, 2001 we have continued to amortize goodwill and identifiable intangible assets related to acquisitions occurring before July 1, 2001, but in accordance with SFAS No. 142 is not amortizing goodwill from the acquisition of the training division of SIGCOM, which was acquired on July 20, 2001 (see note 4(c)). We are in the process of evaluating the adoption of SFAS No. 141 and 142 and have not yet determined the impact of adoption on the consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued Statement No. 143 ("SFAS No. 143"), ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective June 15, 2002. We are currently assessing the impact of adoption of SFAS No. 143. In August, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This Statement addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of, and supersedes SFAS No. 121, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB No. 30"), REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL OR INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, for the disposal of a segment of a business (as previously defined in APB No. 30). SFAS No. 144 retains the requirements of SFAS No. 121 to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from its discounted cash flows and measure an impairment loss as the difference between the carrying amount and fair value of the asset; however, the Statement removes goodwill from its scope, and therefore eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. SFAS No. 144 is effective January 1, 2002. We believe that the adoption of SFAS No. 144 will not have a material impact on our financial position or results of operations. 46 BUSINESS We are a leading provider of information technology solutions and advanced engineering services to government clients as measured by revenue. We design, integrate, maintain and upgrade state-of-the-art information systems for national defense, intelligence, emergency response and other high priority government missions. We also provide many of our government clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. We currently serve over six hundred U.S. federal government clients, as well as state and foreign governments. As of December 31, 2001, 89% of our revenue was from contracts where we were the lead, or "prime," contractor on our projects. We provide our services under long-term contracts that typically have average terms of four to five years. Additionally, we have contracts with an estimated contract value of $3.5 billion as of December 31, 2001. From January 1, 1996 to December 31, 2001, we increased revenues at a compound annual growth rate of 38%. Over the same period, revenues grew organically (excluding the contribution of acquisitions) at a 15% compound annual rate. Our pro forma revenues for the twelve months ended December 31, 2001 were $706.6 million, an increase of 20.9% over the corresponding period in 2000. THE FEDERAL GOVERNMENT TECHNOLOGY SERVICES MARKET The U.S. federal government is the largest single customer for information technology solutions and engineering services in the United States. U.S. federal government technology services procurement is large and growing, with total expenditures of more than $100 billion in the federal government's fiscal year 2000. Government agency budgets for technology services are forecast to expand at least 5% annually through government fiscal year 2005, with expenditures for information technology solutions projected to increase 11% annually over the same period. Additionally, technology services spending growth over the next five years is anticipated in the areas emphasized by the U.S. government's evolving military strategy, including homeland defense, ballistic missile defense, information security, logistics management systems modernization, weapon systems design improvements and military personnel training. Defense spending is projected to grow 12% in the government's fiscal year 2002 and 14% in its fiscal year 2003. GOVERNMENT CONTRACTS AND CONTRACTING The federal technology services procurement environment has evolved in recent years due to statutory and regulatory changes resulting from procurement reform initiatives. Federal government agencies traditionally have procured technology solutions and services through agency-specific contracts awarded to a single contractor. However, the number of procurement contracting methods available to federal government customers for services procurements has increased substantially. Today, there are three predominant contracting methods through which government agencies procure technology services: traditional single award contracts, GSA Schedule contracts, and Indefinite Delivery and Indefinite Quantity, or "ID/IQ," contracts. Traditional single award contracts specify the scope of services that will be delivered and the contractor that will provide the specified service. These contracts have been the traditional method for procurement by the federal government. When an agency has a requirement, interested contractors are solicited, qualified, and then provided with a request for a proposal. The process of qualification, request for proposals and evaluation of bids requires the agency to maintain a large, professional procurement staff and can take a year or more to complete. GSA Schedule contracts are listings of services, products and prices of contractors maintained by the GSA for use throughout the federal government. In order for a company to provide services 47 under a GSA Schedule contract, the company must be pre-qualified and selected by the GSA. When an agency uses a GSA Schedule contract to meet its requirement, the agency or the GSA, on behalf of the agency, conducts the procurement. The user agency, or the GSA on its behalf, evaluates the user agency's services requirements and initiates a competition limited to GSA Schedule qualified contractors. Use of GSA Schedule contracts provides the user agency with reduced procurement time and lower procurement costs. ID/IQ contracts are contract forms through which the federal government has created preferred provider relationships. These umbrella contracts outline the basic terms and conditions under which the government may order services. An umbrella contract typically is managed by one agency, the sponsoring agency, and is available for use by any agency of the federal government. The umbrella contracts are competed within the industry and one or more contractors are awarded contracts to be qualified to perform the work. The competitive process for procurement of work to be performed under the contract, called task orders, is limited to the pre-selected contractor(s). If the ID/IQ contract has a single prime contractor, the award of task orders is limited to that single party. If the contract has multiple prime contractors, the award of the task order is competitively determined. Multiple-contractor ID/IQ contracts are commonly referred to as Government Wide Acquisition Contracts, or "GWACs." Due to the lower cost, reduced procurement time, and increased flexibility of GWACs, there has been greater use of GWACs among many agencies for large-scale procurements of technology services. KEY FACTORS DRIVING GROWTH There are several key factors which we believe will continue to drive the growth of the federal technology services market and our business: - INCREASED OUTSOURCING. The downsizing of the federal government workforce, declining availability of information technology management skills among government personnel, and a concomitant growth in the backlog of software maintenance tasks at many government agencies are contributing to an increase in technology outsourcing. According to the Office of Management and Budget, spending on outsourced information technology solutions is projected to grow at a rate substantially faster than overall federal government information technology expenditures. In government fiscal year 2000, 78% of the federal government's total information technology solutions spending flowed to contractors. By government fiscal year 2005, this rate of outsourcing is projected to increase to 81% of total information technology spending. - GOVERNMENT EFFICIENCY INITIATIVES. Political pressures and budgetary constraints are forcing government agencies to improve their processes and services and to operate in a manner more consistent with commercial enterprises. To meet these challenges, government agencies are investing heavily in information technology to improve effectiveness, enhance productivity and deliver new services. - CONTINUED DEPENDENCE ON COMMERCIAL OFF-THE-SHELF HARDWARE AND SOFTWARE. The federal government has increased its use of lower cost, open architecture systems using commercial off-the-shelf, or "COTS," hardware and software, which are rapidly displacing the single purpose, custom systems historically favored by the federal government. The need for COTS products and COTS integration services is expected to increase as the government seeks to ensure the future compatibility of its systems across agencies. In addition, the continued shortening of software upgrade cycles is expected to increase the demand for the integration of new COTS products. - INCREASED SPENDING ON NATIONAL DEFENSE. After years of spending declines, national defense spending is projected to grow substantially over the next five years. The Bush Administration increased the government's commitment to strengthen the nation's security, 48 defense and intelligence capabilities in its June 2001 budget amendment, raising the Department of Defense's preliminary fiscal year 2002 budget 11% over fiscal year 2001 to $329 billion. This support for increased defense spending has been further reinforced by Congress following the recent terrorist attacks on the United States, and resulted in approval of 2002 Department of Defense appropriations of $332 billion, an increase of 12% over fiscal year 2001. The Quadrennial Defense Review released on September 30, 2001 outlines key operational goals of the Administration. Meeting these goals will require investments in improved homeland defense, greater information systems security, more effective intelligence operations, and new approaches to warfare simulation training. Additionally, the Administration recently has requested $379 billion in defense appropriations for government fiscal year 2003, a 14% increase over 2002. - EMPHASIS ON SYSTEM MODERNIZATION. To balance the costs of new initiatives like homeland defense with the costs of ongoing military operations, the Department of Defense is emphasizing upgrading existing platforms to next generation technologies rather than procuring completely new systems. For example, rather than replace an entire generation of aircraft and ships, the U.S. Navy and the U.S. Air Force have decided to invest in upgrades, using the latest information technology and weapons systems. To accomplish this in an environment of military personnel reductions, the armed services are increasingly dependent on highly skilled contractors that can provide the full spectrum of services needed to support these activities. - CONTINUING IMPACT OF PROCUREMENT REFORM. Recent changes in federal procurement regulations have incorporated commercial buying practices, including preferred supplier relationships in the form of GWACs, into the government's procurement process. These changes have produced lower acquisition costs, faster acquisition cycles, more flexible contract terms, and more stable supplier/customer relationships. Federal expenditures through GWACs has grown significantly over the past three years, and the GSA projects growth in its GWAC and Schedule contracts will average 14% annually over the next three years. OUR CAPABILITIES AND SERVICES We are a leading provider of information technology solutions to government clients. We design, integrate, maintain and upgrade state-of-the art information systems for national defense, intelligence, emergency response and other critical government missions. As a total solutions provider, we maintain the comprehensive information technology skills necessary to support the entire lifecycle of our clients' systems, from conceptual development through operational support. We provide requirements definition and analysis, process design or re-engineering, systems engineering and design, networking and communications design, COTS hardware and software evaluation and procurement, custom software and middleware development, system integration and testing, and software maintenance and training services. Depending upon client needs, we may provide total system solutions employing our full set of skills on a single project, or we may provide discreet, or "bundled," services designed to meet the client's specific requirements. For example, we have built and are now upgrading the National Emergency Management Information System, an enterprise wide management information system, for the Federal Emergency Management Agency. This system has been procured in three phases: system definition and design, base system development and deployment, and upgrades to incorporate current web technology. We also are a leading provider of advanced engineering services to government clients, primarily within the defense community. We provide these defense clients with the systems analysis, integration and program management skills necessary to manage the continuing development of their mission systems, including ships, aircraft, weapons and communications systems. As a 49 solutions provider in this market, we also maintain the comprehensive skills to manage the client's system lifecycle. We provide mission area and threat analyses, research and development management, systems engineering and design, acquisition management, systems integration and testing, operations concept planning, systems maintenance and training. For example, we provide threat analysis, operations concept planning and systems integration and testing for the U.S. Navy's systems, including the radar, missile and command and control systems, employed to protect its fleet from ballistic missile attack. Like information technology solutions, these skills may be procured as a comprehensive mission solution, or they may be procured as discreet or bundled tasks. OUR SERVICE COMPETENCIES AND CONTRACT EXAMPLES The key to our success in both our information technology solutions and engineering services businesses is a combination of in-depth customer and mission knowledge, or domain expertise, and comprehensive technical skills. We believe this combination provides long-term, sustainable competitive advantage, performance excellence and customer satisfaction. Accordingly, we have focused our growth strategy on several business areas where the mix of our domain expertise and our end-to-end technical skills provides us with a strong competitive advantage and the opportunity to cross-sell our solutions and services. The following paragraphs briefly describe our service competencies in our information technology and engineering services businesses, and provide examples of selected programs in which we utilize these competencies. INFORMATION TECHNOLOGY SOLUTIONS INTELLIGENCE SYSTEMS. We have more than eleven years of experience in designing, developing and operating information systems used for intelligence missions. These missions focus on data and imagery collection, as well as information analysis and dissemination of information to the battlefield. - LINKED OPERATIONS/INTELLIGENCE CENTERS EUROPE, OR "LOCE". In June 1999, we entered into a three-year, $52 million contract with the Department of Defense to provide U.S., N.A.T.O., and other allied military forces with near-real-time, correlated situation and order of battle information for threat analysis, target recommendations, indications and warnings. LOCE has become one of the most widely used command, control, computers, communication and intelligence, or "C4I," systems within the international intelligence community. We provide systems engineering and technical assistance, software development, configuration management, operational support and user training. This program recently has been expanded to include the deployment of new systems to Central Asia and funding for government fiscal year 2002 has been increased significantly to cover additional system deployments to the Pacific Rim. EMERGENCY RESPONSE MANAGEMENT. We have unique experience in developing information technology systems to support emergency response management requirements. Our expertise includes large-scale system design, development, testing, implementation, training and operational support. - FEMA NATIONAL EMERGENCY MANAGEMENT INFORMATION SYSTEM, OR "NEMIS". Since 1995, we have supported the development of the NEMIS system for the Federal Emergency Management Agency, or "FEMA," through a series of contracts and task orders. The NEMIS program, which is expected to continue at least through December 2003, will have generated total revenues of approximately $93 million. NEMIS is an enterprise-wide client/server management information system that connects several thousand desktop and mobile terminals/handsets, providing FEMA with a fully mobile, nationwide, rapid response disaster 50 assessment and mitigation system. We designed, developed, integrated, tested and implemented the NEMIS system. We continue to provide enhancements to and are beginning the project to web-enable the system. Additionally, we believe the NEMIS program will experience near-term growth as FEMA responds to the terrorist attacks on September 11th. LOGISTICS MODERNIZATION. We provide a wide range of logistics management information technology solutions, including process design and re-engineering, technology demonstrations, proof-of-concept systems development, new systems development and existing systems upgrades. - U.S. AIR FORCE CARGO MOVEMENT OPERATIONS SYSTEM, OR "CMOS". We designed and developed this system and have maintained it since 1989. It is used by the Air Force Material Management Office to provide in-transit visibility of cargo from the shipment originator to its final destination. CMOS allows our client to automate the process of cargo movement throughout Air Force bases worldwide. We continue to design and develop enhancements to the system to take advantage of new technology, including web-enablement and electronic data interchange applications. As a result of the success of the CMOS program, in March 2000, we entered into the Joint Logistics Warfighting Initiative, or "JLWI," contract. JLWI is a five-year, $24.5 million Department of Defense Joint Services contract focused on developing a proof-of-concept for providing near-real-time visibility of logistics information to the commander on the battlefield. We are providing process re-engineering, system design, and prototype development. We believe the proof-of-concept program already has gained wide-spread support within the armed services and may lead to significant, near-term system implementation opportunities. GOVERNMENT ENTERPRISE SOLUTIONS. Our supply chain management, software engineering and integration experience allow us to develop large-scale e-commerce applications tailored for the specific needs of the federal government environment. These applications provide end-users with significantly decreased transaction costs, increased accuracy, reduced cycle times, item price savings, real-time order status and visibility of spending patterns. - U.S. POSTAL SERVICE E-BUY SYSTEM. In September 1994, we entered into a 10-year, $65 million contract to develop and implement an electronic commerce application to serve an estimated 80,000 to 100,000 Postal Service employees, who purchase a wide range of products on the U.S. Postal Service intranet site. Pre-negotiated supplier catalogs are hosted on an intranet for security and performance. Web-based purchasing provides catalog management capability, multi-catalog searching, self-service ordering, workflow and approval processing and other status and receiving functions. Achieving the Postal Service's requirement to serve up to 100,000 employees required the development of a very robust transaction processing application. We believe our experience and success on this program positions us strongly for future e-commerce requirements from large government clients. TRAINING. We provide a comprehensive set of information technology solutions and services to our clients, including computer-based training, web-based training, distant learning, interactive electronic technical manuals, performance support systems and organizational assessment methods. - MILITARY OPERATIONS ON URBAN TERRAIN. We entered into two contracts with the U.S. Army, the first in July 1997, a $60 million five-year contract, and the second in May 2000, a $20 million three-year contract, to design, integrate and operate its Simulation Training and Instrumentation Command's first advanced real life urban battlefield training site. The site allows trainers to continuously observe, control, monitor and record the conduct of training. The system captures every second of a training exercise through the use of nearly 1,000 cameras tied together via a fiber optic backbone and local area network to the control room. 51 The system is also designed to control targetry and has the flexibility to support both simulated fire and live fire exercises. We recently have received orders for three additional sites to be built throughout the U.S. and in Europe. HEALTHCARE SERVICES. We deliver information technology solutions in the military healthcare environment for a number of clients. Our support for medical research includes statistical analysis, data mining of complex medical databases and health surveillance. Our solutions for patient care include diagnostics, image processing, and medical records management. - U.S. ARMY MEDICAL RESEARCH ACQUISITION ACTIVITY. We provide technical, scientific, and administrative support to the Office of the Surgeon General, the U.S. Army Medical Research and Material Command and the U.S. Army Medical Command and its subordinate activities, laboratories, and medical facilities. This support, which we began to provide in 1998 on a variety of contractual vehicles, totals over $11 million per year in revenues. We support the research, development, acquisition, and/or fielding of medical equipment and supplies, drugs, vaccines, diagnostics, and advanced information technology. We assist with policy development and implementation, strategic planning, decision-making, information systems design and development, information management, studies and analyses, logistics planning, medical research, and conference management and facilitation. ENGINEERING SERVICES PLATFORM AND WEAPONS SYSTEMS ENGINEERING SUPPORT. We have more than 10 years experience in providing critical engineering and technology management services in support of defense platform and weapon systems programs. Our experience encompasses systems engineering and development, mission and threat analysis and acquisition management for the majority of U.S. Navy and U.S. Air Force weapon systems. We provide core systems engineering disciplines in support of most major surface ship and submarine programs, as well as virtually all Air Force weapon systems. - SECRETARY OF THE AIR FORCE TECHNICAL AND ANALYTICAL SUPPORT, OR "SAFTAS." In December 2000, we entered into a 15-year, $544 million contract with the U.S. Air Force to provide technical and analytical support to the Assistant Secretary of the Air Force for Acquisition. The contract includes support to Air Force Program Executive Offices such as Joint Strike Fighter, Space, Command & Control, Fighters & Bombers, and Weapons. We provide program analysis, systems analysis, budget, policy and legislative analysis, as well as software services and engineering and technical management services for all major Air Force acquisition activities. We believe this program, as well as similar programs for the U.S. Navy, will continue to experience growth as both the Air Force and Navy plan for billions of dollars of system upgrades over the next decade. BALLISTIC MISSILE DEFENSE. We have more than a decade of experience in ballistic missile defense programs. We provide long-range planning, threat assessment, systems engineering and integration, acquisition support services and program management services. - THEATER-WIDE BALLISTIC MISSILE DEFENSE, OR "TBMD." In January 1999, we entered into a five-year, $62 million contract with the U.S. Navy to provide program management, systems engineering, technical and administrative support to the Theater-Wide Ballistic Missile Defense program and its senior executives. We provide a broad range of support to develop, test, evaluate and produce the Navy's future ballistic missile defense systems. Due to our Navy Theater-Wide Missile Defense System experience, we recently were selected to provide similar support to the National Missile Defense program. In June 2001, we entered into a 15-year, $130 million blanket purchase agreement with the Department of Defense's 52 Ballistic Missile Defense Organization to provide concept development, systems analysis and engineering, program management support, and acquisition support. We believe this program also will experience near-term growth as the Department of Defense moves forward to meet the Bush Administration's mandate for a national missile defense system. OUR GROWTH STRATEGY Our objective is to continue to profitably grow our business as a premier provider of comprehensive technology solutions and services to the federal government market. Our strategy to achieve our objective includes the following. - CONTINUE TO INCREASE MARKET PENETRATION. In the past 10 years, the federal government's shift towards using significantly larger, more comprehensive contracts, such as GWACs, has favored companies with a broad range of technical capabilities and proven track-records. As a prime contractor on four of the five largest GWACs for information technology services based on overall contract ceiling value, we have benefited from these changes. We will continue to expand our role with current customers on existing programs while also pursuing new opportunities only available through these larger contracts. Since 2000, on a combined basis, assuming all of our acquisitions had occurred on January 1, 2000, our organic annual growth rate has been 20.9%. - CAPITALIZE ON INCREASED EMPHASIS ON INFORMATION SECURITY, HOMELAND DEFENSE AND INTELLIGENCE. The Bush Administration's budget, coupled with recent government initiatives, is expected to result in a 12% increase in projected Department of Defense spending for government fiscal year 2002, reaching $332 billion. We believe that many of the key operational goals of the Administration correlate with our expertise, including developing a national missile defense system, increasing homeland security, protecting information systems from attack, conducting effective intelligence operations and training for new approaches to warfare through simulation. - CROSS-SELL OUR FULL RANGE OF SERVICES TO EXISTING CUSTOMERS. We plan to continue expanding the scope of existing customer relationships by marketing and delivering the full range of our capabilities to each customer. Having developed a high level of customer satisfaction and critical domain knowledge as the incumbent on many long-term contracts, we have a unique advantage and opportunity to cross-sell our services and capture additional contract opportunities. For example, the strong performance record and detailed understanding of customer requirements we developed on the U.S. Air Force Cargo Movement Operations System led directly to our being awarded a contract related to the Joint Logistics Warfighting Initiative. We believe the ability to deliver a broad range of technology services and solutions is an essential element of our success. - CONTINUE OUR DISCIPLINED ACQUISITION STRATEGY. We employ a disciplined methodology to evaluate and select acquisition candidates. We have completed and successfully integrated five strategic acquisitions since 1997. Our industry remains highly fragmented and we believe the changing government procurement environment will continue to provide additional opportunities for industry consolidation. We will continue to selectively review acquisition candidates with complementary skills or market focus. HISTORY AND ORGANIZATION In April 1996, we acquired all of the outstanding capital stock of Anteon Virginia (then known as Ogden Professional Services Corporation) and changed the name of Anteon Virginia to Anteon Corporation. Anteon Virginia then acquired several companies and businesses, including Techmatics, Inc. On January 1, 2001, Anteon Virginia was renamed Anteon International Corporation and transferred most of its operations into Techmatics, which became its principal 53 operating subsidiary, and was in turn renamed Anteon Corporation. As a result, we currently own approximately 99% of Anteon Virginia and Anteon Virginia owns 100% of Anteon Corporation (formerly Techmatics). Since our management and significant stockholders wish to have a Delaware issuer for this initial public offering, immediately prior to the consummation of this offering, as illustrated in the diagrams below, we will enter into certain related reorganization transactions, including the merger of Anteon Virginia into us, as more fully described in "Certain Relationships--Reorganization Transactions." Following the merger, the name "Anteon International Corporation" will be borne solely by a single Delaware corporation, which will be the issuer of the common stock in this offering and will be the direct 100% parent company of Anteon Corporation (formerly Techmatics). PRIOR TO REORGANIZATION TRANSACTIONS AFTER REORGANIZATION TRANSACTIONS AND THIS OFFERING
Schematic of structure prior to Schematic structure after reorganization reorganization transactions transactions
54 ACQUISITIONS We employ a highly disciplined methodology to evaluate acquisitions. Since 1997 we have evaluated over 200 targets and have successfully completed and integrated five strategic acquisitions. Each of these acquired businesses has been accretive to earnings, has exceeded our synergy expectations, has added to our technical capabilities and has expanded our customer reach. The acquired businesses and their roles within our service offerings are summarized in the table below.
REVENUE AT PURCHASE(1) YEAR TARGET BUSINESS DESCRIPTION ($ IN MILLIONS) - ---- ------------- ------------------------------------------------------------ --------------- 1997.. Vector Data Intelligence collection, exploitation, and dissemination $ 21.4 systems 1998.. Techmatics Surface ship and combat systems and ballistic missile 70.9 defense program management 1999.. Analysis and Undersea ship and combat systems, acoustical signal 157.1 Technology processing, modeling and simulation, information technology systems and software design 2000.. Sherikon Military healthcare services systems, networking and 57.2 communications systems 2001.. SIGCOM Training simulation systems and services 13.7 Training
- -------------------------- (1) Consolidated revenue of target for the last twelve months prior to the acquisition date. In August 1997, we purchased Vector Data Systems, Inc., a supplier of specialized information systems and services for the collection analysis and distribution of military intelligence data. In May 1998, we acquired Techmatics, Inc., an established provider of engineering and program management services for large-scale military system development, including the Navy's surface ship fleet, on-ship combat systems and missile defense programs. With the acquisition of Analysis & Technology, Inc. in June 1999, we expanded our customer base for engineering and program management services to the Navy's undersea systems and added important technical expertise in computer-based training, modeling, simulation and advanced signal processing. In October 2000, we purchased Sherikon, Inc., extending the reach of our information technology solutions to the military healthcare delivery system. Our most recent acquisition, the training division of SIGCOM, Inc., was completed in July 2001 and increased the range of our information technology-enabled training solutions to include the realistic simulation of urban environments for the planning and preparation of overseas military operations. EXISTING CONTRACT PROFILES We currently have a portfolio of more than 400 active contracts. Our current contract mix is almost equally divided between: cost-plus contracts, time and materials contracts and fixed price contracts. Cost-plus contracts provide for reimbursement of allowable costs and the payment of a fee, which is the contractor's profit. Cost-plus fixed fee contracts specify the contract fee in dollars or as a percentage of allowable costs. 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. Under a time and materials contract, the contractor is paid a fixed hourly rate for each direct labor hour expended and is reimbursed for direct costs. To the extent that actual labor hour costs vary significantly from the negotiated rates under a time and materials contract, we can generate more or less than the targeted amount of profit. Under a fixed price contract, the contractor agrees to perform the specified work for a firm fixed price. To the extent that actual costs vary from the price negotiated we can generate more or less than the targeted amount of profit or 55 even incur a loss. In addition, we generally do not pursue fixed price software development work that may create material financial risk. We do, however, execute some fixed price labor hour and fixed price level of effort contracts, which represent similar levels of risk as time and materials contracts. Fixed price percentages in the table below include predominantly fixed price labor hour and fixed price level of effort contracts. Our historical contract mix is summarized in the table below. CONTRACT MIX
YEAR-END ---------------------------------------------------------------- CONTRACT TYPE 1997 1998 1999 2000 2001 - ------------- -------- -------- -------- -------- -------- Cost-Plus................................................ 23% 34% 37% 41% 37% Time and Materials....................................... 61% 47% 38% 31% 34% Fixed Price.............................................. 16% 19% 25% 28% 29%
The increase in the mix of contracts towards a higher percentage of fixed price contracts reflects both our acquisitions of Sherikon and SIGCOM, which had high percentages of fixed price contracts, as well as our strategy to migrate from lower fee cost-plus contracts to higher fee fixed price labor hour contracts. In addition to a wide range of single award contracts with defense, civil, state and local government customers, we also hold a number of multiple award omnibus contracts and GWACs that currently support more than 3,000 separate task orders. The broad distribution of contract work is demonstrated by the fact that no single task order accounted for more than 3.8% of our total 2001 revenue. GOVERNMENT WIDE ACQUISITION CONTRACTS. We are a leading supplier of information technology services under GWACs, and a prime contractor for four of the five largest GWACs as measured by overall contract ceiling. These contract vehicles are available to any government customer and provide a faster, more-effective means of procuring contract services. For example, in December 1998, we were awarded ANSWER, a 10 year multiple award contract with the GSA to provide highly technical information technology and engineering program support and infrastructure management. We have been awarded over 200 task orders to date, with a revenue run rate as of the fourth quarter of fiscal 2001 of approximately $87 million per year. We are the number one contractor among the 10 ANSWER prime contractors in terms of revenue. The total ceiling for this contract is $25 billion over ten years. Listed below are our five largest GWAC Schedule contracts.
OWNING PERIOD OF CONTRACT CONTRACT NAME AGENCY PERFORMANCE CEILING VALUE ROLE - ------------- -------- ------------- ------------- ------------------- ANSWER GSA 1998 - 2008 $25 billion Prime Millenia GSA 1999 - 2009 $25 billion Subcontractor ITOP II DOT 1999 - 2006 $10 billion Prime Millenia Lite GSA 2000 - 2010 $20 billion Prime CIO-SP II NIH 2000 - 2010 $20 billion Prime
Listed below are our top programs, including single award and multiple award contracts by 2001 revenue. We are a prime contractor on each of these programs. 56 TOP PROGRAMS BY 2001 REVENUE
ESTIMATED REMAINING PERIOD OF 2001 CONTRACT CONTRACT CONTRACT CUSTOMER PERFORMANCE REVENUE VALUE TYPE - --------------------------- --------------------------- ------------------ ------------- ---------- --------- (IN MILLIONS) GSA ANSWER 1/1/99--12/31/08 $77.8 $ 671.1 T&M SAFTAS US Air Force 1/01/01--12/31/16 27.0 516.3 CP PEO CVX US Navy 12/23/99--12/31/03 23.8 54.2 FFP BICES Dept. of Defense 6/01/99--5/31/02 * 18.2 16.6 CP PEO STRIKE US Navy 12/01/00--11/01/05 16.1 83.0 FFP Region 10 BPA GSA 7/01/99--10/10/07 14.3 90.0 T&M TBMD US Navy 1/01/99--9/01/03 13.1 21.0 FFP ETS Support Naval Surface Warfare Center 12/15/97--12/14/02 11.2 11.7 CP AIT Support US Navy/Portsmouth 8/11/99--8/10/04 9.3 27.1 CP
- ------------------------------ * Follow-on contract currently in process. SUBCONTRACTORS In fulfilling our contract obligations to customers, we may utilize the services of one or more subcontractors. The use of subcontractors to support bidding for and the subsequent performance of awarded contacts is a customary aspect of federal government contracting. Subcontractors may be tasked by us with performing work elements of the contract similar to or different from those performed by us or other subcontractors. We estimate that approximately 22.3% of the revenue generated under our prime contracts is performed by subcontractors. As discussed further in "Risk Factors," if our subcontractors fail to satisfy their contractual obligations, our prime contract performance could be materially and adversely affected. ESTIMATED CONTRACT VALUE AND NEW BUSINESS DEVELOPMENT On December 31, 2001, our total estimated contract value was $3.5 billion, of which $309.4 million was funded backlog. In determining estimated contract value, we do not include any provision for an increased level of work likely to be awarded under our GWACs. Estimated contract value is calculated as current revenue run rate over the remaining term of the contract. Our estimated contract value consists of funded backlog which is based upon amounts actually appropriated by a customer for payment of goods and services and unfunded contract value 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 we believe such estimates to be reasonable. However, there can be no assurance that the unfunded contract value will be realized as contract revenue or earnings. In addition, almost all of the contracts included in estimated contract value are subject to termination at the election of the customer.
ESTIMATED CONTRACT VALUE - -------------------------------------------------------------------------------------------- UNFUNDED CONTRACT TOTAL ESTIMATED YEAR ENDED FUNDED BACKLOG VALUE CONTRACT VALUE - ---------- -------------- -------------- --------------- (IN MILLIONS) 2001.................................... $ 309 $ 3,217 $ 3,526 2000.................................... 308 2,570 2,878 1999.................................... 207 1,911 2,118 1998.................................... 101 524 625 1997.................................... 99 163 262
57 From December 31, 1999 to December 31, 2001, our estimated contract value increased at a 29% cumulative annual growth rate. We believe this growth demonstrates the effectiveness of our two-tiered business development process that management has developed to respond to the strategic and tactical opportunities arising from the evolving government procurement environment. New task order contract vehicles and major high-profile programs are designated strategic opportunities, and their pursuit and execution are managed centrally. A core team comprised of senior management and our strategic business unit heads makes all opportunity selection and resource allocation decisions. Work that can be performed under our many task order contract vehicles is designated a tactical opportunity, which is then managed and performed at the business unit level with support as needed from other company resources. All managers and senior technical personnel are encouraged to source new work, and incentives are weighted to ensure corporate objectives are given primary consideration.
BUSINESS DEVELOPMENT METRICS: 1997-2000 - ----------------------------------------------------------------------------------- YEAR DOLLARS BID DOLLARS WON WIN RATE - ---- ----------- ----------- -------- ($ IN MILLIONS) 2000........................................ $3,232 $2,030 63% 1999........................................ 2,207 1,484 67% 1998........................................ 1,531 969 63% 1997........................................ 611 378 62% ------ ------ -- Total....................................... $7,581 $4,861 64%
Our emphasis on decentralized opportunity identification has led to a dramatic growth in the pipeline of potential new business. On December 31, 2001, approximately $9.8 billion of qualified new business opportunities were in various stages of pursuit by our personnel. This provides a robust base for filling new business revenue in future years. The magnitude of this pipeline has allowed us to be very selective in our bid process, leading to more efficient new business expenditures, higher win rates, and increased contract profitability. CUSTOMERS We provide information technology and engineering solutions to a highly diverse group of federal, state, local and international government organizations worldwide. Domestically, we service more than 60 agencies, bureaus and divisions of the U.S. federal government, including nearly all cabinet-level agencies and all branches of the military. In 2001, the federal government accounted for approximately 98% of our total revenues. International and state and local governments provided the remaining 2%. Our largest customer group is the U.S. Navy, which accounted for approximately 41% of revenues during 2001, through 30 different Navy organizations. 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. 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 58 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. We frequently compete against the well-known firms in the industry as a prime contractor. Obtaining a position as either a prime contractor or subcontractor on 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 are key to winning the business. We have been successful in ensuring our presence on GWACs and GSA Schedule contracts, 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. EMPLOYEES We employ approximately 5,400 employees, 90% of whom are billable and 75% of whom hold security clearances. Our workforce is highly educated and experienced in the defense and intelligence sectors. Functional areas of expertise include engineering, computer science, business process reengineering, logistics, transportation, materials technologies, avionics, finance and acquisition management. Nearly half of our employees are providing services in such areas as systems engineering, software engineering, network/communications engineering, and program/ project management. None of our employees is represented by collective bargaining agreements. FACILITIES Our headquarters are located in leased facilities in Fairfax, Virginia. In total, we lease approximately 1.1 million square feet of office, shop and warehouse space in over 80 facilities across the United States, Canada, United Kingdom and Australia. We own an office building in North Stonington, Connecticut, which occupies 63,578 square feet of office space and which is currently being held for sale. We also own office and shop space in Butler, Pennsylvania. We presently sublease to tenants approximately 32,818 square feet of our Butler office space. LEGAL PROCEEDINGS We are involved in various legal proceedings in the ordinary course of business. We cannot currently predict the ultimate outcome of these matters, but do not believe that they will have a material impact on our financial position or results of operations. 59 MANAGEMENT OUR DIRECTORS AND EXECUTIVE OFFICERS Our directors and executive officers and their respective ages as of the date of this prospectus are as follows:
NAME AGE POSITION HELD - ---- -------- ------------------------------------------------------- Frederick J. Iseman..... 49 Chairman of the Board and Director Joseph M. Kampf......... 57 President, Chief Executive Officer and Director Thomas M. Cogburn....... 58 Executive Vice President, Chief Operating Officer and Director Carlton B. Crenshaw..... 57 Senior Vice President and Chief Financial Officer Mark D. Heilman......... 53 Senior Vice President, Corporate Development Seymour L. Moskowitz.... 69 Senior Vice President, Technology Curtis L. Schehr........ 43 Senior Vice President, General Counsel and Secretary Vincent J. Kiernan...... 43 Vice President, Finance Gilbert F. Decker....... 64 Director Robert A. Ferris........ 59 Director Dr. Paul Kaminski....... 59 Director Steven M. Lefkowitz..... 37 Director General Henry Hugh Shelton, USA (ret.)..... 59 Director Nominee
FREDERICK J. ISEMAN, CHAIRMAN OF THE BOARD AND DIRECTOR Frederick J. Iseman has served as our Chairman and a director since April 1996. Mr. Iseman is currently Chairman and Managing Partner 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 Chairman of Buffets, Inc., a director of Vitality Beverages, Inc. and a member of the Advisory Board of Duke Street Capital. JOSEPH M. KAMPF, PRESIDENT AND CHIEF EXECUTIVE OFFICER Joseph M. Kampf has served as our 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. He is a life member of the Navy League and is also active in the Surface Navy Association, Naval Submarine League and National Defense Industrial Association. He was a Director of the Armed Forces Communications and Electronics Association and served on the Board of Directors of Atlantic Aerospace and Electronics Corporation and CPC Health, a non-profit community mental health agency. 60 THOMAS M. COGBURN, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER Thomas M. Cogburn has served as our Executive Vice President and Chief Operating Officer and a director since April 1996. From 1992 to 1996, he served as Chief Operating Officer at Ogden Professional Services Corporation, a predecessor company of ours. From 1988 to 1992, Mr. Cogburn served as Vice President of the Information System Support Division of CACI International, Inc. Mr. Cogburn's experience also includes 22 years in information systems design, operation, program management, and policy formulation for the U.S. Air Force. CARLTON B. CRENSHAW, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Carlton B. Crenshaw has served as our Senior Vice President and Chief Financial Officer since July 1996. From 1989 to 1996, Mr. Crenshaw served as 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 of Sperry Corporation and was Treasurer for Sperry Corporation. MARK D. HEILMAN, SENIOR VICE PRESIDENT, CORPORATE DEVELOPMENT Mark D. Heilman has served as our Senior Vice President for Corporate Development since October 1998. From 1991 to September 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. SEYMOUR L. MOSKOWITZ, SENIOR VICE PRESIDENT, TECHNOLOGY Seymour L. Moskowitz has served as our Senior Vice President for Technology since March 1997. Mr. Moskowitz served as a consultant to us from April 1996 to March 1997. Prior to joining us, Mr. Moskowitz served as an independent management consultant from 1994 to April 1996. From 1985 to 1994, Mr. Moskowitz served as Senior Vice President of Technology at Vitro Corporation, where he was responsible for the development and acquisition of technologies and management of research and development personnel and laboratory resources. Before working for the Vitro Corporation, Mr. Moskowitz served as Director of Research and Development for Curtiss-Wright Corporation. Mr. Moskowitz has been awarded seven patents, authored and co-authored over 50 articles, and published in ASME Transactions, ASME Journals of Energy, Power and Aircraft, SAE Journal and various conference proceedings. He formerly served on the Board of Directors of the Software Productivity Consortium and is currently a member of the steering committee of the Fraunhofer Center (MD) for Software Engineering. CURTIS L. SCHEHR, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY Curtis L. Schehr has served as our Senior 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). VINCENT J. KIERNAN, VICE PRESIDENT, FINANCE Vincent J. Kiernan has served as our Vice President, Finance since October 1998. From July 1995 to September 1998, he served as a Managing Director at KPMG LLP, where he provided 61 cost and pricing control reviews, claim analysis, accounting/contract management and general consulting services to a wide array of clients including both government contractors and commercial enterprises. From 1989 to 1995, Mr. Kiernan was a Director for Coopers & Lybrand. From 1985 to 1989, he was a consultant with Peterson & Co. Consulting. GILBERT F. DECKER, DIRECTOR Gilbert F. Decker has served as a director since June 1997. Since April 1999, Mr. Decker has served as Executive Vice President at Walt Disney Imagineering. Mr. Decker served as a private consultant from June 1997 to April 1999. 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. ROBERT A. FERRIS, DIRECTOR Robert A. Ferris has served as a director since April 1996. Mr. Ferris is a Managing Director of Caxton-Iseman Capital, Inc. and has been employed by Caxton-Iseman Capital, Inc. since March 1998. From 1981 to February 1998, Mr. Ferris was a General Partner of Sequoia Associates (a private investment firm headquartered in Menlo Park, California). 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 Buffets, Inc. DR. PAUL KAMINSKI, DIRECTOR Dr. Paul Kaminski has served as a director since June 1997. Dr. Kaminski has served as Chairman and Chief Executive Officer of Technovation, Inc. since 1997 and as a Senior Partner of Global Technology Partners since 1998. 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. STEVEN M. LEFKOWITZ, DIRECTOR Steven M. Lefkowitz has served as a director since April 1996. Mr. Lefkowitz is a Managing Director of Caxton-Iseman Capital, Inc. and has been employed by Caxton-Iseman Capital, Inc. 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 is a director of Buffets, Inc. and Vitality Beverages, Inc. GENERAL HENRY HUGH SHELTON, USA (RET.), DIRECTOR NOMINEE General Hugh Shelton, USA (ret.), will be elected to serve as a director in February 2002 prior to the completion of this offering. During his 37 years of active service, General Shelton 62 commanded at every level to include the 82nd Airborne Division, the XVIII Airborne Corps, as the Joint Task Force 180 Commander leading the Haiti Operation, and as Commander-in-Chief U.S. Special Operations Command. General Shelton became the 14th Chairman of the Joint Chiefs of Staff on October 1, 1997 and served two terms. General Shelton retired in October 2001 as the Chairman of the Joint Chiefs of Staff and the nation's principal military advisor to the President of the United States and the Secretary of Defense. He was responsible for a number of landmark initiatives to improve the readiness and retention of the current force while simultaneously developing Joint Vision 2020--the roadmap for the Future Joint Force. CLASSES AND TERMS OF DIRECTORS Our board is currently comprised of eight directors. Our board is divided into three classes, as nearly equal in number as possible, with each director serving a three-year term and one class being elected at each year's annual meeting of stockholders. As of the date of this prospectus, the following individuals are directors or nominees and will serve for the terms indicated: CLASS 1 DIRECTORS (TERM EXPIRING IN 2003) Robert A. Ferris General Henry Hugh Shelton, USA (ret.)-Nominee CLASS 2 DIRECTORS (TERM EXPIRING IN 2004) Joseph M. Kampf Steven M. Lefkowitz Dr. Paul Kaminski CLASS 3 DIRECTORS (TERM EXPIRING IN 2005) Frederick J. Iseman Thomas M. Cogburn Gilbert F. Decker Pursuant to our amended and restated certificate of incorporation, the Caxton-Iseman stockholders are entitled to nominate, any such nominees being referred to as "Caxton-Iseman nominees": (i) for so long as such stockholders beneficially own in the aggregate at least a majority of our then outstanding common stock, at least a majority in number of the directors on our board; and (ii) for so long as such stockholders beneficially own in the aggregate more than 10% but less than a majority of our then outstanding common stock, a number of directors approximately equal to that percentage multiplied by the number of directors on our board. As of the closing of this offering, the Caxton-Iseman nominees will consist of Messrs. Iseman, Ferris and Lefkowitz. Each of Messrs. Ferris and Lefkowitz have agreed to resign from our board, upon the request of the Caxton-Iseman stockholders, if he is no longer employed by an affiliate or related party of the Caxton-Iseman stockholders. Effective as of the consummation of this offering, we will increase the size of our board to twelve, thereby creating four vacancies. Pursuant to the provisions of our amended and restated certificate of incorporation, the Caxton-Iseman stockholders may fill three of these four vacancies. See "Description of Capital Stock--Certain Certificate of Incorporation, By-Law, Rights Plan and Statutory Provisions." COMMITTEES OF OUR BOARD Upon or immediately prior to consummation of this offering, our board will establish an audit committee, a compensation committee, an executive committee, a stock plan committee and a 63 nominating committee. Messrs. Decker, Kaminski and General Shelton or a fourth independent director elected within twelve months of the consummation of this offering, will be appointed to the audit committee. Messrs. Iseman, Kampf, Ferris and Lefkowitz will be appointed to our executive committee, our compensation committee, and our nominating committee. Messrs. Decker and Kaminski will be appointed to our stock plan committee. The audit committee will oversee actions taken by our independent auditors and review our internal controls and procedures. The compensation committee will review and approve the compensation of our officers and management personnel and administer our employee benefit plans, unless administered by the stock plan committee. The executive committee will exercise the authority of our board in the interval between meetings of the board and will recommend to our board persons to be elected as officers or to be appointed to board committees. The stock plan committee will administer our Amended and Restated Omnibus Stock Plan and other executive plans. The nominating committee will nominate candidates for election to our board. COMPENSATION OF DIRECTORS Some of our directors who are not our employees are paid an annual retainer. The payment is treated as deferred compensation in the form of share units and/or cash pursuant to a deferred fee plan described below. In 2001, each of Messrs. Ferris and Kaminski received share units valued at $25,754. Mr. Decker received shares valued at $19,603 and a cash credit of $6,449. Each of our directors is reimbursed for expenses incurred in connection with serving as a member of our board. Our deferred fee plan for non-employee directors is administered by our chief executive officer and allows non-employee directors to defer all or any portion of the fees received from us (i.e., retainer fee installments, board meeting fees or board committee meeting fees) by submitting an election deferral form prior to the calendar year to which the deferral applies. The election, once made, is irrevocable for the calendar year, but can be changed for subsequent calendar years. The deferral of fees may be credited to a cash account (which shall accrue interest) or a share account (credited with "share units" which shall fluctuate with our stock price), but all payouts of the deferral accounts shall be made in cash in a lump sum or in installments. We pay out on the first of the year following the year of departure to any director who ceases to serve on our board. The board may amend or terminate the plan at any time. EXECUTIVE COMPENSATION The following table sets forth information on the compensation awarded to, earned by or paid to our Chief Executive Officer, Joseph M. Kampf, and the four other most highly compensated 64 executive officers of ours whose individual compensation exceeded $100,000 during the fiscal year ended December 31, 2001 for services rendered in all capacities to us.
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS --------------------- ---------------------------------- ANNUAL NUMBER OF SHARES OTHER UNDERLYING STOCK NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS - --------------------------- -------- --------- --------- --------------- ---------------- Joseph M. Kampf ................ 2001 $415,899 $240,000 -- -- President and Chief Executive 2000 391,530 240,000 -- 120,000 Officer 1999 350,698 200,000 -- -- Thomas M. Cogburn .............. 2001 231,254 110,000 -- -- Executive Vice President and 2000 211,033 100,000 -- 40,000 Chief Operating Officer 1999 195,757 82,500 -- -- Carlton B. Crenshaw ............ 2001 204,999 100,000 -- -- Senior Vice President and 2000 198,927 100,000 -- -- Chief Financial Officer 1999 192,795 92,750 -- -- Mark D. Heilman ................ 2001 195,451 100,000 -- -- Senior Vice President, 2000 185,905 75,000 -- -- Corporate Development 1999 180,410 50,000 -- 40,000 Seymour L. Moskowitz ........... 2001 195,451 100,000 -- -- Senior Vice President, 2000 182,991 112,500 -- -- Technology 1999 170,354 82,500 -- 44,000
- ------------------------ (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 2001 to each of our named executive officers under our Omnibus Amended and Restated Stock Option Plan: OPTION GRANTS IN 2001 No options were granted to any of our named executive officers in 2001. 65 The following table sets forth certain information with respect to options held at the end of fiscal 2001 by each of our named executive officers: AGGREGATED OPTION EXERCISES IN 2001 AND FISCAL YEAR-END OPTION VALUES
INDIVIDUAL GRANTS -------------------------------------------------------- VALUE OF UNEXERCISED NUMBER OF SHARES IN-THE-MONEY OPTIONS SHARES UNDERLYING UNEXERCISED AT DECEMBER 31, 2001 ACQUIRED ON VALUE OPTIONS AT DECEMBER 31, 2001 EXERCISABLE/ NAME EXERCISE(S) REALIZED(S) EXERCISABLE/UNEXERCISABLE(1) UNEXERCISABLE(2) - ---- ----------- ----------- ---------------------------- ----------------------- Joseph M. Kampf........... -- -- / $ / Thomas M. Cogburn......... -- -- / $ / Carlton B. Crenshaw....... -- -- / $ / Mark D. Heilman........... -- -- / $ / Seymour L. Moskowitz...... -- -- / $ /
- -------------------------- (1) Represents options granted under our Amended and Restated Omnibus Stock Plan, after giving effect to the merger of our subsidiary, Anteon Virginia, into us and the reorganization transactions described in "Certain Relationships--Reorganization Transactions," but without giving effect to the split of our common stock we intend to effect prior to the consummation of this offering. (2) Based on the difference between the mid-point of the expected initial offering price range 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. No options were exercised by any of our named executive officers in 2001. AMENDED AND RESTATED OMNIBUS STOCK PLAN PURPOSES OF THE PLAN Following consummation of the merger and this offering, we will assume the amended and restated omnibus stock plan of our subsidiary, Anteon Virginia. On February , 2002, Anteon Virginia amended and restated its omnibus stock plan, which was originally adopted in January 1997 and which terminates in January 2007. The plan enables us to make grants of stock-based incentive compensation to our officers and other key employees, directors and consultants. The purposes of the plan are to promote our long-term growth and profitability by (i) providing key people with incentives to improve stockholder value and to contribute to our growth and financial success and (ii) enabling us to attract, retain and reward the best available persons for positions of substantial responsibility. The plan may be used to grant award compensation which qualifies for the exemption provided under Section 162(m) of the Internal Revenue Code, but the plan may also be used to grant awards that do not qualify for that exemption. The amendment and restatement of the plan will not affect any existing option holders. ADMINISTRATION OF THE PLAN The plan is currently administered by the stock plan committee of the board of directors. The stock plan committee has full power and authority to administer 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 it deems necessary or advisable. The stock plan committee is authorized to interpret the plan, at its sole and absolute discretion, and to make adjustments in the terms and conditions of, and the criteria included in, awards in recognition of unusual or recurring events affecting us, or our financial statements, or of changes in applicable laws, regulations or accounting principals. The board of directors may modify or terminate the plan at any time. The board of directors may take no action which would impair the rights of any participant or any holder or 66 beneficiary of any award without the consent of the affected participant, holder or beneficiary. All actions of the stock plan committee are conclusive. The board of directors may resolve to directly administer the plan. TRANSFER; AWARDS AVAILABLE UNDER THE PLAN Each award under the plan, and each right under any award, may be exercised during the participant's lifetime only by the participant, unless otherwise determined by the stock plan committee or, if permissible under applicable law, by the participant's guardian or legal representative. The awards 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. The designation of a beneficiary will not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance for purposes of the plan. The plan authorizes the grant of awards with respect to a maximum of 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. The plan restricts the number of options or stock appreciation rights that may be granted to any one participant during a calendar year to a maximum of shares of common stock. 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 stock plan 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 that relate to awards and that are affected by the changes in the common stock referred to above.) The plan is not subject to the Employee Retirement Income Security Act of 1974, as amended, or Section 401(a) of the Internal Revenue Code. TYPES OF AWARDS Under the plan, our board of directors may grant awards in the following forms: non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock or unrestricted stock awards or phantom stock. Awards may be granted for no cash consideration or for such consideration as may be determined by the board of directors. STOCK OPTIONS. A stock option granted under the plan provides a participant the right to purchase, subject to the terms of the stock option agreement, for a specified period of time, a stated number of shares of common stock at the price specified in the stock option agreement. All other terms and conditions of the options are determined by the stock plan committee and set forth in the applicable stock option agreement. An option generally may be exercised by delivery of an amount equal to the exercise price of that option in cash, shares of common stock (provided that the common stock delivered has been owned by the participant for at least six months or was previously acquired by the participant on the open market), a brokered exercise, any combination of the above or as the stock plan committee may otherwise determine. 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 that person is the participant. 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 of the stock appreciation right. 67 Stock appreciation rights may be granted in tandem with another award, in addition to another award, or freestanding and unrelated to another award. The stock plan committee is authorized under the plan to determine the terms of the stock appreciation right and whether a stock appreciation right will 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 stock plan committee may at any time and from time to time grant stock awards to eligible participants in such amount and for such consideration, 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 stock plan committee from time to time. CHANGE IN CONTROL In the event of any proposed change in control (as defined in the plan), the stock plan 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, which may include, without limitation, the following: - acceleration or change of the exercise dates of any award so that the unvested portion of any award becomes fully vested and immediately exercisable; - 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 our other common stock which is acquired, sold, transferred, or exchanged because of the proposed change in control; and - in any case where equity securities other than our common stock are proposed to be delivered in exchange for or with respect to common stock, arrangements providing that any award shall become one or more awards with respect to such other equity securities. RECENT STOCK OPTIONS AWARDED In 2002, we granted options to some members of our management for shares of common stock at an exercise price equal to $ per share, including options to purchase shares granted to , effective as of the date of this offering. SEVERANCE AGREEMENTS Our executive officers and certain key members of management, or the "Executives," have entered into agreements with our wholly owned operating subsidiary, Anteon Corporation. The agreements provide for certain compensation payments and other benefits for periods ranging from 12 months to 24 months, except in the case of Mr. Kampf, whose payments and benefits will continue for 36 months, to be received by the Executive in the event the Executive's employment is involuntarily terminated without cause, or in the event the Executive's resigns his/her employment for "Good Reason," as such term is defined in the agreement. The Executive may not resign for "Good Reason" unless he or she shall have first given notice to Anteon of the reason for such resignation and Anteon shall have failed to reasonably cure the situation within thirty days of receipt of such notice. The compensation and benefits period for Messrs. Cogburn, Crenshaw, Heilman and Moskowitz continue for a 24 month period. If terminated on December 31, 2001, cash severance payments payable to Messrs. Kampf, Cogburn, Crenshaw, Heilman and Moskowitz under their respective severance agreements would have been $1,927,697, $657,508, $605,165, $540,902 and $587,569, respectively. 68 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information as of February 1, 2002 as to the number of shares of our common stock beneficially owned by: - each named executive officer; - each of our directors and director nominees; - each person known to us to be the beneficial owner of more than 5% of our common stock; - all of our executive officers and directors as a group; and - each other selling stockholder participating in this offering. The table also indicates the percentage of outstanding shares held by each of them as of February 1, 2002, before and after giving effect to this offering. Unless otherwise noted below, the address of each beneficial owner listed on the table below is c/o Anteon International Corporation, 3211 Jermantown Road, Suite 700, Fairfax, Virginia 22030-2801.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO THE OWNED AFTER THE OFFERING(1)(2) NUMBER OF OFFERING(1) ------------------------------------ SHARES BEING --------------------- NAME OF BENEFICIAL OWNER SHARES % OFFERED SHARES % - ------------------------ ------------------- -------------- ------------ ---------- -------- Azimuth Technologies, L.P.(3)(4)..... 10,342,457 71.9% Azimuth Tech. II LLC(3)(4)........... 2,314,613 16.1% Frederick J. Iseman(3)(4)............ 12,659,521 88.0% Gilbert F. Decker(5)................. 24,000 * Dr. Paul Kaminski(5)................. 24,000 * Joseph M. Kampf(6)................... 752,647 5.2% Carlton B. Crenshaw(7)............... 261,292 1.8% Seymour L. Moskowitz(8).............. 193,844 1.3% Thomas M. Cogburn(9)................. 326,244 2.3% Mark D. Heilman(10).................. 76,000 * Robert A. Ferris(11)................. 1,108,146 7.7% Ferris Family 1987 Trust(11)......... 1,108,146 7.7% Steven M. Lefkowitz(12).............. 429,219 3.0% General Henry Hugh Shelton, USA (ret.)............................. -- -- Noreen D. Centracchio................ 120,047 * Howard Dawson(13).................... 137,062 * Roger Gurner......................... 120,047 * Curtis L. Schehr(14)................. 36,800 * All Directors and Executive Officers as a Group(15)..................... 14,366,348 96.2
- ------------------------ * Less than 1%. (1) Determined in accordance with Rule 13d-3 under the Exchange Act. (2) After giving effect to the merger of our subsidiary, Anteon Virginia, into us and the reorganization transactions described in "Certain Relationships--Reorganization Transactions," but without giving effect to the split of our common stock we intend to effect prior to the consummation of this offering. (3) By virtue of Frederick J. Iseman's indirect control of Azimuth Technologies, L.P., Azimuth Tech. II LLC and Georgica (Azimuth Technologies), Inc., which are the investment partnerships organized by Caxton-Iseman Capital, he is deemed to beneficially own the 11,122,153 shares held by these entities. Mr. Iseman has (i) sole voting and dispositive power over 11,122,153 shares of our common stock, and (ii) shared voting and dispositive power over the 1,537,865 shares of our common stock held in the aggregate by the Ferris Family 1987 Trust and 69 Mr. Lefkowitz, and may be deemed to be the beneficial owner thereof. Mr. Iseman's address is c/o Caxton-Iseman Capital, Inc., 667 Madison Avenue, New York, New York 10021. (4) Includes 1,108,146 and 429,219 shares held by the Ferris Family 1987 Trust and Mr. Lefkowitz, respectively. The Ferris Family 1987 Trust and Mr. Lefkowitz will enter into a stockholders agreement with Azimuth Technologies, L.P. and Azimuth Tech. II LLC with respect to the shares of our common stock held by them. Pursuant to the terms of this stockholders agreement, the Ferris Family 1987 Trust and Mr. Lefkowitz may be required to vote all of their shares of common stock at the direction of Azimuth Technologies, L.P. and Azimuth Tech. II LLC, and will be bound by specified transfer restrictions. See "Certain Relationships--Azimuth Technologies, L.P. and Azimuth Tech. II LLC." (5) Includes 24,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Mr. Decker's address is 45 Glenridge Avenue, Los Gatos, California 95030. Dr. Kaminski's address is 6691 Rutledge Drive, Fairfax, Virginia 22039. (6) Includes 140,160 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 96,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. Excludes shares held by Azimuth Technologies, L.P. and Azimuth Tech. II LLC of which he is, respectively, a limited partner and a non-managing member. (7) Includes 44,466 shares held by the Carlton Crenshaw Grantor Trust and 56,076 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. (8) Includes 193,844 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 26,400 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. (9) Includes 20,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 40,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. (10) Includes 76,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 64,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. Excludes shares held by CSP Associates LLC, a limited liability company of which he is a non-managing member. (11) Represents 1,108,146 shares held by the Ferris Family 1987 Trust, of which Mr. Ferris is trustee, and with respect to which Mr. Ferris shares voting and dispositive power with Azimuth Technologies, L.P., Azimuth Tech. II LLC and Mr. Iseman. The address of Mr. Ferris and the Ferris Family 1987 Trust is c/o Caxton-Iseman Capital, Inc., 667 Madison Avenue, New York, New York 10021. Excludes shares held by Azimuth Technologies, L.P. and Azimuth Tech. II LLC of which the Ferris Family 1987 Trust is, respectively, a limited partner and a non-managing member. (12) Mr. Lefkowitz's address is c/o Caxton-Iseman Capital, Inc., 667 Madison Avenue, New York, New York 10021. Excludes shares held by Azimuth Technologies, L.P. and Azimuth Tech. II LLC of which he is, respectively, a limited partner and a non-managing member. Includes 429,219 shares with respect to which Mr. Lefkowitz shares voting and dispositive power with Azimuth Technologies, L.P., Azimuth Tech. II LLC and Mr. Iseman. (13) Includes 33,600 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 23,200 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. (14) Includes 35,200 shares of common stock issuable pursuant to stock options exerciseable within 60 days of February 1, 2002. Does not include 23,200 shares of common stock issuable pursuant to options that are not exercisable within 60 days of that date. 70 (15) Includes 571,720 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 1, 2002. Does not include 249,600 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. TAG ALONG RIGHTS Immediately prior to the consummation of this offering, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Frederick J. Iseman, Joseph M. Kampf, the Ferris Family 1987 Trust, Steven M. Lefkowitz and certain members of management and certain selling stockholders, collectively the "Management Tag Stockholders," will enter into a Tag Along Agreement granting to Mr. Kampf and the Management Tag Stockholders specified rights in the event of a sale of our common stock by any of the Caxton-Iseman stockholders. If, at any time before the Caxton-Iseman stockholders no longer beneficially own, in the aggregate, more than 20% of our outstanding common stock, any Caxton-Iseman stockholder or a group of them sells shares of our common stock to a purchaser, who, after such sale or series of related sales, would beneficially own, in the aggregate, 51% or more of our outstanding common stock, Mr. Kampf and the Management Tag Stockholders may participate in that sale pro rata with such Caxton-Iseman stockholder(s). The Tag Along Agreement terminates in accordance with its terms twenty (20) years after its signing. 71 CERTAIN RELATIONSHIPS REORGANIZATION TRANSACTIONS Immediately prior to the consummation of this offering, we will enter into a series of reorganization transactions. First, our $22.5 million principal amount subordinated convertible note held by Azimuth Tech II LLC, one of our principal stockholders, will be converted according to its terms into shares of our non-voting common stock. Second, our subsidiary, Anteon Virginia, will merge into us. We will be the surviving corporation of the merger. In the merger, all the outstanding shares of our existing classes of stock, including Class A Voting Common Stock, Class B Voting Common Stock and Non-Voting Common Stock, will be converted into a single class of common stock. All the stock of Anteon Virginia held by us will be cancelled and the stock of Anteon Virginia held by certain of our employees and former employees (other than stockholders who exercise appraisal rights) immediately prior to the consummation of this offering will be converted into shares of our common stock constituting approximately 0.6% of our outstanding stock immediately prior to the consummation of this offering. As a result of the merger, we will succeed to all of Anteon Virginia's obligations under its credit facility, the indenture governing the 12% Notes and its Amended and Restated Omnibus Stock Plan. AZIMUTH TECHNOLOGIES, L.P. AND AZIMUTH TECH. II LLC Azimuth Technologies, L.P. and Azimuth Tech. II LLC are our principal stockholders. The sole general partner of Azimuth Technologies, L.P. and the sole managing member of Azimuth Tech. II LLC is Georgica (Azimuth Technologies), L.P., the sole general partner of which is Georgica (Azimuth Technologies), Inc., a corporation wholly owned by Frederick J. Iseman, the chairman of our board of directors. As a result, Mr. Iseman controls both Azimuth Technologies, L.P. and Azimuth Tech. II LLC, and, both before and after this offering, us. In addition, Mr. Iseman, Steven M. Lefkowitz, a director of our company, and Robert A. Ferris, a director of our company, are each employed by Caxton-Iseman Capital, Inc. Mr. Iseman is the chairman, managing partner and founder of that firm. See "Principal and Selling Stockholders." Azimuth Technologies, L.P., Azimuth Tech. II LLC, Mr. Lefkowitz and the Ferris Family 1987 Trust, of which Mr. Ferris is a trustee, will enter into a stockholders agreement immediately prior to the consummation of this offering. Under this stockholders agreement, the Ferris Family 1987 Trust and Mr. Lefkowitz will agree to vote all of the shares of our common stock they beneficially own on any matter submitted to the vote of our stockholders whether at a meeting or pursuant to a written consent at the direction of Azimuth Technologies, L.P. and Azimuth Tech. II LLC, unless otherwise agreed to by these entities, and will constitute and appoint these entities or any nominees thereof as their respective proxies for purposes of any stockholder vote. In addition, except pursuant to the Tag Along Agreement described in "Principal and Selling Stockholders," the agreement provides that neither the Ferris Family 1987 Trust nor Mr. Lefkowitz may sell or in any way transfer or dispose of the shares of our common stock they beneficially own without the prior written consent of either Azimuth Technologies, L.P. or Azimuth Tech. II LLC, unless Azimuth Technologies, L.P. and Azimuth Tech. II LLC are participating in that sale, and then the Ferris Family 1987 Trust and Mr. Lefkowitz may participate in such sale in a pro rata amount. The Ferris Family 1987 Trust and Mr. Lefkowitz will be required to participate pro rata in any sale by Azimuth Technologies, L.P. and Azimuth Tech. II LLC, unless otherwise agreed to by these entities. CAXTON-ISEMAN CAPITAL Since April 1997, we have been party to an arrangement with Caxton-Iseman Capital. As part of this arrangement, Caxton-Iseman Capital monitors and assists our activities in accordance with, and subject to, investment objectives and guidelines established by us. Pursuant to this arrangement, during the years ended December 31, 1999, 2000 and 2001, we incurred $750,000, $1,000,000 and $1,000,000, respectively, in management fees owed to Caxton-Iseman Capital. We have agreed to pay a fee to Caxton-Iseman Capital of $3.6 million and the Caxton-Iseman Capital arrangement has 72 terminated, except with respect to our indemnification obligations towards Caxton-Iseman Capital for services provided. We have also agreed to pay the out-of-pocket expenses of Caxton-Iseman Capital for any future services that we may request and to pay Caxton-Iseman Capital for any future investment banking services that we may retain them for in the future. As part of our Analysis & Technology, Inc. acquisition in June 1999, we paid Caxton-Iseman Capital a separate fee of $1.1 million for acquisition advisory services, and Caxton-Iseman Capital and its affiliates through Azimuth Tech. II LLC provided $22.5 million to us in return for a subordinated convertible note. We also paid Caxton-Iseman Capital $0.3 million and $0.1 million acquisition advisory services fees in relation with our acquisitions of Sherikon in October 2000 and SIGCOM in July 2001, respectively. See "Principal and Selling Stockholders." REGISTRATION RIGHTS Prior to the consummation of this offering, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Messrs. Frederick J. Iseman, Joseph M. Kampf, Carlton B. Crenshaw, Thomas M. Cogburn, Seymour L. Moskowitz and Steven M. Lefkowitz and the Ferris Family 1987 Trust and the other selling stockholders, entered into a registration rights agreement with us relating to the shares of common stock they hold. Subject to several exceptions, including our right to defer a demand registration under certain circumstances, the Caxton-Iseman stockholders may require that we register for public resale under the Securities Act all shares of common stock they request be registered at any time after 180 days following this offering. The Caxton-Iseman stockholders may demand five registrations so long as the securities being registered in each registration statement are reasonably expected to produce aggregate proceeds of $5 million or more. If we become eligible to register the sale of our securities on Form S-3 under the Securities Act, the Caxton-Iseman stockholders have the right to require us to register the sale of the common stock held by them on Form S-3, subject to offering size and other restrictions. Mr. Kampf and each of Messrs. Crenshaw, Cogburn and Moskowitz, to the extent that such individual holds more than 1% of our outstanding common stock, and Mr. Lefkowitz and the Ferris Family 1987 Trust are entitled to piggyback registration rights with respect to any registration request made by the Caxton-Iseman stockholders. If the registration requested by the Caxton-Iseman stockholders is in the form of a firm underwritten offering, and if the managing underwriter of the offering determines that the number of securities to be offered would jeopardize the success of the offering, the number of shares included in the offering shall be determined as follows: (i) first, shares offered by the Caxton-Iseman stockholders and Messrs. Kampf, Crenshaw, Cogburn, Moskowitz and Lefkowitz and the Ferris Family 1987 Trust (pro rata, based on their respective ownership of our common equity), (ii) second, shares offered by other stockholders (pro rata, based on their respective ownership of our common equity) and (iii) third, shares offered by us for our own account. In addition, the Caxton-Iseman stockholders, Mr. Kampf, and each of Messrs. Crenshaw, Cogburn and Moskowitz, to the extent that such individual holds more than 1% of our outstanding common stock, and Mr. Lefkowitz and the Ferris Family 1987 Trust have been granted piggyback rights on any registration for our account or the account of another stockholder. If the managing underwriter in an underwritten offering determines that the number of securities offered in a piggyback registration would jeopardize the success of the offering, the number of shares included in the offering shall be determined as follows: (i) first, shares offered by us for own account, (ii) second, shares offered by the Caxton-Iseman stockholders, Messrs. Kampf, Crenshaw, Cogburn, Moskowitz and Lefkowitz and the Ferris Family 1987 Trust (pro rata, based on their respective ownership of our common equity), and (iii) third, shares offered by other stockholders (pro rata, based on their respective ownership of our common equity). The Caxton-Iseman stockholders and Messrs. Kampf, Crenshaw, Cogburn and Moskowitz have exercised their piggyback rights in connection with this offering. The other selling stockholders were also granted piggyback registration rights with respect to this offering only under the registration rights agreement. In connection with this offering, and the other registrations described above, we will indemnify the selling stockholders and bear all fees, costs and expenses (except underwriting discounts and selling commissions). See "Principal and Selling Stockholders." 73 DESCRIPTION OF INDEBTEDNESS Set forth below is a description of our debt that will remain outstanding following the offering. CREDIT FACILITY Our credit facility is provided by a syndicate of banks and other financial institutions led by Credit Suisse First Boston, as administrative agent and lead arranger. Pursuant to the terms of the credit agreement governing our credit facility, the lenders, subject to certain conditions, provide to us a credit facility of up to $135.0 million consisting of: (1) a $120.0 million three-year senior secured revolving credit facility with a $10.0 million letter of credit sublimit and (2) a $47.0 million (after giving effect to this offering) three-year senior secured term loan facility. The aggregate amount available for borrowing under the revolving credit facility is determined based on a portion of eligible accounts receivable. At December 31, 2001, on a pro forma basis, after giving effect to this offering, we would have had $118.5 million of undrawn availability under the revolving loan portion of our credit facility. In general, our borrowing availability under the revolving portion of our credit facility is subject to our borrowing base (defined as portions of eligible billed and unbilled accounts receivable) and our ratio of net debt to EBITDA. EBITDA is defined in the credit facility as net income plus total interest expense, taxes, depreciation, amortization and non-cash non-recurring charges (up to 10% of net income) minus any non-cash gain included in net income. This definition differs from the definition of EBITDA in the remainder of this prospectus. This definition of EBITDA has been revised by amendment to add back certain fees, premiums and charges we may pay in connection with this offering. SECURITY AND GUARANTEES All of our existing and future domestic subsidiaries unconditionally guarantee the repayment of the credit facility. The credit facility is secured by substantially all of our and our domestic subsidiaries' tangible and intangible assets, including substantially all of the capital stock of our subsidiaries. MATURITY AND AMORTIZATION Loans made under the term loan facility mature on June 23, 2005, and up to $2.5 million of the aggregate principal amount under the credit facility currently amortizes ratably on a quarterly basis, with up to $20.5 million due at final maturity. Loans made under the revolving credit facility also mature on June 23, 2005. INTEREST Borrowings under the credit facility bear interest at a floating rate based upon, at our option, LIBOR or the Prime Rate, in each case plus a margin determined based upon our ratio of net debt to EBITDA (as defined in the credit facility as described above). PREPAYMENTS We are required to prepay, subject to exceptions set forth in the 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 us and our subsidiaries, (iii) 100% of net cash proceeds of issuances of debt obligations of ours and our subsidiaries and (iv) 50% of net cash proceeds of public issuances of our equity securities. Due to excess cash flows generated during 2001, we are required to make an additional principal payment of $10,693,000 under the term loan portion of our credit facility by March 31, 2002. We intend to use a portion of the net proceeds from this offering to repay debt under the revolving credit portion of our credit facility, subject to reborrowing, and to repay debt under the term loan facility. See "Use of Proceeds." 74 COVENANTS The credit agreement contains affirmative and negative covenants customary for such financings. The 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; limitation on capital expenditures; and minimum EBITDA. EVENTS OF DEFAULT The credit agreement contains customary events of default, 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 obligor-asserted invalidity of the guarantees or security documents. Certain of these events of default allow for grace periods. 12% NOTES In connection with our acquisition of Analysis & Technology, Inc., on May 11, 1999, we issued $100,000,000 in aggregate principal amount of our 12% Notes. The 12% Notes bear interest at 12% per year, payable semi-annually, and mature on May 15, 2009. We intend to repurchase in open market or privately negotiated transactions, or otherwise pursuant to the terms of the 12% Notes, or redeem approximately $25.0 million principal amount of the 12% Notes using a portion of the proceeds of this offering. Our obligations to make any principal, premium and interest payments on the 12% Notes are fully and unconditionally guaranteed on a senior subordinated basis by each of our existing, and some of our future, domestic subsidiaries. The 12% Notes are unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including all of our borrowings under our credit facility. The 12% Notes guarantees are unsecured and subordinated in right of payment to all existing and future senior indebtedness of our subsidiary guarantors, including all guarantees of our subsidiary guarantors under our credit facility. We cannot redeem the 12% Notes until May 15, 2004, except as described below. After May 15, 2004, we can redeem some or all of the 12% Notes at specified redemption prices, plus accrued interest to the redemption date. In addition, at any time and from time to time before May 15, 2002, we can redeem up to 25% of the original principal amount of the 12% Notes with money that we raise in equity offerings, as long as we pay holders a redemption price of 112% of the principal amount of the 12% Notes we redeem, plus accrued interest, and at least 75% of the original principal amount of the 12% Notes issued remains outstanding after each redemption. If there is a change of control (as defined in the indenture governing the 12% Notes), we must give holders of the 12% Notes the opportunity to sell us their notes at a purchase price equal to 101% of their principal amount. The indenture governing the 12% Notes contains covenants that limit our ability and that of our subsidiary guarantors, subject to important exceptions and qualifications, to, among other things: - incur additional indebtedness; - pay dividends or distributions on, or redeem or repurchase, our capital stock; - make investments; - transfer or sell assets; and - consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries. 75 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock currently consists of shares of common stock and shares of preferred stock. Immediately prior to the offering, we will have [75] holders of record of our common stock and no holders of record of our preferred stock. After consummation of this offering, we expect to have shares of common stock and no shares of preferred stock outstanding. COMMON STOCK The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. The common stock does not have cumulative voting rights, which means that the holders of a majority of the outstanding common stock voting for the election of directors can elect all directors then being elected. The holders of our common stock are entitled to receive dividends when, as, and if declared by our board out of legally available funds. Upon our liquidation or dissolution, the holders of common stock will be entitled to share ratably in our assets legally available for distribution to stockholders after payment of liabilities and subject to the prior rights of any holders of preferred stock then outstanding. All of the outstanding shares of common stock are, and the shares of common stock to be sold in this offering when issued and paid for will be, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of shares of any series of preferred stock which may be issued in the future. PREFERRED STOCK Our preferred stock may be issued from time to time in one or more series. Our board is authorized to fix the dividend rights, dividend rates, any conversion rights or right of exchange, any voting rights, rights and terms of redemption, the redemption price or prices, the payments in the event of liquidation, and any other rights, preferences, privileges, and restrictions of any series of preferred stock and the number of shares constituting such series and their designation. We have no present plans to issue any shares of preferred stock other than in connection with the rights distribution described below. Depending upon the rights of such preferred stock, the issuance of preferred stock could have an adverse effect on holders of our common stock by delaying or preventing a change in control, adversely affecting the voting power of the holders of common stock, including the loss of voting control to others, making removal of the present management more difficult, or resulting in restrictions upon the payment of dividends and other distributions to the holders of common stock. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. RIGHTS AGREEMENT Simultaneously with the consummation of this offering, we intend to distribute one preferred share purchase right for each outstanding share of common stock on , 2002 to the stockholders of record on that date. Under our rights agreement, each right will entitle the registered holder to purchase from us one one-thousandth of a share of Series A Preferred Stock, par value $0.01 per share, of Anteon International Corporation, at a price of $ per one one-thousandth of a share, under certain circumstances provided for in the rights agreement. Until a "separation date" occurs, the rights will: - not be exercisable; - be evidenced by certificates that represent shares of our common stock; and 76 - trade with our common stock. The rights will expire at the close of business on the ten-year anniversary of the rights agreement, unless earlier redeemed or exchanged by us. Following a "separation date," the rights would become exercisable and we would issue separate certificates representing their rights, which would trade separately from the shares of our common stock. A "separation date" would occur upon the earlier of: - ten business days after a public announcement that a person has become an "acquiring person;" or - fifteen business days (or such later date as our board may determine before any person becomes an "acquiring person") after a person commences a tender or exchange offer that, if successful, would result in the person becoming an "acquiring person." Under our rights agreement, a person becomes an "acquiring person" if the person, alone or together with a group, acquires beneficial ownership of 15% or more of the outstanding shares of our common stock. However, an "acquiring person" shall not include us, any of our subsidiaries, any of our employee benefit plans or any person or entity acting pursuant to such employee benefit plans. In addition, an "acquiring person" shall not include any Caxton-Iseman stockholder, any affiliate or associate of a Caxton-Iseman stockholder, or any Caxton-Iseman transferee. A "Caxton-Iseman transferee" means any person that is the direct or indirect transferee of any of the shares of common stock beneficially owned as of the date of the rights agreement by any Caxton-Iseman stockholder or any affiliate or associate of a Caxton-Iseman stockholder if (a) such transferee would otherwise become an acquiring person as a result of such transfer and (b) the transferor designates in writing that the transferee is a Caxton-Iseman transferee. If any person becomes an acquiring person and there is a separation date, each holder of a right, other than rights owned by such person which will be voided, will have the right to receive shares of common stock having twice the market value of the exercise price of the right. If, after a person becomes an acquiring person and there is a separation date, we are acquired in a merger or other business combination transaction or 50% or more of our consolidated assets or earning power are sold, each holder of a right will have the right to receive shares of common stock of the acquiring company which at the time of such transaction will have twice the market value of the exercise price of the right. Any time after a separation date and before the acquisition by any person or group (other than a Caxton-Iseman stockholder or any Caxton-Iseman transferee) of a majority of the outstanding common stock, our board may exchange the rights (other than rights owned by such person or group which have become void), in whole or in part, at an exchange ratio of one share of common stock per right, subject to adjustment. Our board may redeem the rights, in whole, but not in part, at any time before a separation date. The redemption price shall be $.001 per right. The right to exercise any rights will terminate when they are redeemed. The only right of the holders of the rights after redemption will be to receive the redemption price. At any time before a person becomes an acquiring person and there is a separation date, our board of directors may amend, without the approval of the holders of the rights, any provision in the rights agreement in a manner that does not adversely affect the interests of any Caxton-Iseman stockholder or Caxton-Iseman transferee. After a person becomes an acquiring person and there is a separation date, our board of directors may only amend the provisions of our rights agreement in order to: - cure any ambiguity; or 77 - make changes that will not adversely affect the interests of the holders of rights. CERTAIN CERTIFICATE OF INCORPORATION, BY-LAW, RIGHTS AGREEMENT AND STATUTORY PROVISIONS The provisions of our amended and restated certificate of incorporation and by-laws, of our rights agreement and of the Delaware General Corporation Law summarized below may have an anti-takeover effect, may delay, defer or prevent a tender offer or takeover attempt that you might consider in your best interest, including an attempt that might result in your receipt of a premium over the market price for your shares, and may make more difficult the removal of our incumbent directors. DIRECTORS' LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS Our amended and restated certificate of incorporation provides that a director will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except: - for any breach of the duty of loyalty; - for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law; - for liability under Section 174 of the Delaware General Corporation Law (relating to unlawful dividends, stock repurchases, or stock redemptions); or - for any transaction from which the director derived any improper personal benefit. This provision does not limit or eliminate our rights or those of any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. The provisions will not alter the liability of directors under federal securities laws. In addition, our amended and restated certificate of incorporation and by-laws provide that we indemnify each director and the officers, employees, and agents determined by our board to the fullest extent provided by the laws of the State of Delaware. SPECIAL MEETINGS OF STOCKHOLDERS Our amended and restated by-laws provide that special meetings of stockholders may be called only by the chairman or by a majority of the members of our board. Stockholders are not permitted to call a special meeting of stockholders, to require that the chairman call such a special meeting, or to require that our board request the calling of a special meeting of stockholders. STOCKHOLDER ACTION; ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS Our amended and restated certificate of incorporation provides that stockholders may not take action by written consent, but may only take action at duly called annual or special meetings. In addition, our by-laws establish advance notice procedures for: - stockholders to nominate candidates for election as a director; and - stockholders to propose topics at stockholders' meetings. Stockholders must notify our corporate secretary in writing prior to the meeting at which the matters are to be acted upon or directors are to be elected. The notice must contain the information specified in our by-laws. To be timely, the notice must be received at our corporate headquarters not less than 90 days nor more than 120 days prior to the first anniversary of the date of the preceding year's annual meeting of stockholders. If (a) the annual meeting is advanced by 78 more than 30 days, or delayed by more than 70 days, from the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be received not earlier than the 120th day prior to the annual meeting and not later than the later of the 90th day prior to the annual meeting or the 10th day following the day on which we first publicly announce the date of the annual meeting, (b) no annual meeting was held during the preceding year, or (c) the first annual meeting after this offering is occurring, then either by mail or other public disclosure. In the case of a special meeting of stockholders called to elect directors, the stockholder notice must be received not earlier than 120 days prior to the special meeting and not later than the later of the 90th day prior to the special meeting or the 10th day following the day on which we notify stockholders of the date of the special meeting, either by mail or other public disclosure. These provisions may preclude some stockholders from bringing matters before the stockholders at an annual or special meeting or from nominating candidates for director at an annual or special meeting. ELECTION AND REMOVAL OF DIRECTORS Our board is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. See "Management--Classes and Terms of Directors." This system of electing and removing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of our directors. Our amended and restated certificate of incorporation and bylaws do not provide for cumulative voting in the election of directors. Our directors may only be removed for cause. SPECIAL PROVISIONS RELATING TO THE CAXTON-ISEMAN STOCKHOLDERS Pursuant to our amended and restated certificate of incorporation, the Caxton-Iseman stockholders are entitled to nominate, any such nominees being referred to as "Caxton-Iseman nominees": (i) for so long as such stockholders beneficially own in the aggregate at least a majority of our then outstanding common stock, which we refer to as a "Caxton-Iseman Majority Period," at least a majority in number of the directors on our board; and (ii) for so long as such stockholders beneficially own in the aggregate more than 10% but less than a majority of our then outstanding common stock, a number of directors approximately equal to that percentage multiplied by the number of directors on our board. As of the closing of this offering, the Caxton-Iseman nominees will consist of Messrs. Iseman, Ferris and Lefkowitz. Each of Messrs. Ferris and Lefkowitz have agreed to resign from our board, upon the request of the Caxton-Iseman stockholders, if he is no longer employed by an affiliate or related party of the Caxton-Iseman stockholders. To the extent that the board does not solicit proxies for the election of Caxton-Iseman nominees as directors, the Caxton-Iseman are entitled to solicit proxies for the election of such nominees at our expense. In addition, our amended and restated certificate of incorporation prohibits any eligibility requirement for directors, unless (i) required by applicable law, (ii) established in our certificate of incorporation, or (iii) adopted by our board in the by-laws with respect to an age qualification, or with respect to a continuing service obligation for employee directors upon their ceasing employment with us. Effective as of the consummation of this offering, we will increase the size of our board to twelve, thereby creating four vacancies. Pursuant to the provisions of our amended and restated certificate of incorporation, the Caxton-Iseman stockholders may fill three of these four vacancies. During a Caxton-Iseman Majority Period, our by-laws may be amended by our stockholders by a majority vote of our outstanding common stock, but at all other times, any by-law amendment by our stockholders requires the vote of 75% of our outstanding common stock. 79 ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW In general, Section 203 of the Delaware General Corporation Law prevents an interested stockholder (defined generally as a person owning 15% or more of the corporation's outstanding voting stock) of a Delaware corporation from engaging in a business combination (as defined) for three years following the date that person became an interested stockholder unless various conditions are satisfied. Under our amended and restated certificate of incorporation, we will opt out of the provisions of Section 203. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is American Stock Transfer and Trust Company. Its telephone number is (212) 936-5100. 80 SHARES ELIGIBLE FOR FUTURE SALE Prior to the offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that substantial sales may occur, could adversely affect the prevailing market price of the common stock. After completion of the offering, there will be shares of common stock outstanding. Of these shares, shares of common stock sold in the offering, or shares if the underwriter's options to purchase additional shares are exercised in full, will be freely transferable without restriction under the Securities Act, except by persons who may be deemed to be our affiliates. All the remaining shares of common stock may not be sold unless they are registered under the Securities Act or are sold pursuant to an exemption from registration, including an exemption contained in Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, including an affiliate, who beneficially owns "restricted securities" may not sell those securities until they have been beneficially owned for at least one year. Thereafter, the person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the then outstanding shares of common stock, or approximately shares after the offering; and - the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC. Sales under Rule 144 are subject to certain restrictions relating to manner of sale, notice and the availability of current public information about us and may be effected only through unsolicited brokers' transactions. A person who is not deemed an "affiliate" of us at any time during the 90 days preceding a sale would (but for the "lock-up" arrangements described below) be entitled to sell his, her or its restricted shares under Rule 144 without regard to the volume or other limitations described above, once two years have elapsed since the restricted shares were acquired from us or one of our affiliates. We, our directors, named executive officers and some of our existing stockholders have agreed with the underwriters that, during the period beginning from the date of this prospectus and continuing to and including the date 180 days after the date of this prospectus, we will not offer, sell, contract to sell or otherwise dispose of any shares of common stock or any securities of ours that are substantially similar to the shares of our common stock or which are convertible into or exchangeable for securities which are substantially similar to the shares of common stock (other than, in our case, pursuant to our existing employee compensation plans) without the prior written consent of Goldman, Sachs & Co., except for the shares of common stock offered in connection with this offering. The lock-up agreements by these persons (other than us) cover an aggregate of approximately shares. An aggregate of shares will not be subject to the lock-up agreements and will be freely tradable immediately following this offering. No prediction can be made as to the effect, if any, that market sales of restricted shares or the availability of restricted shares for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to raise capital through an offering of our equity securities, as described under "Risk Factors--Sale of Shares by Existing Shareholders--A large number of our shares are or will be eligible for future sale which could depress our stock price." 81 In connection with this offering, we intend to file a registration statement on Form S-8 to register shares of common stock reserved for issuance under our employee stock option plans or issued to employees upon exercise of options. As of , there were outstanding options to purchase a total of shares of common stock, of which options to purchase shares were exercisable. All of the shares of common stock issuable upon the exercise of options under our stock option plans would otherwise be freely tradable upon effectiveness of the registration statement without restrictions under the Securities Act, unless such shares are held by an "affiliate" of ours. We have granted registration rights to some of our stockholders who hold approximately shares (including shares issuable upon the exercise of outstanding options) in the aggregate. Beginning 180 days after the date of this offering, some of these stockholders can require us to file registration statements that permit them to re-sell their shares. For more information, see "Certain Relationships--Registration Rights." 82 CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS The following discussion sets forth the opinion of Paul, Weiss, Rifkind, Wharton & Garrison with respect to the material expected United States federal income and estate tax consequences of the acquisition, ownership, and disposition of our common stock purchased pursuant to this offering by a holder that, for U.S. federal income tax purposes, is not a U.S. person as we define that term below. A beneficial owner of our common stock who is not a U.S. person is referred to below as a "non-U.S. holder." We assume in this discussion that you will hold our common stock issued pursuant to this offering as a capital asset within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"). This discussion does not address all aspects of taxation that may be relevant to particular non-U.S. holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules. In particular, this description of U.S. tax consequences does not address the tax treatment of special classes of non-U.S. holders, such as banks, insurance companies, tax-exempt entities, financial institutions, broker-dealers, persons holding our common stock as part of a hedging or conversion transaction or as part of a "straddle," or U.S. expatriates. Our discussion is based on current provisions of the Code, U.S. Treasury regulations, judicial opinions, published positions of the U.S. Internal Revenue Service (the "IRS") and other applicable authorities, all as in effect on the date of this prospectus and all of which are subject to differing interpretations or change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or opinion of counsel with respect to the tax consequences discussed in this prospectus, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained. Furthermore, this discussion does not give a detailed discussion of any state, local or foreign tax considerations. We urge you to consult your tax advisor about the U.S. federal tax consequences of acquiring, holding, and disposing of our common stock, as well as any tax consequences that may arise under the laws of any foreign, state, local, or other taxing jurisdiction or under any applicable tax treaty. For purposes of this discussion, a U.S. person means any one of the following: - a citizen or resident of the U.S.; - a corporation (including any entity treated as a corporation for U.S. tax purposes) or partnership (including any entity treated as a partnership for U.S. tax purposes) created or organized in the U.S. or under the laws of the U.S. or of any political subdivision of the U.S.; - an estate the income of which is subject to U.S. federal income taxation regardless of its source; or - a trust, the administration of which is subject to the primary supervision of a U.S. court and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. DIVIDENDS We do not anticipate paying cash dividends on our common stock in the foreseeable future. See "Dividend Policy." If distributions are paid on shares of our common stock, however, such dividends will generally be subject to withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by an applicable income tax treaty and we have received proper certification of the application of such income tax treaty. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the manner of claiming the benefits of such treaty. A non-U.S. holder that is eligible for a reduced 83 rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS. Dividends that are effectively connected with a non-U.S. holder's conduct of a trade or business in the U.S. or, if provided in an applicable income tax treaty, dividends that are attributable to a permanent establishment in the United States, are not subject to the U.S. withholding tax, but are instead taxed in the manner applicable to U.S. persons. In that case, we will not have to withhold U.S. federal withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements. In addition, dividends received by a foreign corporation that are effectively connected with the conduct of a trade or business in the U.S. may be subject to a branch profits tax at a 30% rate, or a lower rate specified in an applicable income tax treaty. GAIN ON DISPOSITION A non-U.S. holder will generally not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale or other disposition of our common stock unless any one of the following is true: - the gain is effectively connected with the non-U.S. holder's conduct of a trade or business in the U.S. and, if an applicable tax treaty requires, attributable to a U.S. permanent establishment maintained by such non-U.S. holder; - the non-U.S. holder is an individual who is present in the U.S. for 183 or more days in the taxable year of the sale, exchange or other disposition and certain other requirements are met; or - our common stock constitutes a United States real property interest by reason of our status as a "United States real property holding corporation" (a "USRPHC") for U.S. federal income tax purposes at any time during the shorter of (i) the period during which you hold our common stock or (ii) the 5-year period ending on the date you dispose of our common stock and, assuming that our common stock is regularly traded on an established securities market for tax purposes, the non-U.S. holder held, directly or indirectly, at any time within the five-year period preceding such disposition more than 5% of such regularly traded common stock. We believe that we are not currently and do not anticipate becoming a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property interests relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Individual non-U.S. holders who are subject to U.S. tax because the holder was present in the U.S. for 183 days or more during the year of disposition are taxed on their gains (including gains from sale of our common stock and net of applicable U.S. losses from sale or exchanges of other capital assets incurred during the year) at a flat rate of 30%. Other non-U.S. holders who may be subject to U.S. federal income tax on the disposition of our common stock will be taxed on such disposition in the same manner in which citizens or residents of the U.S. would be taxed. In addition, if any such gain is taxable because we are or were a USRPHC, the buyer of our common stock will be required to withhold a tax equal to 10% of the amount realized on the sale. U.S. FEDERAL ESTATE TAXES Our common stock owned or treated as owned by an individual who at the time of death is a non-U.S. holder will be included in his or her estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. 84 INFORMATION REPORTING AND BACKUP WITHHOLDING Under U.S. Treasury regulations, we must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to such non-U.S. holder and the tax withheld with respect to those dividends. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable tax treaty. Pursuant to an applicable tax treaty, that information may also be made available to the tax authorities in the country in which the non-U.S. holder resides. The gross amount of dividends paid to a non-U.S. holder that fails to certify its non-U.S. holder status in accordance with applicable U.S. Treasury regulations generally will be reduced by backup withholding. The payment of the proceeds of the disposition of common stock by a non-U.S. holder to or through the U.S. office of a broker generally will be reported to the IRS and reduced by backup withholding unless the non-U.S. holder either certifies its status as a non-U.S. holder under penalties of perjury or otherwise establishes an exemption and the broker has no actual knowledge to the contrary. The payment of the proceeds on the disposition of common stock by a non-U.S. holder to or through a non-U.S. office of a broker generally will not be reduced by backup withholding or reported to the IRS. If, however, the broker is a U.S. person or has certain enumerated connections with the U.S., the proceeds from such disposition generally will be reported to the IRS (but not reduced by backup withholding) unless certain conditions are met. Backup withholding is not an additional tax. Any amounts that we withhold under the backup withholding rules will be refunded or credited against the non-U.S. holder's U.S. federal income tax liability if certain required information is furnished to the IRS. Non-U.S. holders should consult their own tax advisors regarding application of backup withholding in their particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding under current U.S. Treasury regulations. The foregoing discussion is included for general information only. Each prospective purchaser is urged to consult his tax advisor with respect to the United States federal income tax and federal estate tax consequences of the ownership and disposition of common stock, including the application and effect of the laws of any state, local, foreign or other taxing jurisdiction. 85 UNDERWRITING Anteon, the selling stockholders and the underwriters for the offering (the "Underwriters") named below have entered into an underwriting agreement with respect to the shares of the common stock being offered. Subject to certain conditions, each Underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation, Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated are the representatives of the underwriters.
Number of Shares Underwriters ---------------- Goldman, Sachs & Co........................................ Bear, Stearns & Co. Inc.................................... Credit Suisse First Boston Corporation..................... Lehman Brothers Inc........................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... ----------- Total............................................ ===========
The Underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below, unless and until this option is exercised. If the Underwriters sell more shares than the total number set forth in the table above, the Underwriters have an option to buy up to an additional shares from the participating selling stockholders who have granted this option to the Underwriters to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the Underwriters will severally purchase shares in approximately the same proportion as set forth in the table above. The following table shows the per share and total underwriting discounts and commissions to be paid to the Underwriters by Anteon and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase additional shares from the selling stockholders.
Paid by Anteon No Exercise Full Exercise -------------- ----------- ------------- Per Share...................................... Total..........................................
Paid by Selling Stockholders No Exercise Full Exercise ---------------------------- ----------- ------------- Per Share...................................... Total..........................................
Shares sold by the Underwriters to the public initially will be offered at the initial public offering price set forth on the cover of this Prospectus. Any shares sold by the Underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the Underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial offering price, the representatives may change the offering price and the other selling terms. Anteon is undertaking a directed share program pursuant to which it will direct the Underwriters to reserve up to shares of its common stock for sale at the initial public offering price to its employees, officers and directors. The number of shares of its common stock available for sale to the general public in the public offering will be reduced to the extent these persons purchase any 86 reserved shares. Any shares not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. Anteon, its directors, named executive officers and some of its existing stockholders have agreed with the Underwriters not to dispose of or hedge any of their shares of the common stock or securities convertible into or exchangeable for shares of the common stock during the 180-day period following the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. on behalf of the Underwriters. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions. Prior to this offering, there has been no public market for the shares of Anteon's common stock. The initial public offering price was negotiated between Anteon and the representatives. Among the factors considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, were Anteon's historical performance, estimates of its business potential and earnings prospects, an assessment of its management and consideration of the above factors in relation to market valuation of companies in related businesses. Anteon intends to apply for the listing of its common stock on the New York Stock Exchange under the symbol "ANT." In order to meet one of the requirements for listing the common stock on the NYSE, the Underwriters have undertaken to sell lots of 100 or more shares of common stock to a minimum of 2,000 beneficial holders. In connection with the offering, the Underwriters may purchase and sell shares of the common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Underwriters of a greater number of shares than they are required to purchase in the offering. "Covered" short sales are sales made in an amount not greater than the Underwriters' option to purchase additional shares from Anteon in the offering. The Underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. "Naked" short sales are any sales in excess of such option. The Underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the Underwriters in the open market prior to the completion of the offering. The Underwriters may also impose a penalty bid. This occurs when a particular Underwriter repays to the Underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such Underwriter in stabilizing or short covering transactions. Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. These transactions may be effected on the Exchange, in the over-the-counter market or otherwise. The Underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares of the common stock offered. 87 Anteon and the selling stockholders estimate that their respective shares of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ , and $ , respectively. Each Underwriter has represented that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the date of the consummation of the offering of the shares, will not offer or sell any shares 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 only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any shares in circumstances in which Section 21(1) of the FSMA does not apply to us; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. A prospectus in electronic format may be made available on the web sites maintained by one or more of the lead managers of this offering and may also be made available on web sites maintained by other Underwriters. The Underwriters may agree to allocate a number of shares to Underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to Underwriters that may make Internet distributions on the same basis as other allocations. Anteon and the selling stockholders have agreed to indemnify the Underwriters against specified liabilities, including liabilities under the Securities Act of 1933. Certain Underwriters and their affiliates have in the past provided investment banking and commercial banking services to Anteon and may continue to do so in the future. Customary fees were paid in connection with such services. 88 LEGAL MATTERS Paul, Weiss, Rifkind, Wharton & Garrison will pass upon the validity of the common stock offered by this prospectus for us. The underwriters have been represented by Cravath, Swaine & Moore. Paul, Weiss, Rifkind, Wharton & Garrison has represented certain of the Caxton-Iseman stockholders from time to time. EXPERTS The consolidated financial statements and schedule of Anteon International Corporation and subsidiaries as of December 31, 2000 and 2001, and for each of the years in the three-year period ended December 31, 2001, and the consolidated financial statements of Analysis & Technology, Inc. and subsidiaries as of and for the year ended March 31, 1999, 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 consolidated financial statements of Sherikon, Inc. as of December 31, 1998 and 1999, and for each of the years in the two-year period ended December 31, 1999 have been included herein and in the registration statement in reliance upon the reports of Keller Bruner & Company LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of the Training Division of SIGCOM, Inc. as of December 31, 1999 and 2000, and for each of the years in the two-year period ended December 31, 2000 have been included herein and in the registration statement in reliance upon the reports of Bason and Company PA, 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 We have filed with the Securities and Exchange Commission a registration statement on Form S-1 with respect to the common stock being sold in this offering. This prospectus constitutes a part of that registration statement. This prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules to the registration statement, because some parts have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to us and our common stock being sold in this offering, you should refer to the registration statement and the exhibits and schedules filed as part of the registration statement. Statements contained in this prospectus regarding the contents of any agreement, contract or other document referred to are not necessarily complete; reference is made in each instance to the copy of the contract or document filed as an exhibit to the registration statement. Each statement is qualified by reference to the exhibit. You may inspect a copy of the registration statement without charge at the Commission's principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained after payment of fees prescribed by the Commission from the Commission's Public Reference Room at the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information regarding the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Commission's World Wide Web address is www.sec.gov. 89 INDEX TO FINANCIAL STATEMENTS ANTEON INTERNATIONAL CORPORATION
PAGE -------- Independent Auditors' Report................................ F-3 Consolidated Balance Sheets as of December 31, 2001 and 2000...................................................... F-4 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.......................... F-5 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2001, 2000 and 1999...... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.......................... F-7 Notes to Consolidated Financial Statements.................. F-8
ANALYSIS & TECHNOLOGY, INC.
PAGE -------- Independent Auditors' Report................................ F-50 Consolidated Balance Sheet as of March 31, 1999............. F-51 Consolidated Statement of Earnings for the year ended March 31, 1999.................................................. F-52 Consolidated Statement of Changes in Shareholders' Equity for the year ended March 31, 1999......................... F-53 Consolidated Statement of Cash Flows for the year ended March 31, 1999............................................ F-54 Notes to Consolidated Financial Statements.................. F-55
SHERIKON, INC.
PAGE -------- Independent Auditors' Report................................ F-69 Consolidated Balance Sheets as of December 31, 1999 and 1998 and June 30, 2000 (unaudited)............................. F-70 Consolidated Statements of Income for the years ended December 31, 1999 and 1998 and for the six months ended June 30, 2000 and 1999 (unaudited)........................ F-71 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999 and 1998 and for the six months ended June 30, 2000 (unaudited).................... F-72 Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and for the six months ended June 30, 2000 and 1999 (unaudited)........................ F-73 Notes to Consolidated Financial Statements.................. F-74
F-1 SIGCOM, INC. TRAINING DIVISION
PAGE -------- Independent Auditors' Report................................ F-81 Balance Sheets as of December 31, 2000 and 1999............. F-82 Statements of Operations and Divisional Equity for the years ended December 31, 2000 and 1999.......................... F-83 Statements of Cash Flows for the years ended December 31, 2000 and 1999............................................. F-84 Notes to Financial Statements............................... F-85 Unaudited Balance Sheet as of June 30, 2001................. F-89 Unaudited Statements of Operations and Divisional Equity for the six months ended June 30, 2001 and 2000............... F-90 Unaudited Statements of Cash Flows for the six months ended June 30, 2001 and 2000.................................... F-91 Note to Unaudited Financial Statements...................... F-92
F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors Anteon International Corporation and subsidiaries: We have audited the accompanying consolidated balance sheets of Anteon International Corporation (a Delaware Corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2001. 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 auditing standards generally accepted in the United States of America. 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 Anteon International Corporation and subsidiaries, as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP McLean, Virginia January 31, 2002 F-3 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (IN THOUSANDS, EXCEPT SHARE DATA)
2001 2000 --------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,930 $ 1,434 Accounts receivable, net.................................. 131,345 132,369 Prepaid expenses and other current assets................. 6,992 8,783 Deferred tax assets, net.................................. 4,151 5,834 -------- -------- Total current assets.................................... 144,418 148,420 Property and equipment, at cost, net of accumulated depreciation and amortization of $11,815 and $12,120...... 12,744 17,974 Goodwill, net of accumulated amortization of $16,323 and $11,056................................................... 136,622 140,482 Intangible and other assets, net of accumulated amortization of $7,372 and $3,853...................................... 12,867 17,547 -------- -------- Total assets............................................ 306,651 324,423 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Term loan, current portion................................ 17,266 8,437 Subordinated notes payable, current portion............... 2,268 4,558 Business purchase consideration payable................... 515 1,075 Accounts payable.......................................... 25,028 23,232 Due to related party...................................... 3,600 -- Accrued expenses.......................................... 56,041 47,071 Income tax payable........................................ 509 531 Other current liabilities................................. 2,889 186 Deferred revenue.......................................... 8,743 6,489 -------- -------- Total current liabilities............................... 116,859 91,579 Term loan, less current portion............................. 29,788 51,563 Revolving facility.......................................... 18,700 32,000 Senior subordinated notes payable........................... 100,000 100,000 Subordinated notes payable, less current portion............ -- 2,044 Subordinated note payable to Ogden.......................... -- 3,650 Subordinated convertible note payable-related party......... 22,500 22,500 Subordinated notes payable-related party.................... 4,369 4,369 Subordinated notes payable to stockholders.................. 7,499 7,499 Noncurrent deferred tax liabilities, net.................... 9,261 9,212 Other long term liabilities................................. 690 859 -------- -------- Total liabilities....................................... 309,666 325,275 -------- -------- Minority interest in subsidiaries........................... 427 724 Stockholders' equity (deficit): Common stock, Class B, voting, $0.01 par value, 1 share authorized, 1 share issued and outstanding as of December 31, 2001 and 2000.............................. -- -- Common stock, Class A, voting, $0.01 par value, 100,000 shares authorized, 9,708 shares issued and outstanding as of December 31, 2001 and 2000........................ -- -- Common stock, non- voting, $0.01 par value, 2,500 shares authorized, none issued and outstanding as of December 31, 2001 and 2000....................................... -- -- Stock subscription receivable............................. (12) (12) Additional paid-in capital................................ 2,604 2,604 Accumulated other comprehensive income (loss)............. (1,747) 37 Accumulated deficit....................................... (4,287) (4,205) -------- -------- Total stockholders' equity (deficit).................... (3,442) (1,576) -------- -------- Commitments and contingencies Total liabilities and stockholders' equity (deficit).... $306,651 $324,423 ======== ========
See accompanying notes to consolidated financial statements. F-4 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2001 2000 1999 --------- --------- --------- Revenues.................................................... $715,023 $542,807 $400,850 Costs of revenues........................................... 627,342 474,924 353,245 -------- -------- -------- Gross profit............................................ 87,681 67,883 47,605 -------- -------- -------- Operating Expenses: General and administrative expenses, excluding acquisition-related costs............................... 51,442 38,506 25,610 Amortization of noncompete agreements..................... 349 866 909 Goodwill amortization..................................... 6,704 4,714 3,440 Other intangibles amortization............................ 2,321 2,673 -- Costs of acquisitions/acquisition-related severance costs................................................... -- 86 2,316 -------- -------- -------- Total operating expenses................................ 60,816 46,845 32,275 -------- -------- -------- Operating income........................................ 26,865 21,038 15,330 Gains on sales and closures of businesses................... 4,046 -- -- Gains on sales of investments and other, net................ -- -- 2,585 Interest expense, net of interest income of $344, $410 and $814...................................................... 26,872 26,513 18,230 Minority interest in (earnings) losses of subsidiaries...... (38) 32 (39) -------- -------- -------- Income (loss) before provision for income taxes and extraordinary gain (loss)................................. 4,001 (5,443) (354) Provision (benefit) for income taxes........................ 4,413 (153) 710 -------- -------- -------- Loss before extraordinary gain (loss)....................... (412) (5,290) (1,064) Extraordinary gain (loss), net of tax....................... 330 -- (463) -------- -------- -------- Net loss................................................ $ (82) $ (5,290) $ (1,527) ======== ======== ======== Basic earnings (loss) per commons share: Loss before extraordinary gain (loss)..................... $ (43.45) $ 543.94) $(110.67) Extraordinary gain (loss), net of tax..................... 33.99 -- (47.69) -------- -------- -------- Net loss.................................................. $ (9.46) $(543.94) $(158.36) ======== ======== ======== Diluted earnings (loss) per common share: Loss before extraordinary gain (loss)..................... $ (53.37) $(543.94) $(110.67) Extraordinary gain (loss), net of tax..................... 33.99 -- (47.69) -------- -------- -------- Net loss.................................................. $ (19.38) $(543.94) $(158.36) ======== ======== ======== Weighted average shares outstanding--basic and diluted.... 9,709 9,709 9,709
See accompanying notes to consolidated financial statements. F-5 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
ALL SERIES ACCUMULATED RETAINED COMMON STOCK STOCK ADDITIONAL OTHER EARNINGS TOTAL ---------------------- SUBSCRIPTION PAID-IN COMPREHENSIVE (ACCUMULATED STOCKHOLDERS' SHARES AMOUNT RECEIVABLE CAPITAL INCOME (LOSS) DEFICIT) EQUITY (DEFICIT) -------- ----------- ------------ ---------- ------------- ------------ ---------------- Balance, December 31, 1998.................. 9,708 $ -- $ -- $2,592 $ 399 $ 2,612 $ 5,603 Common stock sold, Class B..................... 1 -- (12) 12 -- -- -- Comprehensive income (loss): Sales of investments......... -- -- -- -- (392) -- (392) Foreign currency translation......... -- -- -- -- (12) -- (12) Net loss.............. -- -- -- -- -- (1,527) (1,527) ----- ----------- ---- ------ ------- ------- ------- Comprehensive income (loss)................ -- -- -- -- (404) (1,527) (1,931) ----- ----------- ---- ------ ------- ------- ------- Balance, December 31, 1999.................. 9,709 -- (12) 2,604 (5) 1,085 3,672 Comprehensive income (loss): Foreign currency translation......... -- -- -- -- 42 -- 42 Net loss.............. -- -- -- -- -- (5,290) (5,290) ----- ----------- ---- ------ ------- ------- ------- Comprehensive income (loss)................ -- -- -- -- 42 (5,290) (5,248) ----- ----------- ---- ------ ------- ------- ------- Balance, December 31, 2000.................. 9,709 -- (12) 2,604 37 (4,205) (1,576) Transition adjustment- interest rate swaps (net of tax of $419)................. -- -- -- -- (629) -- (629) Comprehenseive income (loss): Interest rate swaps (net of tax of $717)............... -- -- -- -- (1,075) -- (1,075) Foreign currency translation......... -- -- -- -- (80) -- (80) Net loss.............. -- -- -- -- -- (82) (82) ----- ----------- ---- ------ ------- ------- ------- Comprehensive income (loss)................ -- -- -- -- (1,155) (82) (1,237) ----- ----------- ---- ------ ------- ------- ------- Balance, December 31, 2001.................. 9,709 $ -- $(12) $2,604 $(1,747) $(4,287) $(3,442) ===== =========== ==== ====== ======= ======= =======
See accompanying notes to consolidated financial statements. F-6 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)
2001 2000 1999 --------- --------- --------- Cash flows from operating activities: Net loss.................................................. $ (82) $ (5,290) $ (1,527) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Extraordinary (gain) loss............................... (519) -- 772 Gains on sales and closures of businesses............... (4,046) -- -- Gains on sales of investments........................... -- -- (2,881) Depreciation and amortization of property and equipment............................................. 7,110 7,024 3,623 Goodwill amortization................................... 6,704 4,714 3,440 Amortization of noncompete agreements................... 349 866 909 Other intangibles amortization.......................... 2,321 2,673 -- Amortization of deferred financing fees................. 1,216 1,208 692 Loss (gain) on disposals of property and equipment...... 791 (187) (67) Deferred income taxes................................... 3,512 (747) 2,743 Minority interest in earnings (losses) of subsidiaries.......................................... 38 (32) 39 Changes in assets and liabilities, net of acquired assets and liabilities: Decrease (increase) in accounts receivable............ 1,268 (14,261) (10,650) Decrease in income tax receivable..................... -- 2,535 55 (Increase) decrease in prepaid expenses and other current assets...................................... 727 (1,691) 2,645 Decrease in other assets.............................. 178 75 1,822 Increase (decrease) in accounts payable and accrued expenses............................................ 15,744 13,783 10,187 Decrease in income tax payable........................ (22) -- -- (Decrease) increase in deferred revenue............... 2,254 6,489 -- (Decrease) increase in other liabilities.............. 336 (58) (35) --------- --------- --------- Net cash provided by (used in) operating activities........................................ 37,879 17,101 11,767 --------- --------- --------- Cash flows from investing activities: Purchases of property and equipment and other assets...... (2,181) (6,584) (4,761) Acquisition of Techmatics, net of cash acquired........... -- -- (115) Acquisition of Analysis & Technology, Inc., net of cash acquired................................................ -- (128) (115,471) Acquisition of Sherikon, Inc., net of cash acquired....... (21) (23,906) -- Acquisition of SIGCOM, net of cash acquired............... (10,975) -- -- Purchases of investments.................................. -- -- (3,040) Proceeds from sales of investments........................ -- -- 11,491 Proceeds from sales of businesses, net.................... 11,464 -- -- Other, net................................................ 6 1,706 224 --------- --------- --------- Net cash used in investing activities............... (1,707) (28,912) (111,672) --------- --------- --------- Cash flows from financing activities: Proceeds from bank notes payable.......................... -- -- 132,043 Principal payments on bank and other notes payable........ (185) (1,629) (202,443) Principal payments on Techmatics obligations.............. -- (15,350) (4,925) Payments on subordinated notes payable.................... (5,000) -- -- Payments on business purchase consideration payable....... (1,185) -- -- Payments on note payable to Ogden......................... (3,212) -- -- Proceeds from subordinated convertible note payable....... -- -- 22,500 Deferred financing costs.................................. -- (151) (8,984) Proceeds from term loan................................... -- -- 60,000 Payments on term loan..................................... (12,946) -- -- Proceeds from revolving facility.......................... 771,200 533,000 208,700 Payments on revolving facility............................ (784,500) (503,900) (205,800) Proceeds from senior subordinated notes payable........... -- -- 100,000 Payments on subordinated notes payable.................... -- -- (173) Proceeds from minority interest, net...................... 152 66 39 --------- --------- --------- Net cash provided by (used in) financing activities........................................ (35,676) 12,036 100,957 --------- --------- --------- Net increase (decrease) in cash and cash equivalents....................................... 496 225 1,052 Cash and cash equivalents, beginning of year................ 1,434 1,209 157 --------- --------- --------- Cash and cash equivalents, end of year...................... $ 1,930 $ 1,434 $ 1,209 ========= ========= ========= Supplemental disclosure of cash flow information (in thousands): Interest paid............................................. $ 23,396 $ 21,714 $ 15,666 Income taxes paid (refunds received), net................. (52) (2,028) 213 ========= ========= =========
See accompanying notes to consolidated financial statements. F-7 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Supplemental disclosure of noncash investing and financing activities: During 2001, Anteon Virginia finalized the allocation of the purchase price of Sherikon, Inc., resulting in an increase of $100,000 in accrued liabilities and in the goodwill from the acquisition for contingencies identified at the date of acquisition (see note 4(b)). In October 2000, in connection with the acquisition of Sherikon (note 4(b)), Anteon Virginia issued $7.5 million of subordinated notes payable discounted as of the date of the acquisition to approximately $6,469,000. Also in connection with the Sherikon acquisition, Anteon Virginia guaranteed bonuses of approximately $1.75 million to certain former employees of Sherikon. These bonuses are not contingent on future employment with Anteon Virginia and, accordingly, have been included as additional purchase consideration, discounted to approximately $1.5 million. During 2000 and 1999, the Company converted approximately $2,950,000 and $1,410,000, respectively, of accrued interest related to the subordinated convertible note payable (note 8(g)) to additional notes payable. During 1999, Anteon Virginia received $224,000 in amounts previously held in escrow to provide for indemnification by the former owners of Vector Data Systems of certain claims in connection with the purchase of Vector by Anteon Virginia in 1997. The amounts received by Anteon Virginia were recorded as a reduction of goodwill from the purchase business combination. In 1999, in connection with the Techmatics acquisition, the former shareholders of Techmatics earned additional consideration from Anteon Virginia of $5,500,000 based on the results of its operations for the fiscal year ended June 30, 1999. The additional consideration paid by Anteon Virginia was recorded as an increase to goodwill from the Techmatics acquisition. See accompanying notes to consolidated financial statements. F-8 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (1) ORGANIZATION AND BUSINESS Anteon International Corporation, a Delaware Corporation ("Anteon" or "the Company") (formerly Azimuth Technologies, Inc.) was incorporated on March 15, 1996, for the purpose of acquiring 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. Anteon Corporation, a Virginia corporation, was renamed Anteon International Corporation ("Anteon Virginia") effective January 1, 2001. The consideration paid by Anteon to Ogden was approximately $45.2 million, consisting of approximately $36.7 million in cash and a note payable to Ogden from Anteon for $8.5 million. Subsequent to the date of the closing of the Anteon Virginia acquisition and in accordance with the stock purchase agreement, the Company filed a demand for litigation and arbitration against Ogden seeking refund of a portion of the purchase price. The Company also filed a lawsuit against Ogden relating to alleged breaches by Ogden of certain representations under the stock purchase agreement. As of September 30, 1998, the litigation and 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 Virginia. The settlement was recognized as a reduction of the note payable by Anteon to Ogden and goodwill from the Anteon Virginia acquisition. On August 29, 1997, Anteon Virginia 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"), for approximately $19 million in cash (net of $2.5 million in cash acquired). On May 29, 1998, Anteon Virginia acquired all of the outstanding stock of Techmatics, Inc. for approximately $45.9 million in cash and notes. On June 23, 1999, Anteon Virginia acquired all the outstanding stock of Analysis & Technology, Inc. (see note 4(a)). On October 20, 2000, Anteon Virginia acquired all of the outstanding stock of Sherikon, Inc. (see note 4(b)). On July 20, 2001, Anteon Virginia acquired the Training Division of SIGCOM, Inc. (see note 4(c)). The Company and its subsidiaries provide 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. 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 the Company's existing contracts will be funded in the future cannot be determined. Anteon is a holding company with no independent operations and no significant assets other than its investment in Anteon Virginia. As such, Anteon is dependent on Anteon Virginia for funding to meet its obligations, including those related to the subordinated notes payable to stockholders, the subordinated convertible note payable and the subordinated notes payable-related party (see note 8). There are certain debt covenants related to Anteon Virginia's New Credit Facility (see note 8(b)) and Senior Subordinated Notes Payable (see note 8(c)) that restrict Anteon Virginia's ability to declare dividends or make distributions to the Company. F-9 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (1) ORGANIZATION AND BUSINESS (CONTINUED) On December 21, 2001, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission in connection with the planned registration and issuance of the Company's common stock in an initial public offering ("IPO"). Immediately prior to the IPO, it is expected that Anteon Virginia will merge into the Company with the Company being the surviving entity. (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its directly and indirectly majority-owned subsidiaries. All material intercompany transactions and accounts have been eliminated in consolidation. (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) PROPERTY AND EQUIPMENT Property and equipment is stated at cost, or fair value at the date of acquisition if acquired through a purchase business combination. For financial reporting purposes, depreciation and amortization is recorded using the straight-line method over the estimated useful lives of the assets as follows: Computer hardware and software............... 3 to 7 years Furniture and equipment...................... 5 to 12 years Leasehold and building improvements.......... shorter of estimated useful life or lease term Buildings.................................... 31.5 years
(D) INVESTMENTS The Company accounts for investments in debt and marketable equity securities depending on the purpose of the investment. Since the Company does not hold investments principally for the purpose of selling the investments in the near term, the Company classifies these securities as available-for-sale. Accordingly, investments are recognized at fair market value and any unrealized gains or losses are recognized as a component of stockholders' equity (deficit). During 1999, the Company sold all of its investments in equity securities for a realized gain on sale of $2,522,000. (E) DEFERRED FINANCING COSTS Costs associated with obtaining the Company's financing arrangements are deferred and amortized over the term of the financing arrangements using a method that approximates the effective interest method, and are included in intangible and other assets in the accompanying consolidated balance sheets. F-10 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) (F) 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 ("SFAS No. 121"), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. This Statement requires that long-lived assets and certain identifiable intangibles, including goodwill identified with those assets, 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 undiscounted net cash flows, excluding charges for interest, 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 exceeds the fair value of the assets, as determined by an analysis of discounted cash flows using a discount rate considering the Company's cost of capital and the risks associated with the recoverability of the assets. During 2001, the Company recognized an impairment charge of $750,000, included in general and administrative expenses in the accompanying consolidated statement of operations, to write-down the carrying value of a building to its fair market value. In August, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This Statement addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of, and supersedes SFAS No. 121, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB No. 30"), REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL OR INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, for the disposal of a segment of a business (as previously defined in APB No. 30). SFAS No. 144 retains the requirements of SFAS No. 121 to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from its discounted cash flows and measure an impairment loss as the difference between the carrying amount and fair value of the asset; however, the Statement removes goodwill from its scope, and therefore eliminates the requirement of SFAS No. 121 to allocate goodwill to long-lived assets to be tested for impairment. SFAS No. 144 is effective January 1, 2002. The Company believes that the adoption of SFAS No. 144 will not have a material impact on the Company's financial position or results of operations. (G) GOODWILL Goodwill relating to the Company's acquisitions represents the excess of cost over the fair value of net tangible and identifiable intangible assets acquired and, for acquisitions completed prior to July 1, 2001, is amortized on a straight-line basis over periods ranging from twenty to thirty years. Determination of the amortization period is dependent on the nature of the operations acquired. F-11 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) Goodwill that is identified with acquired long-lived assets and identifiable intangibles is evaluated for impairment under SFAS No. 121. Goodwill that is not identified with long-lived assets and identifiable intangible assets is evaluated for impairment when events occur that suggest that the goodwill may be impaired. Such events could include, but are not limited to, the loss of a significant customer or contract, decreases in federal government appropriations or funding of certain programs, or other similar events. The Company determines if an impairment has occurred based on a comparison of the carrying amount of such goodwill to the future undiscounted net cash flows, excluding charges for interest. If considered impaired, the impairment is measured by the amount by which the carrying amount of the goodwill exceeds its fair value, as determined by an analysis of discounted cash flows using a discount rate considering the Company's cost of capital and the related risks of recoverability. On July 20, 2001, the Financial Accounting Standards Board issued Statement No. 141 ("SFAS No. 141"), BUSINESS COMBINATIONS, and Statement No. 142 ("SFAS No. 142"), GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 addresses the accounting for acquisitions of businesses and is effective for acquisitions occurring on or after July 1, 2001. SFAS No. 142 addresses the method of identifying and measuring goodwill and other intangible assets acquired in a business combination, eliminates further amortization of goodwill, and requires periodic evaluations of impairment of goodwill balances. SFAS No. 141 and 142 are effective January 1, 2002, except for acquisitions occurring on or after July 1, 2001, for which the provisions of SFAS No. 141 and 142 are applicable. Accordingly, through December 31, 2001, the Company has continued to amortize goodwill and identifiable intangible assets related to acquisitions occurring before July 1, 2001, but in accordance with SFAS No. 142 is not amortizing goodwill from the acquisition of the training division of SIGCOM, which was acquired on July 20, 2001 (see note 4(c)). The Company is in the process of evaluating the adoption of SFAS No. 141 and 142 and has not yet determined the impact of adoption on the consolidated financial statements. Had the provisions of SFAS No. 142 been applied as of January 1, 1999, the Company's income (loss) before extraordinary gain (loss), net income (loss) and earnings (loss) per common share would have been as follows (unaudited) (in thousands, except per share data):
YEARS ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Income (loss) before extraordinary item.................... $ 6,126 (6) 1,913 Net income (loss).......................................... 6,456 (6) 1,450 ======= ===== ====== Basic and diluted earnings (loss) per common share: Income (loss) before extraordinary item $551.60 (1.21) 265.04 Net income (loss) 585.59 (1.21) 217.35 ======= ===== ======
(H) OTHER INTANGIBLE ASSETS The Company amortizes, on a straight-line basis, the allocated cost of noncompete agreements entered into in connection with business combinations over the terms of the agreements. Other F-12 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) acquired intangibles related to workforce in place and acquired contracts are amortized straight-line based upon expected employment and contract periods, respectively. Upon the adoption of SFAS No. 141, intangible assets acquired in a business combination will only be recognized if such assets arise from a contractual or other legal right and are separable, that is, capable of being sold, transferred, licensed, rented, or exchanged. Intangible assets acquired in a business combination that do not meet this criteria are considered a component of goodwill. Specifically, the Company's workforce in place assets are not considered an intangible asset apart from goodwill, and will be aggregated with goodwill upon adoption of SFAS No. 141. Software 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 uses economic lives ranging from one to three years for all capitalized software development costs. Amortization of software development costs begins when the software product is available for general release to customers. As of December 31, 2001, $4,755,000 had been capitalized for software development all of which had been amortized. As of December 31, 2000, $6,186,000 had been capitalized and $2,810,000 had been amortized. Such costs are included in intangible and other assets in the accompanying consolidated balance sheets. (I) REVENUE RECOGNITION Revenue from contract services, which represents in excess of 90% of consolidated revenues for each of the years ended December 31, 2001, 2000 and 1999, is earned under cost-reimbursement, time and materials, 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, including applicable fees and estimated profits, is recognized on the percentage of completion basis, using the cost-to-cost or units-of-delivery methods. The majority of the Company's cost-reimbursement contracts are either cost-plus-fixed-fee, cost-plus-award-fee or time and materials contracts. These 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 labor hours. The 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 labor hours actually provided. For cost-plus-award-fee contracts, the Company recognizes the expected fee to be awarded by the customer at the time such fee can be reasonably estimated. If estimates indicate a probable ultimate loss on a contract, provision is made immediately for the entire amount of the estimated F-13 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) future loss. Profits and losses accrued include the cumulative effect of changes in prior periods' cost estimates. Software revenue is generated from licensing software and providing services, including maintenance and technical support, and consulting. The Company recognizes the revenue when the license agreement is signed, the license fee is fixed and determinable, delivery of the software has occurred, and collectibility of the fee is considered probable. The Company's software license sales are recognized at the contractual price when all other recognition criteria are met. Services revenue consists of maintenance and technical support and is recognized ratably over the service period. Other services revenues are recognized as the related services are provided. Revenues from sales of products are generally recognized upon acceptance by the customer, which is typically within thirty days of shipment. Amounts collected in advance of being earned are recognized as deferred revenues. (J) 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 terminated acquisition opportunities are expensed when the Company determines that the opportunity will no longer be pursued. Costs incurred on anticipated acquisitions are deferred. (K) INCOME TAXES 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. (L) FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The balance sheets of the Company's foreign subsidiaries are translated to U.S. dollars for consolidated financial statement purposes using the current exchange rates in effect as of the balance sheet date. The revenue and expense accounts of foreign subsidiaries are converted using the weighted average exchange rate during the period. Gains or losses resulting from such translations are included in accumulated comprehensive income (loss) in stockholders' equity (deficit). Gains and losses from transactions denominated in foreign currencies are included in current period income. Foreign currency transaction gains and losses were not significant for the years ended December 31, 2001, 2000 and 1999. F-14 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) (M) ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for employee stock-based compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation expense for stock options granted to employees is recognized based on the difference, if any, between the fair value of the Company's common stock and the exercise price of the option at the date of grant. Anteon Virginia has also granted stock appreciation rights to certain of its directors. Anteon Virginia recognizes compensation expense associated with the stock appreciation rights equal to the fair value of the underlying stock at each reporting period. The Company discloses the pro forma effect on net income (loss) as if the fair value based method of accounting as defined in Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION had been applied. (N) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values as of December 31, 2001 and 2000, due to the relatively short duration of these financial instruments. Except for the senior subordinated notes payable, the subordinated notes payable to stockholders and the subordinated note payable to Ogden, the carrying amounts of the Company's indebtedness approximate their fair values as of December 31, 2001 and 2000, as they bear interest rates that approximate market. The fair value of the senior subordinated notes payable, based on quoted market value, was approximately $105.3 million and $88.0 million as of December 31, 2001 and 2000, respectively. The fair value of the subordinated notes payable to stockholders, based on management's estimates considering current market conditions, was approximately $7.3 million and $6.5 million as of December 31, 2001 and 2000, respectively. The fair value of the subordinated note payble to Ogden, based on management's estimate considering current market conditions, was approximately $3.5 million as of December 31, 2000. (O) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended. Anteon Virginia has entered into certain interest rate swap agreements which are accounted for under SFAS No. 133. SFAS No. 133 requires that derivative instruments be recognized at fair value in the balance sheet. Changes in the fair value of derivative instruments that qualify as effective hedges of cash flows are recognized as a component of other comprehensive income (loss). Changes in the fair value of derivative instruments for all other hedging activities, including the ineffective portion of cash flow hedges, are recognized in current period earnings. The adoption of SFAS No. 133 had no significant impact on the Company's consolidated financial statements. F-15 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (2) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED) (P) EARNINGS (LOSS) PER COMMON SHARE The Company computes earnings (loss) per common share in accordance with Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98, basic earnings (loss) per common share is computed by dividing the net earnings (loss) available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Potentially dilutive common equivalent shares are comprised of Anteon Virginia employee stock options and shares associated with the Company's subordinated convertible note payable. The per share earnings (losses) of the Company's subsidiaries are included in the consolidated per share earnings (loss) computations based on the parent company's holdings of the subsidiaries' securities. (Q) USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated 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 2000 and 1999 consolidated financial statements to conform to the 2001 consolidated financial statement presentation. (S) STOCK SPLIT On August 23, 2000, Anteon Virginia's Board of Directors authorized a 4 for 1 stock split. All references to number of Anteon Virginia shares outstanding and stock options have been retroactively restated for the stock split. (3) SALES AND CLOSURE OF BUSINESSES (A) SALE OF CITE On June 29, 2001, Anteon Virginia sold its Center for Information Technology Education ("CITE") business to a subsidiary of Pinnacle Software Solutions, Inc. for a total purchase price of $100,000, of which $50,000 was paid on the date of closing, with the remainder due in six equal, monthly payments of approximately $8,300 beginning on August 1, 2001. CITE provides evening and weekend training for individuals to attain certification in Oracle developer and Java. Revenues generated by CITE were approximately $1.2 million, $2.5 million and $1.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. Operating income (loss) was F-16 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (3) SALES AND CLOSURE OF BUSINESSES (CONTINUED) approximately $(1.1) million, $414,000 and $(372,000) for the years ended December 31, 2001, 2000 and 1999, respectively. As of the date of sale, the carrying value of the net assets of CITE was approximately zero, resulting in a gain on the sale of the business of approximately $100,000. (B) CLOSURE OF CITI-SIUSS LLC During 1999, Anteon Virginia and Criminal Investigative Technology, Inc. ("CITI") entered into a joint venture ("CITI-SIUSS LLC"), formerly known as Anteon-CITI LLC (the "Venture"). The Venture developed and marketed certain investigative support products and services. At the date of formation, CITI contributed certain assets to the Venture. Anteon Virginia has the sole ability to control the management and operations of CITI-SIUSS LLC and, accordingly, consolidates its results. Under the joint venture agreement, Anteon Virginia was allocated 98% of the profits and losses of CITI-SIUSS until its investment in the Venture is recovered, at which time profits and losses are shared based on the respective ownership interests of the joint venturers. As Anteon Virginia has not yet recovered its investment, 98% of the Venture's losses had been allocated to Anteon Virginia and 2% recognized as minority interest in losses in the consolidated statements of operations. Upon the occurrence of certain events, Anteon Virginia has the option to purchase the 50% interest owned by CITI, at a formula price as included in the joint venture agreement. On June 22, 2001, Anteon Virginia decided to cease the operations of the Venture. Anteon Virginia decided to close the business because it concluded that the Venture was not likely to establish a self-supporting business without significant capital contributions. Revenues generated by the Venture were approximately $1.5 million, $880,000 and $255,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Operating losses were approximately $2.6 million, $2.5 million and $97,000 for the years December 31, 2001, 2000 and 1999, respectively. The Venture is obligated to provide maintenance and support services on existing contracts through June 30, 2002. The remaining expected cost of fulfilling the Venture's existing maintenance and support contracts exceeds the related expected revenue by approximately $71,000, which has been accrued as a cost of revenue at December 31, 2001. Upon liquidation of the Venture, Anteon Virginia anticipates that no excess proceeds will be available to Anteon Virginia or the minority interest party in the Venture. Accordingly, the remaining minority interest of approximately $487,000 was reversed during the quarter ended June 30, 2001, and the resulting gain is included in gains on sales and closures of businesses in the accompanying consolidated statement of operations. (C) SALE OF INTERACTIVE MEDIA CORPORATION On July 20, 2001, Anteon Virginia sold all of the stock in Interactive Media Corporation ("IMC") for $13.5 million in cash, subject to adjustment based on the amount of working capital (as defined in the sale agreement) as of the date of sale, which adjustment is currently being negotiated by the parties. In addition, Anteon Virginia has a contingent right to receive an additional $500,000 in cash based on IMC's performance from the date of closing through the end of calendar year 2001, although Anteon Virginia does not expect to realize any amounts under this provision of the sale agreement. Prior to the sale, IMC transferred to Anteon Virginia the assets of the government division of IMC, which specializes in training services primarily to the government marketplace. F-17 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (3) SALES AND CLOSURE OF BUSINESSES (CONTINUED) Accordingly, at the date of sale, IMC provided training services to customers primarily in the commercial marketplace. For the commercial division, revenues were approximately $11.7 million, $18.1 million and $15.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. Operating income (loss) was approximately $(41,000), $686,000 and $1.5 million for the years ended December 31, 2001, 2000 and 1999, respectively. The total gain recognized on the sale of IMC was approximately $3.5 million, which reflects the Company's best estimate of the ultimate outcome of the working capital negotiation discussed above. As a result of the sale of IMC, the Company realized an income tax benefit of approximately $1,550,000 relating to differences between the income tax and financial statement carrying amounts of Anteon Virginia's investment in IMC. Approximately $760,000 of this benefit resulted from differences that existed as of the date of Anteon Virginia's acquisition of A&T, of which IMC was a subsidiary. Accordingly, during the third quarter of 2001, the Company recognized the income tax benefit related to the pre-acquisition difference as a reduction of goodwill from the acquisition of A&T, and recognized the remaining tax benefit of $790,000 as a reduction of income tax expense. (D) CLOSURE OF SOUTH TEXAS SHIP REPAIR On December 19, 2001, Anteon Virginia decided to close the South Texas Ship Repair ("STSR") business which was acquired as part of the Sherikon acquisition in October 2000. STSR specialized in the repair of ships for both government and commercial customers. Revenues were $3.3 million and $714,000, respectively, and operating income (loss) was $(2.1) million and $(29,000), respectively, for the years ended December 31, 2001 and 2000. In conjunction with the closure of STSR, the Company recognized a charge of approximately $1.0 million for the write-down of goodwill from the Sherikon acquisition which was attributable to STSR. This charge is included in goodwill amortization in the accompanying consolidated statement of operations. (4) ACQUISITIONS (A) ANALYSIS & TECHNOLOGY, INC. On June 23, 1999, Anteon Virginia acquired all of the outstanding stock of Analysis & Technology, Inc. ("A&T"), a provider of systems and engineering technologies, technology-based training systems, and information technologies to the U.S. government and commercial customers for a total purchase price, including transaction costs, of approximately $115.6 million. 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 acquisition. The identifiable intangible assets were acquired contracts and workforce in place. These were valued, based on an independent appraisal completed during 2000, at $6,800,000 and $2,500,000, respectively, and have estimated useful lives of 5 and 7 years, respectively. Goodwill of $73,012,000 resulting from the acquisition is being amortized on a straight-line basis over thirty years. F-18 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (4) ACQUISITIONS (CONTINUED) The total purchase price paid, including transaction costs, of approximately $115.6 million, has been allocated to the assets and liabilities acquired as follows (in thousands): Accounts receivable......................................... $ 29,910 Prepaid expenses and other current assets................... 2,985 Property and equipment...................................... 13,727 Other assets................................................ 1,606 Goodwill.................................................... 73,012 In place workforce.......................................... 2,500 Contracts................................................... 6,800 Deferred tax liabilities, net............................... (667) Accounts payable and accrued expenses....................... (12,197) Mortgage note payable....................................... (2,077) -------- Total consideration..................................... $115,599 ========
Transaction costs of approximately $4.5 million were incurred in connection with the acquisition, including a fee of approximately $1.1 million paid to Caxton-Iseman Capital, Inc., an affiliate of and advisor to the Company. Since the date of acquisition, management has integrated A&T into Anteon Virginia's management structure in an attempt to achieve synergies between the two organizations. As a result of the integration efforts, certain executive officers of A&T either resigned or were terminated during 1999 and exercised their rights to certain consideration established through pre-existing employment agreements. These costs are recorded as "acquisition-related severance costs" in the 1999 consolidated statement of operations. (B) SHERIKON, INC. On October 20, 2000, Anteon Virginia purchased all of the outstanding stock of Sherikon, Inc., a technology solutions and services firm based in Chantilly, Virginia, for a total purchase price of approximately $34.8 million, including transaction costs of approximately $861,000. Under the terms of the sale, the total purchase price included, at closing, a cash payment of $20.8 million to the shareholders of Sherikon, Inc., cash payments of approximately $5.2 million to certain executives and employees of Sherikon, Inc., and subordinated notes payable totaling $7.5 million, of which $5.0 million was due and paid in 2001 and $2.5 million is due at the end of the second year after closing. The subordinated notes carry a 0% coupon rate. The present value of the subordinated notes payable, using an assumed borrowing rate of 11.75%, was approximately $6.5 million as of the date of purchase. In addition, Anteon Virginia guaranteed certain bonuses totaling approximately $1.75 million to former Sherikon employees payable in two installments, the first of which was paid in October 2001 and the second of which is due in October 2002. Such bonuses are not contingent on continued employment with Anteon Virginia, and the present value of such amount, assuming an 11.75% discount rate, of $1,503,000, was recognized as additional purchase consideration. The transaction was accounted for using the purchase method whereby the net F-19 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (4) ACQUISITIONS (CONTINUED) tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of acquisition, based on preliminary estimates by management. The identifiable intangible assets were acquired contracts and workforce in place. These assets were valued, based on an independent appraisal, at $1,310,000 and $760,000, respectively. Both have expected useful lives of 4 years. Goodwill is being amortized on a straight-line basis over twenty years. The total purchase price paid, including transaction costs, of $34.8 million, was preliminarily allocated to the assets and liabilities acquired as follows (in thousands): Cash........................................................ $ 2,924 Accounts receivable......................................... 15,191 Prepaid expenses and other current assets................... 544 Property and equipment...................................... 353 Other assets................................................ 248 Contracts................................................... 1,310 In place workforce.......................................... 760 Goodwill.................................................... 20,177 Deferred tax assets, net.................................... 2,932 Accounts payable and accrued expenses....................... (9,423) Long-term liabilities....................................... (207) ------- Total consideration..................................... $34,809 =======
During the third quarter of 2001, Anteon Virginia finalized the allocation of the purchase price, resulting in an increase of $100,000 in goodwill and accrued liabilities related to contingencies identified at the date of acquisition. During the fourth quarter of 2001, Anteon Virginia made the decision to close STSR, which was acquired as part of Sherikon. The Company wrote off goodwill of approximately $1.0 million in connection with the closure (see note 3(d)). Transaction costs of approximately $861,000 include a $300,000 fee paid to Caxton-Iseman Capital, Inc., an affiliate of and advisor to the Company. (C) THE TRAINING DIVISION OF SIGCOM, INC. On July 20, 2001, Anteon Virginia acquired the assets, contracts and personnel of the training division of SIGCOM, Inc. ("SIGCOM"). The principal business of SIGCOM's training division is the design, construction, instrumentation, training and maintenance of simulated live-fire training facilities to help acclimate members of the armed forces to combat conditions in urban areas. Anteon Virginia's primary reason for acquiring SIGCOM was the significant capabilities of SIGCOM that will augment Anteon Virginia's U.S. homeland defense training capabilities. The total purchase price was $11.0 million, including $409,000 of transaction costs, of which $10.0 million was paid in cash to the seller and $1.0 million of which was placed in escrow to secure the seller's obligation to indemnify Anteon Virginia for certain potential liabilities which were not assumed by Anteon Virginia. Transaction costs include a $100,000 fee paid to Caxton-Iseman Capital, Inc., an affiliate of and F-20 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (4) ACQUISITIONS (CONTINUED) advisor to the Company. The transaction 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 acquisition, based on preliminary estimates by management. Anteon Virginia has allocated approximately $4.1 million of the purchase price to accounts receivable, approximately $1.5 million to acquired accounts payable and accrued liabilities, and $440,000 of the purchase price to an intangible asset related to contract backlog, which is being amortized over a two-year period. Approximately $8.1 million has been preliminarily allocated to tax deductible goodwill arising from the acquisition, which, in accordance with SFAS No. 141 and 142, is not being amortized. (D) UNAUDITED PRO FORMA DATA The following unaudited pro forma summary presents consolidated information as if the acquisition of the Training Division of SIGCOM had occurred as of January 1, 2000, and the acquisitions of Sherikon and A&T had occurred as of January 1, 1999. 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 entities (in thousands, except per share data):
2001 2000 1999 --------- -------- -------- Total revenues....................................... $723,498 612,278 553,666 Total expenses....................................... 723,260 615,250 559,678 -------- -------- -------- Income (loss) before extraordinary item.............. 224 (2,972) (6,012) -------- -------- -------- Net income (loss).................................... $ 554 (2,972) (6,475) ======== ======== ======== Basic and diluted earnings (loss) per common share: Income (loss) before extraordinary item............ $ 8.55 (305.96) (651.07) Net income (loss).................................. 42.54 (305.96) (698.76) ======== ======== ========
(5) ACCOUNTS RECEIVABLE The components of accounts receivable as of December 31, 2001 and 2000, are as follows (in thousands):
2001 2000 --------- -------- Billed and billable......................................... $116,539 124,417 Unbilled.................................................... 15,508 9,924 Retainages due upon contract completion..................... 3,797 2,376 Allowance for doubtful accounts............................. (4,499) (4,348) -------- ------- Total................................................... $131,345 132,369 ======== =======
F-21 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (5) ACCOUNTS RECEIVABLE (CONTINUED) In excess of 95% of the Company's revenues for each of 2001, 2000 and 1999 have been earned, and accounts receivable as of December 31, 2001 and 2000 are due, from agencies of the U.S. federal government. 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. Unbilled costs and fees include amounts which will not be billable until funding authorization for a portion of the contract has been obtained, as well as amounts related to estimated award fees which will not be billable until awarded, which management expects will occur in the near term. 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. Incurred cost audits have been completed by DCAA through 1998. Although the Company can give no assurances, 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. (6) PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 2001 and 2000 (in thousands):
2001 2000 -------- -------- Land........................................................ $ 544 544 Buildings................................................... 2,429 3,179 Computer hardware and software.............................. 10,649 16,574 Furniture and equipment..................................... 5,890 5,978 Leasehold improvements...................................... 5,047 3,819 -------- -------- 24,559 30,094 Less--accumulated depreciation and amortization............. (11,815) (12,120) -------- -------- $ 12,744 17,974 ======== ========
F-22 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (7) ACCRUED EXPENSES The components of accrued expenses as of December 31, 2001 and 2000 are as follows (in thousands):
2001 2000 -------- -------- Accrued payroll and related benefits........................ $31,585 26,996 Accrued subcontractor costs................................. 14,438 10,203 Accrued interest............................................ 3,636 2,037 Other accrued expenses...................................... 6,382 7,835 ------- ------ $56,041 47,071 ======= ======
(8) INDEBTEDNESS (A) OLD CREDIT FACILITY On March 18, 1998, Anteon Virginia entered into the Old Credit Facility with six commercial banks. Under the terms of the Old Credit Facility, Anteon Virginia entered into promissory notes for aggregate available financing facilities of $125 million. This Old Credit Facility replaced a pre-existing business loan and security agreement with two commercial banks. The Old Credit Facility was comprised of a 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 ("Revolver"); and an acquisition credit facility for aggregate borrowings of up to $50 million ("Acquisition Facility"). Effective June 23, 1999, this Old Credit Facility was terminated and replaced by a $180 million New Credit Facility as discussed below. Under the Old Credit Facility, the interest rate on the Revolver varied based on Anteon Virginia's ratio of debt-to-earnings before income taxes, depreciation and amortization, calculated quarterly. Interest was payable on a quarterly basis. During the year ended December 31, 1999, interest on the Revolver ranged from 7.5 percent to 8.5 percent. The interest rate on the Acquisition Facility varied using a performance-based interest rate schedule measured using Anteon Virginia's ratio of debt-to-earnings before income taxes, depreciation and amortization and was calculated quarterly. Interest was payable on a quarterly basis. Interest rates charged on the Acquisition Facility ranged from 7.5 percent to 9.0 percent during the year ended December 31, 1999. Total interest expense incurred on the Revolver and Acquisition Facility arrangements for the year ended December 31, 1999 was approximately $3,049,000. The Revolver was collateralized by certain assets of Anteon Virginia and certain assets of its subsidiaries. The subsidiaries' security interest was limited to its obligations under these bank notes. The terms of the Old Credit Facility restricted the ability of Anteon Virginia to pay dividends, although Anteon Virginia could declare dividends payable to Anteon in order to pay required payments on certain of its long-term debt. F-23 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) During 1999, Anteon Virginia wrote-off the remaining balance of deferred financing costs of approximately $772,000 upon the effective date of the New Credit Facility. This amount, net of taxes of approximately $309,000, is reflected as an extraordinary loss in the consolidated statement of operations for the year ended December 31, 1999. (B) NEW CREDIT FACILITY On June 23, 1999, Anteon Virginia entered into a New Credit Facility with a syndicate of nine commercial banks. This New Credit Facility replaced Anteon Virginia's Old Credit Facility and coincided with the purchase of A&T. The balance outstanding of $76,200,000 under the Old Credit Facility was paid in full on that date. Under the terms of the New Credit Facility, Anteon Virginia entered into promissory notes with aggregate available financing facilities of $180,000,000. As of December 31, 2001, the New Credit Facility is comprised of a revolving credit facility for aggregate borrowings of up to $120,000,000 ("Revolving Facility"), as determined based on a portion of eligible billed accounts receivable and a portion of eligible unbilled accounts receivable and the ratio of net debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), as defined, and maturing on June 23, 2005; and a $60,000,000 note ("Term Loan") with principal payments due quarterly commencing June 30, 2001, and $15,000,000 at maturity on June 23, 2005. However, under certain conditions related to excess annual cash flow, as defined in the agreement, and the receipt of proceeds from certain asset sales, and debt or equity issuances, Anteon Virginia is required to prepay, in amounts specified in the agreement, borrowings under the Term Loan. Due to excess cash flows, as defined, generated during 2001, an additional principal payment of $10,693,000 under the Term Loan is due by March 31, 2002. Accordingly, this amount is included in the current portion of the Term Loan as of December 31, 2001. Under the New Credit Facility, the interest rate on both the Revolving Facility and the Term Loan vary using the LIBOR rate plus a margin determined using Anteon Virginia's ratio of net debt-to-earnings before interest, taxes, depreciation and amortization. Interest is payable on the last day of each quarter. During the years ended December 31, 2001, 2000 and 1999, the interest rates on the Revolving Facility and Term Loan ranged from 4.61 percent to 11.75 percent, 8.8375 percent to 11.75 percent and 10.0 percent to 10.75 percent, respectively. As of December 31, 2001, the outstanding amounts under the New Credit Facility were as follows (in thousands):
2001 -------- Revolving Facility.......................................... $18,700 Term Loan................................................... 47,054 ------- $65,754 =======
The remaining available limit for the Revolving Facility as of December 31, 2001 was $77,400,000. F-24 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) For the years ended December 31, 2001, 2000 and 1999, total interest expense incurred on the Revolving Facility and Term Loan was approximately $2,677,000 and $4,140,000, respectively, $2,264,000, $5,852,000, respectively, and $860,000 and $2,869,000, respectively. In addition, in 1999 Anteon Virginia incurred $654,000 in bridge financing costs. The Revolving Facility and Term Loan are collateralized by certain assets of Anteon Virginia and certain assets of its subsidiaries. The subsidiaries' security interest is limited to obligations under these bank notes. In addition, the New Credit Facility has restrictions on the ability of Anteon Virginia to incur additional debt, and on dividends and distributions. These restrictions limit the ability to declare or pay, directly or indirectly, any dividend or make any other distribution unless certain conditions are met. In addition, the New Credit Facility requires us to meet certain quarterly and annual financial covenants. (C) SENIOR SUBORDINATED NOTES PAYABLE On May 11, 1999, Anteon Virginia sold $100,000,000, in aggregate principal, of ten-year, 12 percent Senior Subordinated Notes ("Notes"). These Notes were principally used to purchase A&T (note 4(a)). The Notes are subordinate to Anteon Virginia's New Credit Facility but rank senior to any other subordinated indebtedness. The Notes mature May 15, 2009 and interest is payable semi-annually on May 15 and November 15. Total interest expense incurred during 2001, 2000 and 1999 approximated $12,000,000, $12,100,000 and $7,500,000, respectively. Anteon Virginia cannot redeem the Notes prior to May 15, 2004 except under certain conditions. Under certain limitations and prior to May 15, 2002, Anteon Virginia can elect to redeem the Notes, at certain redemption prices, in an aggregate amount not to exceed 25 percent of the sum of the original principal amount of the Notes and the original principal amount of any other notes issued under the same indenture with proceeds from certain equity offerings. In addition, under certain conditions after May 15, 2004, Anteon Virginia can redeem some portion of the Notes at certain redemption prices. The Notes are guaranteed by each of Anteon Virginia's existing and certain future domestic subsidiaries. The Notes include certain restrictions regarding additional indebtedness, dividend distributions, investing activities, stock sales, transactions with affiliates, and asset sales and transfers. (D) SUBORDINATED NOTES PAYABLE In connection with the purchase of Techmatics, in 1998, Anteon Virginia 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. One-tenth of the total amount of principal was paid on May 31, 1999, with the remaining nine-tenths paid on May 31, 2000. Interest began accruing on May 31, 1999 at 6 percent per year on four-ninths of the principal amount outstanding. Total interest expense incurred on the subordinated notes payable to the Techmatics shareholders for the years ended December 31, 2000 and 1999 was approximately $117,000 and $672,000, respectively. F-25 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) In connection with the purchase of Sherikon (note 4(b)), Anteon Virginia entered into subordinated promissory notes with the Sherikon shareholders as of the date of acquisition in the aggregate principal amount of $7.5 million, discounted to approximately $6.5 million. During 2001, $5.0 million of the subordinated promissory notes were repaid. The remaining $2.5 million of subordinated promissory notes are due on October 20, 2002. During the year ended December 31, 2001 and 2000, total interest expense on the subordinated promissory notes with the Sherikon shareholders was approximately $665,000 and $156,000, respectively. (E) SUBORDINATED NOTE PAYABLE TO OGDEN As partial consideration for the acquisition of Anteon Virginia, the Company entered into a subordinated promissory note with Ogden in the principal amount of $8.5 million, bearing interest at 12 percent payable quarterly. In connection with the settlement of the arbitration matter (note 1), on October 14, 1998, Anteon and Ogden agreed to amend and restate the note reducing the principal amount to $3,650,000 and the interest rate to 9 percent. The principal amount of the note was due in April 2004, but could be prepaid without penalty at any time prior to maturity. The terms of the subordinated promissory note to Ogden restricted the ability of the Company to pay dividends. On June 29, 2001, Anteon Virginia purchased from Ogden the subordinated note payable to Ogden due from the Company for $3.2 million in full settlement of the Company's obligation to Ogden. In connection with the payment, the Company recognized an extraordinary gain of $330,000, net of tax, on the retirement of the subordinated note payable to Ogden. Total interest expense incurred on the subordinated note payable to Ogden for the years ended December 31, 2001, 2000 and 1999 was approximately $86,000, $329,000 and $329,000, respectively. (F) SUBORDINATED NOTES PAYABLE TO STOCKHOLDERS Concurrent with the acquisition of Anteon Virginia, the Company and its majority stockholder, Azimuth Technologies, L.P., and three other stockholders entered into subordinated promissory note agreements in the aggregate principal amount of $7,499,000, all bearing interest at 6 percent, which is payable quarterly. The principal amount of the notes is due in April 2004, but may be prepaid without penalty at any time prior to maturity. In the event of a sale of the Company, or a merger of the Company into another in which the Company is not the survivor, all outstanding amounts due under the subordinated notes payable become due immediately. Total interest expense incurred on the subordinated notes payable for the years ended December 31, 2001, 2000 and 1999 was approximately $450,000, $447,000 and $447,000, respectively. (G) SUBORDINATED CONVERTIBLE NOTE PAYABLE--RELATED PARTY On June 23, 1999, the Company and Azimuth Tech. II LLC, an affiliate of Azimuth Technologies, L.P., the Company's majority stockholder, and Caxton-Iseman Capital, Inc., entered into a subordinated convertible promissory note agreement for $22,500,000. The note bears interest at F-26 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) 12 percent, with interest payable semi-annually each June 30 and December 31, through maturity on June 23, 2010. The Company may not prepay the note prior to December 23, 2001, unless there was a sale of the Company or an initial public offering of the Company's common stock. On or after December 23, 2001, the note may be prepaid by the Company without penalty. The note is convertible into the Company's non-voting common stock at the option of the holder at any time at the conversion price of $11,908 per share, subject to adjustment for stock splits, dividends and certain issuances of common stock. At the Company's option, accrued interest on the note may be paid either in cash or additional notes which are identical to the above note, except that the additional notes are not convertible into shares of the Company's common stock. During the years ended December 31, 2001, 2000 and 1999, the Company incurred $3,211,000, $2,950,000 and $1,410,000, respectively, of interest expense on the notes. The accrued interest for 2000 and 1999 was converted to additional notes, and is reflected as subordinated notes payable-related party in the accompanying consolidated balance sheets. The accrued interest related to 2001 was not converted into additional notes. (H) FUTURE MATURITIES Scheduled future maturities under the Company's indebtedness are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------------------ 2002........................................................ $ 20,049 2003........................................................ 6,573 2004........................................................ 14,072 2005........................................................ 35,343 2006........................................................ -- Thereafter.................................................. 126,868 -------- $202,905 ========
(I) INTEREST RATE SWAP AGREEMENTS OBJECTIVES AND CONTEXT Anteon Virginia uses variable-rate debt to finance its operations through its Revolving Facility and Term Loan. These debt obligations expose Anteon Virginia to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. Management believes it is prudent to limit the variability of a portion of its interest payments. It is Anteon Virginia's objective to hedge a portion of its longer-term variable interest payments for the Revolving Facility and Term Loan. F-27 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) STRATEGIES To meet this objective, management enters into various interest rate swap derivative contracts to manage fluctuations in cash flow resulting from fluctuations in interest rates. The interest rate swaps change the variable-rate cash flow exposure on Anteon Virginia's long-term debt obligations to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps. Under the interest rate swaps, Anteon Virginia receives variable interest rate payments and makes fixed interest rate payments, thereby creating fixed-rate long-term debt. Anteon Virginia does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, Anteon Virginia does not speculate using derivative instruments. RISK MANAGEMENT POLICIES Anteon Virginia assesses interest rate cash flow risks by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Anteon Virginia monitors interest rate cash flow risk attributable to both Anteon's Virginia's outstanding or forecasted debt obligations as well as Anteon Virginia's offsetting hedge positions and estimates the expected impact of changes in interest rates on Anteon Virginia's future cash flows. Upon adoption of SFAS No. 133, the fair value of interest rate swaps was recorded as a transition adjustment to accumulated other comprehensive income. This resulted in a decrease of $629,000, net of tax, to accumulated other comprehensive income as of January 1, 2001. Changes subsequent to January 1, 2001 in the fair value of interest rate swaps designed as hedging instruments of the variability of cash flows associated with floating-rate, long-term debt obligations are reported in accumulated other comprehensive income (loss). These amounts subsequently are reclassified into interest expense as a yield adjustment in the same period in which the related interest on the floating-rate debt obligations effects earnings. Over the next twelve months, approximately $1.0 million of losses in accumulated other comprehensive loss related to the interest rate swaps are expected to be reclassified into interest expense as a yield adjustment of the hedged debt obligation. As of December 31, 2001, the fair value of Anteon Virginia's interest swap agreements resulted in a net liability of $2.8 million and has been included in other current liabilities. F-28 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (8) INDEBTEDNESS (CONTINUED) The Company's interest rate swap agreements effectively changed Anteon Virginia's interest rate exposure for the following amounts, as of December 31, 2001, to the following fixed rates:
EFFECTIVE FAIR VALUE AS OF DATE OF SWAP NOTIONAL MATURITY OF FIXED RATE DECEMBER 31, 2001 AGREEMENT AMOUNT SWAP AGREEMENT OF INTEREST (IN THOUSANDS) - --------------------- ----------- ------------------- ------------ ----------------- September 1998....... $ 5 million September 25, 2003 5.02 percent $ (160) March 2000........... $20 million December 30, 2003 6.31 percent $(1,160) May 2000............. $10 million May 31, 2002 7.61 percent $ (281) June 2000............ $ 5 million May 31, 2002 7.26 percent $ (131) July 2000............ $ 5 million July 26, 2003 6.85 percent $ (340) September 2000....... $ 5 million September 14, 2003 6.72 percent $ (313) June 2001............ $10 million June 30, 2004 5.78 percent $ (456)
The fair value of interest rate swaps is the estimated amount, based on quoted market prices, that the counterparty would (receive) pay to terminate the swap agreements at December 31, 2001. (9) COMMON STOCK The Company has authorized three classes of common stock: voting Class A, voting Class B, and non-voting. Class A shareholders are entitled to vote 49% of the voting power of the Company, notwithstanding the number of Class A common shares authorized, issued or outstanding. The Class B shareholder is entitled to vote 51% of the voting power of the Company, notwithstanding how many shares of Class B common shares are authorized, issued or outstanding. All classes of common stock are entitled to dividends, when and if declared by the Board of Directors. F-29 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (10) INCOME TAXES The provisions for income taxes for the years ended December 31, 2001, 2000 and 1999, consist of the following (in thousands), respectively:
YEARS ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 -------- -------- -------- Current provision (benefit): Federal................................................... $1,140 293 (1,593) State..................................................... 802 197 (479) Foreign................................................... 62 104 39 ------ ---- ------ Total current provision (benefit)..................... 2,004 594 (2,033) ------ ---- ------ Deferred provision (benefit): Federal................................................... 1,501 (880) 2,177 State..................................................... 853 198 525 Foreign................................................... 55 (65) 41 ------ ---- ------ Total deferred provision (benefit).................... 2,409 (747) 2,743 ------ ---- ------ Total income tax provision (benefit).................. $4,413 (153) 710 ====== ==== ======
The income tax provisions for the years ended December 31, 2001, 2000 and 1999, respectively, are different from that computed using the statutory U.S. federal income tax rate of 34 percent for the years ending December 31, 2000 and 1999 and 35% for December 31, 2001 as set forth below (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 -------- -------- -------- Expected tax expense (benefit), computed at statutory rate...................................................... $1,401 (1,853) (108) State taxes, net of federal expense......................... 1,251 7 4 Nondeductible expenses...................................... 304 264 168 Goodwill amortization....................................... 1,804 1,074 663 Valuation allowance......................................... -- 295 -- Increase in marginal federal rate........................... 200 -- -- Stock basis difference on sale of subsidiary................ (790) -- -- Foreign rate differences.................................... (21) 8 (19) Other....................................................... 264 52 2 ------ ------ ---- $4,413 (153) 710 ====== ====== ====
F-30 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (10) INCOME TAXES (CONTINUED) The tax effect of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2001 and 2000 are presented below (in thousands):
2001 2000 -------- -------- Deferred tax assets: Accrued expenses.......................................... $ 6,101 6,034 Intangible assets, due to differences in amortization..... 4,411 5,007 Interest rate swaps....................................... 1,136 -- Accounts receivable allowances............................ 634 591 Property and equipment, due to differences in depreciation............................................ 493 476 Net operating loss carryover.............................. 3,262 4,661 ------- ------ Total gross deferred tax assets......................... 16,037 16,769 Less Valuation allowance................................ (295) (295) ------- ------ Net deferred tax assets................................. 15,742 16,474 ------- ------ Deferred tax liabilities: Deductible goodwill, due to differences in amortization... 7,552 9,728 Revenue recognition differences........................... 6,500 4,941 Accrued expenses.......................................... 6,058 3,318 Property and equipment, due to differences in depreciation............................................ 742 1,865 ------- ------ Total deferred tax liabilities.......................... 20,852 19,852 ------- ------ Deferred tax assets (liabilities), net.................. $(5,110) (3,378) ======= ======
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 the majority of the benefits of these deductible differences, although the Company has established a valuation allowance as of December 31, 2001 and 2000 of $295,000 against certain state net operating loss carryforwards. The valuation allowance for deferred tax assets as of December 31, 1999 was $0. The net change in the total valuation allowance for the years ended December 31, 2001 and 2000 was an increase of $0 and $295,000, respectively. At December 31, 2001, the Company had federal and state net operating loss carryforwards of approximately $7,699,000 and $12,886,000, respectively. Such carryforwards have various expiration dates beginning in 2004. F-31 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (11) EMPLOYEE BENEFIT PLANS Employees of Anteon Virginia 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 22 percent (20 percent prior to January 1, 2001) of salary in any calendar year to these plans, provided that amounts in total do not exceed certain statutory limits. Anteon Virginia matches up to 50 percent of the first 6 percent of a participant's contributions subject to certain limitations. Anteon Virginia made contributions to these plans of approximately $5,616,000, $5,300,000, $2,306,000 and for the years ended December 31, 2001, 2000 and 1999, respectively. The A&T Savings and Investment Plan was a discretionary contribution plan as defined in the Internal Revenue Code, Section 401 (a)(27). Effective December 31, 2000, the plan's assets were transferred to the Anteon Virginia 401(k) plan. The plan covered substantially all of A&T's full-time employees. A&T's contributions were made at the discretion of the Board of Directors for any plan year. A&T's matching contributions to this plan for the year ended December 31, 2000 and from the date of acquisition of A&T by Anteon Virginia to December 31, 1999, were approximately $2,260,000 and $1,019,000, respectively. (12) STOCK OPTION AND OTHER COMPENSATION PLANS (A) STOCK OPTION PLAN In February 1997, the Anteon Virginia Board of Directors approved the adoption of the Anteon Virginia Corporation Omnibus Stock Plan ("the Anteon Virginia Plan"). At the discretion of the Board of Directors, the Anteon Virginia 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, 2001, an aggregate of 2,609,940 shares of Anteon Virginia's common stock were reserved for issuance under the Anteon Virginia Plan. The exercise price of stock options granted is determined by the Anteon Virginia 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. For options granted from the date of the adoption of the Anteon Virginia Plan until September 21, 2000, employees have a period of three years from the vesting date to exercise the option to purchase shares of Anteon Virginia's common stock. In 1997, the Anteon Virginia Board of Directors approved that 20 percent of the options issued on the August 1, 1997 grant date vest immediately. On September 21, 2000, the Anteon Virginia Board of Directors approved that, with respect to stock options granted from that date forward, each grantee has a period of 8 years from the date of grant in which to exercise options which vest. For stock options granted to directors of Anteon Virginia, 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 options expire on July 31, 2002. F-32 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (12) STOCK OPTION AND OTHER COMPENSATION PLANS (CONTINUED) The following tables summarize information regarding options under the Anteon Virginia Plan:
NUMBER WEIGHTED OF ANTEON AVERAGE OUTSTANDING VIRGINIA OPTION PRICE EXERCISE AND SHARES PER SHARE PRICE EXERCISABLE --------- ------------ -------- ----------- Outstanding at December 31, 1998.............. 1,218,160 $ 1.69-9.33 $ 5.54 208,836 Granted..................................... 695,000 9.72-10.50 10.90 Exercised................................... (21,520) 1.69-8.04 2.04 Cancelled or expired........................ (77,800) 1.69-10.50 8.88 --------- ----------- ------ Outstanding at December 31, 1999.............. 1,813,840 $1.69-10.50 $ 7.30 426,864 Granted..................................... 482,500 12.50-12.97 12.62 Exercised................................... (21,440) 9.72-12.81 12.41 Cancelled or expired........................ (131,900) 1.69-12.50 9.99 --------- ----------- ------ Outstanding at December 31, 2000.............. 2,143,000 $1.69-12.97 $ 8.53 744,758 Granted..................................... 32,000 16.19 16.19 Exercised................................... (41,340) 1.69-12.81 3.67 Cancelled or expired........................ (125,240) 1.69-16.19 11.27 --------- ----------- ------ Outstanding at December 31, 2001.............. 2,008,420 $1.69-16.19 $ 8.41 1,089,480 ========= =========== ====== =========
Option and weighted average price information by price group is as follows:
SHARES OUTSTANDING EXERCISABLE SHARES -------------------------------- -------------------- NUMBER WEIGHTED WEIGHTED WEIGHTED OF ANTEON AVERAGE AVERAGE AVERAGE VIRGINIA EXERCISE REMAINING NUMBER EXERCISE SHARES PRICE LIFE OF SHARES PRICE --------- -------- --------- --------- -------- December 31, 2001: $1.69.................................... 487,920 $1.69 2.8 466,640 $1.69 $4.59 to $6.73........................... 44,800 4.78 3.8 32,000 4.75 $8.04 to $9.33........................... 507,200 9.23 4.7 301,680 9.23 $9.72 to $10.50.......................... 503,300 10.38 5.6 201,560 10.38 $12.50 to $12.97......................... 439,200 12.60 5.5 87,600 12.60 $16.19................................... 26,000 16.19 7.3 -- -- ======= ===== === ======= =====
(B) DIRECTORS DEFERRED COMPENSATION PLAN Under a plan established during 2000, certain of Anteon Virginia's directors are compensated on a deferred basis. In lieu of their annual director fees, each director under the plan has the choice of receiving deferred compensation, payable in either: (1) cash upon the completion of their service as a director, equal to the annual fees due them plus interest accruing at an annual rate equal to the Company's one-year borrowing cost as in effect at the beginning of each quarter and the end of each quarter, (2) a stock appreciation right based on the number of shares that could be F-33 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (12) STOCK OPTION AND OTHER COMPENSATION PLANS (CONTINUED) acquired in consideration of the annual fees, or (3) a combination of each of the above. As of December 31, 2001, stock appreciation rights on 7,974 shares of Anteon Virginia's common stock have been granted to these directors. Anteon Virginia recognized approximately $144,000 during the year ended December 31, 2001 as compensation expense related to these stock appreciation rights. The amount of compensation expense for the year ended December 31, 2000 was not significant. (C) PRO FORMA DISCLOSURES The Company applies APB No. 25 and related interpretations in accounting for the Anteon Virginia 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 grants under the Anteon Virginia Plan been determined consistent with the fair market value provisions prescribed in SFAS No. 123, the Company's pro forma net income (loss) for the years ended December 31, 2001, 2000 and 1999 would approximate $(824,000), $(6,414,000) and $(2,053,000), respectively, and diluted pro forma net income (loss) per share would be $(91.76), $(659.39) and $(215.80), respectively, using an expected option life of 7 years, dividend yield rate of 0 percent and volatility rates of 70 percent, 20 percent and 20 percent, respectively, and risk-free interest rates of 4.84, 5.16 and 6.61 percent for 2001, 2000 and 1999, respectively. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. (13) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss), includes the Company's unrealized gains (losses) on investments, the accumulated foreign currency translation adjustment and changes in the fair values of interest rate swaps. The Company presents comprehensive income (loss) as a component of the accompanying consolidated statements of stockholders' equity (deficit). During 1999, the Company sold all of its investments in equity securities. The amount of accumulated foreign currency translation adjustment was approximately $(43,000), $37,000, and $(5,000), as of December 31, 2001, 2000 and 1999, respectively. The amount of accumulated decreases in the fair value of interest rate swaps was $2.8 million ($1.7 million, net of tax) as of December 31, 2001. F-34 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (14) EARNINGS (LOSS) PER COMMON SHARE The computations of basic and diluted income (loss) per common share are as follows (in thousands, except share data):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Basic: Company's portion of earnings (losses) of subsidiary...... $ 1,976 (2,901) (183) Parent company earnings (losses).......................... (2,068) (2,380) (1,354) ------- ------ ------ Total earnings (loss) used in computations.............. $ (92) (5,281) (1,537) ======= ====== ====== Diluted: Company's portion of earnings (losses) of subsidiary...... $ 1,880 (2,901) (183) Parent company earnings (losses).......................... (2,068) (2,380) (1,354) ------- ------ ------ Total earnings (loss) used in computations.............. $ (188) (5,281) (1,537) ======= ====== ====== Weighted average common shares outstanding--basic and diluted................................................. 9,709 9,709 9,709 ======= ====== ======
(15) COMMITMENTS AND CONTINGENCIES (A) LEASES The Company leases facilities under operating leases and uses certain equipment under lease agreements expiring at various dates through 2010. As of December 31, 2001, the aggregate minimum annual rental commitments under noncancelable operating leases are as follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------------------ 2002........................................................ $ 20,408 2003........................................................ 20,247 2004........................................................ 16,998 2005........................................................ 14,731 2006........................................................ 13,194 Thereafter.................................................. 48,980 -------- Total minimum lease payments.............................. $134,558 ========
Rent expense under all operating leases for the years ended December 31, 2001, 2000 and 1999 was approximately $23,057,000, $17,747,000 and $11,887,000, respectively. (B) MANAGEMENT FEES Effective June 1, 1999, Anteon Virginia entered into an arrangement with Caxton-Iseman Capital, Inc., an affiliate and advisor to the Company, whereby the amount Anteon Virginia is required to pay for management fees to Caxton-Iseman Capital, Inc. increased to $1,000,000 per F-35 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (15) COMMITMENTS AND CONTINGENCIES (CONTINUED) year. 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. During the years ended December 31, 2001, 2000 and 1999, Anteon Virginia incurred $1,000,000, $1,000,000 and $750,000, respectively, of management fees to Caxton-Iseman Capital, Inc. Effective December 31, 2001, Anteon Virginia entered into a new agreement with Caxton-Iseman Capital, Inc. that terminated the management fee agreement. Under the terms of this new agreement, Anteon Virginia is obligated to pay Caxton-Iseman Capital, Inc. a one-time, $3.6 million fee, which was recognized as general and administrative expense in 2001 and is reflected as due to related party in the accompanying consolidated balance sheet as of December 31, 2001. (C) 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 ultimate 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. Anteon Virginia entered into a settlement agreement on April 24, 2001, with Cambridge Technology Partners, Inc. ("Cambridge") to resolve a legal action brought by Cambridge against Anteon Virginia for work performed solely by Cambridge for the United States Customs Service ("Customs Service"). In 1998, the Customs Service requested that Anteon Virginia enter into a contract for the sole purpose of allowing the Customs Service to direct all work to Cambridge to develop software as part of a Customs Service information system modernization program. Anteon Virginia awarded Cambridge a subcontract to perform all of the software development effort required by the contract without any work being performed by the Company. In 1999, the Customs Service rejected the Cambridge developed software. As a result, Anteon Virginia terminated the Cambridge subcontract. The Customs Service and Anteon Virginia negotiated a no-cost termination to resolve the matter. In 2000, Cambridge filed a lawsuit seeking payment of the subcontract amount, approximately $3.0 million, plus pre-judgment interest. Anteon Virginia filed a counter-claim for damages. While Anteon Virginia believed that it had a strong defense and would likely have prevailed at trial, settlement discussions with Cambridge just prior to the trial date in April 2001 resulted in Anteon Virginia deciding to settle the matter. Anteon Virginia concluded this decision was in the best interests of Anteon Virginia in light of the diversion of management time a trial would cause, the additional legal fees that would be incurred and the ultimate uncertainties of trial. Under the terms of the settlement agreement, Anteon Virginia agreed to pay Cambridge $600,000. In exchange, Cambridge agreed to dismiss all claims against Anteon Virginia. Anteon Virginia also agreed to dismiss its counter-claims against Cambridge. The settlement was recognized as general and administrative expense during the quarter ended March 31, 2001. F-36 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION Anteon Virginia's wholly owned domestic subsidiaries are guarantors (the "Subsidiary Guarantors") under the terms of the New Credit Facility (see note 8(b)) and the $100,000,000 12 percent Senior Subordinated Notes (see note 8(c)). 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 Anteon Virginia, the Subsidiary Guarantors, Anteon Virginia's non-guarantor subsidiaries and for the Company. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (IN THOUSANDS) Cash and cash equivalents..... $ 674 1,005 -- 251 -- $ 1,930 Accounts receivable, net...... -- 129,618 91 1,636 -- 131,345 Other current assets.......... 2,847 7,801 -- 495 -- 11,143 Property and equipment, net... -- 12,619 -- 125 -- 12,744 Due from Parent............... -- 3,092 (2,503) (589) -- -- Investment in and advances to subsidiaries................ 32,322 83,924 -- -- (116,246) -- Goodwill, net................. -- 136,622 -- -- -- 136,622 Intangible and other assets, net......................... -- 12,685 -- 182 -- 12,867 ------- ------- ------ ----- -------- -------- Total assets.............. 35,843 387,366 (2,412) 2,100 (116,246) 306,651 ======= ======= ====== ===== ======== ======== Indebtedness.................. 34,368 168,537 -- -- -- 202,905 Accounts payable.............. -- 24,448 -- 580 -- 25,028 Due to related party.......... -- 3,600 -- -- -- 3,600 Accrued expenses and other current liabilities......... 1,840 57,200 72 327 -- 59,439 Deferred revenue.............. -- 8,529 -- 214 -- 8,743 Other long-term liabilities... -- 9,570 -- 381 -- 9,951 ------- ------- ------ ----- -------- -------- Total liabilities......... 36,208 271,884 72 1,502 -- 309,666 Minority interest in subsidiaries................ 289 -- -- 138 -- 427 Total stockholders' equity (deficit)................... (654) 115,482 (2,484) 460 (116,246) (3,442) ------- ------- ------ ----- -------- -------- Total liabilities and stockholders' equity (deficit)............... $35,843 387,366 (2,412) 2,100 (116,246) $306,651 ======= ======= ====== ===== ======== ========
F-37 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (IN THOUSANDS) Revenues...................... $ -- 715,165 1,451 8,662 (10,255) $715,023 Costs of revenues............. -- 625,359 4,370 7,868 (10,255) 627,342 ------- ------- ------ ----- ------- -------- Gross profit................ -- 89,806 (2,919) 794 -- 87,681 Total operating expenses...... -- 60,214 171 431 -- 60,816 ------- ------- ------ ----- ------- -------- Operating income............ -- 29,592 (3,090) 363 -- 26,865 Other income.................. -- 3,559 487 -- -- 4,046 Interest expense (income), net......................... 3,766 23,123 -- (17) -- 26,872 Equity in earnings (losses) of Anteon Virginia............. 1,986 -- -- -- (1,986) -- Minority interest in (earnings) losses of subsidiaries................ (14) -- 32 (56) -- (38) ------- ------- ------ ----- ------- -------- Income (loss) before provision for income taxes and extraordinary gain.... (1,794) 10,028 (2,571) 324 (1,986) 4,001 Provision (benefit) for income taxes....................... (1,382) 6,693 (1,015) 117 -- 4,413 ------- ------- ------ ----- ------- -------- Income (loss) before extraordinary gain.......... (412) 3,335 (1,556) 207 (1,986) (412) Extraordinary gain, net of tax......................... 330 -- -- -- -- 330 ------- ------- ------ ----- ------- -------- Net income (loss)............. $ (82) 3,335 (1,556) 207 (1,986) $ (82) ======= ======= ====== ===== ======= ========
F-38 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2001
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (IN THOUSANDS) Net income (loss)................. $ (82) 3,335 (1,556) 207 (1,986) (82) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: Extraordinary gain................ (519) -- -- -- -- (519) Equity in (earnings) losses of Anteon Virginia............... (1,986) -- -- -- 1,986 -- Gains on sales and closures of business...................... -- (3,559) (487) -- -- (4,046) Loss on disposals of property and equipment................. -- 789 2 -- -- 791 Depreciation and amortization of property and equipment........ -- 4,565 2,502 43 -- 7,110 Goodwill amortization........... -- 6,704 -- -- -- 6,704 Other intangibles amortization.................. -- 2,321 -- -- -- 2,321 Amortization of noncompete agreements.................... -- 349 -- -- -- 349 Amortization of deferred financing fees................ 18 1,198 -- -- -- 1,216 Deferred income taxes........... (476) 3,988 -- -- -- 3,512 Minority interest in earnings (losses) of subsidiaries...... 14 -- (32) 56 -- 38 Changes in assets and liabilities, net of acquired assets and liabilities........ 3,199 19,239 (10) (278) (1,665) 20,485 ------- -------- ------ ---- ------ -------- Net cash provided by (used in) operating activities........ 168 38,929 419 28 (1,665) 37,879 ------- -------- ------ ---- ------ -------- Cash flows from investing activities: Proceeds from sales of business...................... -- 11,464 -- -- -- 11,464 Purchases of property and equipment and other assets.... -- (1,669) (419) (93) -- (2,181) Other, net...................... -- 6 -- -- -- 6 Acquisition of SIGCOM, net of cash acquired................. -- (10,975) -- -- -- (10,975) Acquisition of Sherikon, net of cash acquired................. -- (21) -- -- -- (21) ------- -------- ------ ---- ------ -------- Net cash provided by (used in) investing activities........ -- (1,195) (419) (93) -- (1,707) ------- -------- ------ ---- ------ --------
F-39 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (IN THOUSANDS) Cash flows from financing activities: Principal payments on bank and other notes payable........... -- (185) -- -- -- (185) Principal payments on Term Loan.......................... -- (12,946) -- -- -- (12,946) Proceeds from Revolving Facility...................... -- 771,200 -- -- -- 771,200 Payments on Revolving Facility...................... -- (784,500) -- -- -- (784,500) Distribution to parent for debt service....................... -- (1,665) -- -- 1,665 -- Payments on business purchase consideration payable and suborinated notes payable..... -- (6,185) -- -- -- (6,185) Proceeds from minority interest, net........................... -- 152 -- -- -- 152 Payments on note payable to Ogden......................... -- (3,212) -- -- -- (3,212) ------- -------- ------ ---- ------ -------- Net cash provided by (used in) financing activities........ -- (37,341) -- -- 1,655 (35,676) ------- -------- ------ ---- ------ -------- Net increase (decrease) in cash and cash equivalents............ 168 393 -- (65) -- 496 Cash and cash equivalents, beginning of year............... 506 612 -- 316 -- 1,434 ------- -------- ------ ---- ------ -------- Cash and cash equivalents, end of year............................ $ 674 1,005 -- 251 -- 1,930 ======= ======== ====== ==== ====== ========
F-40 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (in thousands) Cash and cash equivalents.................. $ 506 338 491 99 -- 1,434 Accounts receivable, net................... -- 44,123 87,419 827 -- 132,369 Other current assets....................... 2,391 8,377 3,598 251 -- 14,617 Property and equipment, net................ -- 3,312 14,609 53 -- 17,974 Investment in and advances to subsidiaries............................. 34,021 43,616 22,048 (180) (99,505) -- Goodwill, net.............................. -- 140,482 -- -- -- 140,482 Intangible and other assets, net........... -- 14,800 2,670 77 -- 17,547 ------- ------- ------- ----- ------- ------- Total assets............................. 36,918 255,048 130,835 1,127 (99,505) 324,423 ======= ======= ======= ===== ======= ======= Indebtedness............................... 38,018 198,604 1,259 -- -- 237,881 Accounts payable........................... -- 9,427 13,522 283 -- 23,232 Accrued expenses and other current liabilities.............................. 389 17,942 29,139 132 -- 47,602 Deferred revenue........................... -- 6,420 -- 69 -- 6,489 Other long-term liabilities................ -- 9,212 859 -- -- 10,071 ------- ------- ------- ----- ------- ------- Total liabilities........................ 38,407 241,605 44,779 484 -- 325,275 Minority interest in subsidiaries.......... 123 549 (30) 82 -- 724 Total stockholders' equity (deficit)..... (1,612) 12,894 86,086 561 (99,505) (1,576) ------- ------- ------- ----- ------- ------- Total liabilities and stockholders' equity (deficit)....................... $36,918 255,048 130,835 1,127 (99,505) 324,423 ======= ======= ======= ===== ======= =======
F-41 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (in thousands) Revenues................................... $ -- 200,300 343,191 2,519 (3,203) 542,807 Costs of revenues.......................... -- 178,847 296,879 2,401 (3,203) 474,924 ------- ------- ------- ----- ------ ------- Gross profit............................. -- 21,453 46,312 118 -- 67,883 Total operating expenses................... -- 18,700 28,115 30 -- 46,845 ------- ------- ------- ----- ------ ------- Operating income......................... -- 2,753 18,197 88 -- 21,038 Interest and other expense (income), net... 3,767 22,685 59 2 -- 26,513 Equity in earnings (losses) of Anteon Virginia................................. (2,909) -- -- -- 2,909 -- Minority interests in (earnings) losses of subsidiaries............................. 8 -- 24 -- -- 32 ------- ------- ------- ----- ------ ------- Income (loss) before provision for income taxes.................................... (6,668) (19,932) 18,162 86 2,909 (5,443) Provision (benefit) for income taxes....... (1,378) (6,053) 7,240 38 -- (153) ------- ------- ------- ----- ------ ------- Net income (loss).......................... $(5,290) (13,879) 10,922 48 2,909 (5,290) ======= ======= ======= ===== ====== =======
F-42 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2000
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (in thousands) Net income (loss)...................... $(5,290) (13,879) 10,922 48 2,909 (5,290) Adjustments to reconcile net income (loss) to net cash provided by (used for) operations: Equity in (earnings) losses of Anteon Virginia........................... 2,909 -- -- -- (2,909) -- Gain on disposals of property and equipment.......................... -- -- (187) -- -- (187) Depreciation and amortization of property and equipment............. -- 1,707 5,303 14 -- 7,024 Goodwill amortization................ -- 4,714 -- -- -- 4,714 Other intangibles amortization....... -- 2,673 -- -- -- 2,673 Amortization of noncompete agreements......................... -- 866 -- -- -- 866 Amortization of deferred financing fees............................... 28 1,180 -- -- -- 1,208 Deferred income taxes................ (1,378) 704 -- (73) -- (747) Minority interest in earnings (losses) of subsidiaries........... (8) -- (24) -- -- (32) Changes in assets and liabilities, net of acquired assets and liabilities........................ 4,248 14,883 (10,508) (466) (1,285) 6,872 ------- -------- ------- ---- ------ -------- Net cash provided by (used in) operating activities............. 509 12,848 5,506 (477) (1,285) 17,101 ------- -------- ------- ---- ------ -------- Cash flows from investing activities: Purchases of property and equipment and other assets................... -- (1,331) (5,256) 3 -- (6,584) Other................................ -- -- 1,706 -- -- 1,706 Acquisition of Analysis & Technology Inc., net of cash acquired......... -- (128) -- -- -- (128) Acquisition of Sherikon, net of cash acquired........................... -- (23,906) -- -- -- (23,906) ------- -------- ------- ---- ------ -------- Net cash provided by (used in) investing activities............. -- (25,365) (3,550) 3 -- (28,912) ------- -------- ------- ---- ------ -------- Cash flows from financing activities: Principal payments on bank notes payable............................ -- -- (1,629) -- -- (1,629) Principal payments of Techmatics obligations........................ -- (15,350) -- -- -- (15,350) Proceeds from revolving facility..... -- 533,000 -- -- -- 533,000 Payments on revolving facility....... -- (503,900) -- -- -- (503,900) Intercompany investment.............. -- 335 (335) -- -- -- Distribution to parent for debt service............................ -- (1,285) -- -- 1,285 -- Deferred financing costs............. (151) -- -- -- -- (151) Proceeds from minority interest, net................................ -- 66 -- -- -- 66 ------- -------- ------- ---- ------ -------- Net cash provided by (used in) financing activities............. (151) 12,866 (1,964) -- 1,285 12,036 ------- -------- ------- ---- ------ -------- Net increase (decrease) in cash and cash equivalents..................... 358 349 (8) (474) -- 225 Cash and cash equivalents, beginning of year................................. 148 (11) 499 573 -- 1,209 ------- -------- ------- ---- ------ -------- Cash and cash equivalents, end of year................................. $ 506 338 491 99 -- 1,434 ======= ======== ======= ==== ====== ========
F-43 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION ------------- -------- ------------ ------------ ----------- ------------- (in thousands) Revenues.......................... $ -- 204,388 194,523 3,241 (1,302) 400,850 Costs of revenues................. -- 187,143 164,518 2,886 (1,302) 353,245 ------- ------- ------- ----- ------ ------- Gross profit.................... -- 17,245 30,005 355 -- 47,605 Total operating expenses.......... -- 13,668 18,551 56 -- 32,275 ------- ------- ------- ----- ------ ------- Operating income................ -- 3,577 11,454 299 -- 15,330 Interest expense (income) and other, net...................... 2,188 13,486 (18) (11) -- 15,645 Equity in earnings (losses) of Anteon Virginia................. 173 -- -- -- 173 -- Minority interest in (earnings) losses of subsidiaries.......... 1 -- (40) -- -- (39) ------- ------- ------- ----- ------ ------- Income (loss) before provision for income taxes and extraordinary loss............ (2,360) (9,909) 11,432 310 173 (354) Provision for (benefit from) income taxes.................... (833) (3,028) 4,498 73 -- 710 ------- ------- ------- ----- ------ ------- Income (loss) before extraordinary loss............................ (1,527) (6,881) 6,934 237 173 (1,064) Extraordinary loss, net of tax.... -- 463 -- -- -- 463 ------- ------- ------- ----- ------ ------- Net income (loss)............... $(1,527) (7,344) 6,934 237 173 (1,527) ======= ======= ======= ===== ====== =======
F-44 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (16) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (CONTINUED) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999
CONSOLIDATED ANTEON NON- ANTEON INTERNATIONAL ANTEON GUARANTOR GUARANTOR ELIMINATION INTERNATIONAL CORPORATION VIRGINIA SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION -------------- --------- -------------- -------------- ------------- --------------- (IN THOUSANDS) Net income (loss)................ $(1,527) (7,344) 6,934 237 173 (1,527) Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss............. -- 772 -- -- -- 772 Equity in (earnings) losses of Anteon Virginia.............. 173 -- -- -- (173) -- Gains on sale of investments... -- (2,869) 8 (20) -- (2,881) Gains on disposals of property and equipment................ -- -- (67) -- -- (67) Depreciation and amortization of property and equipment.... -- 930 2,671 22 -- 3,623 Goodwill amortization.......... -- 3,440 -- -- -- 3,440 Amortization of noncompete agreements................... -- 909 -- -- -- 909 Amortization of deferred financing fees............... -- 692 -- -- -- 692 Deferred income taxes.......... (835) 1,737 1,805 36 -- 2,743 Minority interest in earnings of subsidiaries.............. (1) -- 40 -- -- 39 Changes in assets and liabilities, net of acquired assets and liabilities....... 2,392 10,450 (8,935) 117 -- 4,024 ------- -------- ------ --- ------- -------- Net cash provided by (used in) operating activities............... 202 8,717 2,456 392 -- 11,767 ------- -------- ------ --- ------- -------- Cash flows from investing activities: Purchases of property and equipment.................... -- (2,194) (2,513) (54) -- (4,761) Acquisitions, net of cash acquired..................... -- (115,586) -- -- -- (115,586) Proceeds from sales of investments.................. -- 11,491 -- -- -- 11,491 Purchases of investments....... -- (3,040) -- -- -- (3,040) Investment in Anteon Virginia..................... (22,500) -- -- -- 22,500 -- Other, net..................... -- 224 -- -- -- 224 ------- -------- ------ --- ------- -------- Net cash provided by (used in) investing activities............... (22,500) (109,105) (2,513) (54) 22,500 (111,672) ------- -------- ------ --- ------- -------- Cash flows from financing activities: Proceeds from bank notes payable...................... -- 132,043 -- -- -- 132,043 Principal payments on bank notes payable................ -- (202,443) -- -- -- (202,443) Payments on subordinated notes payable...................... -- -- (173) -- -- (173) Proceeds from term lLoan....... -- 60,000 -- -- -- 60,000 Proceeds from revolving facility..................... -- 208,700 -- -- -- 208,700 Payments on revolving facility..................... -- (205,800) -- -- -- (205,800) Proceeds from senior subordinated notes payable... -- 100,000 -- -- -- 100,000 Intercompany investment........ -- (962) 962 -- -- -- Deferred financing costs....... (54) (8,930) -- -- -- (8,984) Principal payments on Techmatics obligations....... -- (4,925) -- -- -- (4,925) Proceeds from subordinated convertible note payable..... 22,500 -- -- -- 22,500 Proceeds from issuance of common stock................. -- 22,500 -- -- (22,500) -- Proceeds from minority interest, net................ (1) 40 -- -- -- 39 ------- -------- ------ --- ------- -------- Net cash provided by financing activities..... 22,445 100,223 789 -- (22,500) 100,957 ------- -------- ------ --- ------- -------- Net increase (decrease) in cash and cash equivalents........... 147 (165) 732 338 -- 1,052 Cash and cash equivalents, beginning of year.............. 1 154 (233) 235 -- 157 ------- -------- ------ --- ------- -------- Cash and cash equivalents, end of year........................... $ 148 (11) 499 573 -- 1,209 ======= ======== ====== === ======= ========
F-45 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (17) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2001 and 2000 (in thousands, except per share data):
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL QUARTER ENDED: --------- -------- ------------ ----------- -------- 2001 Revenues.................. $162,366 188,786 183,687 180,184 715,023 Operating income.......... 6,106 6,929 9,878 3,952 26,865 Income (loss) before extraordinary gain...... (670) (67) 3,385 (3,060) (412) Net income (loss)......... (670) (263) 3,385 (3,060) (82) Basic earnings (loss) per common share: Income (loss) before extraordinary gain.... (69.04) (7.16) 346.52 (313.63) (43.45) Net income (loss)....... (69.04) (26.83) 346.52 (313.63) (9.46) Diluted earnings (loss) per common share:....... Income (loss) before extraordinary gain.... (69.04) (7.16) 312.98 (313.63) (53.37) Net income (loss)....... (69.04) (26.83) 312.98 (313.63) (19.38) 2000 Revenues.................. $125,700 130,284 134,088 152,735 542,807 Operating income.......... 5,673 4,625 5,403 5,337 21,038 Net income (loss)......... (1,113) (815) (1,570) (1,792) (5,290) Basic earnings (loss) per common share............ (76.13) (122.25) (161.15) (184.29) (543.94) Diluted earnings (loss) per common share........ (76.13) (122.25) (161.15) (184.29) (543.94)
During the second quarter of 2001, Anteon Virginia acquired the training division of SIGCOM, Inc. (note 4(c)), and during the second, third and fourth quarters of 2001 sold or closed several other businesses (note 3). Also during the fourth quarter of 2001, Anteon Virginia incurred a fee of $3.6 million with an affiliate of the Company (note 15(b)) and recognized an approximate $1.0 million charge to write-off goodwill as a result of the closure of STSR. During the fourth quarter of 2000, Anteon Virginia acquired Sherikon (note 4(b)). (18) SEGMENT REPORTING The Company has adopted Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes annual and interim reporting standards for an enterprise's operating segments. Based on its organization, the Company reports two business segments: the Company's government contracting business and the Company's commercial custom training and performance F-46 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (18) SEGMENT REPORTING (CONTINUED) solutions group (Interactive Media). Interactive Media was sold during 2001 (see note 3(c)). Although the Company is organized by strategic business unit, the Company considers each of its government contracting units to have similar economic characteristics, provide similar types of services, and have a similar customer base. Accordingly, the Company's government contracting segment aggregates all of its operations. The Company's chief operating decision maker utilizes both revenue and earnings before interest and taxes in assessing performance and making overall operating decisions and resource allocations. Certain indirect costs such as corporate overhead and general and administrative expenses are allocated to the segments. Allocation of overhead costs to segments are based on measures such as revenue and employee headcount. General and administrative costs are allocated to segments based on the government-required three-factor formula, which uses measures of revenue, labor and net book value of fixed assets. Interest expense, investment income, gains on sales and closures of businesses and income taxes are not allocated to the Company's segments. The following tables present information about the Company's segments as of and for the years ended December 31, 2001, 2000 and 1999 and for the years then ended (in thousands).
AS OF AND FOR THE YEAR ENDED GOVERNMENT INTERACTIVE DECEMBER 31, 2001 CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED - ---------------------------- ----------- ----------- ------------ ------------ Total assets................................. $306,651 -- -- 306,651 ======== ====== === ======== Sales to unaffiliated customers.............. $696,420 18,603 -- 715,023 Intersegment sales........................... 36 15 (51) -- -------- ------ --- -------- 696,456 18,618 (51) 715,023 ======== ====== === ======== Operating income, net........................ $ 25,839 1,026 -- $ 26,865 -------- Gains on sales and closures of businesses............................... 4,046 Interest expense, net...................... 26,872 Minority interest in earnings of subsidiaries............................. (38) -------- Income before income taxes and extraordinary gain....................... 4,001 Income taxes............................... 4,413 -------- Loss before extraordinary gain............. (412) Extraordinary gain, net of tax............. 330 -------- Net loss................................... $ (82) ========
F-47 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (A DELAWARE CORPORATION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 (18) SEGMENT REPORTING (CONTINUED)
AS OF AND FOR THE YEAR ENDED GOVERNMENT INTERACTIVE DECEMBER 31, 2000 CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED - ---------------------------- ----------- ----------- ------------ ------------ Total assets................................. $316,101 8,322 -- 324,423 ======== ====== ==== ======== Sales to unaffiliated customers.............. $514,269 28,538 -- 542,807 Intersegment sales........................... 394 28 (422) -- -------- ------ ---- -------- 514,663 28,566 (422) 542,807 ======== ====== ==== ======== Operating income, net........................ $ 19,610 1,428 -- $ 21,038 -------- Interest expense, net...................... 26,513 Minority interest in losses of subsidiaries............................. 32 -------- Loss before income taxes................... (5,443) Income taxes............................... (153) -------- Net loss................................... $ (5,290) ========
AS OF AND FOR THE YEAR ENDED GOVERNMENT INTERACTIVE DECEMBER 31, 1999 CONTRACTING MEDIA ELIMINATIONS CONSOLIDATED - ---------------------------- ----------- ----------- ------------ ------------ Total assets................................. $273,192 5,499 -- 278,691 ======== ====== ==== ======== Sales to unaffiliated customers.............. $389,127 11,723 -- 400,850 Intersegment sales........................... 297 97 (394) -- -------- ------ ---- -------- 389,424 11,820 (394) 400,850 ======== ====== ==== ======== Operating income, net........................ $ 14,319 1,011 -- $ 15,330 -------- Other income............................... (2,585) Interest expense, net...................... 18,230 Minority interest in earnings of subsidiaries............................. (39) -------- Loss before income taxes and extraordinary loss..................................... (354) Provision for income taxes................. 710 Extraordinary loss, net of tax............. 463 -------- Net loss................................... $ (1,527) ========
F-48 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Analysis & Technology, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheet of Analysis & Technology, Inc. and Subsidiaries as of March 31, 1999, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for the year then ended. 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 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 Analysis & Technology, Inc. and Subsidiaries as of March 31, 1999, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. KPMG LLP Providence, Rhode Island April 30, 1999 F-49 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, --------------- 1999 --------------- ASSETS Current assets: Cash and cash equivalents................................. $ -- Contract receivables (note 3)............................. 28,776,154 Notes and other receivables............................... 1,014,563 Prepaid expenses.......................................... 1,319,468 ----------- Total current assets.................................. 31,110,185 ----------- Property, buildings and equipment, net (notes 4 and 5)...... 15,010,949 ----------- Other assets: Goodwill, net of accumulated amortization (note 4)........ 17,042,357 Product development costs, net of accumulated amortization (note 4)................................................ 399,976 Deferred Compensation Plan investments (note 2)........... 7,407,832 Notes receivable.......................................... 361,855 Deposits and other assets................................. 913,658 Deferred income taxes (note 6)............................ 1,498,984 ----------- 27,624,662 ----------- Total assets.......................................... $73,745,796 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (note 5)........... $ 345,338 Accounts payable.......................................... 994,716 Accrued expenses (note 9)................................. 12,538,505 Deferred income taxes (note 6)............................ 1,306,246 ----------- Total current liabilities............................. 15,184,805 Long-term debt, excluding current installments (note 5)..... 1,816,488 Other long-term liabilities (note 2)........................ 8,523,091 ----------- Total liabilities..................................... 25,524,384 ----------- 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......... 306,093 Treasury stock held by deferred compensation plan, 45,867 shares, at cost......................................... (459,229) Accumulated other comprehensive loss...................... (8,592) Additional paid-in capital................................ 8,393,463 Retained earnings......................................... 39,989,677 ----------- Total shareholders' equity............................ 48,221,412 ----------- Total liabilities and shareholders' equity............ $73,745,796 ===========
See accompanying notes to consolidated financial statements. F-50 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED MARCH 31, -------------------- 1999 -------------------- Revenue..................................................... $170,354,893 Costs and expenses.......................................... 160,074,537 ------------ Operating earnings...................................... 10,280,356 ------------ Other expense (income): Interest expense.......................................... 488,987 Interest income........................................... (138,803) Other, net................................................ 1,179,470 ------------ 1,529,654 ------------ Earnings before income taxes............................ 8,750,702 Income taxes (note 6)....................................... 3,879,062 ------------ Net earnings............................................ $ 4,871,640 ============ Basic earnings per common share......................... $ 1.34 ============ Diluted earnings per common share....................... $ 1.20 ============ Weighted average shares outstanding (notes 2 and 7) Basic..................................................... 3,633,115 ============ Diluted................................................... 4,023,837 ============
See accompanying notes to consolidated financial statements. F-51 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY YEAR ENDED MARCH 31, 1999
COMMON STOCK ACCUMULATED --------------------- ADDITIONAL OTHER TOTAL STATED PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS' SHARES VALUE CAPITAL EARNINGS STOCK EARNINGS (LOSS) EQUITY --------- --------- ---------- ----------- --------- --------------- -------------- 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-52 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, -------------------- 1999 -------------------- Operating activities: Net earnings.............................................. $4,871,640 Adjustments to reconcile net earnings to net cash provided by operating activities: Currency translation adjustment......................... (8,592) Depreciation and amortization of property, buildings, and equipment......................................... 2,337,947 Amortization of goodwill................................ 1,006,553 Amortization of product development costs............... 174,773 Provision for deferred income taxes..................... (264,301) Loss on sale of equipment............................... 82,846 Decrease (increase) in: Contract, notes and other receivables................. (3,311,101) Prepaid expenses...................................... (487,540) Other assets.......................................... (868,870) Increase (decrease) in: Accounts payable and accrued expenses................. 2,002,096 Other long-term liabilities........................... 594,726 ---------- Net cash provided by operating activities............. 6,130,177 ---------- Investing activities: Additions to property, buildings, and equipment........... (2,507,668) Product development costs................................. (272,756) Proceeds from sale of equipment........................... 14,888 Acquisition of business units (net of cash acquired)...... (2,835,234) ---------- Net cash used for investing activities................ (5,600,770) ---------- Financing activities: Repayments of long-term borrowings........................ (327,903) Repurchase of common stock................................ (835,940) Proceeds from sale of common stock........................ 446,427 Dividends paid............................................ (765,668) ---------- Net cash used for financing activities................ (1,483,084) ---------- Decrease in cash and cash equivalents..................... (953,677) Cash and cash equivalents: Beginning of year..................................... 953,677 ---------- End of year........................................... $ -- ==========
See accompanying notes to consolidated financial statements. F-53 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (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, the amount of the Company's non-defense revenue was $34.6 million. 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. F-54 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (1) DESCRIPTION OF BUSINESS, ACQUISITIONS, AND DIVESTITURES (CONTINUED) 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 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 F-55 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. F-56 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - 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 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 year ending March 31, 1999. 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 ---------- Weighted average shares outstanding......................... 3,633,115 Net effect of dilutive stock options based on the treasury stock method using the average market price............... 390,722 ---------- Total....................................................... 4,023,837 ========== Net earnings................................................ $4,871,640 Net effect of earnings attributable to subsidiary stock options................................................... (42,708) ---------- Net earnings available to common shareholders............... $4,828,932 ==========
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 F-57 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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 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. F-58 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (3) CONTRACT RECEIVABLES Contract receivables are summarized as follows:
1999 ----------- U.S. Government Customers: Amounts due currently--prime contractor................... $12,904,485 Amounts due currently--subcontractor...................... 8,729,701 Retainage................................................. 848,303 ----------- 22,482,489 ----------- Commercial customers: Amounts due currently..................................... 4,493,374 ----------- Unbilled contracts in process: Fixed-price contracts in progress, net of progress billings................................................ 320,902 Revenues recorded on work performed pursuant to customer authorization but prior to execution of contractual documents or modifications.............................. 1,479,389 ----------- 1,800,291 ----------- $28,776,154 ===========
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. 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 ----------------- ------------ Land............................................ -- $ 595,869 Buildings....................................... 31 years 11,525,027 Equipment....................................... 3-12 years 23,374,591 Leasehold improvements.......................... 1-5 years 3,000,134 ------------ 38,495,621 Less accumulated depreciation and amortization.................................. (23,484,672) ------------ $ 15,010,949 ============
Goodwill as of March 31, 1999 was $17,042,357, net of accumulated amortization of $4,297,031. The amount of goodwill added in fiscal 1999 was $2,647,213. Amortization expense was $1,006,553 in fiscal 1999. Product development costs at March 31, 1999 were $399,976, net of accumulated amortization of $636,592. The amount of product development costs capitalized was $272,756 in fiscal 1999. Amortization expense was $174,773 in fiscal 1999. F-59 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (5) LONG-TERM DEBT Long-term debt consists of the following:
1999 ---------- Mortgage payable to Fleet Bank bearing interest at 7.97%, due in monthly installments of principal of $11,500 plus associated interest through September 1, 2001, secured by certain land and buildings with a depreciated cost of $2,730,846................................................ $ 353,869 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 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 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 ---------- Total long-term debt.................................. 2,161,826 Less current installments of long-term debt................. 345,338 ---------- Total long-term debt, excluding current installments........................................ $1,816,488 ==========
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 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 in interest on all debts in fiscal 1999. F-60 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (6) INCOME TAXES Total income tax expense for the year ended March 31, 1999 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 ========== ========= ==========
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 ---------- Computed expected tax expense from continuing operations.... $2,975,239 Increase in income taxes resulting from: Amortization of goodwill.................................. 251,942 State income taxes (net of valuation allowance and federal income tax benefit)..................................... 502,694 Other (net)............................................... 149,187 ---------- $3,879,062 ==========
F-61 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (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 are presented below:
1999 ----------- Deferred tax assets: Uncollected receivables that are not yet deductible for tax purposes............................................ $ 461,136 Compensated absences, principally due to accrual for financial reporting purposes............................ 1,251,881 Deferred compensation..................................... 4,068,408 Net operating loss carryforwards.......................... 191,596 ----------- Total gross deferred tax assets....................... 5,973,021 Less valuation allowance.................................. 80,355 ----------- Net deferred tax assets............................... 5,892,666 ----------- Deferred tax liabilities: Tax depreciation in excess of financial statement Depreciation............................................ (1,101,723) Capitalized software product development costs............ (193,982) Unbilled contract revenue................................. (2,866,559) Deferred compensation..................................... (1,251,642) Other..................................................... (286,022) ----------- Total gross deferred tax liabilities................ (5,699,928) ----------- Net deferred tax asset.............................. $ 192,738 ===========
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. The Company made federal and state income tax payments of $3,538,312 during fiscal 1999. (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-62 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (7) STOCK OPTIONS (CONTINUED) The transactions under the Company's stock option plans for the year ended March 31, 1999 are summarized as follows:
1999 -------------------------- WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- -------------- Outstanding at beginning of year............................ 869,079 $ 10.39 Granted..................................................... 191,209 $ 18.98 Exercised................................................... (111,507) $ 8.54 Canceled or expired......................................... (24,690) $ 11.71 --------- Outstanding at end of year.................................. 924,091 $ 11.59 ========= Exercisable at end of year.................................. 570,447 ========= Shares reserved at end of year.............................. 1,014,362 =========
The following table summarizes information about stock options outstanding at March 31, 1999:
WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE 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 Net earnings................................................ As reported $4,871,640 Pro forma $4,320,328 Basic earnings per share.................................... As reported $ 1.34 Pro forma $ 1.19 Diluted earnings per share.................................. As reported $ 1.20 Pro forma $ 1.06
F-63 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (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 -------- Risk-free interest rate..................................... 5.34% Expected life (years)....................................... 5.8 Expected volatility......................................... 35.10% Expected dividend yield..................................... 0.0%
The weighted-average fair values of options at the date of grant were $7.87 during fiscal 1999. 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 year ended December 31, 1998, 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 for the year ended March 31, 1999. 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 shares of common stock of the Company at March 31, 1999. 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 for fiscal 1999. The plan owned 521,594 shares of common stock of the Company at March 31, 1999, and all shares are allocated to the participants of the ESOP and are included in outstanding shares of common stock. F-64 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (9) ACCRUED EXPENSES Accrued expenses consist of the following:
1999 ----------- Accrued vacation............................................ $ 4,829,431 Accrued compensation and related taxes...................... 4,725,621 Accrued benefits............................................ 2,034,693 Accrued income taxes payable................................ 462,312 Other....................................................... 486,448 ----------- $12,538,505 ===========
(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 in fiscal 1999. 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 the Company's existing contracts 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 during fiscal 1999. F-65 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (10) COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 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 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. 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. F-66 ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1999 (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. The following table presents information about the Company's segments for the year ended March 31, 1999:
ENGINEERING/IT INTERACTIVE 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 ============ =========== =========== ============
(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following summarizes quarterly results of operations for the year ended March 31, 1999:
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 TOTAL -------- ------------ ----------- -------- --------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Quarter ended: 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
F-67 INDEPENDENT AUDITOR'S REPORT To the Board of Directors SHERIKON, Inc. Chantilly, Virginia We have audited the accompanying consolidated balance sheets of SHERIKON, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the related consolidated statements of income, cash flows, and stockholders' equity for each of 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 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 SHERIKON, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. KELLER BRUNER & COMPANY, LLP Bethesda, Maryland February 24, 2000 F-68 SHERIKON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- JUNE 30, 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) ASSETS Current Assets Cash.............................................. $ 393,912 $ 4,238,484 $ 4,199,498 Accounts receivable--contracts.................... 15,445,452 13,426,676 14,798,142 Prepaid expenses and other........................ 350,074 351,652 219,734 Prepaid income taxes.............................. 309,140 1,870 24,653 Deferred tax benefits............................. 35,065 819,933 819,933 ----------- ----------- ----------- Total current assets.......................... 16,533,643 18,838,615 20,061,960 ----------- ----------- ----------- Property and Equipment Office equipment and furniture.................... 1,051,771 1,098,515 1,096,118 Other property.................................... 246,286 316,252 348,555 Shop equipment.................................... 101,953 216,075 216,075 ----------- ----------- ----------- 1,400,010 1,630,842 1,660,748 Less accumulated depreciation................. 980,525 1,193,239 1,270,588 ----------- ----------- ----------- 419,485 437,603 390,160 ----------- ----------- ----------- Other Assets Notes receivable--stockholder..................... 235,000 235,000 235,000 Deposits and other................................ 324,522 447,491 485,972 Cash surrender value of life insurance............ 232,769 56,761 56,761 Deferred tax benefits............................. 162,800 61,200 61,200 ----------- ----------- ----------- 955,091 800,452 838,933 ----------- ----------- ----------- $17,908,219 $20,076,670 $21,291,053 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Note payable--line of credit...................... $ 5,682,928 $ 2,892,524 $ 3,445,180 Accounts payable.................................. 2,101,388 1,857,164 1,611,914 Accrued expenses.................................. 5,883,027 6,145,639 5,693,980 Income taxes payable.............................. -- 300,321 317,413 ----------- ----------- ----------- Total current liabilities..................... 13,667,343 11,195,648 11,068,487 ----------- ----------- ----------- Deferred Compensation............................... 448,530 184,511 197,963 ----------- ----------- ----------- Stockholders' Equity Common stock; no par value; 1,000 shares authorized; 970 shares issued................... 4,093 4,093 4,093 Retained earnings................................. 3,848,253 8,752,418 10,080,510 ----------- ----------- ----------- 3,852,346 8,756,511 10,084,603 Less cost of 30 shares of treasury stock........ 60,000 60,000 60,000 ----------- ----------- ----------- Total stockholders' equity.................... 3,792,346 8,696,511 10,024,603 ----------- ----------- ----------- $17,908,219 $20,076,670 $21,291,053 =========== =========== ===========
See Notes to Consolidated Financial Statements. F-69 SHERIKON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ---------------------------- ------------------------- 1998 1999 1999 2000 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Contract revenue..................... $71,796,011 $62,719,045 $31,439,647 $33,149,458 ----------- ----------- ----------- ----------- Direct contract costs: Direct labor....................... 27,191,323 22,780,696 11,409,513 12,430,333 Direct subcontractors.............. 8,990,349 6,925,619 3,518,919 4,102,174 Other direct costs................. 12,388,257 9,165,950 4,624,958 4,123,310 ----------- ----------- ----------- ----------- 48,569,929 38,872,265 19,553,390 20,655,817 ----------- ----------- ----------- ----------- Gross profit......................... 23,226,082 23,846,780 11,886,257 12,493,641 Indirect expenses.................... 21,023,697 19,302,673 9,713,603 10,310,595 ----------- ----------- ----------- ----------- Operating income..................... 2,202,385 4,544,107 2,172,654 2,183,046 ----------- ----------- ----------- ----------- Interest income...................... 42,852 200,923 69,546 121,767 Interest expense..................... (388,781) (220,865) (123,621) (148,721) ----------- ----------- ----------- ----------- (345,929) (19,942) (54,075) (26,954) ----------- ----------- ----------- ----------- Income before income taxes and net insurance proceeds................. 1,856,456 4,524,165 2,118,579 2,156,092 Provision for income taxes........... (727,000) (1,730,000) (837,000) (828,000) Net insurance proceeds............... -- 2,110,000 2,110,000 -- ----------- ----------- ----------- ----------- Income from continuing operations.... 1,129,456 4,904,165 3,391,579 1,328,092 Loss from discontinued operations, net of income tax benefit.......... (572,023) -- -- -- ----------- ----------- ----------- ----------- Net income..................... $ 557,433 $ 4,904,165 $ 3,391,579 $ 1,328,092 =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. F-70 SHERIKON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON RETAINED TREASURY STOCK EARNINGS STOCK TOTAL -------- ----------- -------- ----------- Balance, December 31, 1997................... $4,093 $ 3,290,820 $(60,000) $ 3,234,913 Net income................................... -- 557,433 -- 557,433 ------ ----------- -------- ----------- Balance, December 31, 1998................... 4,093 3,848,253 (60,000) 3,792,346 Net income................................... -- 4,904,165 -- 4,904,165 ------ ----------- -------- ----------- Balance, December 31, 1999................... 4,093 8,752,418 (60,000) 8,696,511 Net income for the six months ended June 30, 2000 (Unaudited)................................ -- 1,328,092 -- 1,328,092 ------ ----------- -------- ----------- Balance at June 30, 2000 (Unaudited)......... $4,093 $10,080,510 $(60,000) $10,024,603 ====== =========== ======== ===========
See Notes to Consolidated Financial Statements. F-71 SHERIKON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ----------------------- ------------------------- 1998 1999 1999 2000 ---------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) Cash Flows from Operating Activities Net income........................................ $ 557,433 $4,904,165 $3,391,579 $1,328,092 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Net proceeds from life insurance................ -- (2,110,000) (2,110,000) -- Depreciation and amortization................... 682,658 234,832 123,878 77,349 Provision for deferred income taxes............. 138,000 (683,268) -- -- (Gain) loss on disposal of property and equipment..................................... (8,019) 7,791 1,033 2,666 Loss on disposal of inventory................... 82,752 -- -- -- Changes in assets and liabilities: Accounts receivable........................... 96,151 2,018,776 3,849,631 (1,371,466) Prepaid expenses and other.................... (159,755) (1,578) 107,765 131,918 Prepaid income taxes.......................... (293,833) 307,270 118,394 (22,783) Deposits and other............................ (73,767) (122,969) (68,635) (38,481) Accounts payable.............................. (1,646,171) (223,873) (650,176) (245,250) Accrued expenses.............................. 531,944 262,612 (447,886) (451,662) Income taxes payable.......................... (100,290) 300,321 -- 17,092 Deferred compensation......................... 71,234 (264,019) (273,335) 13,452 ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities................................ (121,663) 4,630,060 4,042,248 (559,073) ---------- ---------- ---------- ---------- Cash Flows from Investing Activities Disbursement of notes receivable--stockholder..... (70,000) -- -- -- Net proceeds from (increase in) cash surrender value of life insurance......................... (69,398) 2,286,008 2,286,008 -- Purchase of property and equipment................ (220,214) (260,741) (49,803) (32,572) Proceeds from sale of property and equipment...... 427,500 -- -- -- ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities................................ 67,888 2,025,267 2,236,205 (32,572) ---------- ---------- ---------- ---------- Cash Flows from Financing Activities Net borrowings (payments) on line of credit....... 145,332 (2,790,404) (2,813,080) 552,659 Principal payments under capital leases........... (555,089) (10,351) (7,147) -- Principal payments on notes payable............... (25,791) (10,000) -- -- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities................................ (435,548) (2,810,755) (2,820,227) 552,659 ---------- ---------- ---------- ---------- Net increase (decrease) in cash............. (489,323) 3,844,572 3,458,226 (38,986) Cash: Beginning......................................... 883,235 393,912 393,912 4,238,484 ---------- ---------- ---------- ---------- Ending............................................ $ 393,912 $4,238,484 $3,852,138 $4,199,498 ========== ========== ========== ========== Supplemental Disclosures of Cash Flow Information: Cash payments (refunds) for: Interest........................................ $ 412,574 $ 219,370 $ 123,621 $ 148,721 ========== ========== ========== ========== Taxes paid...................................... $ 482,917 $1,225,530 $ 437,000 $ 829,500 ========== ========== ========== ========== Taxes received.................................. $ (15,307) $ (134,364) $ (114,527) $ (18,592) ========== ========== ========== ==========
See Notes to Consolidated Financial Statements F-72 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: SHERIKON, Inc. (the Company), is a professional services firm with the majority of its revenue derived from U.S. Government contracts. A summary of the Company's significant accounting policies follows: PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, SHERIKON Space Systems, Inc., which was incorporated on September 30, 1993, and South Texas Ship Repair, Inc., which was incorporated on May 29, 1996. All significant intercompany accounts and transactions are eliminated in consolidation. As discussed more thoroughly in Note 9, the Company's Precision Metals division is presented as discontinued operations. REVENUE AND COST RECOGNITION: Revenue on cost-plus-fee contracts is recognized to the extent of reimbursable contract costs incurred, plus the fee earned. Services performed which have been authorized, but which may not be currently billable, are burdened with operational overhead and general and administrative expenses, and shown as unbilled costs. Revenue on firm-fixed-price contracts is recognized on the percentage of completion method based on the relationship that contract costs incurred to date bear to management's estimate of total contract costs. Revenue on time and material contracts is recognized at contractual rates as labor hours and material costs are incurred. Revenue derived from contracts awarded to the Company while under the 8(a) program is approximately $8.0 million and $3.3 million in 1998 and 1999, respectively. The Company graduated from the 8(a) program in 1994. Revenue under the 8(a) program contracts for the six months ended June 30, 1998 and 1999 was approximately $4.9 and $1.9 million (unaudited), respectively. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company's United States Government contracts (approximately 98% and 97% of total revenue for 1998 and 1999, respectively) are subject to government audit of direct and indirect costs. All such incurred cost audits have been completed through December 31, 1996. Management does not anticipate any material adjustments to the financial statements in subsequent periods as a result of final settlement of these contracts. ACCOUNTS RECEIVABLE: In accordance with industry practice, accounts receivable relating to long-term contracts are classified as current assets, although an indeterminable portion of the amounts is not expected to be realized within one year. INCOME TAXES: Provision for deferred income taxes are provided on a liability method, whereby, deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost. Depreciation is provided using both straight-line and accelerated methods at rates calculated to amortize the cost of the applicable assets over estimated useful lives of three to seven years. F-73 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SOFTWARE-RELATED PRODUCT COSTS: The Company capitalized certain development costs of software-related products after technological feasibility and marketability had been demonstrated. In August 1997, these products were completed. The capitalized costs were being amortized over their estimated economic useful lives. Based upon the Company's evaluation of the recoverability of these costs, the net book value of the capitalized costs in the amount of $359,416, was written off in 1998. FINANCIAL CREDIT RISK: The Company maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash. 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. RECLASSIFICATIONS: Certain reclassifications have been made to prior years' financial statements, in order for them to conform to the current presentation. INTERIM FINANCIAL INFORMATION: The accompanying unaudited financial information for the six months ended June 30, 1999 and 2000, have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal securing accruals) considered necessary for a fair presentation have been included. All references to amounts at June 30, 2000, and the six month periods ended June 30, 1999 and 2000, are unaudited. NOTE 2. ACCOUNTS RECEIVABLE--CONTRACTS Accounts receivable as of December 31, 1998 and 1999 and June 30, 2000, consist of the following:
JUNE 30, 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) Amounts billed...................................... $11,340,394 $10,202,145 $12,007,550 Unbilled receivables................................ 4,249,640 3,224,531 2,790,592 ----------- ----------- ----------- 15,590,034 13,426,676 14,798,142 Less provision for doubtful accounts............ 144,582 -- -- ----------- ----------- ----------- $15,445,452 $13,426,676 $14,798,142 =========== =========== ===========
Unbilled accounts receivable consist primarily of work performed in December and billed in January. F-74 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. NOTES RECEIVABLE--STOCKHOLDER The primary stockholder borrowed $235,000 from the Company. The borrowings are evidenced by notes, which are unsecured, due upon demand, and accrue interest at 5.5% per annum. NOTE 4. NOTE PAYABLE--LINE OF CREDIT The Company's current loan agreement was entered into in October 1996 and amended October 1999. The loan agreement covers the consolidated Companies of SHERIKON, Inc. Under this agreement, the line of credit is secured by substantially all assets of the Company, is payable upon demand, and carries interest at Libor, plus 1.75%. The interest rate at December 31, 1999, was 8.229%. The maximum amount available on this line of credit is 90% of eligible billed government receivables, and 80% of eligible billed commercial receivables of SHERIKON, Inc. and SHERIKON Space Systems, Inc. If approved by the lender and in its sole discretion, 80% of the eligible billed commercial receivables of South Texas Ship Repair, Inc. may be included in the borrowing base. The borrowing base is also reduced by the face amounts of any letters of credit for the borrowers. The total of all loans outstanding at any time may not exceed $8,500,000. The loan expires in December 2000. The balance outstanding on the line of credit at December 31, 1998 and 1999, was $5,682,928 and $2,892,524, respectively. NOTE 5. INCOME TAXES The provision (benefit) for income taxes charged to operations for the years ended December 31, 1998 and 1999, consist of the following:
1998 1999 --------- ---------- Current: Federal tax expense................................ $490,800 $1,694,338 State tax expense.................................. 98,200 341,662 -------- ---------- 589,000 2,036,000 -------- ---------- Deferred: Federal tax expense (benefit)...................... 115,000 (254,650) State tax expense (benefit)........................ 23,000 (51,350) -------- ---------- 138,000 (306,000) -------- ---------- $727,000 $1,730,000 ======== ==========
F-75 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. INCOME TAXES (CONTINUED) Net deferred tax amounts as of December 31, 1998 and 1999, consist of the following:
1998 1999 --------- ---------- Deferred tax liabilities: Property and equipment............................ $ (7,952) $ (9,380) Prepaid expenses.................................. (15,927) (33,454) Contractually unbillable.......................... (535,582) (286,174) --------- ---------- (559,461) (329,008) --------- ---------- Deferred tax assets: Accrued vacation and salaries..................... 197,979 226,602 Deferred compensation............................. 170,735 70,566 Accrued expenses.................................. 367,676 912,973 Receivable reserves............................... 20,936 -- --------- ---------- 757,326 1,210,141 --------- ---------- $ 197,865 $ 881,133 ========= ==========
The deferred tax amounts mentioned above have been classified on the accompanying consolidated balance sheets as of December 31, 1998 and 1999, as follows:
1998 1999 --------- --------- Current assets........................................ $ 35,065 $819,933 Non-current assets.................................... 162,800 61,200 -------- -------- $197,865 $881,133 ======== ========
A reconciliation of the income tax provision and the amount computed by applying the statutory U.S. and state income tax rates for the years ended December 31, 1998 and 1999, is as follows:
1998 1999 --------- ---------- Amount at statutory U.S. rate........................ $318,000 $1,538,000 State taxes net of U.S. tax benefit.................. 40,000 180,000 Expenses not deductible for tax purposes and miscellaneous reconciling items.................... 20,000 12,000 -------- ---------- $378,000 $1,730,000 ======== ========== Effective tax rate................................... 40.40% 38.20%
The income tax expense recorded for the six months ended June 30, 1999 and June 30, 2000 (unaudited), was based on the Parent's effective tax rate for 1998 and 1999. F-76 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. DEPRECIATION AND AMORTIZATION Depreciation and amortization charged to expense for the years ended December 31, 1998 and 1999, is as follows:
ESTIMATED ASSET CATEGORY USEFUL LIVES 1998 1999 - -------------- ------------ --------- --------- Office equipment and furniture............................ 3 - 5 years $182,640 $152,087 Other property............................................ 2 - 7 years 43,518 51,063 Shop equipment............................................ 3 - 5 years 97,084 31,682 -------- -------- 323,242 234,832 Software related products................................. 5 years 359,416 -- -------- -------- $682,658 $234,832 ======== ========
NOTE 7. PROFIT SHARING PLAN The Company maintains a defined contribution profit sharing plan under the provisions of Section 401(k) of the Internal Revenue Code. All employees completing 500 hours and three consecutive months of service, and who are age 21 or older are eligible to participate. The plan provides for a discretionary contribution by the Company determined by the Board of Directors based primarily on earnings. Employees are vested in the discretionary contributions in accordance with a graded vesting schedule, and are fully vested after five years of participation. Discretionary contributions were $351,170 and $334,438 for the years ended December 31, 1998 and 1999, respectively. NOTE 8. LEASING ARRANGEMENTS The Company leases all of its office space and rents equipment under lease agreements which expire through 2011. Some of these leases are subject to increases due to adjustments in the Consumer Price Index, operating costs and real estate taxes. The minimum annual lease payments under noncancelable agreements accounted for as operating leases, are as follows:
YEARS ENDING DECEMBER 31, - ------------------------- 2000........................................................ $2,261,910 2001........................................................ 1,688,940 2002........................................................ 1,209,833 2003........................................................ 1,037,764 2004........................................................ 840,384 Thereafter.................................................. 2,325,202 ---------- $9,364,033 ==========
Total rent expense of $3,076,230 and $2,180,891 was charged to operations for the years ended December 31, 1998 and 1999, respectively. F-77 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. DISCONTINUED OPERATIONS On March 1, 1995, the Company purchased the inventory of Modern Metal Manufacturing, Inc. The purchase resulted in $420,349 of intangible asset. In 1996, the unamortized balance of the intangible asset, in the amount of $396,996 was charged to amortization expense. This operation was renamed SHERIKON Precision Metals. In September 1998, the Company decided to discontinue operations of the Precision Metals division. Accordingly, the operating results of the division have been segregated from continuing operations and reported as a separate line item on the Consolidated Statements of Income. The Company has restated its prior financial statements to present the operating results of Precision Metals as discontinued operations. The Company either sold or disposed of all property and equipment of the line of business during September and October of 1998. The estimated loss from operations and on disposal of the discontinued operations, are as follows:
1998 1999 --------- --------- Operating loss, net of income tax benefit of $292,000 for 1998.................................................... $(478,862) $ -- Loss on disposal, net of income tax benefit of $57,000.... (93,161) -- --------- --------- Loss from discontinued operations......................... $(572,023) $ -- ========= =========
NOTE 10. DEFERRED COMPENSATION The Company currently has a deferred compensation agreement with one key employee. The agreement requires the Company to pay the employee $113,379 per year for 15 years upon attainment of age sixty-five. Upon Company approval, benefits at a reduced percentage will be provided in the event of early retirement, or if the employee becomes disabled. If employment is terminated for any reason, the employee is entitled to benefits based upon a vesting schedule. The agreement further stipulates that the entire benefit will be provided to the designated beneficiaries upon the death of the employee. The present value of the estimated liability under the agreement is being accrued over the expected remaining years of employment. The Company is the owner and beneficiary of one life insurance policy, with a face amount totaling $411,000 on the life of the above-mentioned employee, which will fund the potential benefits owed by the Company. As more fully described in Note 11, a deferred compensation agreement became payable in 1999 as the result of the death of Edward R. Fernandez. The deferred compensation expense for the years ended December 31, 1998 and 1999, was $71,234 and $26,907, respectively, which are the payments that would be required to fund the present value of the benefits discounted at 7.5%. The plan does not qualify under the Internal Revenue Code and therefore, tax deductions are allowable only when the benefits are paid. The Company also provided one of its executives with a split dollar life insurance policy whereby the Company paid the premiums on the executive's behalf. The cumulative premiums paid were $212,430 and $277,450, at December 31, 1998 and 1999, respectively. The amount of cumulative premiums will be reimbursed to the Company from proceeds from the insurance policy or its cash surrender value. NOTE 11. NET INSURANCE PROCEEDS On January 31, 1999, Edward R. Fernandez, SHERIKON, Inc.'s founder, President, and Chief Executive Officer, died in the crash of his private airplane. SHERIKON, Inc. maintained various life insurance policies on Mr. Fernandez and had a deferred compensation agreement which became F-78 SHERIKON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11. NET INSURANCE PROCEEDS (CONTINUED) payable in April 1999, as a lump sum payment to Mr. Fernandez's wife. The after tax proceeds from the insurance policies, less the present value of the deferred compensation obligation, net of its tax benefit, was approximately $2,110,000. NOTE 12. LITIGATION The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that any potential liability, arising from these claims against the Company, not covered by insurance, would be minimal. F-79 INDEPENDENT AUDITORS' REPORT The Board of Directors Anteon International Corporation: We have audited the accompanying balance sheets of the Sigcom, Inc. Training Division as of December 31, 2000 and 1999 and the related statements of operations and divisional equity, and cash flows for each of 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 audit in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of the Sigcom, Inc. Training Division as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. BASON & COMPANY, P.A. Greensboro, North Carolina September 7, 2001 F-80 SIGCOM, INC. TRAINING DIVISION BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ---------- ---------- CURRENT ASSETS Accounts receivable......................................... $3,471,613 $1,106,843 Costs and estimated earnings in excess of billings on uncompleted contracts..................................... 1,300,258 1,210,262 ---------- ---------- Total Current Assets.................................... 4,771,871 2,317,105 ---------- ---------- Equipment Equipment................................................... 181,426 171,844 Accumulated depreciation.................................... (100,718) (66,159) ---------- ---------- 80,708 105,685 ---------- ---------- Total Assets............................................ $4,852,579 $2,422,790 ========== ========== CURRENT LIABILITIES Accounts payable............................................ $1,051,281 $ 560,551 Accrued salaries and related benefits....................... 87,683 89,095 ---------- ---------- Total Current Liabilities............................... 1,138,964 649,646 Divisional Equity........................................... 3,713,615 1,773,144 ---------- ---------- Total Liabilities and Divisional Equity................. $4,852,579 $2,422,790 ========== ==========
See notes to financial statements. F-81 SIGCOM, INC. TRAINING DIVISION STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- Revenues.................................................... $12,450,243 $12,278,454 Costs of Revenues........................................... 9,143,534 8,330,504 ----------- ----------- Gross Profit............................................ 3,306,709 3,947,950 General and Administrative Expenses......................... 1,398,278 1,190,165 ----------- ----------- Net Income.............................................. 1,908,431 2,757,785 Divisional Equity, Beginning................................ 1,773,144 2,341,712 Divisional Equity Contributions (Distributions), Net........ 32,040 (3,326,353) ----------- ----------- Divisional Equity, Ending................................... $ 3,713,615 $ 1,773,144 =========== ===========
See notes to financial statements. F-82 SIGCOM, INC. TRAINING DIVISION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- Cash Flows from Operating Activities Net income.............................................. $ 1,908,431 $ 2,757,785 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation expense.................................. 34,559 17,184 Increase in accounts receivable....................... (2,364,770) (1,800,669) Increase (decrease) in costs and estimated earnings in excess of billings on uncompleted contracts...... (89,996) 2,111,388 Increase in accounts payable.......................... 490,730 228,246 Increase (decrease) in accrued salaries and related benefits............................................ (1,412) 12,419 ----------- ----------- Net Cash Provided (used) by Operating Activities.... (22,458) 3,326,353 ----------- ----------- Cash Flows from Investing Activities Purchase of equipment................................... (9,582) -- ----------- ----------- Cash Flows from Financing Activities Divisional equity contributions (distributions), net.... 32,040 (3,326,353) ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents....................................... $ -- $ -- =========== ===========
See notes to financial statements. F-83 SIGCOM, INC. TRAINING DIVISION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION Sigcom, Inc. was incorporated in October 1985 to provide information technology and communications solutions to government and commercial customers. The Training Division of Sigcom, Inc. concentrates on the integration and replication of real-life, urban battlefield environments, as they exist in third world countries. The Training Division's primary customer has been the U. S. Army Simulation, Training and Instrumentation Command, an agency of the U.S. Government. On July 20, 2001, Sigcom, Inc. sold certain of the assets and liabilities of the Training Division to Anteon International Corporation for approximately $10.4 million. The accompanying financial statements present the financial condition, results of operations and cash flows of the Training Division of Sigcom, Inc. (the "Training Division"). The accompanying financial statements include no adjustments related to the sale of the Training Division. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. EQUIPMENT AND DEPRECIATION Equipment is stated at cost. Depreciation of equipment is provided using accelerated methods over the estimated useful lives of 5 to 7 years. The Training Division 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"). SFAS No. 121 requires that long-lived assets 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 undiscounted 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 exceeds the fair value of the assets. REVENUE RECOGNITION Revenue from long-term fixed price contracts is recognized on the percentage-of-completion method, measured by the proportion of costs incurred to date to estimated total costs for each contract. Revenue under time and materials contracts is recognized as labor hours and materials costs are incurred, based on the contractually agreed-upon hourly rates and cost reimbursement methods. F-84 SIGCOM, INC. TRAINING DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 AND 1999 NOTE A--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Costs of revenues include all direct material and labor costs and those indirect costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on the uncompleted contracts are made in the period in which such losses are determined. Changes in estimated profitability are recognized in the period in which the revisions are determined. S CORPORATION--INCOME TAX STATUS Sigcom, Inc., with the consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation and is not directly subject to federal and state income taxes. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for income taxes has been included in the Training Division's financial statements. DIVISIONAL EQUITY Divisional equity represents Sigcom, Inc.'s ownership of the net assets of the Training Division. The Training Division does not maintain its own cash accounts. All payments of Training Division expenses are made by Sigcom, Inc., and all receipts of contract payments are made to Sigcom, Inc. Such payments and receipts of cash increase and decrease, respectively, the divisional equity account. CORPORATE ALLOCATIONS Overhead consists of facilities costs such as rent, maintenance, and utilities and infrastructure costs. These costs are allocated to the overhead pool based on the ratio of direct employees to general and administrative employees. Fringe costs consist of payroll taxes, health insurance, 401(k) employer match, and other employee benefit costs. Overhead costs and fringe costs were allocated to the Training Division based on the ratio of Training Division direct labor to total direct labor. For the years ended December 31, 2000 and 1999, Sigcom, Inc. allocated overhead of $782,232 and $467,936 and fringes of $456,481 and $328,023, respectively, to the Training Division. General and administrative costs consist primarily of sales and marketing costs, accounting costs, and other miscellaneous costs not charged directly to jobs or to overhead. Sigcom, Inc. allocates general and administrative costs to the Training Division based on the ratio of Training Division direct costs to total direct costs. Management of the Training Division believes that the amount allocated for such general and administrative costs is consistent with the amount that would have been incurred had the Training Division been a separate entity during 2000 and 1999. F-85 SIGCOM, INC. TRAINING DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 AND 1999 NOTE B--COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows at December 31,:
2000 1999 ----------- ----------- Costs incurred on uncompleted contracts.................. $32,617,270 $22,075,457 Estimated earnings....................................... 7,309,996 5,451,089 ----------- ----------- 39,927,266 27,526,546 Billings to date......................................... 38,627,008 26,316,284 ----------- ----------- Costs and Estimated Earnings in Excess of Billings Uncompleted Contracts.................................. $ 1,300,258 $ 1,210,262 =========== ===========
Approximately 100% of the Training Division's revenues for 2000 and 1999 have been earned, and 100% of the accounts receivable as of December 31, 2000 and 1999 are due, from agencies of the U.S. Government. The Training Division anticipates that costs and estimated earnings in excess of billings on uncompleted contracts as of December 31, 2000 will primarily be billed and due within one year. The accuracy and appropriateness of the Training Division'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 Training Division's cost estimates or allocations with respect to any government contracts. Additionally, a portion of the payments to the Training Division under government contracts are provisional payments that are subject to potential adjustment upon audit by such agencies. Although no assurances can be given, 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 Training Division's financial condition or results of operations. NOTE C--NOTE PAYABLE TO BANK Sigcom, Inc. has a line of credit not to exceed $5,000,000 at Bank of America. This line of credit calls for interest at a variable rate equal to 90 day L.I.B.O.R. plus 200 basis points and contains certain covenants to be followed by Sigcom, Inc. As of December 31, 2000, Sigcom, Inc. was either in compliance or had received waivers of non-compliance under the loan covenants. The balance drawn on this line was $3,250,016 at December 31, 2000. Sigcom, Inc. was not indebted on this line at December 31, 1999. The line of credit is secured by substantially all of the assets of Sigcom, Inc., including those of the Training Division. No interest expense from the line of credit has been directly allocated to the Training Division. NOTE D--LEASE COMMITMENTS While the Training Division is not directly obligated under noncancelable operating leases, Sigcom, Inc. is obligated under noncancelable operating leases for property and equipment that expire over the next three years. F-86 SIGCOM, INC. TRAINING DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 AND 1999 NOTE D--LEASE COMMITMENTS (CONTINUED) Rent expense is allocated to the Training Division both directly and through Sigcom, Inc.'s allocation of general and administrative expenses. Rent expense directly allocated to the training division was approximately $49,000 and $18,000 for the years ended December 31, 2000 and 1999, respectively. NOTE E--PENSION PLAN Sigcom, Inc. maintains a 401-K pension plan for all eligible employees. Employees of the Training Division are eligible to participate in the plan each January 1 and July 1 of each year, if they have reached age 20 1/2 and work at least 1,000 hours per year. Generally, employees can defer up to 15% of their gross salary into the plan. The employer can make a matching discretionary contribution for the employee, not to exceed 50% of the first 5% of the employees' annual contribution (excluding employee contributions made on bonuses and commissions). Employer contributions to the plan for Training Division employees were $34,349 and $27,743 for the years ended December 31, 2000 and 1999, respectively. NOTE F--STOCK OPTION PLAN During 1998, Sigcom, Inc. adopted two stock option plans. Certain employees of the Training Division also participate in these plans. Under the plans, Sigcom, Inc. may grant options for up to 3,000,000 and 1,000,000 shares of common stock under the key and non-key plans respectively. The exercise price for options granted under the plans is fifty cents ($.50) per share. The options under the key plan begin vesting at the rate of 1/3 each year and as such are fully vested after three years. Options granted under the non-key plan may be exercised only upon a Change of Control (as defined in the plan). The options expire three years after full vesting. At December 31, 2000 and 1999, there were 290,000 and 21,000 options outstanding under the key and non-key plans, respectively, which had been granted to Training Division employees. F-87 SIGCOM, INC. TRAINING DIVISION UNAUDITED BALANCE SHEET JUNE 30, 2001 CURRENT ASSETS Accounts receivable......................................... $2,102,079 Costs and estimated earnings in excess of billings on uncompleted contracts..................................... 1,654,081 ---------- Total Current Assets.................................... 3,756,160 ---------- Equipment Equipment................................................... 181,426 Accumulated depreciation.................................... (118,595) ---------- 62,831 ---------- Total Assets............................................ $3,818,991 ========== CURRENT LIABILITIES Accounts payable............................................ $ 848,102 Accrued salaries and related benefits....................... 164,220 Billings in excess of costs and estimated earnings on uncompleted contracts..................................... 39,798 ---------- Total Current Liabilities............................... 1,052,120 Divisional Equity........................................... 2,766,871 ---------- Total Liabilities and Divisional Equity................. $3,818,991 ==========
See note to unaudited financial statements. F-88 SIGCOM, INC. TRAINING DIVISION UNAUDITED STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000 ----------- ---------- Revenues.................................................... $ 7,238,672 $5,985,978 Costs of Revenues....................................... 6,022,090 4,376,566 ----------- ---------- Gross Profit................................................ 1,216,582 1,609,412 General and Administrative Expenses......................... 578,578 669,417 ----------- ---------- Net Income.............................................. 638,004 939,995 Divisional Equity, Beginning................................ 3,713,615 1,773,144 Divisional Equity Contributions (Distributions), Net........ (1,584,748) 836,877 ----------- ---------- Divisional Equity, Ending................................... $ 2,766,871 $3,550,016 =========== ==========
See note to unaudited financial statements. F-89 SIGCOM, INC. TRAINING DIVISION UNAUDITED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000 ---------- ---------- Cash Flows from Operating Activities Net income................................................ $ 638,004 $ 939,995 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation expense.................................... 17,877 17,184 Decrease (increase) in accounts receivable.............. 1,369,534 (1,815,804) Increase in costs and estimated earnings in excess of billings on uncompleted contracts..................... (353,823) (270,921) Increase (decrease) in accounts payable................. (203,179) 250,030 Increase in accrued salaries and related benefits....... 76,537 42,639 Increase in billings in excess of costs and estimated earnings on uncompleted contracts..................... 39,798 -- ---------- ---------- Net Cash Provided (Used) by Operating Activities...... 1,584,748 (836,877) ---------- ---------- Cash Flows from Financing Activities Divisional equity contributions (distributions), net...... (1,584,748) 836,877 ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents......................................... $ -- $ -- ========== ==========
See note to unaudited financial statements. F-90 SIGCOM, INC. TRAINING DIVISION NOTE TO UNAUDITED FINANCIAL STATEMENTS JUNE 30, 2001 AND 2000 NOTE A--BASIS OF PRESENTATION The information furnished in the accompanying unaudited balance sheet, statements of operations and divisional equity, and statements of cash flows have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, such information contains all adjustments, consisting of only normal recurring adjustments, considered necessary for a fair presentation of such information. The operating results for the six months ended June 30, 2001 may not be indicative of the results of operations for the year ending December 31, 2001 or any future period. This financial information should be read in conjunction with the Sigcom, Inc. Training Division's December 31, 2000 audited financial statements and footnotes thereto. On July 20, 2001, Sigcom, Inc. sold certain assets and liabilities of the Training Division to Anteon International Corporation for approximately $10.4 million. The accompanying unaudited financial statements include no adjustments related to the sale of the Training Division. F-91 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. --------------------------- TABLE OF CONTENTS
Page -------- Prospectus Summary....................... 1 Risk Factors............................. 7 Forward-Looking Statements............... 18 Use of Proceeds.......................... 19 Dividend Policy.......................... 20 Capitalization........................... 21 Dilution................................. 22 Unaudited Pro Forma Condensed Consolidated Financial Information..... 23 Selected Consolidated Financial Data..... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 32 Business................................. 45 Management............................... 57 Principal and Selling Stockholders....... 66 Certain Relationships.................... 69 Description of Indebtedness.............. 71 Description of Capital Stock............. 73 Shares Eligible for Future Sale.......... 78 Certain U.S. Federal Tax Considerations for Non-U.S. Holders................... 80 Underwriting............................. 83 Legal Matters............................ 86 Experts.................................. 86 Where You Can Find More Information...... 86 Index to Consolidated Financial Statements............................. F-1
------------------------ Shares ANTEON INTERNATIONAL CORPORATION Common Stock ------------------ [LOGO] ------------------ GOLDMAN, SACHS & CO. BEAR, STEARNS & CO. INC. CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS MERRILL LYNCH & CO. Representatives of the Underwriters - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following sets forth the estimated expenses and costs (other than underwriting discounts and commissions) expected to be incurred by us in connection with the issuance and distribution of the common stock registered hereby: SEC registration fee........................................ $ 21,160 NASD fee.................................................... 23,500 Printing and engraving expenses............................. * Accounting fees and expenses................................ * Legal fees and expenses..................................... * Blue Sky fees and expenses.................................. * NYSE listing application fee................................ * Transfer agent fees and expenses............................ * Miscellaneous............................................... * ----------------- TOTAL................................................... * =================
- ------------------------ * To be provided by amendment. No portion of the above expenses will be paid by the selling stockholders. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the General Corporation Law of the State of Delaware provides as follows: A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent or another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person's conduct was unlawful. A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification will be made in respect to any claim, issue or II-1 matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Our amended and restated certificate of incorporation provides that we will indemnify any person, including persons who are not our directors and officers, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law. In addition, pursuant to our By-laws, we will indemnify our directors and officers against expenses (including judgments or amounts paid in settlement) incurred in any action, civil or criminal, to which any such person is a party by reason of any alleged act or failure to act in his capacity as such, except as to a matter as to which such director or officer shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation or not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation. The underwriting agreement provides that the underwriters are obligated, under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of underwriting agreement filed as Exhibit 1.1 hereto. We maintain directors and officers liability insurance for the benefit of our directors and certain of our officers. Reference is made to Item 17 for our undertakings with respect to indemnification for liabilities arising under the U.S. Securities Act of 1993. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following is a summary of transactions by us involving sales of our securities that were not registered under the Securities Act during the last three years preceding the date of this registration statement: (a) During 1999, we issued 13,520 shares of common stock upon the exercise of options to some of our current and former employees at a weighted average exercise price of $2.46139 per share. (b) On April 13, 1999, we issued options to purchase an aggregate of 46,000 shares of common stock to some of our employees, each at an exercise price of $9.72 per share. (c) On May 11, 1999, we issued $100 million aggregate principal amount of our 12% senior subordinated notes due 2009 to a group of initial purchasers led by Credit Suisse First Boston Corporation, at an aggregate discount to the initial purchasers of 3%. The holders of these notes subsequently exchanged them for registered notes we offered with otherwise substantially identical terms, pursuant to an exchange offer which expired on September 28, 1999. (d) On May 26, 1999, we issued options to purchase an aggregate of 31,000 shares of common stock to some of our employees, each at an exercise price of $9.72 per share. (e) On June 23, 1999, we issued 29 shares of common stock at a price of $5,959 per share to one of our current stockholders. (f) On July 23, 1999, we issued options to purchase an aggregate of 396,900 shares of common stock to some of our employees, each at an exercise price of $10.495 per share. II-2 (g) On December 3, 1999, we issued options to purchase an aggregate of 33,000 shares of common stock to some of our employees, each at an exercise price of $10.495 per share. (h) During 2000, we issued 20,240 shares of common stock upon the exercise of options to some of our current and former employees at a weighted average exercise price of $3.47016 per share. (i) On March 3, 2000, we issued options to purchase an aggregate of 60,000 shares of common stock to some of our employees, each at an exercise price of $12.4975 per share. (j) On May 5, 2000, we issued options to purchase an aggregate of 267,500 shares of common stock to some of our employees, each at an exercise price of $12.4975 per share. (k) On September 21, 2000, we issued options to purchase an aggregate of 48,500 shares of common stock to some of our employees, each at an exercise price of $12.81 per share. (l) On October 20, 2000, we issued a subordinated promissory note in the aggregate principal amount of $2,500,000 to the former stockholders of Sherikon, Inc. in connection with our acquisition of Sherikon, Inc. (m) On December 8, 2000, we issued options to purchase an aggregate of 64,500 shares of common stock to some of our employees, each at an exercise price of $12.97 per share. (n) During 2001, we issued 41,340 shares of common stock upon the exercise of options to some of our current and former employees at a weighted average exercise price of $3.66688 per share. (o) On April 27, 2001, we issued options to purchase an aggregate of 26,000 shares of common stock to some of our employees, each at an exercise price of $16.19 per share. (p) Year to date in 2002, we issued 79,840 shares of common stock upon the exercise of options to some of our current and former employees at a weighted average exercise price of $8.46 per share. (q) On , we issued shares of common stock to our existing stockholders upon the split of outstanding shares, on the basis of shares for each outstanding share. (r) Immediately prior to the consummation of this offering, we issued shares of common stock in connection with the merger of Anteon Virginia with and into us, and the related reorganization transactions. The issuances listed above are exempt from registration under Section 4(2) or Rule 701 of the Securities Act as transactions by an issuer not involving a public offering, or because such issuances did not represent sales of securities. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. a. Exhibits 1.1 Form of Underwriting Agreement.* 2.1 Agreement and Plan of Merger, dated as of March 7, 1999, by and among the Anteon Corporation, Buffalo Acquisition Corporation and Analysis & Technology, Inc. (incorporated by reference to Exhibit Z to Analysis & Technologies, Inc.'s Current Report on Form 8-K filed on March 9, 1999). 2.2 Form of Agreement and Plan of Merger between Anteon International Corporation, a Virginia corporation, and the Registrant.*
II-3 3.1 Form of Amended and Restated Certificate of Incorporation of Anteon International Corporation.* 3.2 Form of Certificate of Designations of Series A Preferred Stock of Anteon International Corporation.* 3.3 Form of Amended and Restated By-laws of Anteon International Corporation.* 4.1 Indenture, dated as of May 11, 1999, by and among Anteon Corporation, Vector Data Systems, Inc., Techmatics, Inc. and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 4.2 First Supplemental Indenture, effective as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp. and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.2 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.3 Second Supplemental Indenture, effective as of October 14, 1999, among Anteon Corporation, Anteon-CITI LLC and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.3 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.4 Third Supplemental Indenture, dated as of October 20, 2000, among Anteon Corporation, Sherikon, Inc. and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.4 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.5 Fourth Supplemental Indenture, dated January 1, 2001, among Anteon International Corporation (formerly Anteon Corporation), Anteon Corporation (formerly Techmatics, Inc.) and The Bank of New York, as successor trustee of IBJ Whitehall Bank & Trust Company (incorporated by reference to Exhibit 4.5 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.6 Form of Fifth Supplemental Indenture among the Registrant and The Bank of New York, as trustee.* 4.7 Form of Specimen Stock Certificate.** 4.8 Form of Registration Rights Agreement among the Registrant, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Frederick J. Iseman, Joseph M. Kampf and the other parties named therein.* 4.9 Form of Rights Agreement.* 5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the shares.** 8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax matters.** 10.1 Stock Purchase Agreement, dated August 29, 1997, by and among Anteon Corporation, Vector Data Systems, Inc. and the stockholders of Vector Data Systems, Inc. signatories thereto (incorporated by reference to Exhibit 10.1 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)).
II-4 10.2 Agreement and Plan of Merger, dated May 13, 1998, by and among Anteon Corporation, TM Acquisition Corp., Techmatics, Inc. and certain stockholders of Techmatics, Inc. signatories thereto (incorporated by reference to Exhibit 10.2 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.3 Purchase Agreement, dated May 6, 1999, by and among Anteon Corporation, 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 (incorporated by reference to Exhibit 10.3 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.4 Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.4 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.5 Amendment No. 1, dated as of January 13, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.17 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.6 Amendment No. 2, dated as of March 29, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.18 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.7 Amendment No. 3, dated as of June 30, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.19 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.8 Amendment No. 4, dated as of October 19, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.20 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.9 Amendment No. 5, dated as of December 31, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.25 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.10 Amendment No. 6, dated as of February 1, 2002, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein.*
II-5 10.11 Pledge Agreement, dated as of June 23, 1999, among Anteon Corporation, the Registrant, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.5 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.12 Indemnity, Subrogation and Contribution Agreement, dated as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.6 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.13 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. (incorporated by reference to Exhibit 10.7 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.14 Security Agreement, dated as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.8 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.15 Fee Agreement, dated as of June 1, 1999, between Anteon Corporation, and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.9 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.16 Form of Amended and Restated Omnibus Stock Plan.* 10.17 Stock Purchase Agreement, by and among Anteon Corporation, Sherikon, Inc. and the stockholders of Sherikon, Inc., dated as of October 20, 2000 (incorporated by reference to Exhibit 2 to Anteon International Corporation's Current Report on Form 8-K filed on November 6, 2000). 10.18 Asset Purchase Agreement, dated as of July 20, 2001, between Anteon Corporation and SIGCOM, Inc. (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.19 Stock Purchase Agreement, dated July 20, 2001, by and among Anteon International Corporation, Interactive Media Corporation and FTK Knowledge (Holding) Inc. (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.20 Asset Purchase Agreement, dated June 29, 2001, between Anteon International Corporation and B&G, LLC (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.21 Letter Agreement between Anteon International Corporation and Caxton-Iseman Capital, Inc., dated as of January 30, 2002, terminating Fee Agreement between such parties dated as of June 1, 1999.* 10.22 Form of Retention Agreement.* 21.1 Subsidiaries of the Registrant.*
II-6 23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).** 23.2 Consent of KPMG LLP with respect to the Registrant.* 23.3 Consent of KPMG LLP with respect to Analysis & Technology, Inc.* 23.4 Consent of Keller Bruner & Company LLP with respect to Sherikon, Inc.* 23.5 Consent of Bason and Company PA with respect to the Training Division of SIGCOM, Inc.* 24.1 Power of Attorney.*** 99.1 Consent of Henry Hugh Shelton to be named as a director nominee.**
- ------------------------ * Filed herewith. ** To be provided by amendment. *** Previously filed. b. Financial Statement Schedules The following financial statement schedule is included herein: Schedule 1--Condensed Financial Information of Registrant All other schedules are omitted because they are either not required, not applicable or the required information is included in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 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 Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fairfax, Commonwealth of Virginia, on February 5, 2002. ANTEON INTERNATIONAL CORPORATION By: /s/ JOSEPH M. KAMPF ----------------------------------------- Name: Joseph M. Kampf Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the following capacities on the 5th day of February, 2002. * --------------------------------------------- Name: Frederick J. Iseman Title: Chairman of the Board and Director /s/ JOSEPH M. KAMPF --------------------------------------------- Name: Joseph M. Kampf Title: President, Chief Executive Officer and Director * --------------------------------------------- Name: Carlton B. Crenshaw Title: Chief Financial Officer and Chief Accounting Officer * --------------------------------------------- Name: Thomas M. Cogburn Title: Director --------------------------------------------- Name: Gilbert F. Decker Title: Director * --------------------------------------------- Name: Robert A. Ferris Title: Director
II-8 --------------------------------------------- Name: Dr. Paul Kaminski Title: Director * --------------------------------------------- Name: Steven M. Lefkowitz Title: Director
*By: /s/ JOSEPH M. KAMPF -------------------------------------- Joseph M. Kampf ATTORNEY-IN-FACT
II-9 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER BALANCE AT OF PERIOD EXPENSES ACCOUNTS* DEDUCTIONS END OF PERIOD ---------- ---------- ---------- ---------- ------------- YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts....................... $3,459 $ 826 $ 612 $ (696) $4,201 Deferred tax asset valuation allowance...................... -- -- -- -- -- YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts....................... $4,201 108 1,778 (1,739) $4,348 Deferred tax asset valuation allowance...................... -- 295 -- -- 295 YEAR ENDED DECEMBER 31, 2001 Allowance for doubtful accounts....................... $4,348 1,351 -- (1,200) $4,499 Deferred tax asset valuation allowance...................... 295 -- -- -- 295
- ------------------------ * Represents amounts recognized from acquired companies. S-1 EXHIBIT INDEX
EXHIBIT PAGE - ------- ---- 1.1 Form of Underwriting Agreement.* 2.1 Agreement and Plan of Merger, dated as of March 7, 1999, by and among the Anteon Corporation, Buffalo Acquisition Corporation and Analysis & Technology, Inc. (incorporated by reference to Exhibit Z to Analysis & Technologies, Inc.'s Current Report on Form 8-K filed on March 9, 1999). 2.2 Form of Agreement and Plan of Merger between Anteon International Corporation, a Virginia corporation, and the Registrant.* 3.1 Form of Amended and Restated Certificate of Incorporation of Anteon International Corporation.* 3.2 Form of Certificate of Designations of Series A Preferred Stock of Anteon International Corporation.* 3.3 Form of Amended and Restated By-laws of Anteon International Corporation.* 4.1 Indenture, dated as of May 11, 1999, by and among Anteon Corporation, Vector Data Systems, Inc., Techmatics, Inc. and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.1 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 4.2 First Supplemental Indenture, effective as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp. and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.2 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.3 Second Supplemental Indenture, effective as of October 14, 1999, among Anteon Corporation, Anteon-CITI LLC and IBJ Whitehall Bank & Trust Company, as trustee (incorporated by reference to Exhibit 4.3 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.4 Third Supplemental Indenture, dated as of October 20, 2000, among Anteon Corporation, Sherikon, Inc. and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.4 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.5 Fourth Supplemental Indenture, dated January 1, 2001, among Anteon International Corporation (formerly Anteon Corporation), Anteon Corporation (formerly Techmatics, Inc.) and The Bank of New York, as successor trustee of IBJ Whitehall Bank & Trust Company (incorporated by reference to Exhibit 4.5 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 4.6 Form of Fifth Supplemental Indenture among the Registrant and The Bank of New York, as trustee.* 4.7 Form of Specimen Stock Certificate.** 4.8 Form of Registration Rights Agreement among the Registrant, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Frederick J. Iseman, Joseph M. Kampf and the other parties named therein.* 4.9 Form of Rights Agreement.*
EXHIBIT PAGE - ------- ---- 5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the shares.** 8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax matters.** 10.1 Stock Purchase Agreement, dated August 29, 1997, by and among Anteon Corporation, Vector Data Systems, Inc. and the stockholders of Vector Data Systems, Inc. signatories thereto (incorporated by reference to Exhibit 10.1 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.2 Agreement and Plan of Merger, dated May 13, 1998, by and among Anteon Corporation, TM Acquisition Corp., Techmatics, Inc. and certain stockholders of Techmatics, Inc. signatories thereto (incorporated by reference to Exhibit 10.2 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.3 Purchase Agreement, dated May 6, 1999, by and among Anteon Corporation, 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 (incorporated by reference to Exhibit 10.3 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.4 Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.4 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.5 Amendment No. 1, dated as of January 13, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.17 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.6 Amendment No. 2, dated as of March 29, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.18 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.7 Amendment No. 3, dated as of June 30, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.19 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.8 Amendment No. 4, dated as of October 19, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.20 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001).
EXHIBIT PAGE - ------- ---- 10.9 Amendment No. 5, dated as of December 31, 2000, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein (incorporated by reference to Exhibit 10.25 of Anteon Corporation's Quarterly Report on Form 10-Q/A filed on June 15, 2001). 10.10 Amendment No. 6, dated as of February 1, 2002, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation, Credit Suisse First Boston, Mellon Bank, N.A., Deutsche Bank AG and the lenders named therein.* 10.11 Pledge Agreement, dated as of June 23, 1999, among Anteon Corporation, the Registrant, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.5 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.12 Indemnity, Subrogation and Contribution Agreement, dated as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.6 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.13 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. (incorporated by reference to Exhibit 10.7 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.14 Security Agreement, dated as of June 23, 1999, among Anteon Corporation, Analysis & Technology, Inc., Interactive Media Corp., Techmatics, Inc., Vector Data Systems, Inc. and Mellon Bank, N.A. (incorporated by reference to Exhibit 10.8 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.15 Fee Agreement, dated as of June 1, 1999, between Anteon Corporation, and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.9 to Anteon International Corporation's Registration Statement on Form S-4 filed on August 9, 1999 (Commission File No. 333-84835)). 10.16 Form of Amended and Restated Omnibus Stock Plan.* 10.17 Stock Purchase Agreement, by and among Anteon Corporation, Sherikon, Inc. and the stockholders of Sherikon, Inc., dated as of October 20, 2000 (incorporated by reference to Exhibit 2 to Anteon International Corporation's Current Report on Form 8-K filed on November 6, 2000). 10.18 Asset Purchase Agreement, dated as of July 20, 2001, between Anteon Corporation and SIGCOM, Inc. (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.19 Stock Purchase Agreement, dated July 20, 2001, by and among Anteon International Corporation, Interactive Media Corporation and FTK Knowledge (Holding) Inc. (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.20 Asset Purchase Agreement, dated June 29, 2001, between Anteon International Corporation and B&G, LLC (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001).
EXHIBIT PAGE - ------- ---- 10.21 Letter Agreement between Anteon International Corporation and Caxton-Iseman Capital, Inc., dated as of January 30, 2002, terminating Fee Agreement between such parties dated as of June 1, 1999.* 10.22 Form of Retention Agreement.* 21.1 Subsidiaries of the Registrant.* 23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).** 23.2 Consent of KPMG LLP with respect to the Registrant.* 23.3 Consent of KPMG LLP with respect to Analysis & Technology, Inc.* 23.4 Consent of Keller Bruner & Company LLP with respect to Sherikon, Inc.* 23.5 Consent of Bason and Company PA with respect to the Training Division of SIGCOM, Inc.* 24.1 Power of Attorney.*** 99.1 Consent of Henry Hugh Shelton to be named as a director nominee.**
- ------------------------ * Filed herewith. ** To be provided by amendment. *** Previously filed. EX-1.1 3 a2069486zex-1_1.txt EXHIBIT 1.1 [Draft--2/1/02] Exhibit 1.1 ANTEON INTERNATIONAL CORPORATION COMMON STOCK ------------ UNDERWRITING AGREEMENT [ ], 2002 Goldman, Sachs & Co., Bear, Stearns & Co. Inc. Credit Suisse First Boston Corporation Lehman Brothers Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated As representatives (the "Representatives") of the several Underwriters named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Anteon International Corporation, a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of . . . . . . . shares of common stock ("Stock") of the Company and the stockholders named in Schedule II hereto (the "Selling Stockholders") propose, subject to the terms and conditions stated herein, to sell to the Underwriters an aggregate of . . . . . . . shares of common stock of the Company that such Selling Stockholders hold or will receive pursuant to the exercise of options to purchase shares of common stock of the Company or Anteon Virginia (as defined below), the conversion of a note convertible into shares of common stock of the Company and/or the terms of the merger agreement between the Company and Anteon International Corporation, a Virginia corporation and a subsidiary of the Company ("Anteon Virginia"), described below. In addition, certain of the Selling Stockholders propose, subject to the terms and conditions stated herein, to sell to the Underwriters, at the election of the Underwriters, up to . . . . . . . additional shares of Stock that such Selling Stockholders hold or will receive pursuant to the terms of the merger agreement. The aggregate of . . . . . . . shares to be sold by the Company and the Selling 1 Stockholders is herein called the "Firm Shares" and the aggregate of . . . . . . additional shares to be sold by certain of the Selling Stockholders is herein called the "Optional Shares". The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Shares". Immediately prior to the initial sale of the Shares by the Company and the Selling Stockholders to the Underwriters, Anteon Virginia will merge with and into the Company (the "Merger"). The Company will be the surviving corporation of the Merger. 1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that: (i) A registration statement on Form S-1 (File No. 333-75884) (the "Initial Registration Statement") in respect of the Shares has been filed with the Securities and Exchange Commission (the "Commission"); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto, to you for each of the other Underwriters, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which became effective upon filing, no other document with respect to the Initial Registration Statement has heretofore been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or to the knowledge of the Company threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a "Preliminary Prospectus"); the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration 2 Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the "Registration Statement"; and such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; (ii) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not 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, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1; (iii) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder; the Registration Statement does not and will not, as of the applicable effective date and as of the date of any amendment thereto, 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 the Prospectus does not and will not, as of the applicable filing date and as of the date of any amendment or supplement thereto, 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, in light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the representation and warranty contained in this Section 1(a)(iii) shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder expressly for use in the preparation of the answers therein to Items 7 and 11(m) of Form S-1; 3 (iv) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, other than as set forth or contemplated in the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development that could reasonably be expected to result in a prospective material adverse change, in or affecting the business, financial condition, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"); (v) The Company and its subsidiaries have good and marketable title to all real property and all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or as could not reasonably be expected to have a Material Adverse Effect; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as could not reasonably be expected to have a Material Adverse Effect; (vi) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to so qualify as a foreign corporation or be in good standing could not have a Material Adverse Effect; and each subsidiary of the Company that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Act (collectively, the "Significant Subsidiaries") has been duly incorporated or organized and is validly existing as a corporation or other legal entity in good standing under the laws of its jurisdiction of incorporation or organization; 4 (vii) After giving effect to the Merger, the Amended and Restated Certificate of Incorporation of the Company, in substantially the form filed as an exhibit to the Registration Statement (the "Restated Certificate of Incorporation"), and the offering of the Shares (excluding the Optional Shares) and without giving effect to subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options described in the Prospectus, the authorized, issued and outstanding capital stock of the Company will be as set forth in the Prospectus immediately preceding the phrase "(as adjusted)" in the "Common stock" row and under the "Pro Forma" column in the table under the caption "Capitalization" and will conform in all material respects to the description of the Stock contained in the Prospectus; the shares of issued and outstanding common stock, par value $0.01 per share, of the Company described in the Prospectus under the "Actual" column under the caption "Capitalization" have been duly authorized and validly issued and are fully paid and nonassessable; and all of the issued and outstanding shares of capital stock of each Significant Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, and, except as set forth in the Prospectus under the caption "Description of Indebtedness - Credit Facility - Security and Guarantees", free and clear of all liens, encumbrances, equities or claims; (viii) Assuming the Merger has been consummated and the Restated Certificate of Incorporation has become effective, the Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform in all material respects to the description of the Stock contained in the Prospectus; (ix) The issuance and sale of the Shares to be sold by the Company, the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions herein contemplated (including the Merger) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or 5 assets of the Company or any of its subsidiaries is subject, other than such conflicts, breaches, violations or defaults that, singly or in the aggregate, could not have a Material Adverse Effect, nor will such actions result in any violation of the provisions of the Restated Certificate of Incorporation or the Amended and Restated By-laws of the Company, in substantially the form filed as an exhibit to the Registration Statement (the "Restated By-laws"), or, other than as singly or in the aggregate could not have a Material Adverse Effect, any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except the registration under the Act of the Shares and such consents, approvals, authorizations, registrations or qualifications as have already been obtained or may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (x) Neither the Company nor any of its Significant Subsidiaries is (A) in violation of its Certificate of Incorporation or By-laws or (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, other than in the case of clause (B) such defaults that, singly or in the aggregate, could not have a Material Adverse Effect; (xi) The statements set forth in the Prospectus under the caption "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Stock, and under the caption "Certain U.S. Federal Tax Considerations for Non-U.S. Holders", insofar as they constitute summaries of United States federal law or regulation or legal conclusions, are accurate, complete and fair in all material respects; (xii) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, could individually or in the 6 aggregate reasonably be expected to have a Material Adverse Effect; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xiii) The Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company", as such term is defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xiv) KPMG LLP, who has certified certain financial statements of the Company and its subsidiaries, and Keller Bruner & Company, LLP and Bason and Company PA who have certified certain financial statements of Sherikon, Inc. and the training division of SIGCOM, Inc., respectively, are each independent public accountants as required by the Act and the rules and regulations of the Commission thereunder. (b) Each of the Selling Stockholders severally and not jointly represents and warrants to, and agrees with, each of the Underwriters and the Company that: (i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power of Attorney and the Custody Agreement hereinafter referred to, and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained or will be obtained prior to or substantially simultaneously with the First Time of Delivery (as defined in Section 4 hereof); and such Selling Stockholder has all necessary right, power and authority to enter into this Agreement, the Power-of-Attorney and the Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; (ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power of Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, other than 7 such breaches, violations or defaults that, singly or in the aggregate, could not materially adversely affect such Selling Stockholder's ability to consummate the transactions contemplated hereby, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Limited Liability Company Agreement of such Selling Stockholder if such Selling Stockholder is a limited liability company, the Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a partnership or any statute or, other than as could not, singly or in the aggregate, materially adversely affect such Selling Stockholder's ability to consummate the transactions contemplated hereby, any order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder; (iii) Upon the consummation of the Merger, the exercise of such Selling Shareholder's options to purchase stock in the Company or Anteon Virginia and/or the conversion of a convertible note held by such Selling Stockholder into shares of common stock of the Company, as applicable, such Selling Stockholder will have the right to receive the Shares to be sold by such Selling Shareholder hereunder and immediately prior to each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters; (iv) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to offer, sell contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities (whether issued by the Company or an affiliate of the Company) that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than (A) as a BONA FIDE gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth in this Section 1(b)(iv), (B) as a result of testate or intestate 8 succession, provided that such succession shall be subject to the restrictions set forth in this Section 1(b)(iv), (C) to any trust for the direct or indirect benefit of such Selling Stockholder or the immediate family of such Selling Stockholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth in this Section 1(b)(iv), and provided further that any such transfer shall not involve a disposition for value, (D) if such Selling Stockholder is a corporation, partnership, limited liability company or similar entity, transfers to any wholly-owned subsidiary of such Selling Stockholder, provided that it shall be a condition to such transfer that such wholly-owned subsidiary execute an agreement stating that such wholly-owned subsidiary is receiving and holding the securities subject to the provisions of this Section 1(b)(iv) and there shall be no further transfer of such securities except in accordance with this Section 1(b)(iv), and provided further that such transfer shall not involve a disposition for value and (E) pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without your prior written consent; (v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares; (vi) To the extent that any statements or omissions made in the Registration Statement or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, the Registration Statement did, and any further amendments or supplements to the Registration Statement, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any 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 not misleading; and to the extent that any statements or omissions made in any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein, such 9 Preliminary Prospectus did, and the Prospectus and any further amendments or supplements thereto, when they are filed with the Commission, will conform in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and will not contain any 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 the light of the circumstances under which they were made, not misleading; (vii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as hereinafter defined) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof); (viii) Certificates in negotiable form representing (A) all of the shares of Anteon Virginia, which will be exchanged by such Selling Stockholder in the Merger for Shares to be sold by such Selling Stockholder hereunder, (B) Shares to be sold by such Selling Stockholder hereunder, (C) exercise notices under options to purchase shares of common stock of the Company constituting the right to receive Shares to be sold by such Selling Stockholder hereunder upon exercise of such options and/or (D) convertible notes and conversion notices constituting the right to receive Shares to be sold by such Selling Stockholder hereunder upon conversion of such convertible notes (the certificates described in the foregoing clauses (A) through (D) are referred to herein as the "Certificates") have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the "Custody Agreement"), duly executed and delivered by such Selling Stockholder to [Name of Custodian], as custodian (the "Custodian"), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the "Power of Attorney"), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the exercise of any rights of such Selling Stockholder to receive Shares under the Certificates and to authorize the delivery of 10 the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement; and (ix) The Shares or the rights to receive Shares represented by the Certificates held in custody for such Selling Stockholder under the Custody Agreement (and the Shares to be received upon realization or exercise of such rights) are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. 2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $.............., the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite 11 the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, each applicable Selling Stockholder agrees, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the applicable Selling Stockholders, at the purchase price per share set forth above in clause (a) of this Section 2, that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder. The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to ................... Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares. Any such election to purchase Optional Shares shall be made in proportion to the number of Optional Shares to be sold by each Selling Stockholder as set forth in Schedule II hereto. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Attorneys-in-Fact, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive form, and in such authorized denominations and registered in such names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice to the Company and 12 the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company and the Custodian to Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will cause the certificates representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on ............., 2002 or such other time and date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional Shares, or such other time and date as Goldman, Sachs & Co., the Company and the Selling Stockholders may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the "First Time of Delivery", such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 7(l) hereof, will be delivered at the offices of Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019 (the "Closing Location"), and the Shares will be delivered at the Designated Office, all at Time of Delivery. A meeting will be held at the Closing Location at .......p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: 13 (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus which shall be reasonably disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its reasonable best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) Prior to 10:00 A.M., New York City time, on the New York Business Day next succeeding the date of this Agreement and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as 14 a result of which the Prospectus as then amended or supplemented would include an untrue 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 when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without your prior written consent; (f) To furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its 15 consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; provided that the Company shall be deemed to have complied with this Section 5(f) during any period that the Company is meeting its reporting obligations under the Exchange Act; (g) During a period of three years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you [(i)] as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; [and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission);] (h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To use its reasonable best efforts to list, subject to notice of issuance, the Shares on the New York Stock Exchange (the "Exchange"); (j) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act; (k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Act; and 16 (l) Upon the reasonable request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Company's trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the "License"); PROVIDED, HOWEVER, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred. 6. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the New York Stock Exchange; (v) the filing fees incident to, and the reasonable fees and disbursements of counsel for the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost of preparing share certificates; (vii) the cost and charges of any transfer agent or registrar and (viii) all other costs and expenses incident to the performance of the Company's and the Selling Shareholders' obligations hereunder which are not otherwise specifically provided for in this Section; and (b) such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholder's obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of counsel for such Selling Stockholder, (ii) such Selling Stockholder's pro rata share of the fees and expenses of the Attorneys-in-Fact and the Custodian, and (iii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In connection with 17 clause (b) (iii) of the preceding sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax, and the Selling Stockholder agrees to reimburse Goldman, Sachs & Co. for associated carrying costs if such tax payment is not rebated on the day of payment and for any portion of such tax payment not rebated. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and of the Selling Stockholders herein are, at and as of such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Cravath, Swaine & Moore, counsel for the Underwriters, shall have furnished to you such written opinion or opinions (a draft of each such opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters covered in paragraphs (i), (vii), (xi) and (xiii) of subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; 18 (c) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, in form and substance reasonably satisfactory to you, to the effect that: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all necessary corporate power and authority to hold its properties and conduct its business as described in the Registration Statement. (ii) The Company has an authorized capitalization as set forth in the Prospectus under the "As Adjusted" column under the caption "Capitalization". The Shares have been duly authorized by all necessary corporate action on the part of the Company and, when issued and delivered to and paid for by the Underwriters at such Time of Delivery in accordance with the terms hereof, will be validly issued, fully paid and non-assessable. (iii) All of the issued and outstanding shares of the Common Stock of the Company are validly issued and outstanding, fully paid and non- assessable. (iv) The Common Stock of the Company conforms in all material respects to the description contained in the Prospectus under the caption "Description of Common Stock." (v) This Agreement has been duly authorized, executed and delivered by the Company. (vi) The statements in the Prospectus under the caption "Description of Capital Stock," insofar as they purport to constitute a summary of the terms of the Stock, are accurate in all material respects. The statements in the Prospectus under the caption "Certain United States Federal Income Tax Considerations," to the extent that they constitute summaries of United States federal law or regulation or legal conclusions, have been reviewed by such counsel and fairly summarize the matters described under that caption in all material respects. 19 (vii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the company prior to such Time of Delivery, as of their respective effective or issue times, appear on their face to be appropriately responsive in all material respects to the requirements of the Act and the rules and regulations of the Commission under the Act (the "Rules and Regulations"), except for the financial statements, financial statement schedules and other financial data included or incorporated by reference in or omitted from either of them, as to which such counsel express no opinion. (viii) Such counsel do not know of any contract or other document which is required to be filed as an exhibit to the Registration Statement by the Act or the Rules and Regulations which has not been so filed as an exhibit to the Registration Statement as permitted by the Rules and Regulations. (ix) The issuance and sale of the Shares by the Company, the compliance by the Company with all of the provisions hereof and the performance by the Company of its obligations hereunder will not (i) result in a violation of the Restated Certificate of Incorporation or Restated By-laws of the Company, (ii) breach or result in a default under any agreement, indenture or instrument listed as an Exhibit to the Registration Statement or otherwise referred to in the Registration Statement to which the Company or any of its subsidiaries is a party or is bound or to which any of the properties or assets of the Company or any subsidiary is subject or (iii) violate the Delaware General Corporation Law or those 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 ("Applicable Law") or any order of any court known to such counsel, except in the case of clause (ii) or (iii) where the breach or violation could not have a Material Adverse Effect on the Company. (x) No consent, approval, authorization or order of any executive, legislative, judicial, administrative or regulatory body of the State of Delaware or the United States of America ("Governmental Authority"), which has not been obtained, taken or made (other than as required by any state securities laws, as to which such counsel 20 express no opinion) is required under any Applicable Law for the issuance or sale of the Shares or the performance by the Company of its obligations under this Agreement. (xi) The Company is not required to be, and after the issuance and sale of the Shares contemplated hereby, will not be required to be, registered as an investment company under the Investment Company Act of 1940, as amended. (xii) Such counsel have participated in the preparation of the Registration Statement and the Prospectus and, although the limitations inherent in the independent verification of factual matters and in the role of outside counsel are such that such counsel have not undertaken to investigate or verify independently, and do not assume responsibility for, the accuracy, completeness or fairness of the statements contained in either of them (other than as explicitly stated in paragraphs (iv) and (vi) above), based upon such participation, no facts have come to such counsel's attention that led them to believe that (a) the Registration Statement or any amendment (except for the financial statements, financial statement schedules and other financial data included in or omitted from those documents, as to which such counsel express no such belief), at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Prospectus or any amendment or supplement (except for the financial statements, financial statement schedules and other financial data included in or omitted from those documents, as to which such counsel express no such belief), at the time the Prospectus 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. (d) Curtis L. Schehr, Esq., general counsel for the Company, shall have furnished to you his written opinion, dated such Time of Delivery, in form and substance reasonably satisfactory to you, to the effect that: 21 (i) The Company is duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to be so qualified and in good standing could not have a Material Adverse Effect. (ii) Each Significant Subsidiary is duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; and all of the issued and outstanding shares of capital stock of each Significant Subsidiary are validly issued and outstanding and fully paid and non-assessable, and (except for directors' qualifying shares) are owned of record, and to such counsel's knowledge beneficially, directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims except for those described in the Prospectus. (iii) To such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which could reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect; and, to such counsel's knowledge, no such proceedings are threatened by governmental authorities or others. (iv) Neither the Company nor any of its Significant Subsidiaries is in violation of its Certificate of Incorporation or By-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, or lease or agreement or other instrument to which it is a party or by which it or any of its properties may be bound, other than such violations or defaults as could not reasonably be expected to have a Material Adverse Effect. (e) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as 22 counsel, dated such Time of Delivery, in form and substance reasonably satisfactory to you, to the effect that: (i) A Power-of-Attorney and a Custody Agreement have been duly executed and delivered by such Selling Stockholder and constitute valid and binding agreements of such Selling Stockholder in accordance with their terms; (ii) This Agreement has been duly executed and delivered by or on behalf of such Selling Stockholder; and the sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with all of the provisions of this Agreement, the Power-of- Attorney and the Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with, breach or violate any terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument actually known to such counsel to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, other than any conflicts, breaches, violations or defaults that could not reasonably be expected to materially adversely affect such Selling Stockholder's ability to consummate the transactions contemplated hereby, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By-laws of such Selling Stockholder if such Selling Stockholder is a corporation, the Limited Liability Company Agreement of such Selling Stockholder if such Selling Stockholder is a limited liability company, the Partnership Agreement of such Selling Stockholder if such Selling Stockholder is a partnership or any applicable law, order, rule or regulation actually known to such counsel of any court or governmental agency or body having jurisdiction over such Selling Stockholder or the property of such Selling Stockholder, other than any violation that could not reasonably be expected to materially adversely affect such Selling Stockholder's ability to consummate the transactions contemplated hereby; (iii) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the 23 Shares to be sold by such Selling Stockholder hereunder, except as have been duly obtained and are in full force and effect (other than as required by any state securities laws, as to which such counsel express no opinion); (iv) Such Selling Stockholder is the record owner of the shares to be sold by such Selling Stockholder; (v) Delivery of the Shares to be sold by such Selling Stockholder, upon payment therefor pursuant to this Agreement, will transfer title to such Shares free and clear of any adverse claim, to any Underwriter who takes such Shares in good faith without notice of an adverse claim within the meaning of the Uniform Commercial Code. In rendering the opinion in paragraph (iv), without any independent inquiry such counsel may rely solely upon a certificate of such Selling Stockholder in respect of matters of fact as to ownership of the Shares sold by such Selling Stockholder; (f) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post- effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, KPMG LLP, Keller Bruner & Company, LLP and Bason and Company PA shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto (the executed copy of the letter delivered prior to the execution of this Agreement is attached as Annex I(a) hereto and a draft of the form of letter to be delivered on the effective date of any post-effective amendment to the Registration Statement and as of each Time of Delivery is attached as Annex I(b) hereto); (g)(i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any 24 development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (h) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; (i) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange; (ii) a suspension or material limitation in trading in the Company's securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (j) The Shares at such Time of Delivery shall have been duly listed, subject to notice of issuance, on the Exchange; (k) The Company has obtained and delivered to the Underwriters executed copies of an agreement from each of Georgica (Azimuth Technologies), Inc., [Bob Gorman,] Richard Biben, Scott Price, Deb Alderson, Vincent Kiernan, Steven 25 Lefkowitz, Robert Ferris and [new independent directors], substantially to the effect set forth in Subsection 1(b)(iv) hereof in form and substance satisfactory to you; (l) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; (m) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section; and (n) The Merger shall have been consummated as described in the Prospectus. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, 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 required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall 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 or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished 26 to the Company by any Underwriter through Goldman, Sachs & Co. expressly for use therein. (b) Each of the Selling Stockholders, will severally and not jointly indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, 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 required to be stated therein or necessary to make the statements therein 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 any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with the information described in Schedule III; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided that the liability of a Selling Stockholder pursuant to this subsection (b) shall not exceed the product of the number of Shares sold by such Selling Stockholder including Optional Shares and the initial public offering price of the Shares as set forth in the Prospectus. (c) Each Underwriter will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, 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 required to be stated therein or necessary to make the statements therein 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 any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and each Selling 27 Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. (d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party, it being understood, however, that the indemnifying party shall not be liable for the reasonable expenses of more than one separate counsel (in addition to local counsel), approved by the indemnifying party, representing the indemnified parties who are parties to such action), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. The indemnifying party shall indemnify and hold harmless the indemnified party from and against any losses, claims, damages, liabilities and judgments by reason of any settlement of any proceeding (i) effected with the indemnifying party's written consent or (ii) effected without the indemnifying party's written consent if the settlement is entered into more than [thirty] days 28 after the indemnifying party shall have received a written request from the indemnified party for reimbursement of fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. (e) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters 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 and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. 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 the Selling Stockholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not 29 take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission and (ii) no Selling Stockholder shall be required to contribute any amount in excess of the amount by which (A) the product of the number of Shares sold by such Selling Stockholder including any Optional Shares and the initial public offering price of the Shares as set forth in the Prospectus exceeds (B) the amount of any damages which such Selling Shareholder has 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 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. (f) The obligations of the Company and the Selling Stockholders under this Section 8 shall be in addition to any liability which the Company and the respective Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company [or any Selling Stockholder] and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Shares which it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, 30 then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company and the Selling Stockholders notify you that they have so arranged for the purchase of such Shares, you or the Company and the Selling Stockholders shall have the right to postpone a Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares. (b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you and the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non- defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligations of the Underwriters to purchase 31 and of the Company and the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non- defaulting Underwriter or the Company or the Selling Stockholders, except for the expenses to be borne by the Company and the Selling Stockholders and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any [officer or director or] controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, the Company and each of the Selling Stockholders pro rata (based on the number of Shares to be sold by the Company and such Selling Stockholder hereunder) [, with the number of Shares to be sold by ............... and ................ to be included, for purposes of this Section, in the number of Shares to be sold by the Company,] will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter in respect of the Shares not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the representatives; and in all dealings with any Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, 32 request, notice or agreement on behalf of such Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such Selling Stockholder. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives in care of Goldman, Sachs & Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and [the Selling Stockholder] each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto 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 instrument. 33 17. The Company and the Selling Stockholders are authorized, subject to applicable law, to disclose any and all aspects of this potential transaction that are necessary to support any U.S. federal income tax benefits expected to be claimed with respect to such transaction, without the Underwriters imposing any limitation of any kind. If the foregoing is in accordance with your understanding, please sign and return to us [ ] counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney- in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, ANTEON INTERNATIONAL CORPORATION By: ------------------------------------ Name: Title: [Names of Selling Stockholders] By: ------------------------------------ Name: Title: As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement. 34 Accepted as of the date hereof at 85 Broad Street, New York, New York GOLDMAN, SACHS & CO. [Name(s) of Co-Representatives] ................................................... (Goldman, Sachs & Co.) On behalf of each of the Underwriters 35 SCHEDULE I
Number of Optional Shares to be Purchased if Maximum Total Number of Option Firm Shares ------ Underwriter to be Purchased Exercised ----------- --------------- --------- Goldman, Sachs & Co.............................. Bear, Stearns & Co. Inc.......................... Credit Suisse First Boston Corporation........... Lehman Brothers Inc.............................. Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... [Names of other Underwriters].................... Total......................................... ---------- ---------- ========== ==========
36 SCHEDULE II
Number of Optional Shares to be Sold if Maximum Total Number Option of Firm ------ Shares to be Sold Exercised ----------------- --------- The Company................................................. The Selling Stockholder(s):........................... Azimuth Technologies, L.P.......................... Azimuth Tech, II LLC............................... Frederick J. Iseman................................ Gilbert F. Decker.................................. Dr. Paul Kominski.................................. Joseph M. Kampf.................................... Carlton B. Crenshaw................................ Seymour L. Moskowitz............................... Thomas M. Cogburn.................................. Mark D. Heilman.................................... Joseph Maurelli.................................... Noreen Centracchio................................. Howard Dawson...................................... Roger Gurner....................................... Curtis Schehr...................................... Total.............................................. ============ ============ (7)]
- ---------- (a) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder. (b) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder. (c) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less 37 than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder. (d) This Selling Stockholder is represented by [Name and Address of counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder. (e) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder. 38 SCHEDULE III [To be provided] 39 ANNEX I Pursuant to Section 7(d) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the consolidated financial statements and any supplementary financial information and schedules and consolidated pro forma financial information examined by them and included in the Prospectus or the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited consolidated interim financial statements, selected financial data, pro forma financial information, financial forecasts and/or condensed financial statements derived from audited consolidated financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been separately furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus agrees with the corresponding amounts in the audited consolidated financial statements for such five fiscal years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited consolidated financial statements and other information referred to below, a reading of the latest available consolidated interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited consolidated financial statements included in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included in the Prospectus; 2 (C) the unaudited consolidated financial statements which were not included in the Prospectus but from which were derived any unaudited condensed consolidated financial statements referred to in clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in clause (B) were not determined on a basis substantially consistent with the basis for the audited consolidated financial statements included in the Prospectus; (D) any unaudited pro forma consolidated condensed financial statements included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest consolidated financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders' equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest consolidated financial statements included in the Prospectus to the specified date referred to in clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for decreases or 3 increases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives, which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. 4 EX-2.2 4 a2069486zex-2_2.txt EXHIBIT 2.2 Exhibit 2.2 AGREEMENT AND PLAN OF MERGER BETWEEN ANTEON INERNATIONAL CORPORATION (a Delaware corporation) AND ANTEON INTERNATIONAL CORPORATION (a Virginia corporation) AGREEMENT AND PLAN OF MERGER (this "Agreement") entered into as of [ ], 2002 and effective as of the Effective Time (as defined below), by and between Anteon International Corporation (f/k/a Azimuth Technologies, Inc.), a Delaware corporation ("Anteon Delaware"), and Anteon International Corporation, a Virginia corporation ("Anteon Virginia"). WHEREAS, Section 252 of the Delaware General Corporation Law (the "DGCL") and Section 722 of the Virginia Stock Corporation Act (the "VSCA") permit the merger of a foreign corporation into a domestic corporation and a domestic corporation into a foreign corporation, respectively; and WHEREAS, the respective boards of directors and the stockholders or shareholders, as the case may be, of Anteon Delaware and Anteon Virginia deem it advisable and in the best interests of their respective corporations to approve this Agreement, pursuant to which Anteon Virginia shall merge with and into Anteon Delaware, with Anteon Delaware as the surviving entity, on the terms and conditions contained herein and in accordance with the DGCL and the VSCA (the "Merger"). NOW, THEREFORE, in consideration of the premises and the covenants herein contained, the parties hereto agree as follows: 1. MERGER. The parties hereto agree that Anteon Virginia shall be merged with and into Anteon Delaware in accordance with the provisions of Section 252 of the DGCL and Section 722 of the VSCA. 2. NAME. The surviving entity shall be Anteon Delaware (the "Surviving Corporation"). The name of the Surviving Corporation shall be Anteon International Corporation. 3. EFFECTIVE TIME OF MERGER. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, or at such later time as the parties hereto may agree and as specified in the 2 Certificate of Merger (the "Effective Time"). This Agreement may be terminated prior to the Effective Time by either Anteon Delaware or Anteon Virginia. 4. FILINGS. Anteon Delaware and Anteon Virginia agree that they will cause to be executed and filed or recorded any document or documents, including but not limited to the Certificate of Merger and the Articles of Merger, prescribed by the laws of the State of Delaware and the Commonwealth of Virginia, respectively, and that they will cause to be performed all necessary acts within the State of Delaware and the Commonwealth and Virginia and elsewhere to effectuate the Merger. 5. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Amended and Restated Certificate of Incorporation and the By-laws of Anteon Delaware shall, upon the Effective Time and as a result of the Merger, be amended and restated to read in their entireties as set forth in Exhibits A and B hereto, respectively, and shall be the Certificate of Incorporation and By-laws of the Surviving Corporation. 6. DIRECTORS AND OFFICERS. The directors and officers of Anteon Delaware 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. 7. CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of any holder of any capital stock of Anteon Delaware or Anteon Virginia, as the case may be: (a) each share of Class A Common Stock, par value $0.01 per share, of Anteon Delaware issued and outstanding immediately prior to the Effective Time shall be converted into and become one (1) validly issued, fully paid and non-assessable share of Common Stock, par value $0.01 per share, of the Surviving Corporation (the "Common Stock"); (b) each share of Class B Common Stock, par value $0.01 per share, of Anteon Delaware issued and outstanding immediately prior to the Effective Time shall be converted into and become one (1) validly issued, fully paid and non-assessable share of Common Stock; (c) each share of Non-Voting Common Stock, par value $0.01 per share, of Anteon Delaware issued and outstanding immediately prior to the Effective Time shall be converted into and become one (1) validly issued, fully paid and non-assessable share of Common Stock; and (d) each share of common stock, par value $0.05 per share, of Anteon Virginia ("Anteon Virginia Common Stock") issued and outstanding (i) that is held by Anteon Delaware immediately prior to the Effective Time shall cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist, and (ii) that is held by any person or entity other than Anteon 3 Delaware immediately prior to the Effective Time shall be converted into and become two (2) validly issued, fully paid and non-assessable shares of Common Stock. 8. APPRAISAL RIGHTS. (a) Notwithstanding anything in this Agreement to the contrary, shares of all classes of stock of Anteon Delaware issued and outstanding immediately prior to the Effective Time held by any person who has the right to demand, and who properly demands, an appraisal of such shares ("Delaware Dissenting Shares"), in accordance with Section 262 of the DGCL (or any successor provision), shall not be converted into a right to receive Common Stock, unless such holder fails to perfect, withdraws or otherwise loses such holder's right to such appraisal, if any. If, upon or after the Effective Time, such holder fails to perfect, withdraws or otherwise loses any such right to appraisal and payment under the DGCL, then, as of the Effective Time or the occurrence of such event, whichever last occurs, each such share of such holder shall cease to be Delaware Dissenting Shares and shall be converted into and represent the right to receive Common Stock, in accordance with Section 7 hereof. (b) Notwithstanding anything in this Agreement to the contrary, each share of Anteon Virginia Common Stock that is outstanding immediately prior to the Effective Time and that is held by a shareholder who is entitled to vote and who has not voted such share in favor of the approval and adoption of this Agreement and who, in accordance with the VSCA has submitted a written demand for payment in the manner provided in the VSCA and who otherwise has fully complied with the VSCA (each, a "Virginia Dissenting Share"), shall not be converted into or be exchangeable for the right to receive the Common Stock, as provided in Section 7 hereof, but the holder of such share shall be entitled to payment of the fair value of such share in accordance with the provisions of the VSCA; PROVIDED, HOWEVER, that: (i) if any holder of a Virginia Dissenting Share shall subsequently deliver a written withdrawal of his or her demand for the fair value of such share (with the written approval of Anteon Delaware, if such withdrawal is not tendered within 60 days after the Effective Time); or (ii) if any holder fails to perfect or loses his, her or its dissenter's rights as provided in the VSCA; or (iii) if any holder of a Virginia Dissenting Share fails to demand payment within the time periods provided in the VSCA, such holder shall forfeit the right to the fair value of such share and such share shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive Common Stock as set forth in Section 7 hereof. 9. STOCK OPTIONS. (a) Pursuant to and by virtue of the Merger, at the Effective Time, Anteon Virginia shall assign to, and Anteon Delaware as the Surviving Corporation shall assume, the Amended and Restated Anteon Corporation Omnibus Stock Plan (the "Company Option Plan"). (b) Each outstanding option to purchase a share of Anteon Virginia Common Stock (a "Stock Option"), whether or not vested, will be assumed by 4 Anteon Delaware as the Surviving Corporation and shall be deemed to constitute an option to acquire, on substantially the same terms and conditions as were applicable under such Stock Option (including, without limitation, as to vesting and expiration), [ ] shares of Common Stock at a revised exercise price equal to the exercise price of such Stock Option multiplied by a factor of [ ]. (c) Prior to the Effective Time, Anteon Virginia shall use its best efforts to make any amendments to the terms of the Company Option Plans and any options granted thereunder that are necessary or appropriate to give effect to the transactions contemplated by this Section 9. 10. STOCK CERTIFICATES. Following the Effective Time, upon the Surviving Corporation's receipt of a certificate representing a share of stock of Anteon Delaware or Anteon Virginia prior to the Effective Time from the holder thereof, the Surviving Corporation shall promptly deliver, or cause to be delivered, by mail a new certificate or certificates representing Common Stock, reflecting the number of shares of Common Stock that such holder is entitled pursuant to Section 7 hereof. 11. MERGER, ASSUMPTION OF LIABILITIES. At the Effective Time, Anteon Virginia shall be deemed merged into Anteon Delaware as provided by the DGCL and the VSCA and by this Agreement. All rights, privileges, and powers of Anteon Virginia, and all property, real, personal and mixed, and all debts due to Anteon Virginia, as well as all other things and causes of action belonging to Anteon Virginia shall be vested in the Surviving Corporation, and shall thereafter be the property of the Surviving Corporation as they were of Anteon Virginia. All rights of credits and all liens upon any property of Anteon Virginia shall be preserved and all debts, liabilities and duties of Anteon Virginia shall attach to the Surviving Corporation and may be enforced against the Surviving Corporation to the same extent as if such debts, liabilities and duties had been incurred and contracted by it. Anteon Virginia shall not be required to wind up its affairs or pay its liabilities and distribute its assets under the DGCL or the VSCA. 12. REPRESENTATIONS AND WARRANTIES. Each of Anteon Delaware and Anteon Virginia hereby represents and warrants to the other that: (a) it is a corporation duly organized, validly existing and in good standing under the laws of Delaware and Virginia, respectively; and (b) the signing of this Agreement and the consummation of the transactions contemplated by this Agreement have been approved by all necessary action on its part and do not violate any provisions of its charter documents or any other agreements or instruments to which it is a party. 13. COUNTERPARTS. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The parties hereto confirm that any facsimile copy of another party's executed counterparts of this Agreement (or its signature page thereof) will be deemed to be an executed original thereof. 5 14. GOVERNING LAW. This Agreement shall be deemed to be made in and all respects shall be interpreted, construed and governed by the laws of the State of Delaware. 15. NOTICES. Any notice or request to be given under this Agreement by one party to another shall be in writing and shall be delivered personally or by certified mail, postage prepaid to such addresses as either party may designate in writing to the other. 16. NO OTHER AGREEMENT OR UNDERSTANDINGS. This Agreement embodies all of the agreements and understandings in relation to the subject matter of this Agreement, and no covenants, understandings or agreements in relation to this Agreement exist between the parties, except as expressly set forth in this Agreement. 6 IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be duly executed as of the date first above written. ANTEON INTERNATIONAL CORPORATION, a Delaware corporation By ________________________________ Name: Joseph M. Kampf Title: President and Chief Executive Officer ANTEON INTERNATIONAL CORPORATION, a Virginia corporation By ________________________________ Name: Carlton B. Crenshaw Title: Senior Vice President and Chief Financial Officer EX-3.1 5 a2069486zex-3_1.txt EXHIBIT 3.1 Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION of ANTEON INTERNATIONAL CORPORATION Anteon International Corporation, a corporation duly incorporated under the laws of the State of Delaware, hereby certifies as follows: FIRST: The present name of the corporation is Anteon International Corporation (the "Corporation"). The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on the 15th day of March, 1996, under the name CIC Technologies, Inc. SECOND: The Certificate of Incorporation was amended on the 2nd day of April, 1996, to change the name of the Corporation to Azimuth Technologies, Inc. THIRD: The Certificate of Incorporation was restated and further amended on June 23, 1999. FOURTH: The Certificate of Incorporation was amended on the 20th day of December, 2001, to change the name of the Corporation to Anteon International Corporation. FIFTH: The Certificate of Incorporation was amended on the [ ] day of February, 2002, to increase the authorized number and effect a split of the stock of the Corporation. SIXTH: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the Delaware General 2 Corporation Law (the "General Corporation Law") and by the written consent of stockholders in accordance with Section 228 of the General Corporation Law. SEVENTH: This Amended and Restated Certificate of Incorporation restates and further amends the Certificate of Incorporation of the Corporation to read as follows: 1. NAME. The name of the corporation is "Anteon International Corporation." 2. ADDRESS; REGISTERED OFFICE AND AGENT. The address of the Corporation's registered office is 1013 Centre Road, City of Wilmington, State of Delaware, and the name of its registered agent at such address is The Corporation Service Company. 3. PURPOSES. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law. 4. NUMBER OF SHARES. The total number of shares of stock that the Corporation shall have authority to issue is: [ ] ([ ]) divided as follows: [ ] ([ ]) shares of Preferred Stock, of the par value of $0.01 per share (the "Preferred Stock"), and [ ] ([ ]) shares of Common Stock, of the par value of $0.01 per share (the "Common Stock"). 4.1 The designation, relative rights, preferences and limitations of the shares of each class are as follows: 4.1.1 The shares of Preferred Stock may be issued from time to time in one or more series of any number of shares, provided that the aggregate 3 number of shares issued and not retired of any and all such series shall not exceed the total number of shares of Preferred Stock hereinabove authorized, and with such powers, including voting powers, if any, and the designations, preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, all as shall hereafter be stated and expressed in the resolution or resolutions providing for the designation and issue of such shares of Preferred Stock from time to time adopted by the Board of Directors of the Corporation (the "Board") pursuant to authority so to do which is hereby expressly vested in the Board. The powers, including voting powers, if any, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. Each series of shares of Preferred Stock: (a) may have such voting rights or powers, full or limited, if any; (b) may be subject to redemption at such time or times and at such prices, if any; (c) may be entitled to receive dividends (which may be cumulative or non-cumulative) at such rate or rates, on such conditions and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock, if any; (d) may have such rights upon the voluntary or involuntary liquidation, winding up or dissolution of, upon any distribution of the assets of, or in the event of any merger, sale or consolidation of, the Corporation, if any; (e) may be made convertible into or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the Corporation (or any other securities of the Corporation or any other person) at such price or prices or at such rates of exchange and with such adjustments, if any; (f) may be entitled to the 4 benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts, if any; (g) may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation, if any; (h) may be subject to restrictions on transfer or registration of transfer, or on the amount of shares that may be owned by any person or group of persons; and (i) may have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, if any; all as shall be stated in said resolution or resolutions of the Board providing for the designation and issue of such shares of Preferred Stock. 4.1.2 Except as otherwise provided by law or by this Certificate of Incorporation and subject to the express terms of any series of shares of Preferred Stock, the holders of outstanding shares of Common Stock shall exclusively possess voting power for the election of Directors and for all other purposes, each holder of record of shares of Common Stock being entitled to one vote for each share of Common Stock standing in his or her name on the books of the Corporation. Except as otherwise provided by law or by this Certificate of Incorporation and subject to the express terms of any series of shares of Preferred Stock, the holders of shares of Common Stock shall be entitled, to the exclusion of the holders of shares of Preferred Stock of any and all series, to receive such dividends as from time to time may be declared by the Board. In the event of any liquidation, dissolution or winding up of the Corporation, 5 whether voluntary or involuntary, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to share ratably according to the number of shares of Common Stock held by them in all remaining assets of the Corporation available for distribution to its stockholders. 4.1.3 Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, the number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law or any corresponding provision hereinafter enacted. 5. BOARD OF DIRECTORS. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board. Unless and except to the extent that the By-laws of the Corporation (the "By-laws") shall so require, the election of the Directors of the Corporation need not be by written ballot. 5.1 The Board (other than those Directors elected by the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of this Certificate of Incorporation (the "Preferred Stock Directors")) shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. Class I Directors shall initially serve until the first annual meeting of stockholders held following _____________; Class II Directors shall initially serve until the second annual meeting of stockholders held following _____________; and Class III 6 Directors shall initially serve until the third annual meeting of stockholders held following _____________. Commencing with the first annual meeting of stockholders held following _____________, Directors of each class the term of which shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders and until the election and qualification of their respective successors in office. In case of any increase or decrease, from time to time, in the number of Directors (other than Preferred Stock Directors), the number of Directors in each class shall be apportioned as nearly equal as possible. 5.2 Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies on the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board. Any Director so chosen shall hold office until the next election of the class for which such Director shall have been chosen and until his or her successor shall be elected and qualified. No decrease in the number of Directors shall shorten the term of any incumbent Director. 5.3 The nomination for the election of Directors on behalf of the Board shall be subject to the following provisions: 5.3.1 At any time that the Caxton-Iseman Stockholders (as defined below) Beneficially Own (as defined below) at least a majority of the outstanding Common Stock (as of the record date for determining stockholders who are entitled to vote for the election of Directors (the "Record Date")), the Caxton-Iseman 7 Stockholders shall exclusively have and exercise all power and authority of the Board in respect of nominating, by delivery of written notice to the Corporation executed on behalf of the Caxton-Iseman Stockholders by the Caxton-Iseman Stockholders then Beneficially Owning Common Stock constituting at least a majority of the Common Stock then Beneficially Owned in the aggregate by all Caxton-Iseman Stockholders setting forth the nominees selected by the Caxton-Iseman Stockholders (a "Nomination Notice"), a number of nominees for election as Directors, at any meeting of stockholders of the Corporation at which one or more Directors are to be elected, which, if elected, when added to the number of continuing Directors who are not then subject to election and who are Caxton-Iseman Directors (as defined below), would equal the smallest number that constitutes a majority of the total number of Directors of the Corporation immediately following such election. 5.3.2 At any time that the Caxton-Iseman Stockholders Beneficially Own more than 10% of the outstanding Common Stock and less than a majority of the Common Stock (as of the relevant Record Date), the Caxton-Iseman Stockholders shall exclusively have and exercise all power and authority of the Board in respect of nominating, by delivery of a Nomination Notice, a number of nominees for election as Directors, at any meeting of stockholders of the Corporation at which one or more Directors are to be elected, which, if elected, when added to the number of continuing Directors who are not then subject to election and who are Caxton-Iseman Directors, would equal the number obtained by dividing (i) the product of (a) the number of outstanding shares of Common Stock Beneficially Owned by the Caxton-Iseman Stockholders (as of the relevant Record Date) and (b) the number of Directors expected 8 to constitute the Board immediately following such election, by (ii) the number of shares of outstanding Common Stock (as of the relevant Record Date); PROVIDED, HOWEVER, that if such number is not a whole number, such number shall be deemed to equal the next highest whole number. 5.3.3 At any time that the Caxton-Iseman Stockholders Beneficially Own more than 10% of the outstanding Common Stock (as of the relevant Record Date), the Caxton-Iseman Stockholders shall exclusively have and exercise all power and authority of the Board in respect of filling, by delivery of a written notice to the corporation, (i) any vacancy occurring in a directorship which was held by a Caxton-Iseman Director or (ii) any newly created directorships that result from increasing the size of the Board (but only to the extent that the number of any such newly created directorships, when added to the number of continuing Directors who are Caxton-Iseman Directors, is equal to or less than the number of Directors that the Caxton-Iseman Stockholders would be entitled to nominate pursuant to the provisions of Sections 5.3.1 or 5.3.2 above had such newly created directorships existed at any meeting of stockholders of the Corporation at which one or more Directors were to be elected). 5.3.4 In the event that the Board solicits proxies from the stockholders of the Corporation for the election of any Directors at any meeting of stockholders and fails to solicit proxies for the election at such meeting of the persons nominated by the Caxton-Iseman Stockholders pursuant to the provisions of Sections 5.3.1 and 5.3.2 (the "Caxton-Iseman Nominees"), then the Caxton-Iseman Stockholders may, at the expense of the Company, solicit proxies for the election as Directors at such meeting of the Caxton-Iseman Nominees. 9 5.3.5 At any time that the Caxton-Iseman Stockholders Beneficially Own less than a majority and more than one-third of the outstanding Common Stock, Section 5.3 of this Certificate of Incorporation may not be amended, altered or repealed (including by merger, consolidation or otherwise), without the affirmative vote of the holders of at least two-thirds of the then outstanding Common Stock. At any time that the Caxton-Iseman Stockholders Beneficially Own less than one-third of the outstanding Common Stock, this Section 5.3 of this Certificate of Incorporation may not be amended, altered or repealed (including by means of a merger, consolidation or otherwise), without the affirmative vote of the holders of at least three-fourths of the then outstanding Common Stock. 5.3.6 For purposes of this Certificate of Incorporation, (i) "Caxton-Iseman Stockholders" shall mean Frederick J. Iseman, Azimuth Technologies, L.P., Azimuth Tech. II LLC or any of their respective Affiliates (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Rules")) and Associates (as defined in the Rules), (ii) "Caxton-Iseman Directors" shall mean any Director who was nominated by the Caxton-Iseman Stockholders pursuant to this Section 5.3 and elected by the stockholders of the Corporation, and, at any time prior to the end of their respective initial terms following the date hereof, Frederick J. Iseman, Steven M. Lefkowitz, Robert A. Ferris and [ ] and (iii) "Beneficially Own," "Beneficially Owned" or "Beneficial Ownership" shall have the meaning set forth in Rule 13d-3 of the Rules. 6. LIMITATION OF LIABILITY. No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach 10 of fiduciary duty as a Director, provided that this provision shall not eliminate or limit the liability of a Director (a) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under section 174 of the General Corporation Law or (d) for any transaction from which the Director derived any improper personal benefits. If the General Corporation Law is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any repeal or modification of the foregoing provision shall not adversely affect any right or protection of a Director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification. All references in this Section 6 to a Director or Directors of the Corporation shall also be deemed to refer to the Caxton-Iseman Stockholders to the extent that they exercise the power and authority of the Board pursuant to the provisions of Section 5.3 above. 7. INDEMNIFICATION. 7.1 To the extent not prohibited by applicable law, the Corporation shall indemnify any person (a "Covered Person") who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such 11 person is the legal representative, is or was a Director or officer of the Corporation, or, while a Director or officer of the Corporation, is or was serving at the request of the Corporation as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against expenses (including attorneys' fees) in the event of an action by or in the right of the Corporation and against judgments, fines, and amounts paid in settlement and expenses (including attorneys' fees), in the event of any other proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal proceeding, had no reason to believe the person's conduct was unlawful. Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Section 7. Notwithstanding the foregoing, except as otherwise provided in Section 7.9, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized by the Board. 7.2 The Corporation shall, from time to time, reimburse or advance to any Covered Person the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in defense of any Proceeding, in advance of the final disposition of such Proceeding; PROVIDED, HOWEVER, that, if required by the General Corporation Law, such payment of expenses in advance of the final disposition 12 of a Proceeding shall be made only upon receipt by the Corporation of an undertaking, by the Covered Person, to repay any such amount so advanced if it shall ultimately be determined that such Covered Person is not entitled to be indemnified for such expenses. 7.3 The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Section 7 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under applicable law, this Certificate of Incorporation, the By-laws, any agreement, any vote of stockholders or disinterested Directors or otherwise. 7.4 The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Section 7 shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 7.5 The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section 7, the By-laws or under Section 145 of the General Corporation Law or any other provision of law. 7.6 Any repeal or modification of the provisions of this Section 7 shall not adversely affect any right or protection hereunder of any Covered 13 Person in respect of any act or omission occurring prior to the time of such repeal or modification. 7.7 The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Section 7 shall be enforceable by any Covered Person in the Court of Chancery of the State of Delaware. The burden of proving that such indemnification or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or advancement of expenses, in whole or in part, in any such proceeding. 7.8 The Corporation's obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at the Corporation's request as a director, officer, employee or agent of any Other Entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such Other Entity. 7.9 If a claim for indemnification or advancement or reimbursement of expenses under this Article 7 is not paid in full within 30 days after a 14 written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement or reimbursement of expenses under applicable law. 7.10 This Section 7 shall not limit the right of the Corporation, to the extent and in the manner permitted by applicable law, to indemnify and advance or reimburse expenses to persons other than Covered Persons when and as authorized by appropriate corporate action. 8. SECTION 203. The Corporation hereby expressly elects not to be governed by the provisions of Section 203 of the General Corporation Law (or any successor provision thereof), and the restrictions and limitations set forth therein. 9. ACTION BY WRITTEN CONSENT. Except as otherwise provided for or fixed pursuant to the provisions of this Certificate of Incorporation relating to the rights of holders of any series of Preferred Stock to vote as a class on certain matters, no action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders. 10. QUALIFICATION OF DIRECTORS. There shall be no limitation on the qualification of any person to be a Director or on the ability of any Director to vote on any matter brought before the Board or any Board committee, except (i) as required by applicable law, (ii) as set forth in this Certificate of Incorporation or (iii) as set forth in 15 any By-laws adopted by the Board with respect to the eligibility of a person for election as a Director upon reaching a specified age or, in the case of employee Directors, with respect to the qualification for continuing service of Directors upon ceasing employment from the Corporation. 11. ADOPTION, AMENDMENT AND/OR REPEAL OF BY-LAWS. The Board may from time to time adopt, amend or repeal the By-laws; PROVIDED, HOWEVER, that any By-laws adopted or amended by the Board may be amended or repealed, and any By-laws may be adopted, by the stockholders of the Corporation by, (i) at any time that the Caxton-Iseman Stockholders Beneficially Own a majority of the outstanding Common Stock, the affirmative vote of the holders of a majority in voting power of the outstanding stock of the Corporation and (ii) at any time that the Caxton-Iseman Stockholders Beneficially Own less than a majority of the outstanding Common Stock, the affirmative vote of the holders of at least three-fourths in voting power of the outstanding stock of the Corporation. 16 IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated Certification of Incorporation this ___ day of ________________, 2002. ANTEON INTERNATIONAL CORPORATION By: -------------------------------------------- Name: Joseph M. Kampf Title: President and Chief Executive Officer EX-3.2 6 a2069486zex-3_2.txt EXHIBIT 3.2 Exhibit 3.2 FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK OF ANTEON INTERNATIONAL CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) ----------------------- Anteon International Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "CORPORATION"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation (hereinafter called the "BOARD OF DIRECTORS" or the "BOARD") as required by Section 151 of the General Corporation Law at a meeting duly called and held on [February __,] 2002: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors in accordance with the provisions of the Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $0.01 per share, of the Corporation, and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof (in addition to the provisions set forth in the Amended and Restated Certificate of Incorporation which are applicable to the Preferred Stock of all classes and series) as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Preferred Stock" (the "SERIES A PREFERRED STOCK") and the number of shares constituting the Series A Preferred Stock shall be [ ]. Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights and warrants and upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. 2 SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.01 per share (the "COMMON STOCK"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent), subject to the provisions for adjustment set forth in Section 8 equal to the greater of (a) $[0.01] or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. (B) If a dividend is declared on the Common Stock, the Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $[0.01] per share on the Series A Preferred Stock shall nevertheless be declared and shall be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of 3 holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except 4 dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation (which shall no include any transaction covered by Section 7), no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment set forth in Section 8, equal to 1000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution 5 or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination, exchange or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment set forth in Section 8, equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. SECTION 8. EFFECT OF COMMON STOCK SPLITS, ETC. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under Sections 2, 6 or 7 shall be adjusted by multiplying each such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 9. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. SECTION 10. RANK. The Series A Preferred Stock shall rank junior to all other series of Preferred Stock of the Corporation as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. SECTION 11. RESERVATION. The Corporation shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for issuance upon the conversion of the Series A Preferred Stock, free from any preemptive rights or other obligations such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all of the Series A Preferred Stock outstanding. SECTION 12. AMENDMENT. The Amended and Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders 6 of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its [Title] and attested by its Secretary this ____ day of February 2002. ANTEON INTERNATIONAL CORPORATION By: ---------------------------------------- Name: Title: Attest: - --------------------------- Name: Title: Secretary EX-3.3 7 a2069486zex-3_3.txt EXHIBIT 3.3 Exhibit 3.3 AMENDED AND RESTATED BY-LAWS of ANTEON INTERNATIONAL CORPORATION (A Delaware Corporation) ------------------------ ARTICLE 1 DEFINITIONS As used in these By-laws, unless the context otherwise requires, the term: 1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation. 1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation. 1.3 "Board" means the Board of Directors of the Corporation. 1.4 "Business Day" means any day that is not a Saturday, a Sunday or a day on which banks are authorized to close in the City of New York, State of New York. 1.5 "By-laws" means the by-laws of the Corporation, as amended from time to time. 1.6 "Certificate of Incorporation" means the amended and restated certificate of incorporation of the Corporation, as amended, supplemented or restated from time to time. 1.7 "Chairman" means the Chairman of the Board. 2 1.8 "Corporation" means Anteon International Corporation. 1.9 "Directors" means directors of the Corporation. 1.10 "Entire Board" means all Directors of the Corporation then in office, whether or not present at a meeting of the Board, but disregarding vacancies. 1.11 "General Corporation Law" means the General Corporation Law of the State of Delaware, as amended from time to time. 1.12 "Office of the Corporation" means the principal place of business of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding. 1.13 "President" means the President of the Corporation. 1.14 "Secretary" means the Secretary of the Corporation. 1.15 "Stockholders" means stockholders of the Corporation. 1.16 "Treasurer" means the Treasurer of the Corporation. 1.17 "Vice President" means a Vice President of the Corporation. ARTICLE 2 STOCKHOLDERS 2.1 PLACE OF MEETINGS. Every meeting of Stockholders shall be held at a place, within or without the State of Delaware, as may be designated by resolution of the Board from time to time. 2.2 ANNUAL MEETING. If required by applicable law, a meeting of Stockholders shall be held annually for the election of Directors and the transaction of other business at such hour and on such Business Day as may be designated by resolution of the Board from time to time. 3 2.3 OTHER SPECIAL MEETINGS. Unless otherwise prescribed by applicable law, special meetings of Stockholders may be called at any time only by the Board or the Chairman and may not be called at any time by any other person or persons. Business transacted at any special meeting of Stockholders shall be limited to the purpose stated in the notice. 2.4 FIXING RECORD DATE. For the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof or (ii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and which record date shall not be (y) in the case of clause (a)(i) above, unless otherwise required by applicable law, more than sixty (60) nor less than ten (10) days before the date of such meeting and (z) in the case of clause (a)(ii) or (b) above, more than sixty (60) days prior to such action. If no such record date is fixed: 2.4.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the Business Day next preceding the Business Day on which notice is given, or, if notice is waived, at the close of business on the Business Day next preceding the Business Day on which the meeting is held; and 2.4.2 the record date for determining Stockholders for any purpose other than those specified in Section 2.4.1 hereof shall be at the close of 4 business on the Business Day on which the Board adopts the resolution relating thereto. When a determination of Stockholders entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 2.4, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting. 2.5 NOTICE OF MEETINGS OF STOCKHOLDERS. Whenever under the provisions of applicable law, the Certificate of Incorporation or these By-laws, Stockholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which Stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by applicable law, the Certificate of Incorporation or these By-laws, the notice of any meeting shall be given, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each Stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the Stockholder at his or her address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice required by this Section 2.5 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, and the means of remote 5 communications, if any, by which Stockholders and proxyholders may be deemed to be present in person and vote at such meeting are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. 2.6 WAIVERS OF NOTICE. Whenever the giving of any notice to Stockholders is required by applicable law, the Certificate of Incorporation or these By-laws, a waiver thereof, in writing, signed by the person entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting shall constitute a waiver of notice of such meeting except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by applicable law, the Certificate of Incorporation or these By-laws. 2.7 LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each 6 Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder's agent or attorney, at the Stockholder's expense, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by applicable law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the Office of the Corporation at the election of the Secretary. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to Stockholders of the Corporation. If the meeting is to be held at a place, the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any Stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Upon the willful neglect or refusal of the Directors to produce such a list at any meeting for the election of Directors held at a place, or to open such a list to examination on a reasonably accessible electronic network during any meeting for the election of Directors held solely by means of remote communication, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders. 7 2.8 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Except as otherwise provided by applicable law, the Certificate of Incorporation or these By-laws, at each meeting of Stockholders, the presence in person or by proxy of the holders of a majority of all outstanding shares of stock entitled to vote at the meeting of Stockholders shall constitute a quorum for the transaction of any business at such meeting, except that, where a separate vote by a class or series or classes or series is required, a quorum shall consist of no less than a majority of the shares of such class or series or classes or series. When a quorum is present to organize a meeting of Stockholders and for purposes of voting on any matter, the quorum for such meeting or matter is not broken by the subsequent withdrawal of any Stockholders. In the absence of a quorum, the holders of a majority of the shares of stock present in person or represented by proxy at any meeting of Stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of Directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; PROVIDED, HOWEVER, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 2.9 VOTING; PROXIES. Unless otherwise provided in the Certificate of Incorporation, every Stockholder entitled to vote at any meeting of Stockholders shall be entitled to one (1) vote for each share of stock held by such Stockholders which has voting power upon the matter in question. If the Certificate of Incorporation provides for more or less than one vote for any share on any matter, each reference in the By-laws or 8 the General Corporation Law to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. The provisions of Sections 212 and 217 of the General Corporation Law shall apply in determining whether any shares of stock may be voted and the persons, if any, entitled to vote such shares; but the Corporation shall be protected in assuming that the persons in whose names shares of stock stand on the stock ledger of the Corporation are entitled to vote such shares. At any meeting of Stockholders (at which a quorum was present to organize the meeting), all matters, except as otherwise provided by applicable law, pursuant to any regulation applicable to the Corporation or its securities or by the Certificate of Incorporation or by these By-laws, shall be decided by the affirmative vote of a majority in voting power of shares present in person or represented by proxy and entitled to vote thereon. At all meetings of Stockholders for the election of Directors, a plurality of the votes cast shall be sufficient to elect. Except as otherwise provided by the Certificate of Incorporation, each Stockholder entitled to vote at a meeting of Stockholders may authorize another person or persons to act for such Stockholder by proxy. The validity and enforceability of any proxy shall be determined in accordance with Section 212 of the General Corporation Law. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. 2.10 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS OF Stockholders. The Board, in advance of any meeting of Stockholders, may, and shall, if required by applicable law, appoint one or more inspectors to act at the meeting and make 9 a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If required by applicable law, if no inspector or alternate is able to act at a meeting, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. At the meeting, the inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a Stockholder shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of Stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election. 10 2.11 CONDUCT OF MEETINGS. (a) The Board may adopt by resolution such rules and regulations for the conduct of the meeting of Stockholders as it shall deem appropriate. At each meeting of Stockholders, the Chairman, or in the absence of the Chairman or if one shall not have been appointed, the President, or if the President is absent, a Vice President, and in case more than one (1) Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall act as chairman of the meeting. Except to the extent inconsistent with any rules and regulations for the conduct of the meeting of Stockholders adopted by the Board, the chairman of the meeting shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules and regulations for the conduct of the meeting and to do such acts as, in the judgment of the chairman of the meeting, are appropriate for the proper conduct of the meeting. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as secretary of the meeting. In the absence of the Secretary or one of the Assistant Secretaries, the chairman of the meeting shall appoint a person to act as secretary of the meeting. In case none of the officers above designated to act as chairman or secretary of the meeting, respectively, shall be present, a chairman or a secretary of the meeting, as the case may be, shall be chosen by resolution of the Board, and in case the Board has not so acted, by a majority of the votes cast at such meeting by the holders of shares of stock present in person or represented by proxy and entitled to vote at the meeting. (b) Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board may be made at an annual meeting or special meeting of 11 Stockholders only (i) by or at the direction of the Board, (ii) by any nominating committee designated by the Board or (iii) by any Stockholder of the Corporation who was a Stockholder of record of the Corporation at the time the notice provided for in this Section 2.11 is delivered to the Secretary, who is entitled to vote for the election of Directors at the meeting and who complies with the applicable provisions of Section 2.11(d) hereof (persons nominated in accordance with (iii) above are referred to herein as "Stockholder nominees"). (c) At any annual meeting of Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting of Stockholders, (i) business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) otherwise properly brought before the meeting by a Stockholder who was a Stockholder of record of the Corporation at the time the notice provided for in this Section 2.11 is delivered to the Secretary, who is entitled to vote at the meeting and who complies with the applicable provisions of Section 2.11(d) hereof (business brought before the meeting in accordance with (iii) above is referred to as "Stockholder business"). (d) In addition to any other applicable requirements, at any annual or special meeting of Stockholders (i) all nominations of Stockholder nominees must be made by timely written notice given by or on behalf of a Stockholder of record of the Corporation (the "Notice of Nomination") and (ii) all proposals of Stockholder business must be made by timely written notice given by or on behalf of a Stockholder of 12 record of the Corporation (the "Notice of Business"). To be timely, the Notice of Nomination or the Notice of Business, as the case may be, must be delivered personally to, or mailed to, and received at the Office of the Corporation, addressed to the attention of the Secretary, (i) in the case of the nomination of a person for election to the Board, or business to be conducted, at an annual meeting of Stockholders, not less than ninety (90) days nor more than one hundred and twenty (120) days prior to the first anniversary of the date of the prior year's annual meeting of Stockholders or (ii) in the case of the nomination of a person for election to the Board at a special meeting of Stockholders, not more than one hundred and twenty (120) days prior to and not less than the later of (a) ninety (90) days prior to such special meeting or (b) the tenth day following the day on which the notice of such special meeting was made by mail or Public Disclosure; PROVIDED, HOWEVER, that in the event that (i) the annual meeting of Stockholders is advanced by more than thirty (30) days, or delayed by more than seventy (70) days, from the first anniversary of the prior year's annual meeting of Stockholders, (ii) no annual meeting was held during the prior year or (iii) in the case of the Corporation's first annual meeting of Stockholders as a corporation with a class of equity security registered under the Securities Act of 1933, as amended (the "IPO Date"), notice by the Stockholder to be timely must be received (i) no earlier than one hundred and twenty (120) days prior to such annual meeting and (ii) no later than the later of ninety (90) days prior to such annual meeting or ten (10) days following the day the notice of such annual meeting was made by mail or Public Disclosure, regardless of any postponement, deferral or adjournment of the meeting to a later date. In no event shall the Public Disclosure of an adjournment or postponement of an annual or special meeting commence a new time 13 period (or extend any time period) for the giving of the Notice of Nomination or Notice of Business, as applicable. Notwithstanding anything in the immediately preceding paragraph to the contrary, in the event that the number of directors to be elected to the Board at an annual meeting is increased and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a Notice of Nomination shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered at the Office of the Corporation, addressed to the attention of the Secretary, not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. The Notice of Nomination shall set forth (i) the name and record address of the Stockholder and/or beneficial owner proposing to make nominations, as they appear on the Corporation's books, (ii) the class and number of shares of stock held of record and beneficially by such Stockholder and/or such beneficial owner, (iii) a representation that the Stockholder is a holder of record of stock of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose such nomination, (iv) all information regarding each Stockholder nominee that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor statute thereto (the "Exchange Act"), and the written consent of each such Stockholder nominee to being named in a proxy statement as a nominee and to serve if elected and (v) all other information that would be required to be 14 filed with the Securities and Exchange Commission if the person proposing such nominations were a participant in a solicitation subject to Section 14 of the Exchange Act or any successor statute thereto. The Corporation may require any Stockholder nominee to furnish such other information as it may reasonably require to determine the eligibility of such Stockholder nominee to serve as a Director of the Corporation. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that any proposed nomination of a Stockholder nominee was not made in accordance with the foregoing procedures and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. The Notice of Business shall set forth (i) the name and record address of the Stockholder and/or beneficial owner proposing such Stockholder business, as they appear on the Corporation's books, (ii) the class and number of shares of stock held of record and beneficially by such Stockholder and/or such beneficial owner, (iii) a representation that the Stockholder is a holder of record of stock of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose such business, (iv) a brief description of the Stockholder business desired to be brought before the annual meeting, the text of the proposal (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the By-laws, the language of the proposed amendment, and the reasons for conducting such Stockholder business at the annual meeting, (v) any material interest of the Stockholder and/or beneficial owner in such Stockholder business and (vi) all other information that would be required to be filed with the Securities and Exchange Commission if the person proposing such Stockholder business were a 15 participant in a solicitation subject to Section 14 of the Exchange Act. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at the annual meeting of Stockholders except in accordance with the procedures set forth in this Section 2.11(d), PROVIDED, HOWEVER, that nothing in this Section 2.11(d) shall be deemed to preclude discussion by any Stockholder of any business properly brought before the annual meeting in accordance with said procedure. Nevertheless, it is understood that Stockholder business may be excluded if the exclusion of such Stockholder business is permitted by the applicable regulations of the Securities and Exchange Commission. Only such business shall be conducted at a special meeting of Stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting, that business was not properly brought before the meeting in accordance with the foregoing procedures and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.11, if the Stockholder (or a qualified representative of the Stockholder) does not appear at the annual or special meeting of Stockholders to present the Stockholder nomination or the Stockholder business, as applicable, such nomination shall be disregarded and such business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.11, "Public Disclosure" shall be deemed to be first made when disclosure of such date of the annual or special meeting of Stockholders, as the case may be, is first made in a press release reported by the Dow 16 Jones News Services, Associated Press or comparable national news service, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act or any successor statute thereto. Notwithstanding the foregoing, a Stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.11. Nothing in this Section 2.11 shall be deemed to affect any rights of the holders of any series of preferred stock of the Corporation pursuant to any applicable provision of the Certificate of Incorporation. 2.12 ORDER OF BUSINESS. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting. 2.13 WRITTEN CONSENT OF STOCKHOLDERS WITHOUT A MEETING. Except as otherwise provided for or fixed pursuant to the provisions of the Certificate of Incorporation relating to the rights of holders of any series of Preferred Stock, no action that is required or permitted to be taken by the Stockholders of the Corporation at any annual or special meeting of Stockholders may be effected by written consent of Stockholders in lieu of a meeting of Stockholders. ARTICLE 3 DIRECTORS 3.1 GENERAL POWERS. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not 17 inconsistent with the Certificate of Incorporation or these By-laws or applicable law, as it may deem proper for the conduct of its meetings and the management of the Corporation. 3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. The Board shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board. Directors need not be Stockholders. Each Director shall hold office until a successor is duly elected and qualified or until the Director's death, resignation or removal. The Board (other than those Directors elected by the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of the Certificate of Incorporation (the "Preferred Stock Directors")) shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. Class I Directors shall initially serve until the first annual meeting of Stockholders held after the IPO Date; Class II Directors shall initially serve until the second annual meeting of Stockholders held after the IPO Date; and Class III Directors shall initially serve until the third annual meeting of Stockholders held after the IPO Date. Commencing with the first annual meeting of Stockholders held after the IPO Date, Directors of each class the term of which shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of Stockholders and until the election and qualification of their respective successors in office. In case of any increase or decrease, from time to time, in the number of Directors (other than Preferred Stock Directors), the number of directors in each class shall be apportioned as nearly equal as possible. 3.3 ELECTION. Directors shall, except as otherwise required by applicable law or by the Certificate of Incorporation, be elected by a plurality of the votes 18 cast at a meeting of Stockholders by the holders of shares present in person or represented by proxy at the meeting and entitled to vote in the election. 3.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise provided by applicable law or the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock then outstanding, any newly created Directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled by a majority vote of the remaining Directors then in office although less than a quorum, or by a sole remaining Director, and Directors so chosen shall hold office until the expiration of the term of office of the Director whom he or she has replaced or until his or her successor is duly elected and qualified. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director. When any Director shall give notice of resignation effective at a future date, the Board may fill such vacancy to take effect when such resignation shall become effective in accordance with the General Corporation Law. 3.5 RESIGNATION. Any Director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. 3.6 REMOVAL. Except for Preferred Stock Directors, any Director, or the Entire Board, may be removed from office at any time, but only for cause and only by the affirmative vote of at least a majority of the total voting power of the outstanding 19 shares of stock of the Corporation entitled to vote generally in the election of Directors, voting together as a single class. 3.7 COMPENSATION. Each Director, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors' meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 3.7 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. 3.8 REGULAR MEETINGS. Regular meetings of the Board may be held without notice at such times and at such places within or without the State of Delaware as shall from time to time be determined by the Board. 3.9 SPECIAL MEETINGS. Special meetings of the Board may be held at any time or place, within or without the State of Delaware, whenever called by the Chairman, the President or the Secretary or by any two or more Directors then serving as Directors on at least twenty-four hours' notice to each Director given by one of the means specified in Section 3.12 hereof other than by mail, or on at least three days' notice if given by mail. Special meetings shall be called by the Chairman, President or Secretary 20 in like manner and on like notice on the written request of any two or more of the Directors then serving as Directors. 3.10 TELEPHONE MEETINGS. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.10 shall constitute presence in person at such meeting. 3.11 ADJOURNED MEETINGS. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least one (1) day's notice of any adjourned meeting of the Board shall be given to each Director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.12 hereof other than by mail, or at least three (3) days' notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called. 3.12 NOTICE PROCEDURE. Subject to Sections 3.9 and 3.15 hereof, whenever, under the provisions of applicable law, the Certificate of Incorporation or these By-laws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director's address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or other means of electronic transmission. 3.13 WAIVER OF NOTICE. Whenever the giving of any notice to Directors is required by applicable law, the Certificate of Incorporation or these By-laws, a waiver 21 thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting except when the Director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any written waiver of notice unless so required by applicable law, the Certificate of Incorporation or these By-laws. 3.14 ORGANIZATION. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the President, or in the absence of the President, a chairman chosen by a majority of the Directors present, shall preside. The Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting. 3.15 QUORUM OF DIRECTORS. The presence in person of a majority of the Entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board. 3.16 ACTION BY MAJORITY VOTE. Except as otherwise expressly required by applicable law, the Certificate of Incorporation or these By-laws, the act of a majority 22 of the Directors present at a meeting at which a quorum is present shall be the act of the Board. 3.17 ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. ARTICLE 4 COMMITTEES OF THE BOARD The Board may designate one or more committees, each committee to consist of one or more of the Directors. The Board may remove any Director from any committee at any time, with or without cause. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board passed as aforesaid, shall have and may exercise all the powers and authority of the 23 Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be impressed on all papers that may require it, but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the Stockholders, any action or matter expressly required by the General Corporation Law to be submitted to Stockholders for approval or (ii) adopting, amending or repealing these By-laws. Unless the Board provides otherwise, at all meetings of such committee a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings, copies of which shall be delivered to the Secretary. Unless the Board provides otherwise, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 3 of these By-laws. ARTICLE 5 OFFICERS 5.1 POSITIONS. The officers of the Corporation shall be a President, a Secretary, a Treasurer and such other officers as the Board may appoint, including a Chairman, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Board may designate one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to 24 designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any number of offices may be held by the same person unless the Certificate of Incorporation or these By-laws otherwise provide. 5.2 APPOINTMENT. The officers of the Corporation shall be chosen by the Board at its annual meeting or at such other time or times as the Board shall determine. 5.3 COMPENSATION. The compensation of all officers of the Corporation shall be fixed by the Board. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer is also a Director. 5.4 TERM OF OFFICE. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer's successor is chosen and qualifies or until such officer's earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contractual or other legal rights of the Corporation, if any. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by the Board. Any vacancy occurring in any office of the Corporation shall be filled by the Board. The removal of an officer without cause shall be without prejudice to the officer's contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. 25 5.5 FIDELITY BONDS. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5.6 CHAIRMAN. The Chairman, if one shall have been appointed, shall preside at all meetings of the Board and Stockholders (unless the Chairman has delegated such powers to the President) and shall exercise such powers and perform such other duties as shall be determined from time to time by the Board. 5.7 PRESIDENT. The President shall be the Chief Executive Officer of the Corporation and shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and of any duly authorized committee of Directors. The President shall preside at all meetings of Stockholders and the Board at which the Chairman (if there be one) has delegated such powers to the President or at which the Chairman is not present. The President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation or shall be required by applicable law otherwise to be signed or executed and, in general, the President shall perform all duties incident to the office of President of a corporation and such other duties as may from time to time be assigned to the President by the Board. 5.8 VICE PRESIDENTS. At the request of the President, or, in the President's absence, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board) perform all of the duties of the President and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the President. Any Vice President may sign and execute in the name of the Corporation 26 deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by the Board or by these By-laws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by the Board or by the President. 5.9 SECRETARY. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or by the President, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to impress the same on any instrument requiring it, and when so impressed the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may give general authority to any other officer to impress the seal of the Corporation and to attest the same by such officer's signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by applicable law are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation 27 and such other duties as may from time to time be assigned to the Secretary by the Board or by the President. 5.10 TREASURER. The Treasurer shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositaries of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the President or the Board, whenever the President or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; exhibit at all reasonable times the records and books of account to any of the Directors upon application at the Office of the Corporation where such records and books are kept; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by the Board or the President. 28 5.11 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board or by the President. ARTICLE 6 CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. 6.1 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in these By-laws, may prospectively or retroactively authorize any officer or officers, employee or employees or agent or agents, in the name and on behalf of the Corporation, to enter into any contract or execute and deliver any instrument, and any such authority may be general or confined to specific instances, or otherwise limited. Any action by the Board authorizing the President to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation shall be deemed to authorize the President to delegate such authority to such other officer as the President may choose. 6.2 LOANS. The Board may prospectively or retroactively authorize the President or any other officer, employee or agent of the Corporation to effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances the person so authorized may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, and, when authorized by the Board so to do, may pledge and hypothecate or transfer any securities or other property of the Corporation as security for any such loans or advances. Such authority conferred by the Board may be general or confined to specific instances, or otherwise limited. 29 6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the payment of money out of the funds of the Corporation and all evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board. 6.4 DEPOSITS. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation with such banks, trust companies, investment banking firms, financial institutions or other depositaries as the Board may select or as may be selected by an officer, employee or agent of the Corporation to whom such power to select may from time to time be delegated by the Board. ARTICLE 7 STOCK AND DIVIDENDS 7.1 CERTIFICATES REPRESENTING SHARES. The shares of stock of the Corporation shall be represented by certificates in such form (consistent with the provisions of Section 158 of the General Corporation Law) as shall be approved by the Board. Such certificates shall be signed by the Chairman, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with the seal of the Corporation or a facsimile thereof. The signatures of the officers upon a certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may, unless otherwise ordered by the Board, be 30 issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 7.2 TRANSFER OF SHARES. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the holder thereof or by the holder's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary, an Assistant Secretary or a transfer agent of the Corporation, and on surrender of the certificate or certificates representing such shares of stock properly endorsed for transfer and upon payment of all necessary transfer taxes. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or an Assistant Secretary or the transfer agent of the Corporation. A person in whose name shares of stock shall stand on the books of the Corporation shall be deemed the owner thereof to receive dividends, to vote as such owner and for all other purposes as respects the Corporation. No transfer of shares of stock shall be valid as against the Corporation, its Stockholders and creditors for any purpose, except to render the transferee liable for the debts of the Corporation to the extent provided by applicable law, until such transfer shall have been entered on the books of the Corporation by an entry showing from and to whom transferred. 7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board. 7.4 LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any shares of stock of the Corporation shall notify the Corporation of any loss, destruction or theft of the certificate representing such shares, and the Corporation may issue a new certificate 31 to replace the certificate alleged to have been lost, destroyed or stolen. The Board may, in its discretion, as a condition to the issue of any such new certificate, require the owner of the lost, destroyed or stolen certificate, or his or her legal representatives, to make proof satisfactory to the Board of such loss, destruction or theft and to advertise such fact in such manner as the Board may require, and to give the Corporation a bond in such form, in such sums and with such surety or sureties as the Board may direct, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate and the issuance of such new certificate. 7.5 RULES AND REGULATIONS. The Board may make such rules and regulations as it may deem expedient, not inconsistent with applicable law, these By-laws or with the Certificate of Incorporation, concerning the issue, transfer and registration of certificates representing shares of its stock. 7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction or restrictions on the transfer or registration of transfer of stock of the Corporation, or on the amount of the Corporation's stock that may be owned by any person or group of persons, if permitted by Section 202 of the General Corporation Law and noted conspicuously on the certificate or certificates representing such stock, may be enforced against the holder of the restricted stock or any successor or transferee of the holder, including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate or certificates representing such stock, a restriction, even though permitted by Section 202 of the General Corporation Law, shall be ineffective except against a person with actual 32 knowledge of the restriction. A restriction on the transfer or registration of transfer of stock of the Corporation, or on the amount of the Corporation's stock that may be owned by any person or group of persons, may be imposed either by the Certificate of Incorporation or these By-laws or by an agreement among any number of Stockholders or among such Stockholders and the Corporation. No restrictions so imposed shall be binding with respect to stock issued prior to the adoption of the restriction unless the holders of such stock are parties to an agreement or voted in favor of the restriction. 7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the Certificate of Incorporation and of applicable law, the Board: 7.7.1 may declare and pay dividends or make other distributions on the outstanding shares of stock in such amounts and at such time or times as it, in its discretion, shall deem advisable; 7.7.2 may use and apply, in its discretion, any of the surplus of the Corporation in purchasing or acquiring any shares of stock of the Corporation, or purchase warrants therefor, in accordance with law, or any of its bonds, debentures, notes, scrip or other securities or evidences of indebtedness; and 7.7.3 may set aside from time to time out of such surplus or net profits such sum or sums as, in its discretion, it may think proper, as a reserve fund to meet contingencies, or for equalizing dividends or for the purpose of maintaining or increasing the property or business of the Corporation, or for any purpose it may think conducive to the best interests of the Corporation. 33 ARTICLE 8 INDEMNIFICATION 8.1 INDEMNITY UNDERTAKING. To the extent not prohibited by applicable law, the Corporation shall indemnify any person (a "Covered Person") who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or, while a Director or officer of the Corporation, is or was serving at the request of the Corporation as a director or officer of any other corporation or in a capacity with comparable authority or responsibilities for any partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against expenses (including attorneys' fees) in the event of an action by or in the right of the Corporation and against judgments, fines, and amounts paid in settlement and expenses (including attorneys' fees), in the event of any other proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal proceeding, had no reason to believe the person's conduct was unlawful. Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Article 8. Notwithstanding the preceding sentence, except as otherwise provided in Section 8.9, the Corporation shall 34 be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized by the Board. 8.2 ADVANCEMENT OF EXPENSES. The Corporation shall, from time to time, reimburse or advance to any Covered Person the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in defense of any Proceeding, in advance of the final disposition of such Proceeding; PROVIDED, HOWEVER, that, if required by the General Corporation Law, such payment of expenses in advance of the final disposition of a Proceeding shall be made only upon receipt by the Corporation of an undertaking, by the Covered Person, to repay any such amount so advanced if it shall ultimately be determined that such Covered Person is not entitled to be indemnified for such expenses. 8.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Article 8 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under applicable law, the Certificate of Incorporation, these By-laws, any agreement, any vote of Stockholders or disinterested Directors or otherwise. 8.4 CONTINUATION OF BENEFITS. The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Article 8 shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the executors, administrators, legatees and distributees of such person. 35 8.5 INSURANCE. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article 8, the Certificate of Incorporation or under Section 145 of the General Corporation Law or any other provision of law. 8.6 BINDING EFFECT. Any repeal or modification of the provisions of this Article 8 shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification. 8.7 PROCEDURAL RIGHTS. The rights to indemnification or advancement of expenses provided by, or granted pursuant to, this Article 8 shall be enforceable by any Covered Person in the Court of Chancery of the State of Delaware. The burden of proving that such indemnification or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board, its independent legal counsel and its Stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board, its independent legal counsel and its Stockholders) that such person is not entitled to such indemnification or reimbursement or advancement 36 of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or advancement of expenses, in whole or in part, in any such proceeding. 8.8 CONTRIBUTION. The Corporation's obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at the Corporation's request as a director, officer, employee or agent of any Other Entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such Other Entity. 8.9 CLAIMS. If a claim for indemnification or advancement of expenses under this Article 8 is not paid in full within 30 days after a written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law. 8.10 INDEMNIFICATION OF OTHERS. This Article 8 shall not limit the right of the Corporation, to the extent and in the manner permitted by applicable law, to indemnify and advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action. 37 ARTICLE 9 BOOKS AND RECORDS 9.1 BOOKS AND RECORDS. There shall be kept at the principal Office of the Corporation correct and complete records and books of account recording the financial transactions of the Corporation and minutes of the proceedings of the Stockholders, the Board and any committee of the Board. The Corporation shall keep at its principal office, or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of all Stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. 9.2 FORM OF RECORDS. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the General Corporation Law. 9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by applicable law, the Board shall determine whether, and, if allowed, when and under what conditions and regulations, the accounts, books, minutes and other records of the Corporation, or any of them, shall be open to the Stockholders for inspection. 38 ARTICLE 10 SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. ARTICLE 11 FISCAL YEAR The fiscal year of the Corporation shall be the calendar year, unless otherwise determined by resolution of the Board. ARTICLE 12 PROXIES AND CONSENTS Unless otherwise provided by resolution of the Board, the Chairman, the President, any Vice President, the Secretary or the Treasurer, or any one of them, may execute and deliver on behalf of the Corporation proxies respecting any and all shares or other ownership interests of any Other Entity owned by the Corporation appointing such person or persons as the officer executing the same shall deem proper to represent and vote the shares or other ownership interests so owned at any and all meetings of holders of shares or other ownership interests, whether general or special, and/or to execute and deliver written consents respecting such shares or other ownership interests; or any of the aforesaid officers may attend any meeting of the holders of shares or other ownership interests of such Other Entity and thereat vote or exercise any or all other powers of the Corporation as the holder of such shares or other ownership interests. 39 ARTICLE 13 AMENDMENTS Subject to the provisions of the Certificate of Incorporation, (i) these By-laws may be altered, amended or repealed and new By-laws may be adopted by a vote of the Stockholders or by the Board and (ii) any By-laws altered, adopted or amended by the Board may be altered, amended or repealed by the Stockholders. EX-4.6 8 a2069486zex-4_6.txt EXHIBIT 4.6 Exhibit 4.6 THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of , 2002, among Anteon International Corporation (formerly known as Azimuth Technologies, Inc.), a Delaware corporation ("Anteon Delaware"), Anteon International Corporation (formerly known as Anteon Corporation), a Virginia corporation ("Anteon Virginia"), and The Bank of New York (as successor to IBJ Whitehall Bank & Trust Company), a New York banking corporation, as trustee (the "Trustee"). WHEREAS, Anteon Virginia, Anteon Corporation (formerly known as Techmatics, Inc.), a Virginia corporation and a Subsidiary Guarantor, Interactive Media Corp., a Delaware corporation and a Subsidiary Guarantor, and the Trustee are parties to an Indenture, dated as of May 11, 1999, as amended and supplemented, providing for the issuance of Anteon Virginia's 12% Senior Subordinated Notes due 2009 (the "Indenture"); WHEREAS, on the date hereof, Anteon Virginia will merge with and into Anteon Delaware, with Anteon Delaware as the surviving entity (the "Merger"); WHEREAS, pursuant to Section 5.01(a) of the Indenture, Anteon Delaware and the Trustee are required to enter into this Supplemental Indenture (the "Supplemental Indenture") in connection with the Merger; and WHEREAS, Anteon Delaware and the Trustee are authorized to enter into this Supplemental Indenture. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained in this Supplemental Indenture and for other good and valuable consideration, the receipt and sufficiency of which are herein acknowledged, Anteon Delaware, Anteon Virginia and the Trustee hereby agree for the equal and the ratable benefit of all Holders of the Securities as follows: ARTICLE ONE DEFINITIONS 1.1 DEFINITIONS. For purposes of this Supplemental Indenture, the terms defined in the recitals shall have the meanings therein specified; any terms defined in the Indenture and not defined herein shall have the same meanings herein as therein defined; and references to Articles or Sections shall, unless the context indicates otherwise, be references to Articles or Sections of the Indenture. 2 ARTICLE TWO THE MERGER 2.1 MERGER. Pursuant to Section 5.01(a) of the Indenture, upon the effectiveness of the Merger, Anteon Delaware hereby expressly assumes, by virtue of this Supplemental Indenture, all the obligations of Anteon Virginia under the Indenture. ARTICLE THREE MISCELLANEOUS 3.1 EFFECT OF THE SUPPLEMENTAL INDENTURE. This Supplemental Indenture supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture, the Securities issued thereunder and the Guarantees shall continue in full force and effect. 3.2 COUNTERPARTS. This Supplemental Indenture may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. The parties hereto confirm that any facsimile copy of another party's executed counterparts of this Supplemental Indenture (or its signature page hereof) will be deemed to be an executed original thereof. 3.3 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed on the date first above written. ANTEON INTERNATIONAL CORPORATION (formerly known as Azimuth Technologies, Inc.) By: ------------------------------------------------ Name: Joseph Kampf Title: President and Chief Executive Officer ANTEON INTERNATIONAL CORPORATION (formerly known as Anteon Corporation) By: ------------------------------------------------ Name: Joseph Kampf Title: President and Chief Executive Officer THE BANK OF NEW YORK, AS TRUSTEE By: ------------------------------------------------ Name: Title: EX-4.8 9 a2069486zex-4_8.txt EXHIBIT 4.8 Exhibit 4.8 REGISTRATION RIGHTS AGREEMENT among ANTEON INTERNATIONAL CORPORATION AZIMUTH TECHNOLOGIES, L.P. AZIMUTH TECH. II LLC FREDERICK J. ISEMAN JOSEPH M. KAMPF CARLTON B. CRENSHAW THOMAS M. COGBURN THE FERRIS FAMILY 1987 TRUST STEVEN M. LEFKOWITZ SEYMOUR L. MOSKOWITZ and THE OTHER PARTIES NAMED HEREIN --------------------------------------------------------- Dated: [ ], 2002 --------------------------------------------------------- TABLE OF CONTENTS
PAGE 1. Definitions.....................................................................................1 2. General; Securities Subject to this Agreement...................................................5 (a) Grant of Rights........................................................................5 (b) Registrable Securities.................................................................5 (c) Holders of Registrable Securities......................................................5 3. Demand Registration.............................................................................6 (a) Request for Demand Registration........................................................6 (b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration................7 (c) Effective Demand Registration..........................................................7 (d) Expenses...............................................................................7 (e) Underwriting Procedures................................................................7 (f) Selection of Underwriters..............................................................8 (g) Withdrawal.............................................................................8 4. Incidental or "Piggy-Back" Registration.........................................................8 (a) Request for Incidental Registration....................................................9 (b) Expenses...............................................................................9 (c) Initial Public Offering................................................................9 5. Form S-3 Registration..........................................................................10 (a) Request for a Form S-3 Registration. ................................................10 (b) Form S-3 Underwriting Procedures......................................................10 (c) Limitations on Form S-3 Registrations.................................................11 (d) Expenses..............................................................................11 (e) No Demand Registration................................................................11 6. Holdback Agreements............................................................................11 (a) Restrictions on Public Sale by Designated Holders.....................................11 (b) Restrictions on Public Sale by the Company............................................12 7. Registration Procedures........................................................................12 (a) Obligations of the Company............................................................12 (b) Seller Information....................................................................16 (c) Notice to Discontinue.................................................................16 (d) Registration Expenses.................................................................16 8. Indemnification; Contribution..................................................................17 (a) Indemnification by the Company........................................................17 (b) Indemnification by Designated Holders.................................................17 (c) Conduct of Indemnification Proceedings................................................18 (d) Contribution..........................................................................19 i 9. Rule 144.......................................................................................19 10. Miscellaneous..................................................................................20 (a) Stock Splits, etc.....................................................................20 (b) No Inconsistent Agreements............................................................20 (c) Remedies..............................................................................20 (d) Amendments and Waivers................................................................20 (e) Notices...............................................................................21 (f) Successors and Assigns; Third Party Beneficiaries.....................................21 (g) Counterparts..........................................................................22 (h) Headings..............................................................................22 (I) GOVERNING LAW.........................................................................22 (j) Severability..........................................................................22 (k) Rules of Construction.................................................................22 (l) Entire Agreement......................................................................22 (m) Further Assurances....................................................................23 (n) Other Agreements......................................................................23
ii REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated [ ], 2002, among Anteon International Corporation, a Delaware corporation (the "Company"), Azimuth Technologies, L.P., a Delaware limited partnership ("Azimuth"), Azimuth Tech. II LLC, a Delaware limited liability company ("Azimuth Tech."), Frederick J. Iseman ("Iseman" and, together with the Azimuth and Azimuth Tech., the "CIC Stockholders"), Joseph M. Kampf ("Kampf"), Carlton B. Crenshaw ("Crenshaw"), Thomas M. Cogburn ("Cogburn"), the Ferris Family 1987 Trust ("Ferris"), Steven M. Lefkowitz ("Lefkowitz"), Seymour L. Moskowitz ("Moskowitz" and, together with Kampf, Crenshaw, Cogburn, Ferris and Lefkowitz, the "Significant Holders"), Noreen Centracchio ("Centracchio"), Howard Dawson ("Dawson"), Gilbert F. Decker ("Decker"), Roger Gurner ("Gurner"), Mark D. Heilman ("Heilman"), Paul Kaminski ("Kaminski") and Curtis L. Schehr ("Schehr" and, together with Centracchio, Dawson, Decker, Gurner, Heilman and Kaminski, the "Other Holders"). WHEREAS, the Company intends to consummate an Initial Public Offering (as hereinafter defined); WHEREAS, the parties hereto desire to provide for, among other things, the grant of registration rights with respect to the Registrable Securities (as hereinafter defined) in contemplation of such Initial Public Offering. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "AFFILIATE" shall mean any Person who is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "AGREEMENT" means this Registration Rights Agreement as the same may be amended, supplemented or modified in accordance with the terms hereof. "APPROVED UNDERWRITER" has the meaning set forth in Section 3(f) of this Agreement. "AZIMUTH" has the meaning set forth in the preamble to this Agreement. "AZIMUTH TECH." has the meaning set forth in the preamble to this Agreement. "BOARD OF DIRECTORS" means the Board of Directors of the Company. 2 "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of New York are authorized or required by law or executive order to close. "CENTRACCHIO" has the meaning set forth in the preamble to this Agreement. "CIC STOCKHOLDERS" has the meaning set forth in the preamble to this Agreement. "CLOSING PRICE" means, with respect to the Registrable Securities, as of the date of determination, (a) if the Registrable Securities are listed on a national securities exchange, the closing price per share of a Registrable Security on such date published in THE WALL STREET JOURNAL (NATIONAL EDITION) or, if no such closing price on such date is published in THE WALL STREET JOURNAL (NATIONAL EDITION), the average of the closing bid and asked prices on such date, as officially reported on the principal national securities exchange on which the Registrable Securities are then listed or admitted to trading; or (b) if the Registrable Securities are not then listed or admitted to trading on any national securities exchange but are designated as national market system securities by the NASD, the last trading price per share of a Registrable Security on such date; or (c) if there shall have been no trading on such date or if the Registrable Securities are not designated as national market system securities by the NASD, the average of the reported closing bid and asked prices of the Registrable Securities on such date as shown by The Nasdaq Stock Market, Inc. (or its successor) and reported by any member firm of The New York Stock Exchange, Inc. selected by the Company; or (d) if none of (a), (b) or (c) is applicable, a market price per share determined in good faith by the Board of Directors or, if such determination is not satisfactory to the Designated Holder for whom such determination is being made, by a nationally recognized investment banking firm selected by the Company and such Designated Holder, the expenses for which shall be borne equally by the Company and such Designated Holder. If trading is conducted on a continuous basis on any exchange, then the closing price shall be at 4:00 P.M. New York City time. "COGBURN" has the meaning set forth in the preamble to this Agreement. "COMMISSION" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act. "COMMON STOCK" means (i) the Common Stock, par value $0.01 per share, of the Company, (ii) any other common stock of the Company and (iii) any other securities of the Company or any successor or assign of the Company into which such stock described in clauses (i) and (ii) is reclassified or reconstituted or into which such stock is converted or otherwise exchanged in connection with a combination of shares, recapitalization, merger, sale of assets, consolidation or other reorganization or otherwise. "COMPANY" has the meaning set forth in the preamble to this Agreement. 3 "COMPANY UNDERWRITER" has the meaning set forth in Section 4(a) of this Agreement. "CRENSHAW" has the meaning set forth in the preamble to this Agreement. "DAWSON" has the meaning set forth in the preamble to this Agreement. "DECKER" has the meaning set forth in the preamble to this Agreement. "DEMAND REGISTRATION" has the meaning set forth in Section 3(a) of this Agreement. "DESIGNATED HOLDER" means each of the CIC Stockholders, the Significant Holders and the Other Holders and any transferee of any of them to whom Registrable Securities have been transferred in accordance with Section 10(f) of this Agreement, other than a transferee to whom Registrable Securities have been transferred pursuant to a Registration Statement under the Securities Act or Rule 144 or Regulation S under the Securities Act (or any successor rule thereto), PROVIDED, HOWEVER, that a Significant Holder (except in the case of Ferris and Lefkowitz, taken together with the CIC Stockholders) shall cease to be a Designated Holder if such Significant Holder holds less than one percent (1%) of the outstanding shares of Common Stock on a fully diluted basis. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "FERRIS" has the meaning set forth in the preamble to this Agreement. "GURNER" has the meaning set forth in the preamble to this Agreement. "HEILMAN" has the meaning set forth in the preamble to this Agreement. "HOLDERS' COUNSEL" has the meaning set forth in Section 7(a)(i) of this Agreement. "INCIDENTAL REGISTRATION" has the meaning set forth in Section 4(a) of this Agreement. "INDEMNIFIED PARTY" has the meaning set forth in Section 8(c) of this Agreement. "INDEMNIFYING PARTY" has the meaning set forth in Section 8(c) of this Agreement. "INITIAL PUBLIC OFFERING" means the initial public offering of the shares of Common Stock of the Company pursuant to an effective Registration Statement filed under the Securities Act. "INITIATING HOLDERS" has the meaning set forth in Section 3(a) of this Agreement. 4 "INSPECTOR" has the meaning set forth in Section 7(a)(vii) of this Agreement. "IPO EFFECTIVENESS DATE" means the date upon which the Company consummates the Initial Public Offering. "ISEMAN" has the meaning set forth in the preamble to this Agreement. "KAMINSKI" has the meaning set forth in the preamble to this Agreement. "KAMPF" has the meaning set forth in the preamble to this Agreement. "LEFKOWITZ" has the meaning set forth in the preamble to this Agreement. "LIABILITY" has the meaning set forth in Section 8(a) of this Agreement. "MARKET PRICE" means, on any date of determination, the average of the daily Closing Price of the Registrable Securities for the immediately preceding thirty (30) days on which the national securities exchanges are open for trading; PROVIDED, HOWEVER, that if the Closing Price is determined pursuant to clause (d) of the definition of Closing Price, the "Market Price" means such Closing Price on the date of determination. "MOSKOWITZ" has the meaning set forth in the preamble to this Agreement. "NASD" means the National Association of Securities Dealers, Inc. "OTHER HOLDERS" has the meaning set forth in the preamble to this Agreement. "PERMITTED ASSIGNEE" with respect to an individual, means (i) such individual's parents, spouse, siblings, children (including stepchildren) or grandchildren or the spouses thereof ("Family Members"), (ii) a trust, corporation, partnership or limited liability company, all of the beneficial interests of which shall be held by such individual or such individual's Family Members or (iii) such individual's heirs, executors or administrators or a trust under such individual's will. "PERMITTED WITHDRAWAL" has the meaning set forth in Section 3(g) of this Agreement. "PERSON" means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "RECORDS" has the meaning set forth in Section 7(a)(vii) of this Agreement. 5 "REGISTRABLE SECURITIES" means any and all shares of Common Stock now or hereafter owned by the Designated Holders or issued or issuable upon conversion of any convertible securities or exercise of any warrants or options now or hereafter held by any of the Designated Holders. "REGISTRATION EXPENSES" has the meaning set forth in Section 7(d) of this Agreement. "REGISTRATION STATEMENT" means a Registration Statement filed pursuant to the Securities Act. "S-3 INITIATING HOLDERS" has the meaning set forth in Section 5(a) of this Agreement. "S-3 REGISTRATION" has the meaning set forth in Section 5(a) of this Agreement. "SCHEHR" has the meaning set forth in the preamble to this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "SIGNIFICANT HOLDERS" has the meaning set forth in the preamble to this Agreement. "VALID BUSINESS REASON" has the meaning set forth in Section 3(a) of this Agreement. 2. GENERAL; SECURITIES SUBJECT TO THIS AGREEMENT. (a) GRANT OF RIGHTS. The Company hereby grants registration rights to the Designated Holders upon the terms and conditions set forth in this Agreement. (b) REGISTRABLE SECURITIES. For the purposes of this Agreement, Registrable Securities held by any Designated Holder will cease to be Registrable Securities, when (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act by the Commission and such Registrable Securities have been disposed of pursuant to such effective Registration Statement or (ii) the entire amount of the Registrable Securities held by any Designated Holder (or in the case of the CIC Stockholders, the CIC Stockholders taken as a whole and in the case of Ferris and Lefkowitz, taken together with the CIC Stockholders) may be sold in a single sale, in the opinion of counsel satisfactory to the Company and the Designated Holder, each in their reasonable judgment, without any limitation as to volume pursuant to Rule 144 (or any successor provision then in effect) under the Securities Act. (c) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a holder of Registrable Securities whenever such Person owns of record Registrable Securities, or holds an option to purchase, or a security convertible into or exercisable or 6 exchangeable for, Registrable Securities whether or not such acquisition or conversion has actually been effected. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company may act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. Registrable Securities issuable upon exercise of an option or upon conversion of another security shall be deemed outstanding for the purposes of this Agreement. 3. DEMAND REGISTRATION. (a) REQUEST FOR DEMAND REGISTRATION. Each of the CIC Stockholders, acting through Azimuth or its written designee (each, an "Initiating Holder"), may make a written request to the Company to register, and the Company shall register, under the Securities Act (other than pursuant to a Registration Statement on Form S-4 or S-8 or any successor thereto) (a "Demand Registration"), the number of Registrable Securities stated in such request; PROVIDED, HOWEVER, that the Company shall not be obligated to effect (x) more than five such Demand Registrations requested by the CIC Stockholders, (y) a Demand Registration if the Initiating Holders, together with the Designated Holders (other than the Initiating Holders) which have requested to register securities in such registration pursuant to Section 3(b), propose to sell their Registrable Securities at an aggregate price (calculated based upon the Market Price of the Registrable Securities on the date of filing of the Registration Statement with respect to such Registrable Securities) to the public of less than $5,000,000 and (z) any such Demand Registration commencing prior to 180 days after the IPO Effectiveness Date. For purposes of the preceding sentence, two or more Registration Statements filed in response to one demand shall be counted as one Demand Registration. If the Board of Directors, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (a "Valid Business Reason"), the Company may (x) postpone filing a Registration Statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than forty-five (45) days and (y) in case a Registration Statement has been filed relating to a Demand Registration, the Company, upon the approval of a majority of the Board of Directors, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement (in which case, if the Valid Business Reason no longer exists or if more than forty-five (45) days have passed since such withdrawal or postponement, the Initiating Holders may request a new Demand Registration). The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 3(a) more than once in any six (6) month period. Each request for a Demand Registration by the Initiating Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof. 7 (b) INCIDENTAL OR "PIGGY-BACK" RIGHTS WITH RESPECT TO A DEMAND REGISTRATION. Each of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) may offer its Registrable Securities under any Demand Registration pursuant to this Section 3. Within five (5) days after the receipt of a request for a Demand Registration from an Initiating Holder, the Company shall (i) give written notice thereof to all of the Designated Holders (other than Initiating Holders which have requested a registration under Section 3(a)) and (ii) subject to Section 3(e), include in such registration all of the Registrable Securities held by such Designated Holders from whom the Company has received a written request for inclusion therein within ten (10) days of the receipt by such Designated Holders of such written notice referred to in clause (i) above. Each such request by such Designated Holder shall specify the number of Registrable Securities proposed to be registered. The failure of any Designated Holder to respond within such 10-day period referred to in clause (ii) above shall be deemed to be a waiver of such Designated Holder's rights under this Section 3(b) with respect to such Demand Registration. Any Designated Holder may waive its rights under this Section 3(b) prior to the expiration of such 10-day period by giving written notice to the Company, with a copy to the Initiating Holders. (c) EFFECTIVE DEMAND REGISTRATION. The Company shall use its commercially reasonable efforts to cause any such Demand Registration to become and remain effective not later than sixty (60) days after it receives a request under Section 3(a) hereof. A registration shall not constitute a Demand Registration until it has become effective and remains continuously effective for the lesser of (i) the period during which all Registrable Securities registered in the Demand Registration are sold or (ii) 120 days; PROVIDED, HOWEVER, that a registration shall not constitute a Demand Registration if (x) after such Demand Registration has become effective, such registration or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Initiating Holders or the Designated Holders participating in such Demand Registration and such interference is not thereafter eliminated or (y) the conditions specified in the underwriting agreement, if any, entered into in connection with such Demand Registration are not satisfied or waived, other than by reason of a failure by the Initiating Holders or the Designated Holders participating in such Demand Registration. (d) EXPENSES. The Company shall pay all Registration Expenses in connection with a Demand Registration, whether or not such Demand Registration becomes effective. (e) UNDERWRITING PROCEDURES. If the Company or the Initiating Holders so elect, the Company shall use its commercially reasonable efforts to cause such Demand Registration to be in the form of a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(f). In connection with any Demand Registration under this Section 3 involving an underwritten offering, none of the Registrable Securities held by any Designated Holder making a request for inclusion of such Registrable Securities pursuant to Section 3(b) hereof shall be included in such 8 underwritten offering unless such Designated Holder accepts the terms of the offering as agreed upon by the Company, the Initiating Holders and the Approved Underwriter, and then only in such quantity as set forth below. If the Approved Underwriter advises the Company that the aggregate amount of such Registrable Securities requested to be included in such offering is sufficiently large to have a material adverse effect on the success of such offering, then the Company shall include in such registration, to the extent of the amount that the Approved Underwriter believes may be sold without causing such material adverse effect, FIRST, such number of Registrable Securities of the Initiating Holders and any Designated Holder participating in the offering pursuant to the terms of Section 3(b), which Registrable Securities shall be allocated pro rata among such Initiating Holders and Designated Holders, based on the number of Registrable Securities held by each such Initiating Holder or Designated Holder, as the case may be, SECOND, upon the written consent of the holders of at least a majority of the Registrable Securities participating in the offering, any other securities of the Company requested by holders thereof to be included in such registration, which such securities shall be allocated pro rata among such stockholders, based on the number of the Company's securities held by each such stockholder, and THIRD, securities offered by the Company for its own account. (f) SELECTION OF UNDERWRITERS. If any Demand Registration or S-3 Registration, as the case may be, of Registrable Securities is in the form of an underwritten offering, the Company shall select and obtain an investment banking firm of national reputation to act as the managing underwriter of the offering (the "Approved Underwriter"); PROVIDED, HOWEVER, that the Approved Underwriter shall, in any case, also be approved by the Initiating Holders or S-3 Initiating Holders, as the case may be, such approval not to be unreasonably withheld. (g) WITHDRAWAL. An Initiating Holder shall be entitled to withdraw or revoke a request for a Demand Registration without the prior written consent of the Company if (i) as a result of facts or circumstances arising after the date on which such request was made relating to the Company or to market conditions, such Initiating Holder reasonably determines that participation in such registration would have a material adverse effect on such Initiating Holder or (ii) if the Closing Price declines by more than [ ] percent ([ ]%) from the date the Initiating Holder or Holders requested such Demand Registration (a "Permitted Withdrawal"). An Initiating Holder shall also be entitled to withdraw or revoke a request for a Demand Registration, notwithstanding that such withdrawal or revocation does not constitute a Permitted Withdrawal; PROVIDED, THAT, in such case, such withdrawal or revocation shall nevertheless be deemed to constitute an effective Demand Registration for purposes of Section 3(a) unless, (i) the Initiating Holder receives the prior written consent of the Company to such withdrawal or (ii) the Initiating Holder pays all fees and expenses incurred by the Company in connection with such withdrawn registration. Any withdrawal of or revocation of a request for any Demand Registration by an Initiating Holder under this Section 3(g) shall constitute and effect an automatic withdrawal by any Designated Holder participating in such Demand Registration pursuant to the provisions of Section 3(b). 4. INCIDENTAL OR "PIGGY-BACK" REGISTRATION. 9 (a) REQUEST FOR INCIDENTAL REGISTRATION. If the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account (other than a Registration Statement on Form S-4 or S-8 or any successor thereto) or for the account of any stockholder of the Company other than the Designated Holders (pursuant to this Agreement), then the Company shall give written notice of such proposed filing to each of the Designated Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe the proposed registration and distribution and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request (an "Incidental Registration"). The Company shall use its commercially reasonable efforts (within twenty (20) days of the notice provided for in the preceding sentence) to cause the managing underwriter or underwriters in the case of a proposed underwritten offering (the "Company Underwriter") to permit each of the Designated Holders who has requested in writing to participate in the Incidental Registration pursuant to this Section 4(a) to include its Registrable Securities in such offering on the same terms and conditions as the securities of the Company or the account of such other stockholder, as the case may be, included therein. In connection with any Incidental Registration under this Section 4(a) involving an underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, such other stockholders, if any, and the Company Underwriter, and then only in such quantity as set forth below. If the Company Underwriter determines that the registration of all or part of the securities that have been requested to be included would materially adversely affect the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without causing such material adverse effect, FIRST, all of the securities to be offered for the account of the Company, SECOND, securities of the Company requested by the Designated Holders to be included in such offering, which such securities shall be allocated pro rata among such Designated Holders participating in the offering based on the number of the Company's securities held by each such Designated Holder and THIRD, any other securities of the Company requested by stockholders to be included in such offering, which such securities shall be allocated pro rata among the stockholders participating in the offering based on the number of the Company's securities held by each such stockholder. The holders of a majority of the Registrable Securities may waive any right to participate in an Incidental Registration under this Section 4(a) in respect of any registration on behalf of all holders of Registrable Securities. (b) EXPENSES. The Company shall bear all Registration Expenses in connection with any Incidental Registration pursuant to this Section 4, whether or not such Incidental Registration becomes effective. (c) INITIAL PUBLIC OFFERING. The parties hereto agree and acknowledge that the sale of Common Stock by any Designated Holder in the Initial Public Offering shall be deemed an exercise of such Designated Holder's Incidental Registration Rights. In addition, the parties hereto agree and acknowledge that following the sale of any Common Stock by any Other Holder in the Initial Public Offering, such 10 Other Holder shall have no rights or obligations (including those set forth in Section 6 hereof) for any registration of securities under this Agreement. 5. FORM S-3 REGISTRATION. (a) REQUEST FOR A FORM S-3 REGISTRATION. Upon the Company becoming eligible for use of Form S-3 (or any successor form thereto) under the Securities Act in connection with a public offering of its securities, in the event that the Company shall receive from one or more of the CIC Stockholders, acting through Azimuth or its written designee (the "S-3 Initiating Holders"), a written request that the Company register, under the Securities Act on Form S-3 (or any successor form then in effect) (an "S-3 Registration"), all or a portion of the Registrable Securities owned by such S-3 Initiating Holders, the Company shall give written notice of such request to all of the Designated Holders (other than S-3 Initiating Holders which have requested an S-3 Registration under this Section 5(a)) at least twenty (20) days before the anticipated filing date of such Form S-3, and such notice shall describe the proposed registration and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request in writing to the Company, given within ten (10) days after their receipt from the Company of the written notice of such registration. Each request for an S-3 Registration by the S-3 Initiating Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof. With respect to each S-3 Registration, the Company shall, subject to Section 5(b), (i) include in such offering the Registrable Securities of the S-3 Initiating Holders and the Designated Holders (who have requested in writing to participate in such registration on the same terms and conditions as the Registrable Securities of the S-3 Initiating Holders included therein) and (ii) use its commercially reasonable efforts to cause such registration pursuant to this Section 5(a) to become and remain effective as soon as practicable. (b) FORM S-3 UNDERWRITING PROCEDURES. If the S-3 Initiating Holders so elect, the Company shall use its commercially reasonable efforts to cause such S-3 Registration pursuant to this Section 5 to be in the form of a firm commitment underwritten offering and the managing underwriter or underwriters selected for such offering shall be the Approved Underwriter selected in accordance with Section 3(f). In connection with any S-3 Registration under Section 5(a) involving an underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, the Approved Underwriter and the S-3 Initiating Holders, and then only in such quantity as set forth below. If the Approved Underwriter believes that the registration of all or part of the Registrable Securities which the S-3 Initiating Holders and the other Designated Holders have requested to be included would materially adversely affect the success of such public offering, then the Company shall be required to include in the underwritten offering, to the extent of the amount that the Approved Underwriter believes may be sold without causing such material adverse effect, FIRST, such number of Registrable Securities of the S-3 Initiating Holders and any Designated Holder participating in the offering pursuant to the terms of Section 5(a) hereof, which such Registrable Securities shall be allocated pro 11 rata among such S-3 Initiating Holders and Designated Holders, based on the number of Registrable Securities held by each such S-3 Initiating Holder or Designated Holder, as the case may be, SECOND, any other securities of the Company requested by holders thereof to be included in such registration, which such securities shall be allocated pro rata among such stockholders, based on the number of the Company's securities held by each such stockholder, and THIRD, securities offered by the Company for its own account. (c) LIMITATIONS ON FORM S-3 REGISTRATIONS. If the Board of Directors has a Valid Business Reason, the Company may (x) postpone filing a Registration Statement relating to a S-3 Registration until such Valid Business Reason no longer exists, but in no event for more than forty-five (45) days following the request and (y) in case a Registration Statement has been filed relating to a S-3 Registration, the Company, upon the approval of a majority of the Board of Directors, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement (in which case, if the Valid Business Reason no longer exists or if more than forty-five (45) days have passed since such withdrawal or postponement, the S-3 Initiating Holder may request the prompt amendment or supplement of such Registration Statement or a new S-3 Registration). The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing, under either this Section or Section 3(a), due to a Valid Business Reason more than once in any six (6) month period. In addition, the Company shall not be required to effect any registration pursuant to Section 5(a), (i) within ninety (90) days after the effective date of any other Registration Statement of the Company (other than a Registration Statement on Form S-4 or S-8 or any successor thereto), (ii) if Form S-3 is not available for such offering by the S-3 Initiating Holders or (iii) if the S-3 Initiating Holders, together with the Designated Holders (other than S-3 Initiating Holders which have requested an S-3 Registration under Section 5(a)) registering Registrable Securities in such registration, propose to sell their Registrable Securities at an aggregate price (calculated based upon the Market Price of the Registrable Securities on the date of filing of the Form S-3 with respect to such Registrable Securities) to the public of less than $5,000,000. (d) EXPENSES. The Company shall bear all Registration Expenses in connection with any S-3 Registration pursuant to this Section 5, whether or not such S-3 Registration become effective. (e) NO DEMAND REGISTRATION. No registration requested by any Designated Holder pursuant to this Section 5 shall be deemed a Demand Registration pursuant to Section 3. 6. HOLDBACK AGREEMENTS. (a) RESTRICTIONS ON PUBLIC SALE BY DESIGNATED HOLDERS. To the extent (i) requested (A) by the Company, the Initiating Holders or the S-3 Initiating 12 Holders, as the case may be, in the case of a non-underwritten public offering and (B) by the Approved Underwriter or the Company Underwriter, as the case may be, in the case of an underwritten public offering and (ii) all of the Company's executive officers, directors and holders in excess of ten percent (10%) of its outstanding capital stock execute agreements identical to those referred to in this Section 6(a), each Designated Holder agrees (x) not to effect any public sale or distribution of any Registrable Securities or of any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144 under the Securities Act, or offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or enter into any hedging or similar transaction with the same economic effect as a sale any Registrable Securities and (y) not to make any request for a Demand Registration or S-3 Registration under this Agreement, during the period beginning on the fifteenth (15th) day prior to the expected effective date (as determined by the Company, which shall notify the Designated Holders of such date in writing) of such Registration Statement and ending on the ninetieth (90th) day following the actual effective date of such Registration Statement, or such other period, if any, mutually agreed upon by such Designated Holder and the requesting party (except as part of such registration). In connection with the Initial Public Offering, in lieu of the foregoing provisions of this Section 6(a), each Designated Holder shall comply with the terms of its lock-up agreement entered into in connection with the Initial Public Offering. (b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. Unless the Company shall have received the prior written consent of the CIC Stockholders, the Company agrees not to effect any public sale or distribution of any of its securities, or any securities convertible into or exchangeable or exercisable for such securities (except pursuant to registrations on Form S-4 or S-8 or any successor thereto), during the period beginning on the fifteenth (15th) day prior to the expected effective date (as determined by the Company) of any Registration Statement in which the Designated Holders of Registrable Securities are participating and ending on the earlier of (i) the date on which all Registrable Securities registered on such Registration Statement are sold and (ii) 90 days after the actual effective date of such Registration Statement (except as part of such registration). 7. REGISTRATION PROCEDURES. (a) OBLIGATIONS OF THE COMPANY. Whenever registration of Registrable Securities has been requested pursuant to Section 3, Section 4 or Section 5 of this Agreement, the Company shall use its commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection with any such request, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission (as promptly as practicable, but in any event not later than sixty (60) days after receipt of a request to file a Registration Statement with respect to Registrable Securities) a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of such 13 Registrable Securities in accordance with the intended method of distribution thereof, and cause such Registration Statement to become effective; PROVIDED, HOWEVER, that (x) before filing a Registration Statement or prospectus or any amendments or supplements thereto, the Company shall provide counsel selected by the Designated Holders holding a majority of the Registrable Securities being registered in such registration ("Holders' Counsel") and any other Inspector (as hereinafter defined) with an opportunity to review and comment on such Registration Statement and each prospectus included therein (and each amendment or supplement thereto) to be filed with the Commission, subject to such documents being under the Company's control, and (y) the Company shall notify the Holders' Counsel and each seller of Registrable Securities of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the lesser of (x) 120 days (except in the case of a registration filed pursuant to Rule 415 of the Securities Act or any successor rule or regulation) and (y) such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold, and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement; (iii) furnish to each seller of Registrable Securities such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such Registration Statement (including each preliminary prospectus) and any prospectus filed under Rule 424 under the Securities Act as each such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (iv) register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any seller of Registrable Securities may reasonably request, and to continue such qualification in effect in such jurisdiction for as long as permissible pursuant to the laws of such jurisdiction, or for as long as any such seller requests or until all of such Registrable Securities are sold, whichever is shortest, and do any and all other acts and things which may be reasonably necessary or advisable to enable any such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller; PROVIDED, HOWEVER, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 7(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction; (v) notify each seller of Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result 14 of which, the prospectus included in such Registration Statement contains an untrue statement of a material fact or omits 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 and the Company shall promptly prepare a supplement or amendment to such prospectus and furnish to each seller of Registrable Securities a reasonable number of copies of such supplement to or an amendment of such prospectus as may be necessary so that, after delivery to the purchasers of such Registrable Securities, such prospectus shall 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; (vi) enter into and perform customary agreements (including an underwriting agreement in customary form with the Approved Underwriter or Company Underwriter, if any, selected as provided in Section 3, Section 4 or Section 5, as the case may be) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities, including causing its officers to participate in "road shows" and other information meetings organized by the Approved Underwriter or Company Underwriter; (vii) make available at reasonable times for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition of such Registrable Securities pursuant to a Registration Statement, Holders' Counsel and any attorney or accountant retained by any such seller or any managing underwriter (each, an "Inspector" and collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and its subsidiaries' officers, directors and employees, and the independent public accountants of the Company, to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (and the Inspectors shall confirm their agreement in writing in advance to the Company if the Company shall so request) unless (x) the disclosure of such Records is necessary, in the Company's judgment, to avoid or correct a misstatement or omission in the Registration Statement, (y) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction after exhaustion of all appeals therefrom or (z) the information in such Records was known to the Inspectors on a non-confidential basis prior to its disclosure by the Company or has been made generally available to the public. Each seller of Registrable Securities agrees that it shall, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (viii) if such sale is pursuant to an underwritten offering, obtain "cold comfort" letters dated the effective date of the Registration Statement and the date of the closing under the underwriting agreement from the Company's 15 independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the managing underwriter reasonably requests; (ix) furnish, at the request of any seller of Registrable Securities on the date such securities are delivered to the underwriters for sale pursuant to such registration or, if such securities are not being sold through underwriters, on the date the Registration Statement with respect to such securities becomes effective, an opinion, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to the seller making such request, covering such legal matters with respect to the registration in respect of which such opinion is being given as the underwriters, if any, and such seller may reasonably request and are customarily included in such opinions; (x) comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but no later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement covering a period of twelve (12) months beginning after the effective date of the Registration Statement, in a manner which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed, PROVIDED that the applicable listing requirements are satisfied; (xii) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; (xiii) use its commercially reasonable efforts to cause the Registrable Securities covered by such Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary by virtue of the business and operations of the Company to enable the seller or sellers of Registrable Securities to consummate the disposition of such Registrable Securities; (xiv) keep each seller of Registrable Securities advised as to all material developments of any registration under Sections 3, 4 or 5 hereunder; (xv) provide officers' certificates and other customary closing documents; and (xvi) take all other steps reasonably necessary to effect the registration of the Registrable Securities contemplated hereby and reasonably cooperate with the holders of such Registrable Securities to facilitate the disposition of such Registrable Securities pursuant thereto. 16 (b) SELLER INFORMATION. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish, and such seller shall furnish, to the Company such information required to be included in such Registration Statement by applicable securities laws or otherwise necessary or desirable in connection with the disposition of such Registrable Securities as the Company may from time to time reasonably request in writing. If any seller of Registrable Securities fails to provide such information required to be included in such Registration Statement by applicable securities laws or otherwise necessary or desirable in connection with the disposition of such Registrable Securities in a timely manner after written request therefor, the Company may exclude such seller's Registrable Securities from a registration under Sections 3, 4 or 5 hereof. (c) NOTICE TO DISCONTINUE. Each Designated Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 7(a)(v), such Designated Holder shall forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Designated Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 7(a)(v) and, if so directed by the Company, such Designated Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Designated Holder's possession, of the prospectus covering such Registrable Securities which is current at the time of receipt of such notice. If the Company shall give any such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement (including, without limitation, the period referred to in Section 7(a)(ii)) by the number of days during the period from and including the date of the giving of such notice pursuant to Section 7(a)(v) to and including the date when sellers of such Registrable Securities under such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by and meeting the requirements of Section 7(a)(v). (d) REGISTRATION EXPENSES. The Company shall pay all expenses arising from or incident to its performance of, or compliance with, this Agreement, including, without limitation, (i) Commission, stock exchange and NASD registration and filing fees, (ii) all fees and expenses incurred in complying with State securities or "blue sky" laws (including reasonable fees, charges and disbursements of counsel to any underwriter incurred in connection with "blue sky" qualifications of the Registrable Securities as may be set forth in any underwriting agreement), (iii) all printing, messenger and delivery expenses, (iv) the fees, charges and expenses of counsel to the Company and of its independent public accountants and any other accounting fees, charges and expenses incurred by the Company (including, without limitation, any expenses arising from any "cold comfort" letters or any special audits incident to or required by any registration or qualification) and the legal fees, charges and expenses of one law firm designated by the holders of a majority of the Registrable Securities participating in any registration incurred by the Designated Holders in any registration pursuant to this Agreement and (v) any liability insurance or other premiums for insurance obtained in connection with any Demand Registration or piggy-back registration thereon, Incidental Registration or S-3 Registration pursuant to the terms of 17 this Agreement, regardless of whether such Registration Statement is declared effective. All of the expenses described in the preceding sentence of this Section 7(d) are referred to herein as "Registration Expenses." The Designated Holders of Registrable Securities sold pursuant to a Registration Statement shall bear the expense of any broker's commission or underwriter's discount or commission relating to registration and sale of such Designated Holders' Registrable Securities and shall, other than as set forth in clause (iv) above, bear the fees and expenses of their own counsel. 8. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Designated Holder, its partners, directors, officers, affiliates, members, employees and each Person who controls (within the meaning of Section 15 of the Securities Act) such Designated Holder from and against any and all losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable costs and expenses of legal counsel or otherwise arising from any investigation, action or proceeding, whether commenced or threatened, in respect to any of the foregoing) (each, a "Liability" and collectively, "Liabilities"), arising out of or based upon any untrue, or allegedly untrue, statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus or notification or offering circular (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading under the circumstances such statements were made, except insofar as such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in such Registration Statement, preliminary prospectus or final prospectus in reliance and in conformity with information concerning such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use therein, including, without limitation, the information furnished to the Company pursuant to Section 8(b). The Company shall also provide customary indemnities to any underwriters of the Registrable Securities, their officers, directors and employees and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders of Registrable Securities. (b) INDEMNIFICATION BY DESIGNATED HOLDERS. In connection with any Registration Statement in which a Designated Holder is participating pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated Holder shall promptly furnish to the Company in writing such information with respect to such Designated Holder as the Company may reasonably request or as may be required by law for use in connection with any such Registration Statement or prospectus and all information required to be disclosed in order to make the information previously furnished to the Company by such Designated Holder not materially misleading or necessary to cause such Registration Statement not to omit a material fact with respect to such Designated Holder necessary in order to make the statements therein not misleading. Each Designated Holder agrees severally to indemnify and hold harmless the Company, the other Designated Holders who participate in the Registration Statement, any underwriter 18 retained by the Company and each Person who controls the Company, the other Designated Holders who participate in the Registration Statement or such underwriter (within the meaning of Section 15 of the Securities Act) to the same extent as the foregoing indemnity from the Company to the Designated Holders (including indemnification of their respective partners, directors, officers, members and employees), but only to the extent that Liabilities arise out of or are based upon a statement or alleged statement or an omission or alleged omission that was made in reliance upon and in conformity with information with respect to such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use in such Registration Statement or prospectus, including, without limitation, the information furnished to the Company pursuant to this Section 8(b); PROVIDED, HOWEVER, that the total amount to be indemnified by such Designated Holder pursuant to this Section 8(b) shall be limited to the net proceeds received by such Designated Holder in the offering to which the Registration Statement or prospectus relates. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification or contribution hereunder (the "Indemnified Party") agrees to give prompt written notice to the indemnifying party (the "Indemnifying Party") after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; PROVIDED, HOWEVER, that the failure so to notify the Indemnifying Party shall not relieve the Indemnifying Party of any Liability that it may have to the Indemnified Party hereunder (except to the extent that the Indemnifying Party is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, jointly with any other Indemnifying Party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. Each Indemnified Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense of such action with counsel reasonably satisfactory to the Indemnified Party or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and such parties have been advised by such counsel that either (x) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (y) there may be one or more legal defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party. In any of such cases, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party, it being understood, however, that the Indemnifying Party shall not be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all Indemnified Parties and all such expenses shall be reimbursed as incurred. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld. No 19 Indemnifying Party shall, without the consent of such Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which such Indemnified Party is a party and indemnity has been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability for claims that are the subject matter of such proceeding. Notwithstanding the foregoing, if at any time an Indemnified Party shall have requested the Indemnifying Party to reimburse the Indemnified Party for fees and expenses of counsel as contemplated by this Section 8, the Indemnifying Party agrees that it shall be liable for any settlement of any proceeding effected without the Indemnifying Party's written consent if (i) such settlement is entered into more than thirty (30) business days after receipt by the Indemnifying Party of the aforesaid request and (ii) the Indemnifying Party shall not have reimbursed the Indemnified Party in accordance with such request or contested the reasonableness of such fees and expenses prior to the date of such settlement. (d) CONTRIBUTION. If the indemnification provided for in this Section 8 from the Indemnifying Party is unavailable to an Indemnified Party hereunder or insufficient to hold harmless an Indemnified Party in respect of any Liabilities referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Liabilities, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Liabilities referred to above shall be deemed to include, subject to the limitations set forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding; provided that the total amount to be contributed by any Designated Holder shall be limited to the net proceeds received by such Designated Holder in the offering. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. 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. 9. RULE 144. The Company covenants that from and after the IPO Effectiveness Date it shall (a) file any reports required to be filed by it under the Exchange Act and (b) take such further action as each Designated Holder may reasonably request (including providing any information necessary to comply with Rule 144 under the 20 Securities Act), all to the extent required from time to time to enable such Designated Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or Regulation S under the Securities Act or (ii) any similar rules or regulations hereafter adopted by the Commission. The Company shall, upon the request of any Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements. 10. MISCELLANEOUS. (a) STOCK SPLITS, ETC. The provisions of this Agreement shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. To the extent the issuer of any Registrable Securities is a successor or assign (whether by merger, consolidation, sale of assets or otherwise) of the Company, the Company shall cause such successor or assign to enter into a new registration rights agreement with the Designated Holders on terms substantially similar to those in this Agreement as a condition of any such transaction. (b) NO INCONSISTENT AGREEMENTS. The Company hereby represents and warrants that it has not previously entered into any agreement granting registration rights to any Person with respect to any securities of the Company. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Designated Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities that are not Registrable Securities that provides for the priority in registration of such securities over the Registrable Securities held by the Designated Holders or which rights are otherwise inconsistent with the rights granted in this Agreement. (c) REMEDIES. The Designated Holders, in addition to being entitled to exercise all rights granted by law, including recovery of damages, shall be entitled to specific performance of their rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive in any action for specific performance the defense that a remedy at law would be adequate. (d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, 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 unless consented to in writing by the Company and Designated Holders holding more than 50% of the Registrable Securities; PROVIDED, HOWEVER, that no amendment, modification, supplement, waiver or consent to depart from the provisions hereof shall be effective if such amendment, modification, supplement, waiver or consent to depart from the provisions hereof materially and adversely affects the substantive rights or obligations of one Designated Holder, or group of Designated Holders, without a similar and proportionate effect on the substantive rights or obligations of all Designated Holders, 21 unless each such disproportionately affected Designated Holder consents in writing thereto. (e) NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be made by registered or certified first-class mail, return receipt requested, telecopier, courier service or personal delivery: (i) if to the Company: Anteon International Corporation 3211 Jermantown Road, Suite 700 Fairfax, Virginia 22030-2801 Telecopy: (703) 246-0635 Attention: General Counsel (ii) if to the CIC Stockholders: c/o Caxton-Iseman Capital, Inc. 667 Madison Avenue New York, NY 10021 Telecopy: (212) 832-9450 Attention: Frederick J. Iseman (iii) if to any other party to this Agreement, to the address of such party as set forth in the books and records of the Company. All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged, if telecopied. Any party may by notice given in accordance with this Section 10(e) designate another address or Person for receipt of notices hereunder. (f) SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto as hereinafter provided. The Demand Registration rights, incidental registration rights and the S-3 Registration rights and the other rights of the CIC Stockholders hereunder may be (i) with respect to any Registrable Security that is transferred to an Affiliate of the CIC Stockholders (or if any of the CIC Stockholders is a partnership, limited liability company or corporation, to any such partner, member or stockholder thereof), transferred to such Affiliate (or such partner, member or stockholder) and (ii) with respect to any Registrable Security that is transferred in all cases to a non-Affiliate of the CIC Stockholders, transferred only if the transferee receives in one transaction or series of related transactions Registrable Securities representing at least ten percent (10%) of the Common Stock outstanding on the date of 22 such transaction (or the first transaction in a series of transactions). The incidental or "piggy-back" registration rights of the Significant Holders contained in Sections 3, 4 and 5 hereof and the other rights of the Significant Holders hereunder may be (i) with respect to any Registrable Security that is transferred by a Significant Holder to an Affiliate or Permitted Assignee of such Significant Holder, transferred to such Affiliate or such Permitted Assignee and (ii) with respect to any Registrable Security that is transferred in all cases to a non-Affiliate of the Significant Holders, transferred only if the transferee receives in one transaction or series of related transactions Registrable Securities representing at least one percent (1%) of the Common Stock outstanding on the date of such transaction (or the first transaction in a series of transactions). All of the obligations of the Company hereunder shall survive any such transfer. Except as provided in Section 8, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement. (g) 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. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (I) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. (j) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired. (k) RULES OF CONSTRUCTION. Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement. (l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. 23 (m) FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement. (n) OTHER AGREEMENTS. Nothing contained in this Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Registrable Securities or other securities of the Company imposed by, any other agreement. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Registration Rights Agreement on the date first written above. ANTEON INTERNATIONAL CORPORATION By: _____________________________________ Name: Title: AZIMUTH TECHNOLOGIES, L.P. By: GEORGICA (AZIMUTH TECHNOLOGIES), L.P., its general partner By: GEORGICA (AZIMUTH TECHNOLOGIES), INC., its general partner By: _____________________________________ Name: Frederick J. Iseman Title: President AZIMUTH TECH. II LLC By: GEORGICA (AZIMUTH TECHNOLOGIES), L.P., its managing member By: GEORGICA (AZIMUTH TECHNOLOGIES), INC., its general partner By: _____________________________________ Name: Frederick J. Iseman Title: President ___________________________________ Frederick J. Iseman ___________________________________ Joseph M. Kampf ___________________________________ Carlton B. Crenshaw ___________________________________ Thomas M. Cogburn ___________________________________ Steven M. Lefkowitz ___________________________________ Seymour L. Moskowitz ___________________________________ Noreen Centracchio ___________________________________ Howard Dawson ___________________________________ Gilbert F. Decker ___________________________________ Roger Gurner ___________________________________ Mark D. Heilman ___________________________________ Paul Kaminski ___________________________________ Curtis L. Schehr THE FERRIS FAMILY 1987 TRUST By:________________________________ Name: Title: EX-4.9 10 a2069486zex-4_9.txt EXHIBIT 4.9 Exhibit 4.9 RIGHTS AGREEMENT between ANTEON INTERNATIONAL CORPORATION and [RIGHTS AGENT] Dated: As of February __, 2002 2 RIGHTS AGREEMENT Rights Agreement (the "Agreement"), dated as of February __, 2002, between Anteon International Corporation, a Delaware corporation (the "COMPANY"), and [Right Agent], a [ ] (the "RIGHTS AGENT", which term shall include any successor Rights Agent hereunder). The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "RIGHT") for each Common Share (as hereinafter defined) of the Company outstanding at the close of business on [record date] (the "RECORD DATE"), each Right representing the right to purchase, upon the terms and subject to the conditions set forth herein, one one-thousandth (1/1000) of a share of Series A Preferred Stock, par value $0.01 per share, of the Company ("SERIES A PREFERRED STOCK") having the rights and preferences set forth in the Certificate of Designations of Preferred Stock with respect to the Series A Preferred Stock, a copy of which is attached hereto as EXHIBIT A. The Board of Directors of the Company has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding (whether originally issued or delivered from the Company's treasury) after the Record Date and on or prior to the earliest of the Separation Date, the Redemption Date and the Final Expiration Date (each as hereinafter defined). Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "ACQUIRING PERSON" shall mean any Person who, together with all Affiliates and Associates of such Person, shall hereafter become the Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan or for purposes of funding or providing Common Shares to any such plan, and (iv) any Caxton-Iseman Stockholder (as hereinafter defined). Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as a result of an acquisition of Common Shares by the Company, which acquisition, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares then outstanding; PROVIDED, HOWEVER, that if a Person shall become the beneficial owner of 15% or more of the Common Shares then outstanding by reason of such share purchases by the Company and shall, after such share purchases, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person" unless such Person would not be an Acquiring Person by reason of clauses (i) through (iv) of the immediately preceding sentence. Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provision, has 3 become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions, then such Person shall not be deemed to be an "Acquiring Person" for any purposes of this Agreement. (b) "AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations (the "RULES") under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as in effect on the Record Date. (c) A Person shall be deemed the "BENEFICIAL OWNER" of and shall be deemed to "BENEFICIALLY OWN" any securities: (i) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, now or hereafter owns or has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; PROVIDED, HOWEVER, that a Person shall not be deemed to be the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; and PROVIDED FURTHER, that a Person shall not be deemed to be the Beneficial Owner of, or to beneficially own, securities that such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of (a) employee stock options now or hereafter (but prior to the Separation Date) issued by the Company, or (b) conversion rights conferred in any class or series of Preferred Stock of the Company issued prior to the Separation Date if the resolutions of the Board providing for the issuance of such class or series of Preferred Stock shall specifically refer to this Rights Agreement and provide that the right to acquire securities upon the exercise of conversion rights so conferred shall not be deemed to constitute beneficial ownership of such securities; (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote (except as hereinafter provided) or dispose of, or of which any of them, directly or indirectly, has "beneficial ownership" (as determined pursuant to Rule 13d-3 of the Rules, as in effect on the Record Date) (including, except as hereinafter provided, pursuant to any agreement, arrangement or understanding, whether or not in writing); PROVIDED, HOWEVER, that a Person shall not be deemed to be the Beneficial Owner of, or to beneficially own, any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Rules and is not also then 4 reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); (iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing), for the purpose of, or with respect to, acquiring, holding, voting (except as described in the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any voting securities of the Company; and (iv) that are, pursuant to the foregoing subparagraphs of this paragraph (c), or otherwise, deemed to be owned by a voting trust, voting agent, recipient of a proxy that is not immediately revocable (a "NON-REVOCABLE PROXY") or any other Person to whom such Person (the "GRANTOR PERSON") has contributed, conveyed, delegated, given, granted, tendered, transferred or otherwise assigned or conferred (collectively, "GIVEN") some or all of the voting rights attributable to the Common Shares of which the Grantor Person (alone or in conjunction with any other Person) is also deemed to be a Beneficial Owner. Solely for purposes of this Agreement, the Grantor Person shall be deemed to be the Beneficial Owner of all Common Shares that such voting trust, voting Agent, proxy holder or other Person has the right, by Non-revocable Proxy, agreement, assignment, tender, grant or otherwise, to exercise some or all of the voting rights attributable thereto, whether or not the Grantor Person shall have contributed or given voting rights that constitute all or less (even substantially less) than all of the voting rights held by the voting trust, voting Agent, proxy holder or other Person to whom or to which the Grantor Person has given some or all of the voting rights attributable to Common Shares otherwise beneficially owned by the Grantor Person; PROVIDED, HOWEVER, that nothing in this paragraph (c) shall cause a person engaged in business as an underwriter of securities to be the "Beneficial Owner" of or to "beneficially own" any securities acquired through such person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. (d) "BOARD" means the Board of Directors of the Company. (e) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, [New Jersey]1 or Virginia are authorized or obligated by law or executive order to close. (f) "CAXTON-ISEMAN STOCKHOLDER" shall mean (i) Frederick J. Iseman, - ----------------- 1 State of Rights Agent's principal office. 5 Azimuth Technologies, L.P., Azimuth Tech. II, LLC or any of their Affiliates and Associates and (ii) any Person that is the direct or indirect transferee of any of the Common Shares beneficially owned as of the date hereof by any of the Persons identified in clause (i) above (a "CAXTON-ISEMAN TRANSFEREE") if (A) such transferee would otherwise become an Acquiring Person as a result of such transfer and (B) the tranferor(s) designate(s), in a writing delivered to the Company and the Rights Agent, that the transferee is a Caxton-Iseman Transferee for purposes of this paragraph. (g) "CLOSE OF BUSINESS" on any given date shall mean 5:00 P.M., New York time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day. (h) "COMMON SHARES" when used with reference to the Company shall mean shares of Common Stock, par value $0.01 per share, of the Company. "COMMON SHARES" or "COMMON SHARES," when used with reference to any Person other than the Company, shall mean the capital stock of such Person with the greatest voting power or the equity securities or other equity interest having power to control or direct the management of such Person. (i) "PERSON" shall mean any individual, firm, corporation, partnership, limited liability company or other entity and shall include any successor (by merger or otherwise) of such entity. (j) "SECTION 11(a)(ii) EVENT" shall mean an event described in Section 11(a)(ii). (k) "SECTION 13(a) EVENT" shall mean any event described in clause (x) or (y) or (z) of Section 13(a). (l) "SERIES A PREFERRED SHARES" shall mean shares of Series A Preferred Stock, par value $0.01 a share, of the Company, including any authorized fraction of a Series A Preferred Shares, unless the context otherwise requires. (m) "SHARES ACQUISITION DATE" shall mean the first date of public announcement (including, without limitation, a report filed pursuant to Section 13(d) or 14(d) under the Exchange Act) by the Company or an Acquiring Person indicating that an Acquiring Person has become such. (n) "SUBSIDIARY" shall mean, with reference to any Person, any corporation or other entity of which a majority of the voting power of the voting securities or voting interests is owned, directly or indirectly, by such Person, or otherwise controlled by such Person. (o) "TRIGGERING EVENT" shall mean any Section 11(a)(ii) Event or Section 13(a) Event. The following additional terms have the meanings indicated in the 6 specified Sections of this Agreement set forth below: (i) "ACT" -- Section 9(c). (ii) "ADJUSTMENT SHARES" -- Section 11(a)(ii). (iii) "COMMON SHARE EQUIVALENT" -- Section 11(a)(iii). (iv) "CURRENT VALUE" -- Section 11(a)(iii). (v) "EQUIVALENT SHARES" -- Section 11(b). (vi) "EXCHANGE ACT" -- Section 1(b). (vii) "FINAL EXPIRATION DATE" -- Section 7(a). (viii) "GRANTOR PERSON" -- Section 1(c)(iv). (ix) "NON-REVOCABLE PROXY" -- Section 1(c)(iv) (x) "PRINCIPAL PARTY" -- Section 13(b). (xi) "PURCHASE PRICE" -- Sections 4(a), 11(a)(ii) and 13(a). (xii) "RECORD DATE" -- Preamble. (xiii) "REDEMPTION DATE" -- Section 7(a). (xiv) "REDEMPTION PRICE" -- Section 23(a). (xv) "RULES" -- Section 1(b). (xvi) "SEPARATION DATE" -- Section 3(a). (xvii) "SERIES A PREFERRED STOCK" -- Preamble. (xviii) "SPREAD" -- Section 11(a)(iii). (xix) "SUBSTITUTION PERIOD" -- Section 11(a)(iii). (xx) "SUMMARY OF RIGHTS" -- Section 3(b). (xxi) "TRADING DAY" -- Section 11(d)(i). SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment and agrees to act as Rights Agent under this Agreement. The Company may from time to time appoint such 7 co-rights agents as it may deem necessary or desirable. The Rights Agent shall have no duty to supervise, and in no event shall be liable for, the acts or omissions of any such co-Rights Agent. SECTION 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i) the close of business on the tenth Business Day following the Shares Acquisition Date or (ii) the close of business on the fifteenth Business Day (or such later date as may be determined by action of the Board prior to the time as any Person becomes an Acquiring Person) after the date on which a tender or exchange offer by any Person (other than any of the Caxton-Iseman Stockholders), the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan) is first commenced within the meaning of Rule 14d-2(a) of the Rules, if upon consummation thereof, such Person would be the Beneficial Owner of 15% or more of the Common Shares then outstanding (the earlier of (i) and (ii) being herein referred to as the "SEPARATION DATE"), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Separation Date, the Company must promptly notify the Rights Agent thereof in writing and request the transfer agent to provide the Rights Agent with the names and addresses of all record holders of Common Shares. As soon as practicable after the Rights Agent receives such written notice and stockholders list, the Rights Agent will, if requested and if provided with all necessary information, send, by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Separation Date, at the address of such holder shown on the records of the Company, one or more Right Certificates, in substantially the form of EXHIBIT B hereto, evidencing one Right for each Common Share so held. In the event that an adjustment in the number of Rights per Common Share has been made pursuant to Section 11(p) hereof, at the time of distribution of the Right Certificates, the Company may make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Right Certificates representing only whole numbers of Rights are distributed and cash may be paid in lieu of any fractional Rights. As of and after the Separation Date, the Rights will be evidenced solely by such Right Certificates. (b) As soon as practicable following the Record Date, the Company will send a copy of a Summary of Rights to Purchase Series A Preferred Stock, in substantially the form attached hereto as EXHIBIT C (the "SUMMARY OF RIGHTS"), by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the Record Date, until the Separation Date, the Rights will be evidenced by such certificates registered in the names of the holders thereof, together with a copy of the Summary of 8 Rights attached thereto, and the registered holders of the Common Shares shall also be the registered holders of the associated Rights. Until the earliest of the Separation Date, the Redemption Date or the Final Expiration Date, the surrender for transfer of any certificate for Common Shares outstanding on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares issued after the Record Date but prior to the earliest of the Separation Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN ANTEON INTERNATIONAL CORPORATION AND [RIGHTS AGENT] DATED AS OF FEBRUARY __, 2002 (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF ANTEON INTERNATIONAL CORPORATION UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. ANTEON INTERNATIONAL CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE PROMPTLY FOLLOWING RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID. SECTION 4. FORM OF RIGHT CERTIFICATES. (a) The Right Certificates (and the forms of election to purchase Series A Preferred Shares, exercise notice and of assignment to be printed on the reverse 9 thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate, which do not affect the duties or responsibilities of the Rights Agent and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of one one-thousandth of a share of Series A Preferred Stock as shall be set forth therein at the price per one one-thousandth of a Series A Preferred Share set forth therein (the "PURCHASE PRICE"), but the amount and type of the securities purchasable (or other consideration to be made available) upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein. (b) Any Right Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or (iii) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer that the Board has determined is part of a plan, arrangement or understanding that has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Right Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: THE RIGHTS REPRESENTED BY THIS RIGHT CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT. SECTION 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board or its President, Chief Executive Officer or any Vice President, either manually or by facsimile signature, and shall have affixed thereto the 10 Company's seal, attested by the Secretary, the Treasurer or any Assistant Secretary or Assistant Treasurer of the Company, or shall bear a facsimile thereof. The Right Certificates shall not be valid for any purpose unless countersigned by the Rights Agent. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Separation Date and receipt by the Rights Agent of the written notice and list of record holders of Rights referred to in Section 3(a), the Rights Agent will keep or cause to be kept, at its office designated pursuant to Section 26 hereof or agency designated for such purpose, books for registration and transfer of the Right Certificates issued or to be issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates, the certificate number of each of the Right Certificates and the date of each of the Right Certificates. SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at any time after the close of business on the Separation Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of Series A Preferred Shares (or, following a Section 11(a)(ii) Event or Section 13(a) Event, Common Shares, other securities or property, as the case may be) as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Right Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Right Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may 11 require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. The Rights Agent shall not be required to process the transaction until it receives evidence in writing that all taxes and governmental charges have been paid by the Company. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) Subject to Section 7(e) hereof, the registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Separation Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-thousandth of a Series A Preferred Share as to which the Rights are exercised, at or prior to the close of business on the earliest of (i) [February __, 2012] (the "FINAL EXPIRATION DATE"), (ii) the date on which the Rights are redeemed as provided in Section 23 hereof (the "REDEMPTION DATE") or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The Purchase Price for each one one-thousandth of a Series A Preferred Share pursuant to the exercise of a Right shall initially be $[ ], shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the Series A Preferred Shares (or other shares, securities or property, as the case may be) to be purchased and an amount equal to any applicable tax or governmental charge required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, in cash, or by certified check or cashier's check payable to the order of the Company, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) either (A) requisition from any transfer agent of the Series A Preferred Shares (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the number of Series A Preferred Shares (or fractions thereof) to be purchased (and the Company hereby irrevocably authorizes its transfer agent to comply 12 with all such requests) or (B) if the Company shall have elected to deposit the Series A Preferred Shares issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandth of a Series A Preferred Share as are to be purchased (in which case certificates for the Series A Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) if and when necessary to comply with this Agreement, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) if and when necessary to comply with this Agreement, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. In the event that the Company is obligated to issue other securities (including Common Shares) or assets pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities or assets are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns subject to the provisions of Section 6 and Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the occurrence of a Triggering Event, any Rights beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee from an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such or (iii) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer that the Board has determined is part of a plan, arrangement or understanding that has as a primary purpose or effect the avoidance of this Section 7(e), shall become null and void without any further action, and any holder of such Rights shall thereupon have no rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Right Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. (f) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with 13 respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. SECTION 9. RESERVATION AND AVAILABILITY OF SERIES A PREFERRED SHARES; REGISTRATION. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Series A Preferred Shares the number of Series A Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights. Prior to the occurrence of a Triggering Event, the Company shall not be obliged to cause to be reserved and kept available out of its authorized and unissued Common Shares or shares of preferred stock (other than Series A Preferred Shares), any such Common Shares or any shares of preferred stock (other than the Series A Preferred Shares) to permit exercise of outstanding Rights. (b) If the Series A Preferred Shares issuable upon the exercise of Rights are listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) If then required by applicable law, the Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the occurrence of a Triggering Event as to which the consideration to be delivered by the Company upon exercise of the Rights has been determined pursuant to this Agreement, or as soon as is required by law following the Separation Date, as the case may be, a registration statement under the Securities Act of 1933 (the "ACT"), with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing and 14 (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities and (B) the Final Expiration Date. If then required by applicable law, the Company will also take such action as may be appropriate under the securities or "blue sky" laws of the various states. The Company may temporarily suspend, for a period of time not to exceed 90 days after the date set forth in clause (i) of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement. Upon any such suspension, the Company shall promptly notify the Rights Agent thereof and issue a public announcement stating that the exercisability of the Rights has been temporarily suspended and, at such time as the suspension is no longer in effect, shall promptly notify the Rights Agent thereof and issue a further public announcement thereof. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction unless the requisite qualification in such jurisdiction shall have been obtained. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Series A Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (e) The Company covenants and agrees that it will pay when due and payable any and all taxes and governmental charges that may be payable in respect of the issuance or delivery of the Right Certificates or of any Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any tax or governmental charge that may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of certificates for the Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates for Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) upon the exercise of any Rights until any such tax or governmental charge shall have been paid (any such tax or governmental charge being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax or governmental charge is due. SECTION 10. SERIES A PREFERRED SHARES RECORD DATE. Each Person in whose name any certificate for Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable taxes and governmental charges) was made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Series A Preferred Shares (or Common Shares 15 and/or other securities, as the case may be) transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Series A Preferred Shares (or Common Shares and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled (in such holder's capacity as such) to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote any shares, to receive dividends or other distributions with respect to any shares or to exercise any preemptive rights with respect to any shares, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares covered by each Right, and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event that the Company shall at any time after the date of this Agreement (A) declare a dividend on the Series A Preferred Shares payable in Series A Preferred Shares, (B) subdivide the outstanding Series A Preferred Shares, (C) combine the outstanding Series A Preferred Shares into a smaller number of Series A Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Series A Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock that, if such Right had been exercised immediately prior to such date and at a time when the Series A Preferred Shares transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. (ii) Subject to Section 24 hereof, in the event [that there is a Shares Acquisition Date and a Separation Date,] then proper provision shall be made so that each holder of a Right, except as provided below and in Section 7(e) hereof, shall thereafter have a right to receive, upon exercise thereof at the Purchase Price in effect as of the date of the Section 11(a)(ii) Event, in lieu of Series A Preferred Shares, and subject to the provisions of Section 11(a)(iii) below, such number of Common Shares as shall equal the result obtained by (x) multiplying such Purchase Price by the number of one one-thousandth of a Series A Preferred Share for which a Right is exercisable as of date of the Section 11(a)(ii) Event and (y) dividing that product (which, following the first 16 occurrence of such event, shall be referred to as the "PURCHASE PRICE" for all purposes of this Agreement) by 50% of the current per share market price of the Common Shares (determined pursuant to Section 11(d) hereof), but not less than the par value thereof, on the date of the first occurrence of such Section 11(a)(ii) Event (such number of shares, the "ADJUSTMENT SHARES"). (iii) In the event that (x) the total of the Common Shares that are issued but not outstanding and authorized but unissued (excluding Common Shares reserved for issuance pursuant to the specific terms of any indenture, option plan or other agreement) is not sufficient to permit the exercise in full of the Rights in accordance with Section 11(a)(ii) hereof or (y) the total number of Common Shares available for exercise of the Rights in accordance with Section 11(a)(ii) hereof is sufficient to permit the exercise in full of the Rights in accordance with Section 11(a)(ii) but the Board determines that such exercise of the Rights will not afford adequate protection to the stockholders of the Company and that stockholders should be given an option to acquire a substitute for the Adjustment Shares, and subject to such limitations as are necessary to prevent a default under any agreement for money borrowed to which the Company is a party and to comply with applicable law, then the Board shall: (A) determine the excess of (1) the value, based upon the current per share market price of the Common Shares (determined pursuant to Section 11(d) hereof), of the Adjustment Shares issuable upon the exercise of a Right (the "CURRENT VALUE") over (2) the Purchase Price (such excess, the "SPREAD") and (B) with respect to each Right, make adequate provision to substitute for, or provide an election to acquire in lieu of, the Adjustment Shares, upon payment of the applicable Purchase Price (which term shall include any reduced Purchase Price) any combination of the following having an aggregate value equal to the Current Value (such aggregate value to be determined by the Board based upon the advice of a nationally recognized investment banking firm selected by the Board): (1) a reduction in the Purchase Price, (2) Common Shares and/or other equity securities of the Company (including, without limitation, shares or units of shares of any series of preferred stock that the Board has deemed to have the same value as Common Shares (such shares or units of share of preferred stock hereinafter referred to as "COMMON SHARE EQUIVALENTS")) and/or (3) debt securities of the Company and/or cash and other assets; PROVIDED, HOWEVER, that if this Section 11(a)(iii) is applicable and the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within 30 days following the first occurrence of a Triggering Event, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and then, if necessary, cash, which securities and/or cash in the aggregate are equal to the Spread. If the Board shall determine in good faith that it is likely that sufficient additional Common Shares could be authorized for issuance upon exercise in full of the Rights, the 30 day period set forth above may be extended to the extent necessary, but not more than 90 days following the first occurrence of a Triggering Event, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, as it may be extended, the "SUBSTITUTION PERIOD"). If the Company determines that some action needs to be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the 17 Company (x) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Shares shall be the current per share market price (as determined pursuant to Section 11(d) hereof) of the Common Shares on the date of the first occurrence of a Triggering Event. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Series A Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Series A Preferred Shares (or shares having the same rights, privileges and preferences as the Series A Preferred Shares ("EQUIVALENT SHARES")) or securities convertible into Series A Preferred Shares or equivalent shares at a price per Series A Preferred Share or equivalent share (or having a conversion price per share, if a security convertible into Series A Preferred Shares or equivalent shares) less than the then current per share market price of the Series A Preferred Shares (as defined in Section 11(d) hereof) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Series A Preferred Shares outstanding on such record date plus the number of Series A Preferred Shares that the aggregate offering price of the total number of Series A Preferred Shares and/or equivalent shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Series A Preferred Shares outstanding on such record date plus the number of additional Series A Preferred Shares and/or equivalent shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the holders of the Rights. Series A Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the distribution to all holders of the Series A Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or 18 surviving corporation) of any debt securities, cash or assets (other than a regular quarterly cash dividend or a dividend payable in Series A Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Series A Preferred Shares (as defined in Section 11(d) hereof) on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and binding on the holders of Rights) of the portion of the assets or debt securities so to be distributed or of such subscription rights or warrants applicable to one Series A Preferred Share and the denominator of which shall be such current per share market price of the Series A Preferred Shares (as determined pursuant to Section 11(d) hereof). Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price that would then be in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, the "current per share market price" of the Common Shares on any date shall be deemed to be the lesser of (x) the average of the daily closing prices per Common Share for the 30 consecutive Trading Days immediately prior to such date or (y) the average of the daily closing prices per Common Share for the 30 consecutive Trading Days immediately following such date; PROVIDED, HOWEVER, that in the event that the current per share market price of the Common Shares is determined during a period following the announcement by the issuer of such Common Shares of a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares (other than the Rights), or any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of 20 Trading Days after the ex-dividend date for such dividend or distribution, then, and in each such case, the current market price shall be appropriately adjusted to reflect the current market price per Common Share equivalent. The closing price for each day shall be the last sale price, 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 on the principal national securities exchange, if any, on which the Common Shares are then listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board. The term "TRADING DAY" shall mean a day on which the principal national securities exchange or NASDAQ on which the Common Shares are listed or traded or are admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange or NASDAQ, a Business Day. 19 (ii) For the purpose of any computation hereunder, the "current per share market price" of the Series A Preferred Shares shall be determined in the same manner as set forth above for Common Shares in clause (i) of this Section 11(d). If the current per share market price of the Series A Preferred Shares cannot be determined in the manner provided above, the "current per share market price" of the Series A Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof), multiplied by 1,000. If neither the Common Shares nor the Series A Preferred Shares are publicly held or so listed or traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and binding on the holders of Rights. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; PROVIDED, HOWEVER, that any adjustments that by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or the nearest one one-hundredth of a Common Share or other share or one one-ten thousandth of a Series A Preferred Share, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment provided for in this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction that requires such adjustment or (ii) the Final Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any property, other securities (other than shares of capital stock of the Company) or shares of capital stock of the Company other than Series A Preferred Shares, thereafter the amount of such property, other securities (other than shares of capital stock of the Company) and the number of such other shares of capital stock so receivable upon exercise of any Right (as well as any consideration to be paid therefor) shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Series A Preferred Shares (and the Purchase Price) contained in this Section 11, and the provisions of Sections 7, 9, 10 and 13 with respect to the Series A Preferred Shares shall apply on like terms to any such property, other securities and other shares of capital stock. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Series A Preferred Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c) hereof, each Right outstanding immediately 20 prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandth of a Series A Preferred Share (calculated to the nearest one one-ten thousandth of a Series A Preferred Share) obtained by (i) multiplying (x) the number of one one-thousandth of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of Series A Preferred Shares purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandth of a Series A Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become the number of Rights (calculated to the nearest one-ten thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall promptly notify the Rights Agent and make a public announcement of its election to adjust the number of Rights and shall provide written notice of such election to the Rights Agent, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of Series A Preferred Shares issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-thousandth of a share and the number of shares that were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-thousandth of the then stated value, if any, of the Series A Preferred Shares issuable upon exercise of the Rights, the Company shall take any 21 corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Series A Preferred Shares at such adjusted Purchase Price. (l) In any case in which this Section 11 requires that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Series A Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Series A Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall promptly notify the Rights Agent of such election and deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. The Company shall provide the Rights Agent with written notice of any adjustment in the Purchase Price. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in its good faith judgment the Board shall determine to be advisable in order that any (i) consolidation or subdivision of the Series A Preferred Shares, (ii) issuance wholly for cash of any of the Series A Preferred Shares at less than the current market price, (iii) issuance wholly for cash of Series A Preferred Shares or securities that by their terms are convertible into or exchangeable for Series A Preferred Shares, (iv) dividends on Series A Preferred Shares payable in Series A Preferred Shares or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Series A Preferred Shares shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, and shall not permit any Subsidiary, at any time after the Separation Date, to (i) consolidate with, (ii) merge with or into or (iii) sell or transfer, in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person, if at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect that would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (o) The Company covenants and agrees that, after the Separation Date, it will not, except as permitted by Section 23, Section 24, Section 27 or Section 31 hereof, take (or permit any Subsidiary to take) any action that at the time it is reasonably foreseeable will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights; PROVIDED, HOWEVER, that the issuance of additional Rights pursuant hereto, including by action of the Board under Section 22 hereof, shall not be deemed to violate this Section 11(o). 22 (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Record Date (i) declare a dividend on the outstanding Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, the number of Rights associated with each Common Share then outstanding, or issued or delivered thereafter, shall be proportionately adjusted so that the number of Rights thereafter associated (whether before or after the Separation Date) with each Common Share following any such event shall equal the result obtained by multiplying the number of Rights associated with each Common Share immediately prior to such event by a fraction the numerator of which shall be the total number of Common Shares outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of Common Shares outstanding immediately following the occurrence of such event. For purposes of this Section 11(p), any Common Shares issued after the Separation Date that were not issued together with a Right (pursuant to the Preamble hereto or by action of the Board pursuant to Section 22 hereof) shall not be counted as outstanding. SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief, reasonably detailed statement of the facts, computations and methodology of accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common Shares or the Series A Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate (or, if prior to the Separation Date, to each holder of a certificate representing Common Shares) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall have no duty with respect to and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such a certificate. SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event that, following a Shares Acquisition Date and a Separation Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person shall consolidate with, or merge with or into, the Company and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of the Company or of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in a single transaction or a series of related transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company, any Subsidiary of the Company), then, and in each such case, proper provision 23 shall be made so that (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the Purchase Price in effect as of the date of the Section 13(a) Event, and in lieu of Series A Preferred Shares, such number of validly authorized and issued, fully paid, nonassessable and freely tradeable Common Shares of the Principal Party, not subject to any rights of first refusal, redemption or repurchase, as shall be equal to the result obtained by (1) multiplying such Purchase Price by the number of one one-thousandth of a Series A Preferred Share for which a Right is exercisable as of the date of the Section 13(a) Event and dividing that product (which, following the Section 13(a) Event, shall thereafter be referred to as the "PURCHASE PRICE" for all purposes of this Agreement) by (2) 50% of the current per share market price (determined pursuant to Section 11(d) hereof) per Common Share (or other securities or property as provided for herein) of such Principal Party on the date of consummation of such consolidation, merger, sale or transfer, (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement, (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights, and (v) the provisions of Sections 11(a)(ii) and 11(a)(iii) hereof shall thereafter be of no effect following the occurrence of a Section 13(a) Event. (b) "PRINCIPAL PARTY" shall mean: (i) in the case of any transaction described in clause (x) or clause (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which Common Shares of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; PROVIDED, HOWEVER, that in either such case, (1) if the Common Shares of such Person are not at such time and have not been continuously over the preceding 12 month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Shares of which are and have been so registered, "Principal Party" shall refer to such other Person and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Shares of two or more of which are and have been so registered, "Principal Party" shall refer to whichever of such Persons is the issuer of the Common Shares having the greatest aggregate market value. 24 (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless the Principal Party shall have a sufficient number of authorized Common Shares, which have not been issued or reserved for issuance, to permit the exercise in full of the Rights in accordance with this Section 13 and unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Final Expiration Date; and (ii) deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates that comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that one of the transactions described in Section 13(a) hereof shall occur at any time after the occurrence of a transaction described in Section 11(a)(ii) hereof, the Rights that have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a). SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Rights, except prior to the Separation Date as provided in Section 11(p) hereof, or to distribute Right Certificates that evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, 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 on the principal national securities exchange, if any, on which the Rights are then listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a 25 professional market maker making a market in the Rights selected by the Board. If on any such date the Rights are not publicly held or so listed or traded, the current market value of a whole Right shall mean the fair value of a whole Right as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and binding on the holders of Rights. (b) The Company shall not be required to issue fractions of Series A Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Series A Preferred Share) upon exercise of the Rights or to distribute certificates that evidence fractional Series A Preferred Shares (other than fractions that are integral multiples of one one-thousandth of a Series A Preferred Share). Fractions of Series A Preferred Shares in integral multiples of one one-thousandth of a Series A Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Series A Preferred Shares. In lieu of fractional Series A Preferred Shares that are not integral multiples of one one-thousandth of a Series A Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Series A Preferred Share. For purposes of this Section 14(b), the current market value of a Series A Preferred Share shall be the closing price of a Series A Preferred Share (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of Common Shares upon exercise of the Rights or to distribute certificates that evidence fractional Common Shares. In lieu of fractional Common Shares, the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(c), the current market value of one Common Share shall be the closing price of one Common Share (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right, by the acceptance of the Rights, expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as otherwise set forth herein. (e) The Rights Agent shall have no duty or obligation with respect to this Section 14 unless and until it has received specific instructions (and sufficient cash, if required) from the Company with respect to its duties and obligations under such Sections. SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement, excepting the rights of action given to the Rights Agent under Section 18 hereof, are 26 vested in the respective registered holders of the Right Certificates (and, prior to the Separation Date, the registered holders of any certificate representing Common Shares); and any registered holder of any Right Certificate (or, prior to the Separation Date, of any other certificate representing Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Separation Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Separation Date, the Rights will be transferable only in connection with the transfer of the Common Shares; (b) after the Separation Date, the Right Certificates are transferable (subject to Section 7(e)) only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer and with appropriate forms and certificates fully executed; and (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Separation Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificates made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. (d) Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling (whether interlocutory or final) issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority prohibiting or otherwise restraining performance of such obligation; PROVIDED, HOWEVER, that the Company must use its best efforts to have any such order, decree, judgment or ruling lifted or otherwise overturned as soon as reasonably practicable. 27 SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Series A Preferred Shares, or any other securities of the Company, that may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company, including, without limitation, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or other distributions or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. SECTION 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the preparation, delivery, amendment, administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, ruling (interlocutory or final), fine, penalty, claim, demand, settlement (but with respect to any settlement only with the Company's prior consent, which shall not be unreasonably withheld), cost or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for any action taken, suffered or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including, without limitation the costs and expenses of defending against any claim of liability in the premises. The indemnity provided herein shall survive the termination of this Agreement and the termination and expiration of the Rights. The costs and expenses incurred in enforcing this right of indemnification shall be paid by the Company. Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the possibility of such loss or damage. Any liability of the Rights Agent under this Rights Agreement will be limited to the amount of fees paid by the Company to the Rights Agent hereunder. (b) The Rights Agent shall be fully indemnified against, shall be protected from, and shall incur no liability or expense (including without limitation attorneys' fees and expenses) for, or in respect of, any action taken, suffered or omitted by it in connection with, the acceptance and administration of this Agreement in reliance upon any Right Certificate or certificate for the Series A Preferred Shares or Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, instruction, consent, certificate, statement or other paper or document believed by it to be genuine and to be 28 signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons, or otherwise upon the advice of its counsel as set forth in Section 20 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. The Rights Agent shall not be deemed to have any duty or notice unless and until the Company has provided the Rights Agent with written notice. SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the stockholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; PROVIDED, HOWEVER, that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations, and only the duties and obligations, expressly imposed by this Agreement (and no implied duties or obligations) upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the written advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for, or in respect of, any action taken, suffered, or omitted by it in good faith and in accordance with such written advice or opinion. 29 (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking, suffering or omitting any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for, or in respect of, for any action taken, suffered or omitted in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct (as finally determined by a court of competent jurisdiction). Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, incidental or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Rights Agent has been advised of the possibility of such loss or damage. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility or liability in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Series A Preferred Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Series A Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. 30 (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such instructions shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability for, or in respect of, any action taken, suffered or omitted by it in good faith in accordance with instructions of any such officer. The Rights Agent may conclusively rely on the most recent instructions given by any such officer. (h) The Rights Agent and any stockholder, Affiliate, member, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other Person. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or any other Person resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. (k) If, with respect to any Right Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 on such certificate attached to the form of assignment or form of election to purchase, the Rights Agent shall not take any further action with respect to such requested exercise or transfer without first consulting with the Company. SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares and Series A Preferred Shares by registered or certified mail. In such event, the Company shall give written notice of such resignation to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any 31 successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares and Series A Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be (a) a Person organized and doing business under the laws of the United States or of any state of the United States, in good standing, that is subject to supervision or examination by federal or state authority and that has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50,000,000, or (b) an Affiliate of a Person described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares and Series A Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, the Company may, if deemed necessary or appropriate by the Board, issue Right Certificates in connection with the issuance or sale of Common Shares following the Separation Date. SECTION 23. REDEMPTION. (a) The Board may, at its option, at any time prior to the earlier of (A) the Separation Date or (B) the Final Expiration Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.001 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "REDEMPTION 32 PRICE"). (b) In the case of a redemption permitted under Section 23(a) hereof, immediately upon the action of the Board ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within 10 days after the action of the Board ordering the redemption of the Rights, the Company shall give notice of such redemption to the holders of the then outstanding Rights (in case of notice to holders) by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Separation Date, on the registry books of the Transfer Agent for the Common Shares; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such redemption. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. SECTION 24. EXCHANGE. (a) The Board may, at its option, at any time after the right of the Company to redeem the Rights has expired, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions of Section 7(e) hereof) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "EXCHANGE RATIO"). Notwithstanding the foregoing, the Board shall not be empowered to effect such exchange at any time after any Person (other than any Caxton-Iseman Stockholder, the Company, any Subsidiary or the Company, any employee benefit plan of the Company or any such Subsidiary, or Person organized, appointed or established by the Company for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of [50%] or more of the Common Shares then outstanding. (b) Immediately upon the action of the Board ordering the exchange of any Rights pursuant to Section 24(a) hereof and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of the holders of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give written notice to the Rights Agent and public notice of any such exchange; PROVIDED, HOWEVER, that failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to the Rights Agent and to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice that is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of Common Shares for Rights will be effected and, in the event of any partial 33 exchange, the number of Rights that will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights that have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights. (c) In any exchange pursuant to this Section 24, the Company, at its option, may substitute Series A Preferred Shares for Common Shares at the rate of one one-thousandth of a Series A Preferred Share for each Right. (d) The Company shall not be required to issue fractions of Common Shares or to distribute certificates that evidence fractional Series A Preferred Shares (except as hereinafter provided) or fractional Common Shares, but if the exchange is for Series A Preferred Shares, the Company shall be obligated to issue fractional shares so long as any fraction of a Series A Preferred Share so to be issued is at least equal to one one-thousandth of a Series A Preferred Share. In lieu of such fractional shares, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share. For the purposes of this Section 24(d), (i) the current market value of a whole Common Share shall be the per share market price determined in accordance with Section 11(d)(i) hereof as of the day immediately following the day of the public announcement by the Company that an exchange is to be effected pursuant to this Section 24 and (ii) the current market value of a Series A Preferred Share or fraction of a Series A Preferred Share shall be the current market value on such day of a Series A Preferred Share (or fraction of a Series A Preferred Share) as determined in accordance with Section 11(d)(ii) hereof. SECTION 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall propose, at any time after the Separation Date, (i) to pay any dividend payable in stock of any class to the holders of Series A Preferred Shares or to make any other distribution to the holders of Series A Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Series A Preferred Shares rights or warrants to subscribe for or to purchase any additional Series A Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of Series A Preferred Shares (other than a reclassification involving only the subdivision of outstanding Series A Preferred Shares), (iv) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person, or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to the Rights Agent and each holder of a Right Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up is to take place and the date of participation therein by the holders of the Common Shares and/or 34 Series A Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 20 days prior to the record date for determining holders of the Series A Preferred Shares for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Series A Preferred Shares, whichever shall be the earlier. (b) In case of the occurrence of a Section 11(a)(ii) Event, then, in any such case, (i) the Company shall as soon as practicable thereafter give to the Rights Agent and each holder of a Right Certificate, to the extent feasible and in accordance with Section 26 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a)(ii), and (ii) all references in the preceding paragraph to Series A Preferred Shares shall be deemed thereafter to refer to Common Shares and/or, if appropriate, other securities. SECTION 26. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Anteon International Corporation 3211 Jermantown Road Suite 700 Fairfax, VA 22030-2801 Attention: Secretary Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: [Rights Agent] [address] Attention: General Counsel Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Rights Agent. SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, 35 or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and, if such supplement or amendment affects the rights, duties or obligations of the Rights Agent, the Rights Agent; PROVIDED, HOWEVER, that (i) the Rights Agent cannot be required to change or amend its duties and obligations under this Agreement, (ii) this Agreement shall not be amended in any manner that would adversely affect the interests of any Caxton-Iseman Stockholder, and (iii) from and after such time as there is a Shares Acquisition Date and a Separation Date, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights. Upon the delivery of a certificate from an appropriate officer of the Company, which states that the proposed supplement or amendment is in compliance with the terms of this Section 27, the Rights Agent shall execute such supplement or amendment. SECTION 28. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 29. DETERMINATIONS AND ACTIONS BY THE BOARD. The Board shall have the exclusive power and authority to administer the provisions of this Agreement and to exercise all rights and powers specifically granted to the Board or the Company, or as may be necessary or advisable in the administration of this Agreement. All such actions, calculations, interpretations and determinations that are done or made by the Board, in good faith, shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties and shall not subject the Board to any liability to the holders of the Rights. SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Separation Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Separation Date, the Common Shares). SECTION 31. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated; PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the tenth day following the date of such determination by the Board. 36 SECTION 32. GOVERNING LAW. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware, and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State; and any provision of this Agreement and each such Right Certificate relating to the internal corporate governance or other affairs of the Company shall be governed by and construed in accordance with the laws of the State of Delaware. SECTION 33. CONSEQUENTIAL DAMAGES. Neither party to this Agreement shall be liable to the other party or any other Person for consequential damages. SECTION 34. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. SECTION 35. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. ANTEON INTERNATIONAL CORPORATION By: ---------------------------------------- Name: Title: [RIGHTS AGENT] By: ---------------------------------------- Name: Title: 37 EXHIBIT A FORM OF CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK OF ANTEON INTERNATIONAL CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) ----------------------- Anteon International Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "CORPORATION"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation (hereinafter called the "BOARD OF DIRECTORS" or the "BOARD") as required by Section 151 of the General Corporation Law at a meeting duly called and held on [February __,] 2002: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors in accordance with the provisions of the Amended and Restated Certificate of Incorporation of the Corporation, the Board of Directors hereby creates a series of Preferred Stock, par value $0.01 per share, of the Corporation, and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof (in addition to the provisions set forth in the Amended and Restated Certificate of Incorporation which are applicable to the Preferred Stock of all classes and series) as follows: SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Preferred Stock" (the "SERIES A PREFERRED STOCK") and the number of shares constituting the Series A Preferred Stock shall be [ ]. Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights and warrants and upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. SECTION 2. DIVIDENDS AND DISTRIBUTIONS. 38 (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $0.01 per share (the "COMMON STOCK"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent), subject to the provisions for adjustment set forth in Section 8 equal to the greater of (a) $[0.01] or (b) subject to the provision for adjustment hereinafter set forth, 1000 times the aggregate per share amount of all cash dividends, and 1000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. (B) If a dividend is declared on the Common Stock, the Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $[0.01] per share on the Series A Preferred Stock shall nevertheless be declared and shall be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution 39 declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. SECTION 3. VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon 40 liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation (which shall no include any transaction covered by Section 7), no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment set forth in Section 8, equal to 1000 times the aggregate amount to be 41 distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination, exchange or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment set forth in Section 8, equal to 1000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. SECTION 8. EFFECT OF COMMON STOCK SPLITS, ETC. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under Sections 2, 6 or 7 shall be adjusted by multiplying each such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 9. NO REDEMPTION. The shares of Series A Preferred Stock shall not be redeemable. SECTION 10. RANK. The Series A Preferred Stock shall rank junior to all other series of Preferred Stock of the Corporation as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. SECTION 11. RESERVATION. The Corporation shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for issuance upon the conversion of the Series A Preferred Stock, free from any preemptive rights or other obligations such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all of the Series A Preferred Stock outstanding. SECTION 12. AMENDMENT. The Amended and Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would 42 materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Corporation by its [Title] and attested by its Secretary this ____ day of February 2002. ANTEON INTERNATIONAL CORPORATION By: -------------------------------------- Name: Title: Attest: - --------------------------- Name: Title: Secretary 43 EXHIBIT B [FORM OF RIGHT CERTIFICATE] Certificate No. R- __________ Rights NOT EXERCISABLE AFTER [FEBRUARY __, 2012] OR EARLIER IF REDEEMED OR EXCHANGED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT (AS HEREINAFTER DEFINED)) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BE OR BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE AGREEMENT.]2 RIGHT CERTIFICATE ANTEON INTERNATIONAL CORPORATION This certifies that , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of [February __, 2002] (the "RIGHTS AGREEMENT"), between ANTEON INTERNATIONAL CORPORATION, a Delaware corporation (the "COMPANY"), and [RIGHTS AGENT], a [ ] (the "RIGHTS AGENT"), to purchase from the Company at any time after the - -------------------------- 3 The portion of the legend in brackets shall be inserted if applicable and shall replace the preceding sentence. 44 Separation Date (as such term is defined in the Rights Agreement) and prior to the close of business (5:00 PM New York time) on [February __, 2012], at the office or offices of the Rights Agent designated for such purpose, or its successors as Rights Agent, one one-thousandth of a fully paid, nonassessable share of Series A Preferred Stock, par value $0.01 per share ("SERIES A SHARE") of the Company, at a purchase price of $[ ] per one one-thousandth of a share (the "PURCHASE PRICE"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of rights evidenced by this Right Certificate (and the number of shares that may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of [date of Rights Agreement] based on the Series A Shares as constituted at such date. Upon the occurrence of a Triggering Event (as such term is defined in the Rights Agreement), if the Rights evidenced by this Right Certificate are beneficially owned by (a) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (b) a transferee of any such Acquiring Person, Associate or Affiliate or (c) under certain circumstances specified in the Rights Agreement, a transferee of a person or entity who, after such transfer, became an Acquiring Person, such Rights shall become null and void and no holder hereof shall have any right with respect to such rights from and after the occurrence of any such Triggering Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of Series A Shares or other securities or other property that may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. The Board may, at its option, at any time after the right of the Company to redeem the Rights has expired, exchange all or part of the then outstanding and exercisable Rights (other than those held by the Acquiring Person and Affiliates and Associates of the Acquiring Person) for Common Shares (as such term is defined in the Rights Agreement) at an exchange ratio of one Common Share per Right, as adjusted. Immediately upon the action of the Board ordering an exchange of the Rights, the Rights affected by such order will no longer be exercisable and thereafter the only right of the holders of such Rights will be to receive the Common Shares issuable by the Company in exchange for such Rights. This Right Certificate is subject to all of the terms, covenants and restrictions of the Rights Agreement, which terms, covenants and restrictions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights for not more than 90 days at the election of the Company and under certain circumstances specified in such Rights Agreement. Copies of the Rights Agreement are on file at the office of the Rights Agent and are also 45 available upon written request to the Company. This Right Certificate, with or without other Right Certificates, upon surrender at the office or offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Series A Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If the Rights evidenced by this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed at a redemption price of $0.001 per Right at any time prior to the earlier of (A) the Separation Date (as such term is defined in the Rights Agreement) or (B) the Final Expiration Date (as such term is defined in the Rights Agreement). Immediately upon the action of the Board ordering redemption of the Rights, the Rights will no longer be exercisable; and, thereafter the only right of the holders of the Rights evidenced hereby will be to receive the Redemption Price. The terms of the Rights evidenced by this Certificate may be supplemented or amended without the approval of any holder of the Rights (or the Common Shares) as set forth in the Rights Agreement. No fractional Series A Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions that are integral multiples of one one-thousandth of a Series A Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Series A Shares or of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company, including, without limitation, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or other distributions or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. 46 WITNESS the facsimile signatures of the proper officers of the Company. Dated: ___________, 20__ ANTEON INTERNATIONAL CORPORATION By: ---------------------------------------- Name: Title: Attest -------------------------------- Name: Title: (Corporate Seal) Countersigned [RIGHTS AGENT] as Rights Agent By ------------------------ Name: Title: 47 [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED __________________________________ hereby sells, assigns and transfers unto --------------------------------------------------------- (Please print name and address of Transferee) ____________________________________________________________ this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________ attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: _______________, 20__ ------------------------- Signature Signature Guaranteed: 48 CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (i) this Rights Certificate [ ] is [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); (ii) to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: _____________, 20__ _________________________ Signature NOTICE The signature(s) to the foregoing Assignment and Certificate must correspond to the name(s) as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. 49 FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise Rights represented by the Right Certificate.) To: ANTEON INTERNATIONAL CORPORATION The undersigned hereby irrevocably elects to exercise _________ Rights represented by this Right Certificate to purchase the Series A Shares (or fractions thereof) issuable upon the exercise of such Rights (or such other securities of the Company or of any other entity that may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number: ________________________________________________ (Please print name and address) - ------------------------------------------------------------------------------ If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance of such Rights shall be registered in the name of and delivered to: 50 Please insert social security or other identifying number: _______________________________________________ (Please print name and address) - ------------------------------------------------------------------------ Dated: __________________, 20__ ------------------------- Signature Signature Guaranteed: CERTIFICATE The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement); (2) to the best knowledge of the undersigned, it [ ] did [ ] not acquire the Rights evidenced by this Right Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ________________, 20__ ------------------------- Signature 51 NOTICE The signature(s) to the foregoing Election to Purchase and Certificate must correspond to the name(s) as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. 52 EXHIBIT C ANTEON INTERNATIONAL CORPORATION SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES On February __, 2002, the Board of Directors of our Company, Anteon International Corporation, a Delaware corporation, declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value $0.01 per share. The dividend is payable on [date] to the stockholders of record on [record date]. In general terms, the Rights Plan works by imposing a significant penalty upon any person or group which, acquires 15% or more of our outstanding common stock without the approval of our Board. The Rights Plan will not interfere with any merger or other business combination approved by our Board. For those interested in the specific terms of the Rights Plan as set forth in an agreement between our Company and [Rights Agent], as the Rights Agent, as of [February __, 2002], we provide the following summary description. Please note, however, that this description is only a summary, and is not complete, and should be read together with the entire Rights Agreement, which has been filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form S-1 dated [ ] 2002. A copy of the agreement is available free of charge from our Company. THE RIGHTS. Our Board authorized the issuance of a Right with respect to each issued and outstanding share of common stock on [record date]. The Rights will initially trade with, and will be inseparable from, the common stock. The Rights are evidenced only by certificates that represent shares of common stock. New Rights will accompany any new shares of common stock we issue after [record date] until the earliest of the Separation Date, the expiration or the redemption of the Rights, as described below. EXERCISE PRICE. Each Right will allow its holder to purchase from our Company one one-thousandth of a share of Series A Preferred Stock ("Preferred Share") for $[ ], once the Rights become exercisable. This portion of a Preferred Share will give the stockholder approximately the same dividend and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights. EXERCISABILITY. The Rights will not be exercisable until o Ten (10) business days after the public announcement that a person or group (other than members of the Caxton-Iseman group or any of their permitted transferees) has become an "Acquiring Person" by obtaining beneficial ownership of 15% or more of our outstanding common stock, or, if earlier, 53 o Fifteen (15) business days (or a later date determined by our Board before any person or group becomes an Acquiring Person) after a person or group (other than members of the Caxton-Iseman group or any of their permitted transferees) begins a tender or exchange offer, which, if consummated, would result in that person or group becoming an Acquiring Person. We refer to the date when the Rights become exercisable as the "Separation Date." Until that date, the common stock certificates will also evidence the Rights, and any transfer of shares of common stock will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and be evidenced by book-entry credits or by Rights certificates that we will mail to all eligible holders of common stock. Any Rights held by an Acquiring Person are void and may not be exercised. CONSEQUENCES OF A PERSON OR GROUP BECOMING AN ACQUIRING PERSON o FLIP IN. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, after the Separation Date, for $[ ], purchase shares of our common stock with a market value of $[ ], based on the market price of the common stock prior to such acquisition. o FLIP OVER. If our Company is later acquired in a merger of similar transaction after the Separation Date, all holders of Rights except the Acquiring Person may, for $[ ], purchase shares of the acquiring corporation with a market value of $[ ], based on the market price of the acquiring corporation's stock, prior to such merger. PREFERRED SHARE PROVISIONS Each one one-thousandth of a Preferred Share, if issued: o Will not be redeemable. o Will entitle holders to a preferential dividend equal to the value of any dividend paid on one share of common stock. o Will entitle holders upon liquidation to receive $1.00 per share or an amount equal to the payment made on one share of common stock, whichever is greater. o Will have the same voting power as one share of common stock. o If shares of our common stock are exchanged in a merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock. The value of one one-thousandth interest in a Preferred Share should approximate the value of one share of common stock. 54 EXPIRATION. The Rights will expire on [February [ ], 2012]. REDEMPTION. Our Board may redeem the Rights for $0.001 per Right at any time before a Separation Date. If our Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $0.001 per Right. The redemption price will be adjusted if we have a stock split or stock dividends of our common stock. EXCHANGE. After the right of our Board to redeem the rights has expired, but before an Acquiring Person owns 50% or more of our outstanding common stock, our Board may extinguish the Rights by exchanging one share of common stock for each Right, other than Rights held by the Acquiring Person. ANTI-DILUTION PROVISIONS. Our Board may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Preferred Shares or common stock. No adjustments to the purchase price of less than 1% will be made. AMENDMENTS. The terms of the Rights Agreement may be amended by our Board without the consent of the holders of the Rights. However, the Rights Agreement may not be amended in any way that adversely affects any members of the Caxton-Iseman group or their permitted transferees. After a person or group becomes an Acquiring Person, and there is a Separation Date, our Board may not amend the agreement in a way that adversely affects the holders of the Rights. 55 TABLE OF CONTENTS
SECTION PAGE - ------- ---- Section 1. Certain Definitions....................................................................... 2 Section 2. Appointment of Rights Agent............................................................... 6 Section 3. Issue of Right Certificates.............................................................. 7 Section 4. Form of Right Certificates............................................................... 8 Section 5. Countersignature and Registration........................................................ 9 Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates........................................... 10 Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............................. 11 Section 8. Cancellation and Destruction of Right Certificates........................................ 13 Section 9. Reservation and Availability of Series A Preferred Shares; Registration........................................................................... 13 Section 10. Series A Preferred Shares Record Date..................................................... 14 Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights............................................................. 15 Section 12. Certificate of Adjusted Purchase Price or Number of Shares............................... 22 Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....................................................................... 22 Section 14. Fractional Rights and Fractional Shares.................................................. 24 Section 15. Rights of Action......................................................................... 25 Section 16. Agreement of Right Holders............................................................... 26 Section 17. Right Certificate Holder Not Deemed a Stockholder........................................ 26 Section 18. Concerning the Rights Agent.............................................................. 27 Section 19. Merger or Consolidation or Change of Name of Rights Agent................................ 27 Section 20. Duties of Rights Agent................................................................... 28 56 Section 21. Change of Rights Agent................................................................... 29 Section 22. Issuance of New Right Certificates....................................................... 29 Section 23. Redemption............................................................................... 29 Section 24. Exchange................................................................................. 29 Section 25. Notice of Certain Events................................................................. 29 Section 26. Notices.................................................................................. 29 Section 27. Supplements and Amendments............................................................... 29 Section 28. Successors............................................................................... 29 Section 29. Determinations and Actions by the Board ................................................. 29 Section 30. Benefits of this Agreement............................................................... 29 Section 31. Severability............................................................................. 29 Section 32. Governing Law............................................................................ 29 Section 33. Consequential Damages.................................................................... 29 Section 34. Counterparts............................................................................. 29 Section 35. Descriptive Headings..................................................................... 29
Exhibits A. Certificate of Designations in respect of Series A Preferred Stock B. Form of Right Certificate C. Summary of Rights to Purchase Series A Preferred Stock EX-10.10 11 a2069486zex-10_10.txt EXHIBIT 10.10 Exhibit 10.10 AMENDMENT No. 6, WAIVER and AGREEMENT dated as of February 1, 2002 (this "AMENDMENT"), to the Credit Agreement dated as of June 23, 1999, as amended by Amendment No. 1 dated as of January 13, 2000, Amendment No. 2 dated as of March 29, 2000, Amendment No. 3 dated as of June 30, 2000, Amendment No. 4 and Waiver dated as of October 19, 2000, and Amendment No. 5 and Waiver dated as of December 31, 2000 (the "CREDIT AGREEMENT"), among ANTEON INTERNATIONAL CORPORATION, a Virginia corporation ("ANTEON" or the "BORROWER"), the Lenders (as defined in Article I of the Credit Agreement), CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its New York branch, as an Issuing Bank (as defined in Article I of the Credit Agreement), and as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") for the Lenders, CITIZENS BANK OF PENNSYLVANIA, 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"). A. Pursuant to the Credit Agreement, the Lenders and the Issuing Banks have extended, and have agreed to extend, credit to the Borrower. B. Anteon has informed the Administrative Agent that (i) Holdings has changed its name to Anteon International Corporation and (ii) Anteon intends to merge (the "MERGER") with and into Holdings, with Holdings being the surviving corporation of the Merger. Upon the consummation of the Merger, Holdings will succeed to all the rights and be bound by all the obligations of Anteon, including Anteon's rights and obligations as the Borrower under the Credit Agreement and the other Loan Documents to which Anteon is a party. C. Anteon has further informed the Administrative Agent that (i) immediately prior to the Merger, (x) the holder of the Holdings Convertible Notes will convert (the "CONVERSION") such notes in accordance with their terms into shares of non-voting common stock of Holdings and (y) Holdings will pay in cash to such holder accrued and unpaid interest on the Holdings Convertible Notes (the "CASH INTEREST PAYMENT"), (ii) in connection with the Merger, all the then-outstanding shares of common stock of Holdings will be converted into a single class of common stock (the "COMMON STOCK"), (iii) in connection with the Merger, the then-outstanding common stock of Anteon held by Holdings will be cancelled, and the then-outstanding common stock of Anteon held by other shareholders will be converted (subject to the exercise of appraisal rights) into Common Stock, (iv) in connection with the Merger, Holdings will prepay the Investor Note held by Azimuth Technologies, L.P., in the aggregate outstanding principal amount of approximately $11,500,000, together with accrued and unpaid interest thereon (the "AZIMUTH PREPAYMENT"), and (v) immediately after the Merger, the Borrower will engage in an underwritten public offering of Common Stock of, and by, the Borrower pursuant to a registration statement (the "REGISTRATION STATEMENT") filed with the Securities and Exchange Commission in accordance with the Securities Act of 1933, as amended, and expects to receive Net Cash Proceeds therefrom of at least $68,000,000 (the "IPO"). The 2 transactions described in this paragraph, together with the Merger, are collectively referred to herein as the "RECAPITALIZATION". D. Anteon has requested that the Required Lenders agree to waive compliance by the Borrower with, and/or modify, certain provisions of the Credit Agreement to permit and/or give effect to the consummation of the Recapitalization and certain related transactions as described herein. The Required Lenders, on the terms and subject to the conditions set forth herein, are willing to agree to such waivers and modifications. E. Capitalized terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. WAIVER AND AGREEMENT. (a) The Required Lenders hereby waive compliance by the Borrower with the provisions of Section 6.05(a) of the Credit Agreement to the extent, but only to the extent, necessary to allow the Merger to occur. (b) The Required Lenders and the Borrower hereby agree that, notwithstanding the provisions of Section 2.13(d) of the Credit Agreement, the Borrower shall only be required to use $8,000,000 of the Net Cash Proceeds of the IPO to prepay the Term Loans in accordance with such Section; PROVIDED, HOWEVER, that, if, on the later to occur of (i) March 31, 2002 (after giving effect to the scheduled amortization payment to be made on such date), and (ii) the Amendment Effective Date, the outstanding principal amount of the Term Loans shall exceed $25,000,000, then on such date the Borrower shall make an additional mandatory prepayment of Term Loans under Section 2.13(g) of the Credit Agreement in an amount sufficient to eliminate such excess. (c) The Required Lenders hereby waive compliance by the Borrower with the provisions of Section 6.07 of the Credit Agreement to the extent, but only to the extent, necessary to permit (i) the Merger, the Conversion, the Azimuth Prepayment and the Cash Interest Payment and (ii) upon consummation of the Recapitalization, the payment of up to $3,600,000 in the aggregate to Caxton-Iseman Capital, Inc. in connection with the termination of the management advisory agreement between Anteon and Caxton-Iseman Capital, Inc. (the "TERMINATION FEE"). (d) The Required Lenders hereby waive compliance by the Borrower with the provisions of Section 6.14(b) of the Credit Agreement to the extent, but only to the extent, necessary to permit the Borrower (i) to use a portion of the Net Cash Proceeds of the IPO to either redeem under Section 5 of the Senior Subordinated Notes, or repurchase from time to time, up to $25,000,000 aggregate principal amount of Senior Subordinated Notes (together with the premium required by such section and accrued and unpaid interest thereon) and (ii) to repurchase from time to time up to $10,000,000 aggregate principal amount of Senior Subordinated Notes; PROVIDED, HOWEVER, that, in the case of this clause (ii), after giving effect to any such repurchase (including the incurrence of any Indebtedness to finance the same), (x) no Default or Event of Default shall have occurred and be continuing, (y) the Senior Leverage Ratio shall be less than or equal to 2.0 to 1.0 and (z) the Borrowing Base shall exceed the Aggregate Revolving Credit Exposure by at least $10,000,000. 3 (e) The Required Lenders hereby waive compliance by the Borrower with the provisions of Section 6.14(d) of the Credit Agreement to the extent, but only to the extent, necessary to permit the Borrower to amend its Certificate of Incorporation and Bylaws and to enter into agreements with respect to its Equity Interests, in each case substantially as described in the Registration Statement. (f) The Borrower, the Required Lenders and Holdings hereby agree that because, as a result of the Merger, Holdings will succeed to all the rights and be bound by all the obligations of Anteon, including Anteon's rights and obligations as the Borrower under the Credit Agreement, upon the consummation of the Merger all references to "Holdings" in the Credit Agreement will be null and void. SECTION 2. AMENDMENTS. (a) The second paragraph of the preamble to the Credit Agreement is hereby amended by adding the following sentence at the end thereof: "Proceeds of any Incremental Term Loans are to be used solely to finance Permitted Acquisitions and to pay related fees and expenses." (b) Section 1.01 of the Credit Agreement is hereby amended by inserting in the appropriate alphabetical order therein the following: "AMENDMENT NO. 6" shall mean Amendment No. 6, Waiver and Agreement dated as of February 1, 2002, to this Agreement. "INCREMENTAL TERM LENDER" shall mean a Lender with an Incremental Term Loan Commitment or an outstanding Incremental Term Loan. "INCREMENTAL TERM LOAN AMOUNT" shall mean, at any time, the excess, if any, of $50,000,000 over the aggregate amount of all Incremental Term Loan Commitments established prior to such time pursuant to Section 2.24. "INCREMENTAL TERM LOAN ASSUMPTION AGREEMENT" shall mean an Incremental Term Loan Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and one or more Incremental Term Lenders. "INCREMENTAL TERM LOAN COMMITMENT" shall mean the commitment of any Lender, established pursuant to Section 2.24, to make Incremental Term Loans to the Borrower. "INCREMENTAL TERM LOAN MATURITY DATE" shall mean the final maturity date of any Incremental Term Loan, as set forth in the applicable Incremental Term Loan Assumption Agreement. "INCREMENTAL TERM LOAN REPAYMENT DATES" shall mean the dates scheduled for the repayment of principal of any Incremental Term Loan, as set forth in the applicable Incremental Term Loan Assumption Agreement. "INCREMENTAL TERM LOANS" shall mean term loans made by one or more Lenders to the Borrower pursuant to an Incremental Term Loan Assumption Agreement. Incremental Term Loans may be made in the form of additional Term 4 Loans or, to the extent permitted by Section 2.24 and provided for in the relevant Incremental Term Loan Assumption Agreement, Other Term Loans. "OTHER TERM LOANS" shall have the meaning assigned to such term in Section 2.24(a). "TERM LENDER" shall mean a Lender with a Term Loan Commitment or an outstanding Term Loan. (c) The definition of the term "Applicable Percentage" set forth in Section 1.01 of the Credit Agreement is hereby amended by inserting the words "(except as otherwise provided in the Incremental Term Loan Assumption Agreement with respect to any Incremental Term Loan)" after the words "shall mean" in the first sentence thereof. (d) The definition of the term "Change of Control" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "CHANGE IN CONTROL" shall mean (a) 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; (b) 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; (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by persons who were neither (i) nominated by the board of directors of the Borrower or any Permitted Investor nor (ii) appointed by the directors so nominated; or (d) 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 the Borrower or any Subsidiary in an aggregate outstanding principal amount in excess of $10,000,000. (e) The last sentence of the definition of the term "EBITDA" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Except for purposes of determining the Leverage Ratio as that term is used in the definition of the term "Applicable Rate", EBITDA for any period ending on or after the date the Recapitalization (as defined in Amendment No. 6) is consummated shall be adjusted by adding thereto (without duplication and only to the extent deducted in calculating Net Income for such period) (i) the amount of the Termination Fee (as defined in Amendment No. 6) actually paid during such period, (ii) fees paid during such period in an aggregate amount not to exceed $3,000,000 and associated with the early termination of Hedging Agreements as a result of the transactions contemplated by Amendment No. 6, (iii) premiums paid during such period in an aggregate amount not to exceed $4,200,000 in respect of the redemption and repurchases of Senior Subordinated Notes as 5 permitted by Amendment No. 6, (iv) charges during such period in respect of unamortized fees in respect of the Loans and (v) other non-recurring charges during such period in connection with the Recapitalization in an aggregate amount not to exceed $1,000,000." (f) The definition of the term "Loan Documents" set forth in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "LOAN DOCUMENTS" shall mean this Agreement, the Subsidiary Guarantee Agreement, the Security Documents, the Indemnity, Subrogation and Contribution Agreement and each Incremental Term Loan Assumption Agreement. (g) The definition of the term "Term Loan Commitments" set forth in Section 1.01 of the Credit Agreement is hereby amended by adding the following sentence at the end thereof: "Unless the context shall otherwise require, after the effectiveness of any Incremental Term Loan Commitment the term "Term Loan Commitments" shall include such Incremental Term Loan Commitment." (h) The definition of the term "Term Loans" set forth in Section 1.01 of the Credit Agreement is hereby amended by adding the following sentence at the end thereof: "Unless the context shall otherwise require, the term "Term Loans" shall include any Incremental Term Loans." (i) Section 2.09(a) of the Credit Agreement is hereby amended by inserting the words "(other than any Incremental Term Loan Commitments, which shall terminate in accordance with the applicable Incremental Term Loan Assumption Agreement)" after the word "Commitments" in the first sentence thereof. (j) Section 2.10(vii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(vii) no Interest Period may be selected for any Eurodollar Term Borrowing that would end later than a Repayment Date or an Incremental Term Loan Repayment Date, as applicable, 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 comprised of Term Loans and Incremental Term Loans, as applicable, with Interest Periods ending on or prior to such Repayment Date or Incremental Term Loan Repayment Date, respectively, and (B) the ABR Term Loan Borrowings comprised of Term Loans and Incremental Term Loans, as applicable, would not be at least equal to the principal amount of Term Borrowings to be paid on such Repayment Date or Incremental Tem Loan Repayment Date, respectively." (k) Section 2.11 of the Credit Agreement is hereby amended by (i) inserting the words "(other than Term Borrowings consisting of Other Term Loans)" after the word "Borrowings" in the first sentence of paragraph (a) thereof, (ii) redesignating paragraph (b) thereof as paragraph "(c)" and (iii) inserting therein the following new paragraph (b): 6 "(b) The Borrower shall pay to the Administrative Agent, for the account of the Lenders, on each Incremental Term Loan Repayment Date, a principal amount of the Other Term Loans (as adjusted from time to time pursuant to Sections 2.12 and 2.13(g)) equal to the amount set forth for such date in the applicable Incremental Term Loan Assumption Agreement. To the extent not previously paid, all Incremental Term Loans shall be due and payable on the Incremental Term Loan Maturity Date." (l) Section 2.13 of the Credit Agreement is hereby amended by adding the following new paragraph at the end thereof: "(i) To the extent so provided in the applicable Incremental Term Loan Assumption Agreement, so long as any Term Loans shall remain outstanding, any Incremental Term Lender may elect, by notice to the Administrative Agent in writing no later than 3:00 p.m., New York City time, at least two Business Days prior to any prepayment of Incremental Term Loans required to be made by the Borrower for the account of such Lender pursuant to this Section 2.13, to cause all or a portion of such prepayment to be applied instead to prepay Term Loans in accordance with paragraph (g) above." (m) Article II of the Credit Agreement is hereby amended by adding the following Section 2.24 at the end thereof: "SECTION 2.24. INCREASE IN TERM LOAN COMMITMENTS. (a) The Borrower may, by written notice to the Administrative Agent from time to time, request Incremental Term Loan Commitments in an amount not to exceed the Incremental Term Loan Amount from one or more Incremental Term Lenders, which may include any existing Lender; provided that each Incremental Term Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld). Such notice shall set forth (i) the amount of the Incremental Term Loan Commitments being requested (which shall be in minimum increments of $5,000,000 and a minimum amount of $10,000,000 or equal to the remaining Incremental Term Loan Amount), (ii) the date on which such Incremental Term Loan Commitments are requested to become effective (which shall not be less than 10 Business Days nor more than 60 days after the date of such notice), and (iii) whether such Incremental Term Loan Commitments are to be Term Loan Commitments or commitments to make term loans with economic terms (such as interest rates, maturities and amortization schedules) that are different from the Term Loans ("OTHER TERM LOANS"). (b) The Borrower and each Incremental Term Lender shall execute and deliver to the Administrative Agent an Incremental Term Loan Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to evidence the Incremental Term Loan Commitment of such Incremental Term Lender. Each Incremental Term Loan Assumption Agreement shall specify the terms of the Incremental Term Loans to be made thereunder; PROVIDED that, without the prior written consent of the Required Lenders, (i) the final maturity date of any Other Term Loans shall be no earlier than the Term Loan 7 Maturity Date and (ii) the average life to maturity of any Other Term Loans shall be no shorter than the average life to maturity of the Term Loans. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental Term Loan Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Incremental Term Loan Assumption Agreement, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Incremental Term Loan Commitment evidenced thereby. (c) Notwithstanding the foregoing, no Incremental Term Loan Commitment shall become effective under this Section 2.24 unless (i) on the date of such effectiveness, the conditions set forth in paragraphs (b) and (c) of Section 4.01 shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Financial Officer of the Borrower, and (ii) the Administrative Agent shall have received (with sufficient copies for each of the Incremental Term Lenders) legal opinions, board resolutions and an officer's certificate consistent with those delivered on the Closing Date under paragraphs (a) and (c) of Section 4.02. (d) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all action as may be reasonably necessary to ensure that all Incremental Term Loans (other than Other Term Loans), when originally made, are included in each Borrowing of outstanding Term Loans on a pro rata basis. This may be accomplished at the discretion of the Administrative Agent by requiring each outstanding Eurodollar Term Borrowing to be converted into an ABR Term Borrowing on the date of each Incremental Term Loan, or by allocating a portion of each Incremental Term Loan to each outstanding Eurodollar Term Borrowing on a pro rata basis, even though as a result thereof such Incremental Term Loan may effectively have a shorter Interest Period than the Term Loans included in the Borrowing of which they are a part (and notwithstanding any other provision of this Agreement that would prohibit such an initial Interest Period). Any conversion of Eurodollar Term Loans to ABR Term Loans required by the preceding sentence shall be subject to Section 2.16. If any Incremental Term Loan is to be allocated to an existing Interest Period for a Eurodollar Term Borrowing then, subject to Section 2.07, the interest rate applicable to such Incremental Term Loan for the remainder of such Interest Period shall equal the Adjusted LIBO Rate for a period approximately equal to the remainder of such Interest Period (as determined by the Administrative Agent two Business Days before the date such Incremental Term Loan is made) plus the Applicable Percentage. In addition, to the extent any Incremental Term Loans are not Other Term Loans, the scheduled amortization payments under Section 2.11(a) required to be made after the making of such Incremental Term Loans shall be ratably increased to reflect the aggregate principal amount of such Incremental Term Loans. In such event, the Administrative Agent shall prepare and distribute to the Borrower and the Lenders an updated amortization schedule which shall be conclusive absent manifest error." (n) Section 6.01 of the Credit Agreement is hereby amended as follows: 8 (i) by deleting the amount "$1,000,000" set forth in subsection (j) and substituting therefor the amount "$1,500,000"; (ii) by deleting the word "and" at the end of subsection (k); (iii) by replacing the period at the end of subsection (l) with the words "; and"; and (iv) by inserting the following new subsection (m): "(m) Unsecured Guarantees by the Borrower of loans made by third parties to members of senior management of the Borrower and the Subsidiaries in an aggregate principal amount not to exceed $3,000,000 at any time outstanding." (o) Section 6.04 of the Credit Agreement is hereby amended as follows: (i) by deleting the amount "$4,000,000" set forth in subsection (h) and substituting therefor the amount "$6,000,000"; and (ii) by deleting the amount "$4,000,000" set forth in subsection (p) and substituting therefor the amount "$10,000,000". (p) Section 6.06(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(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 and (ii) so long as no Event of Default or Default shall have occurred and be continuing or would result therefrom, the Borrower 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 $10,000,000 in any fiscal year." (q) Section 6.12 of the Credit Agreement is hereby amended by replacing the table set forth therein with the following: DATE OR PERIOD RATIO -------------- ----- October 1, 2001 through December 31, 2001 3.50:1.0 January 1, 2002 through December 31, 2003 2.50:1.0 January 1, 2004 and thereafter 2.25:1.0 9 SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce the other parties hereto to enter into this Amendment, the Borrower represents and warrants to each of the Lenders, the Administrative Agent, the Issuing Banks, the Collateral Agent, the Syndication Agent and the Documentation Agent that, after giving effect to this Amendment, (a) the representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date; and (b) no Default or Event of Default has occurred and is continuing. SECTION 4. AMENDMENT FEE. The Borrower agrees to pay to each Lender that executes and delivers a copy of this Amendment to the Administrative Agent (or its counsel) at or prior to 12:00 noon on February 1, 2002 (the "SIGNING DATE"), an amendment fee (the "AMENDMENT FEE") (i) in an amount, payable on the Signing Date, equal to 0.125% of the sum of such Lender's Revolving Credit Commitment (whether used or unused) and outstanding Term Loans as of the Signing Date, and (ii) in an amount, payable on the Amendment Effective Date (as defined below), equal to 0.125% of the sum of such Lender's Revolving Credit Commitment (whether used or unused) and outstanding Term Loans as of the Amendment Effective Date, calculated on a pro forma basis after giving effect to the prepayment of Term Loans made and required to be made pursuant to Section 1(b) hereof. The Amendment Fee shall be payable in immediately available funds. Once paid, the Amendment Fee shall not be refundable. SECTION 5. EFFECTIVENESS. This Amendment shall become effective as of the date set forth above on the date (the "AMENDMENT EFFECTIVE DATE") occurring on or prior to September 30, 2002, that the following conditions are satisfied: (a) the Administrative Agent shall have received the Amendment Fee; (b) the Administrative Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Borrower, the Guarantors and the Required Lenders; and (c) the IPO shall have been or shall simultaneously be consummated. SECTION 6. EFFECT OF AMENDMENT; EFFECT OF MERGER. (a) Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lenders, the Issuing Banks, the Collateral Agent, the Administrative Agent, the Syndication Agent or the Documentation Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle any Loan Party to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. After the date hereof, any reference to the Credit Agreement shall mean the Credit Agreement, as modified hereby. This Amendment shall constitute a "Loan Document" for all purposes of the Credit Agreement and the other Loan Documents. 10 (b) Immediately upon the consummation of the Merger, and without the need for any further action, Holdings shall succeed to all the rights and be bound by all the obligations of the Borrower under the Credit Agreement and the other Loan Documents to which the Borrower is a party as if originally named the Borrower therein. Without limiting its obligations under Section 5.12 of the Credit Agreement, Holdings agrees to execute any and all further documents, financing statements, agreements and instruments, and to take all further action that may be required under applicable law or that the Required Lenders, the Administrative Agent or the Collateral Agent may request, in order to effectuate the foregoing. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof. SECTION 8. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 9. HEADINGS. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. SECTION 10. EXPENSES. The Borrower agrees to reimburse the Administrative Agent for all out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent. SECTION 11. ACKNOWLEDGMENT OF GUARANTORS. Each of the Guarantors hereby acknowledges receipt and notice of, and consents to the terms of, this Amendment. 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the date and year first above written. ANTEON INTERNATIONAL CORPORATION, the Borrower, by: /s/ Carlton B. Crenshaw -------------------------------- Name: Carlton B. Crenshaw Title: Sr. V.P. Finance and CFO ANTEON INTERNATIONAL CORPORATION, Holdings, by: /s/ Carlton B. Crenshaw -------------------------------- Name: Carlton B. Crenshaw Title: Sr. V.P. Finance and CFO ANTEON CORPORATION, by: /s/ Carlton B. Crenshaw -------------------------------- Name: Carlton B. Crenshaw Title: Sr. V.P. Finance and CFO BUTLER PROPERTY HOLDING, INC., by: /s/ Curtis L. Schehr -------------------------------- Name: Curtis L. Schehr Title: Secretary CITI-SIUS LLC, by: /s/ Carlton B. Crenshaw -------------------------------- Name: Carlton B. Crenshaw Title: Vice President 12 SOUTH TEXAS SHIP REPAIR, INC., by: /s/ Carlton B. Crenshaw -------------------------------- Name: Carlton B. Crenshaw Title: Sr. V.P. and Treasurer CREDIT SUISSE FIRST BOSTON, individually and as Administrative Agent and Issuing Bank, by: /s/ Robert Hetu -------------------------------- Name: Robert Hetu Title: Director by: /s/ Mark Heron -------------------------------- Name: Mark Heron Title: Associate CITIZENS BANK OF PENNSYLVANIA, a Pennsylvania state chartered bank, as assignee of Mellon Bank, N.A., individually and as Collateral Agent, Swingline Lender and Syndication Agent, by: /s/ Leslie A. Grizzard -------------------------------- Name: Leslie A. Grizzard Title: Vice President 13 SIGNATURE PAGE TO AMENDMENT NO. 6, WAIVER AND AGREEMENT DATED AS OF FEBRUARY 1, 2002, TO THE ANTEON INTERNATIONAL CORPORATION CREDIT AGREEMENT. Name of Lender: Branch Banking & Trust Company ----------------------------------- by: /s/ Ronald P. Gudbrandsen -------------------------------- Name: Ronald P. Gudbrandsen Title: Vice President EX-10.16 12 a2069486zex-10_16.txt EXHIBIT 10.16 Exhibit 10.16 AMENDED AND RESTATED ANTEON INTERNATIONAL CORPORATION OMNIBUS STOCK PLAN 1. Establishment, Purpose and Types of Awards. Anteon International Corporation hereby establishes the AMENDED AND RESTATED ANTEON INTERNATIONAL CORPORATION OMNIBUS STOCK PLAN (the "Plan"). The purpose of the Plan is to promote the long-term growth and profitability of Anteon International 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 (i) any person controlled by, controlling or under common control with the Corporation, or (ii) to the extent determined by the Committee, any entity in which the Corporation has a significant equity interest. (b) "AWARD" shall mean any stock option, stock appreciation right, stock award, or phantom stock award. 2 (c) "BOARD" shall mean the Board of Directors of the Corporation. (d) "CAXTON-ISEMAN STOCKHOLDER" shall mean Frederick J. Iseman, Azimuth Technologies, L.P., Azimuth Tech. II, LLC or any of their Affiliates and Associates (within the meaning of Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (e) "CHANGE IN CONTROL" shall, unless in the case of a particular Award, the applicable Grant Agreement states otherwise or contains a different definition of "Change in Control," be deemed to occur upon: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on a fully diluted basis) of either (A) the then outstanding shares of Common Stock of the Corporation, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock (the "Outstanding Corporation Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); PROVIDED, HOWEVER, that for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (I) any acquisition by the Corporation or any Affiliate, (II) any acquisition by any employee benefit plan sponsored or maintained by the Corporation or any Affiliate, (III) any acquisition by any Caxton-Iseman Stockholder, (IV) any acquisition which complies with clauses (A), (B) and (C) of subsection (v) of this Section 2(d), or (V) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant); (ii) Individuals who, on the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (iii) the dissolution or liquidation of the Corporation; (iv) the sale of all or substantially all of the business or assets of the Corporation to any Person (other than a Caxton-Iseman Stockholder); or 3 (v) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Corporation that requires the approval of the Corporation's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Outstanding Corporation Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Corporation Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Corporation's Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no Person (other than any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation or a Caxton-Iseman Stockholder), is or becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Board members at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination. (f) "CODE" shall mean the Internal Revenue Code of 1986, as amended, and any regulations issued thereunder. (g) "COMMITTEE" shall mean the committee of Board members appointed pursuant to Section 3 of the Plan to administer the Plan. (h) "COMMON STOCK" shall mean shares of the Corporation's Class I Common Stock, par value of five cents ($0.05) per share. (i) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. (j) "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, unless the Committee shall otherwise determine, 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 4 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 an 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. (k) "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. (l) "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. (m) "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. (n) "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. (o) "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 a Committee consisting of not less than two (2) members of the Board to administer the Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. The 5 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 therefor, fill vacancies, however caused, and remove all members of the Committee and, thereafter, directly administer the Plan. In the event that the Board resolves to administer 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 and all matters, including 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 a specific 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, it is intended that 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 to the extent intended to be applicable; PROVIDED, HOWEVER, the mere fact that a Committee member shall fail to qualify under the foregoing requirements shall not invalidate any award made by the Committee which award is otherwise validly made under 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, 6 (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 any Grant Agreements, 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 the same, all within the Committee's sole and absolute discretion. Without limiting the generality of the preceding provisions, the Committee may, but solely with the Participants consent, agree to cancel any Award under the Plan and issue a new Award in substitution therefor upon such terms as the Committee may in its sole discretion determine, provided that the substituted Award satisfies all applicable Plan requirements as of the date such new Award is made. The determination of the Committee on all matters relating to the Plan or any Grant Agreement shall be conclusive. (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. 7 4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS. (a) 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 _______________ 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. (b) Shares of Common Stock shall be deemed to have been used in payment of Awards whether they are actually delivered or the Fair Market Value equivalent of such shares is paid in cash. In accordance with (and without limitation upon) the preceding sentence, if and to the extent an Award under the Plan expires, terminates or is canceled for any reason whatsoever without the eligible participant having received any benefit therefrom, the shares covered by such Award shall again become available for future Awards under the Plan. (c) Common Stock delivered by the Corporation in settlement of Awards under the Plan may be authorized and unissued Common Stock or Common Stock held in the treasury of the Corporation. (d) Subject to Section 11, no person may be granted Options or SARs under the Plan during any calendar year with respect to more than __________ shares of Common Stock; provided that such number shall be adjusted pursuant to Section 11, and shares otherwise counted against such number only in a manner which will not cause Options or SARs granted under the Plan to fail to qualify as "performance-based compensation" for purposes of Section 162(m) of the Code, if and to the extent so intended to qualify. 5. PARTICIPATION. Participation in the Plan shall only be open to employees, officers, directors and consultants of the Corporation, or of any Parent, Subsidiary or Affiliate of the Corporation. 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. 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 8 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 (i) in cash (or cash equivalents acceptable to the Committee), or (ii) in shares of Common Stock based on the Fair Market Value of the shares of Common Stock so delivered; PROVIDED, HOWEVER, that such shares are not subject to any pledge or other security interest and have either been held by the eligible participant for six months, previously acquired by the eligible participant on the open market or meet such other requirements as the Committee may determine including, but not limited to, requirements necessary in order to avoid an accounting earnings charge in respect of the option, or (iii) subject to such limitations as the Committee may determine, by delivery of a properly executed exercise notice, together with irrevocable instructions, to: (A) 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 (B) the Corporation to deliver the certificates for such purchased shares directly to such brokerage firm, or (iv) any combination of the foregoing, or (v) by such other means as the Committee may prescribe. For purposes of the foregoing clause (ii), 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 9 Corporation may make loans to grantees to assist grantees in exercising stock options and satisfying any related withholding tax obligations. (d) TERMS 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. 10 (f) RELOAD OPTIONS. The Committee may provide for the grant to any eligible participant of additional options ("Reload Options") upon the exercise of options, including Reload Options, through the delivery of shares of Common Stock; PROVIDED, HOWEVER, that (i) Reload Options may be granted only with respect to the same number of shares as were surrendered to exercise the options, (ii) the exercise price per share of the Reload Options shall be not less than 100% of the Fair Market Value as of the Grant Date of the Reload Options and (iii) the Reload Options shall not be exercisable after the expiration of the term of the options, and otherwise shall have the same terms and conditions of the options, the exercise of which resulted in the grant of the Reload Options. (g) 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 an 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. An 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 11 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. (e) AUTOMATIC EXERCISE. If on the last day of the option term in the case of an option having a tandem SAR (or in the case of an SAR independent of an option, the period established by the Committee after which the SAR shall expire), the Fair Market Value exceeds the amount receivable upon any exercise of the SAR, the eligible participant has not exercised the SAR or the corresponding option, and neither the SAR nor the corresponding option has expired, such SAR shall be deemed to have been exercised by the eligible participant on such last day and the Corporation shall make the appropriate payment therefor. 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 12 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. 13 10. TRANSFERABILITY. No Award granted under the Plan shall be transferable, except and to the extent that a Grant Agreement provides with respect to an Award that is not an incentive stock option (or related SAR). 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 or extraordinary 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 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. 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 may 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 11) 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 14 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 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 15 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. DESIGNATION AND CHANGE OF BENEFICIARY. Each eligible participant shall file with the Committee a written designation of one or more persons as the beneficiary who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon his death. An eligible participant may, from time to time, revoke or change his beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; PROVIDED, HOWEVER, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the eligible participant's death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by an eligible participant, the beneficiary shall be deemed to be his or her spouse or, if the eligible participant is unmarried at the time of death, his or her estate. 16. PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Corporation, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Corporation therefor. 17. 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, in its sole and absolute discretion, may decide from time to time. 18. 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 16 receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. 19. 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. 20. 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. 21. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Corporation to make payment of Awards in Common Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Corporation shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Corporation has received an opinion of counsel, satisfactory to the Corporation, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Corporation shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. If the shares of Common Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Corporation may restrict the transfer of such shares and may legend the Common Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption. The Committee may require the grantee to provide appropriate written investment or other representations, in order to comply with applicable securities laws or in furtherance of the preceding provisions of this Section 21. 17 22. 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 or the Board 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 23. 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. 24. RELIANCE ON REPORTS. Each member of the Committee and each member of the Board shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Corporation and its Affiliates and upon any other information furnished in connection with the Plan by any person or persons other than himself. 25. EXPENSES. The expenses of administering the Plan shall be borne by the Company and its Affiliates. 26. PRONOUNS. Masculine pronouns and other words of masculine gender shall refer to both men and women. 27. TITLES AND HEADINGS. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control. 28. SEVERABILITY. If any provision of the Plan or any Grant Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable 18 by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. 29. 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 State of Delaware without regard to its conflict of laws rules and principles. 30. PLAN SUBJECT TO CHARTER AND BY-LAWS. This Plan is subject to the Charter and By-Laws of the Corporation, as they may be amended from time to time. 31. EFFECTIVE DATE; TERMINATION DATE. (a) 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. (b) No option shall be treated as an incentive stock option unless the Plan has been approved by the shareholders of the Corporation in a manner intended to comply with the shareholder approval requirements of Section 422(b)(i) of the Code; provided that any option intended to be an incentive stock option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such option shall be treated as a nonqualified stock option unless and until such approval is obtained. Date Approved by the Board: Date Approved by the Shareholders: EX-10.21 13 a2069486zex-10_21.txt EXHIBIT 10.21 Exhibit 10.21 CAXTON-ISEMAN CAPITAL, INC. 667 Madison Avenue New York, NY 10021 January 30, 2002 Anteon International Corporation 3211 Jermantown Road, Suite 700 Fairfax, VA 22030 Ladies and Gentlemen: 1. Reference is hereby made to that Fee Agreement, dated as of June 1, 1999, between Caxton-Iseman Capital, Inc., a Delaware corporation ("CIC"), and Anteon International Corporation (f/k/a Anteon Corporation), a Virginia corporation (the "Company"), as amended to date (the "Fee Agreement"), pursuant to which CIC provided certain ongoing advisory and management services to the Company in return for certain compensation, as more fully set forth therein. This letter (the "Termination Agreement") confirms our oral agreement of December 20, 2001, that the Fee Agreement would be terminated before the end of 2001. 2. CIC and the Company hereby agree that, except as set forth in Section 5 hereof, the Fee Agreement is hereby terminated and is null and void and has no further force or effect. Such termination is not contingent upon the occurrence of any event, including without limitation the consummation of any initial public offering of shares of common stock of the Company or its parent, Anteon International Corporation (f/k/a Azimuth Technologies, Inc.), a Delaware corporation ("Anteon Delaware"). 3. CIC hereby acknowledges that the Company has paid and CIC has heretofore received the sum of $1,000,000, in satisfaction of the Company's annual management fee obligation for the year 2001 pursuant to Section 2(b) of the Fee Agreement. In addition, notwithstanding anything to the contrary set forth in the Fee Agreement, in connection with the termination of the Fee Agreement, the Company shall pay to CIC a one-time termination fee of $3,600,000 (the "Termination Fee"), payable no later than sixty (60) days after the Company has obtained the Lenders' Consent, as defined below. 4. Reference is hereby made to, and CIC and the Company hereby acknowledge the existence of, the letter of Credit Suisse First Boston, dated December 21, 2001, addressed to Mr. Carlton Crenshaw, the Chief Financial Officer of the Company, indicating (a) that the consent of a majority of the lenders (the "Lenders' Consent") of the Company under its Credit Agreement, dated as of June 23, 1999, as amended, is required for the payment of the Termination Fee by the Company to CIC, and (b) that the Company is likely to obtain such consent for the payment of the 2 Termination Fee. The Company shall use its best efforts to obtain such Lenders' Consent on or prior to March 31, 2002. 5. From and after the fulfillment of the obligations set forth in Section 3 of this Termination Agreement neither CIC nor the Company will have any surviving obligations towards one another under the Fee Agreement, except as follows: (a) The provisions of Section 2(d) of the Fee Agreement respecting possible investment banking fees for future services shall survive termination of the Fee Agreement pursuant to this Termination Agreement, provided however, that the parties specifically acknowledge that the provision of any such investment banking services and the payment therefore is subject to the future written agreement of the parties hereto and that the payments referred to in Section 3 of this Termination Agreement are not in satisfaction of any investment banking services obligations that may hereafter be agreed to by the Company. (b) The provisions of the Fee Agreement respecting the payment of out-of-pocket expenses of CIC shall survive respecting any services rendered by CIC at the request of the Company from and after the date of payment of the Termination Fee. (c) The provisions of the Fee Agreement respecting indemnification in Section 4 of the Fee Agreement shall survive the termination of the Fee Agreement pursuant to this Termination Agreement, provided however, that the Company's indemnification obligation shall solely be based on, arise out of, or otherwise be in respect of, services already provided by CIC or that are provided in the future to the Company. The Company and CIC further agree that the payment of the Termination Fee shall fully satisfy any and all obligations of the Company under the Fee Agreement with respect to out-of-pocket expenses incurred by CIC on or before the date of payment of the Termination Fee. 6. This Termination Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely in such state. If any provision hereof is determined to be invalid or unenforceable, such determination shall not affect any other provision of this Termination Agreement, each of which shall remain in full force and effect. This Termination Agreement may be executed in one or more counterparts, all of which shall constitute one and the same agreement. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 3 If the foregoing correctly sets forth our understanding, please indicate so by signing below and returning an executed copy of this Termination Agreement to us. Very truly yours, CAXTON-ISEMAN CAPITAL, INC. By: /s/ Frederick J. Iseman --------------------------------- Name: Frederick J. Iseman Title: Chairman and President Accepted and agreed to as of the date first written above: ANTEON INTERNATIONAL CORPORATION By: /s/ Joseph M. Kampf ----------------------------------- Name: Joseph M. Kampf Title: President and CEO EX-10.22 14 a2069486zex-10_22.txt EXHIBIT 10.22 Exhibit 10.22 January __, 2002 PERSONAL AND CONFIDENTIAL ------------------------- ANTEON CORPORATION EXECUTIVE AGREEMENT THIS AGREEMENT is made as of the ___ day of January, 2002 by and between Anteon Corporation ("Anteon" and, together with its subsidiaries and divisions, the "Company") and the key officer of the Company whose name appears on the signature page hereof (the "Executive). 1. INTRODUCTION. Anteon's philosophy is to provide to its officers and key executives a compensation program that it considers to be among the very best in its industry and therefore desires to make the benefits provided for in this agreement available to the Executive as part of his or her compensation package. 2. DEFINITIONS 2.1 "Agreement" means this agreement between Anteon and the Executive. 2.2 "Anteon" means Anteon Corporation or any successor to substantially all of the business and operations of Anteon Corporation. 2.3 "Board" means the Board of Directors of Anteon. 2.4 "Bonus Opportunity" means the percentage of Salary that is the target bonus for the relevant year, as established by the Board. 2.5 "Cause" means the Executive's (i) conviction of, or pleading of nolo contendere to, a felony level criminal violation, or the commission of any act of dishonesty, disloyalty, 2 misconduct or moral turpitude that is injurious to the property, operations, business or reputation of the Company, or (ii) material misconduct or failure to perform his or her duties in a reasonably satisfactory manner after the receipt of a notice from the Company detailing such misconduct or failure, if the misconduct or failure is capable of cure, and the subsequent failure by the Executive to cure such misconduct or failure within thirty (30) days of receipt of such notice. 2.6 "Committee" means the Compensation Committee appointed by the Board or if there is no such committee, then the Board. 2.7 "Company" means Anteon Corporation and its subsidiaries, or any successor to substantially all of the business and operations of Anteon Corporation and its subsidiaries. 2.8 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.9 "Executive" means the individual identified on the signature page of this Agreement. 2.10 "Extended Compensation Payments" means all amounts, if any, payable under Section 3 and Exhibit A of this Agreement to the Covered Employee upon a termination without Cause or a resignation for Good Reason. 2.11 "Extended Compensation Period" means the period beginning on the effective date of this Agreement and ending on December 31, 2003. 2.12 "Good Reason" means the Executive's resignation from all employment and service with the Company within 90 days after the occurrence of one or more of the following: (i) a reduction in his or her Salary or Bonus Opportunity from that of the prior year, or a reduction in Salary or Bonus Opportunity already established for a given year (it being 3 understood that any bonus payments will be subject to performance and/or service goals as the Board may prescribe), or (ii) a material diminution in the Executive's duties or responsibilities (but a change in the Executive's reporting relationships or responsibilities within the Company or within any successor to substantially all of the Company' business and operations shall not itself constitute "Good Reason"). Notwithstanding anything in the previous sentence, the Executive may not resign for "Good Reason" unless he or she shall have first given notice to Anteon of the reason for such resignation, and Anteon or the Company shall have failed to reasonably cure the situation within thirty (30) days of receipt of such notice. 2.13 "Release" means a written release, in the form as attached hereto, executed by the Executive who has been granted Extended Compensation Payments, releasing and discharging the Company, its trustees, officers, directors, employees, advisers, consultants, shareholders, agents and other representatives (including, but not limited to, the members of the Committee) from and against all claims, liabilities and obligations in respect of or arising out of the Executive's employment, and/or any termination of or resignation therefrom, including but not limited to, claims under the Age Discrimination in Employment Act of 1967, as amended. 2.14 "Salary" means the annual rate of base salary of the Executive (prior to any reduction for the Executive's contributions to any employee benefit, deferred compensation, retirement or other plan or arrangement maintained or administered by the Company) as in effect immediately prior to any without Cause termination or resignation for Good Reason. Monthly Salary shall be determined by dividing the rate referred to in the preceding sentence by 12. 2.15 "Service" means the Executive's last continuous period of employment and service with the Company. 4 2.16 "Termination of Employment" means the Executive's termination of employment with and separation of service from the Company. 3. GRANTS AND AMOUNTS OF PROTECTION PAYMENTS 3.1 If during the Extended Compensation Period (i) the Company shall terminate the Executive's employment without Cause, or (ii) the Executive shall resign for Good Reason, then the Executive will receive Extended Compensation Payments equal to the following: A. ACCRUED SALARY. Within 15 days of termination without Cause or resignation for Good Reason, the Executive will receive all accrued but unpaid Salary through the date of termination. B. SALARY CONTINUATION. The Executive will be paid regular monthly payments as if his or her Salary were continuing for the period set forth on Exhibit A, commencing on the date of the termination without Cause or resignation for Good Reason. C. ACCRUED BONUS. The Executive will receive a pro-rata payment (through the end of the month in which either the without Cause termination or resignation for Good Reason occurs) of his or her bonus entitlement for the current year which would otherwise have been paid had the Executive remained employed by Anteon through the end of such year (for this purpose, assuming that all personal performance objectives have been achieved at the target level). Such bonus shall be payable to the Executive on the date that the bonuses are payable to all other executives of the Company under the terms of the Company's incentive plans. D. BONUS CONTINUATION. The Executive will be paid one-twelfth of his or her "average annual bonus", for each month of the period set forth on Exhibit A, such amount to be paid monthly commencing on the date of the termination without Cause or resignation for Good Reason. The "average annual bonus" shall mean the average of the Executive's bonuses in 5 respect of each of the three calendar years preceding the year of the termination without Cause or resignation for Good Reason. If the bonus for any such year was zero, such amount shall be included in the average, unless the Executive was not employed and not eligible for a bonus in such calendar year. E. ACCRUED GENERAL LEAVE. Within 15 days of termination without Cause or resignation for Good Reason, the Executive will receive a payment for all accrued but unused General Leave through the date of termination. F. MEDICAL/DENTAL INSURANCE. Medical/dental insurance coverage for the Executive and his or her eligible dependents is to be continued under the plan in effect on the date of the without Cause termination or resignation for Good Reason, as modified from time to time for similarly situated active executives. Anteon will pay its normal share of the coverage rate for a period as set forth on Exhibit A, or until such time as the Executive is covered by the medical/dental insurance of another employer, whichever occurs first. The Executive may continue medical/dental insurance through COBRA for up to an additional eighteen months by paying the required premiums monthly in advance to Anteon, as provided by and subject to COBRA. G. LIFE INSURANCE. If the Executive is being provided basic life insurance coverage at the time of separation, such basic life insurance coverage shall continue in accordance with Anteon's policies on life insurance coverage as may be in effect from time to time, for the period set forth on Exhibit A, or, if earlier, until such time as (x) the Executive is eligible for coverage by the life insurance of another employer or (y) Anteon ceases to provide its similarly situated executives with basic life insurance coverage, whichever occurs first. 6 H. RETIREMENT PLAN. Benefits accrued through the termination date are governed by the provisions of the applicable "qualified retirement plan" documents. 3.2 Notwithstanding anything to the contrary in this Agreement, under no circumstances may the Executive receive any Extended Compensation Payments under the terms of this Agreement unless the Committee has received from the Executive an executed Release, in the form attached hereto, that has remained unrevoked for at least eight (8) days (or such longer time as Employee may have a right to terminate such Release under applicable law). In addition, Anteon may immediately cease the payment of any Extended Compensation Payments if the Executive is in violation of any of the provisions of Section 5 of this Agreement. 3.3 The Executive shall have no benefits under this Agreement in the event the Executive is terminated with Cause or terminates employment other than for Good Reason. 4. ADMINISTRATION 4.1 The Committee shall be the administrator of this Agreement, and shall have such rights, powers and authorities commensurate with such position. Such powers shall include, without limitation, the discretion to interpret the provisions of this Agreement, as well as the discretion to resolve any conflicts or questions arising therefrom. The decisions of the Committee shall be final and binding. 5. OBLIGATIONS OF THE EXECUTIVE 5.1 NON-SOLICITATION. The Company has invested substantial time, money and resources in the development and retention of its inventions, confidential information (including trade secrets), customers, accounts and business partners, and during and prior to the course of the Executive's employment with the Company, the Executive has had and will have access to the Company's inventions, confidential information (including trade secrets) and contractual 7 relationships, and will be introduced to existing and prospective customers, vendors, accounts and business partners of the Company. Any and all "goodwill" associated with any existing or prospective customer, vendor, account or business partner belongs exclusively to the Company, including, but not limited to, any goodwill created as a result of direct or indirect contacts or relationships between the Executive and any existing or prospective customers, vendors, cable operators, accounts or business partners. In recognition of this, and in partial consideration for the Company entering into this Agreement with the Executive, the Executive shall be obligated to comply with the following provisions: (A) During the Executive's employment with the Company, and for a period of two (2) years thereafter, or until the end of the period during which Extended Compensation Payments, if any, are being made to the Executive hereunder, whichever period is longer, the Executive may not notice, solicit or encourage, either directly or indirectly, any Company employee to leave the employ of the Company or any independent contractor to sever its engagement with the Company, absent prior written consent from the Company. (B) During the Executive's employment with the Company, and for a period of two (2) years thereafter, or until the end of the period during which Extended Compensation Payments, if any, are being made to the Executive hereunder, whichever period is longer, the Executive may not, directly or indirectly, entice, solicit or encourage any customer or prospective customer of the Company to cease doing business with the 8 Company, reduce its relationship with the Company or refrain from establishing or expanding a relationship with the Company in respect of any work covered by a contract the Company was party to at the time of his termination of employment (including any extensions, renewals or replacements of any such contracts, whether by way of recompetitions or otherwise). 5.2 NON-DISPARAGEMENT; NONDISCLOSURE (A) The Executive agrees not to make any public statement, or engage in any conduct, that is disparaging to the Company, or any of its employees, officers, directors, or shareholders, including, but not limited to, any statement that disparages the products, services, finances, financial condition, capabilities or other aspect of the business of the Company. Notwithstanding any term to the contrary herein, the Executive shall not be in breach of this Section 5.2 for the making of any truthful statements under oath. (B) The Executive agrees not to directly or indirectly disclose, discuss, disseminate, be the source of or otherwise publish or communicate in any manner to any person or entity any confidential information concerning the personal, social or business activities of the Company or its controlling persons, or the executives, principals, officers, directors, agents or employees of any of the foregoing during or at any time after the termination of the Executive's employment. In addition, the Executive 9 agrees that, without the Company's express written approval in each case, the Executive will not: (i) write, be the source of or contribute to any articles, stories, books, screenplays or any other communication or publicity of any kind (written or otherwise) or deliver lectures in any way regarding or concerning confidential information, or (ii) grant any interviews regarding or concerning confidential information during or at any time after the termination of his employment. 5.3 PROVISIONS NECESSARY AND REASONABLE (A) The Executive agrees that: (i) the specific temporal and substantive provisions set forth in Section 5.1 of this Agreement are reasonable and necessary to protect the Company's business interests; and (ii) in the event of any breach of any of the covenants set forth in Sections 5.1 and 5.2 herein, the Company would suffer substantial irreparable harm and would not have an adequate remedy at law for such breach. In recognition of the foregoing, the Executive agrees that, in the event of a breach or threatened breach of any of these covenants, in addition to such remedies as the Company may have at law, without posting any bond or security, Anteon shall be entitled to cease any further Extended Compensation Payments, if any, 10 and the Company further shall be entitled to seek and obtain equitable relief, in the form of specific performance, and/or temporary, preliminary or permanent injunctive relief, or any other equitable remedy which then may be available. The seeking of such injunction or order shall not affect the Company's right to seek and obtain damages or other equitable relief on account of any such actual or threatened breach. (B) If any of the covenants contained in Sections 5.1 or 5.2 hereof, or any part thereof, are hereafter construed to be invalid or unenforceable, the same shall not affect the remainder or the covenant or covenants, which shall be given full effect without regard to the invalid portions. (C) If any of the covenants contained in Sections 5.1 or 5.2 hereof, or any part thereof, are held to be unenforceable by a court of competent jurisdiction because of the temporal or geographic scope of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or geographic area of such provision and, in its reduced form, such provision shall be enforceable. 11 6. MISCELLANEOUS 6.1 The Board reserves the right to modify, amend, or terminate this Agreement at any time; PROVIDED, HOWEVER, that no such modification, amendment or termination shall impair or reduce the Executive's rights hereunder without such Executive's prior written permission. All modifications of or amendments to this Agreement shall be in writing. 6.2 Neither the entering into of this Agreement nor any designation or award of Extended Compensation Payments hereunder shall be held or construed to confer upon the Executive any legal right to continued employment with the Company. The Company expressly reserves the right to discharge the Executive whenever the interest of the Company, in its sole judgment, may so require, without any liability on the part of the Company, its trustees, officers, employees, advisers, consultants, shareholders, agents or other representatives (including, but not limited to, the members of the Committee), or their respective heirs and legal representatives except for the liabilities expressly set forth in this Agreement. 6.3 Benefits payable under this Agreement shall be subject to federal and state income tax and social security tax withholdings and any other withholdings mandated by law and shall be paid out of the general assets of Anteon, and are not required to be funded in any manner, although Anteon in its discretion may set aside amounts in respect of, or fund, benefits payable hereunder. Benefits payable to the Executive will represent an unsecured claim by the Executive against the general assets of Anteon. 6.4 Except to the extent required by law, benefits payable under this Agreement shall not be subject to assignment, alienation, transfer, pledge, levy, attachment, or other legal process or encumbrance by the Executive and any attempt to do so shall be void. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, 12 executors, personal representatives, estates, successors (including, without limitation, by way of merger) and assigns. Notwithstanding the provisions of the immediately preceding sentence, the Employee may not assign all or any portion of this Agreement without the prior written consent of the Company. 6.5 This Agreement shall supersede any and all prior agreements regarding the subject matter hereof, and shall be interpreted and applied in accordance with the laws of the Commonwealth of Virginia (without reference to the rules relating to conflicts of laws), except to the extent superseded by applicable federal laws. Every notice relating to this Agreement shall be in writing and shall be deemed given upon receipt if sent by personal delivery, recognized overnight courier or by certified mail, postage prepaid, return receipt requested, sent to the principal office of the Company, if to the Company, or to the address of the Executive on the records of the Company, if to the Executive (or to such other address as either party may designate in writing to the other party): 6.6 This Agreement replaces and supersedes any other severance policy or similar plan or arrangement in effect prior to the date listed above with respect to the Executive. 6.7 The effectiveness of this Agreement is subject to the receipt of approval of this Agreement by the vote of a majority of the shareholders of Anteon International Corporation, a Delaware corporation. 13 IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement s of the date set forth above. ANTEON CORPORATION By: --------------------------------- By: -------------------------------- Executive 14 Exhibit A NAME OF EXECUTIVE - ----------------- -------------------- Period of Protection Payments: Salary continuation and bonus continuation --- __ months. Medical/Dental and Life Insurance --- __ months. - -------------------------------------------------------------------------------- 15 RELEASE ------- Introduction Various federal, state and local laws and regulations prohibit employment discrimination based upon, among other things, age, sex, race, color, national origin, religion, disability and/or veteran status. These anti-discrimination laws and regulations are enforced through the United States Equal Employment Opportunity Commission, the United States Department of Labor, and various state and local fair employment practices agencies. Other laws and regulations prohibit employers from terminating employees tortiously or wrongfully, in breach of express or implied covenants of good faith and fair dealing, in violation of public policy, or in such a manner as to negligently or intentionally inflict emotional distress. In other situations, employees may have claims against an employer for fraud, misrepresentation or defamation. Eligibility for Extended Compensation Payments under the terms outlined in your agreement with Anteon Corporation (the "Agreement") is contingent upon your signature and delivery of this Release to Anteon Corporation (the "Anteon", which, together with its subsidiaries and affiliates, shall be referred to herein as the "Company"). IF YOU DO NOT SIGN THE RELEASE (OR IF YOU SUBSEQUENTLY REVOKE THE RELEASE), YOU WILL NOT BE ENTITLED TO ANY EXTENDED COMPENSATION PAYMENTS AWARDED UNDER THE AGREEMENT AND WILL HAVE NO RIGHT TO ANY EXTENDED COMPENSATION PAYMENTS AWARDED UNDER THE AGREEMENT. If you breach the terms of your Release, Anteon will be entitled to the return of any Extended Compensation Payments you have received and to reimbursement by you of any counsel fees and expenses incurred by Anteon in enforcing such right of return. 16 Under the terms of this Release, you waive any rights to bring claims against the Company, and all is past and/or present directors, trustees, officers, employees, affiliates, advisers, consultants, shareholders, agents and other representatives (including, but not limited to, the members of the Committee) with respect to employment or other work with Anteon and other matters, except as specifically and expressly allowed by this Release. This is a legally binding document. DO NOT SIGN THIS RELEASE UNLESS YOU THOROUGHLY UNDERSTAND IT. Release Under the Agreement and subject to the terms thereof, in exchange for the Extended Compensation Payments (less the amount necessary to satisfy applicable withholding requirements (the "Benefit Amount")), I hereby acknowledge that my employment with the Company has terminated as of ______________(1) and hereby release the Company and all its past and/or present directors, trustees, officers, employees, stockholders, affiliates, advisers, consultants, agents and other representatives (including, but not limited to, the members of the Committee), successors and assigns, in their individual and/or representative capacities (hereinafter together with the Company collectively referred to as "Anteon Releasees"), from any and all causes of action, suits, agreements, promises, damages, disputes, controversies, contentions, differences, judgments, claims and demands of any kind whatsoever ("Claims") that I or my heirs, executors, administrators, successors and assigns ever had, now have or may have against the Anteon Releasees, whether known or unknown to me, by reason of my employment - -------- (1) If no date is inserted, the date of your execution of this Release shall be deemed to be the date of termination of employment. 17 and/or cessation of employment with the Company, or otherwise involving facts that occurred on or prior to the date that I have signed this Release other than a Claim that Anteon has failed to pay me the Extended Compensation Payments in the amount equal to the Benefit Amount, or so much thereof as shall be payable as provided in the Agreement. Such released Claims include, without limitation, any and all claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Civil Rights Act of 1971, the Civil Rights Act of 1991, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974 ("ERISA"), the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, and any and all other federal, state or local laws, statutes, rules and regulations pertaining to employment, as well as any and all Claims under state contract or tort law. I understand that my receipt of the Extended Compensation Payments will in no way affect any receipt of retirement, savings, vacation, health care or other benefits to which I am entitled as of my termination date under any plans, policies or arrangements of the Company in which I am a participant or in respect of which I am a beneficiary, except as otherwise provided in the Agreement. I understand and agree that I must not disclose the terms of this Release to anyone other than my spouse, my legal counsel and accountants to the extent necessary in order to obtain professional advice, that I must immediately inform my spouse, legal counsel and accountants that they are also prohibited from disclosing the terms of the Release, and that I must not make any derogatory allegations about Anteon Releasees. I further agree to return to the Company any property of the Anteon Releasees that I may have, no matter where located, and not to keep any copies or portions thereof. 18 I represent that I have not filed, and will not hereafter file, any Claim against Anteon Releasees relating to my employment and/or cessation of employment with the Company, or otherwise involving facts that occurred on or prior to the date that I have signed this Release, other than a Claim that Anteon has failed to pay me Extended Compensation Payments in the amount equal to the Benefit Amount or so much thereof as may be payable as provided in the Agreement. I understand and agree that if I am made a member of a class in any proceeding relating to a Claim against any Anteon Releasee, I will opt out of the class at the first opportunity afforded to me after learning of my inclusion. In this regard, I agree that I will execute, without objection or delay, an "opt-out" form presented to me either by the court in which such proceeding is pending or by counsel for any Anteon Releasee who is made a defendant in any such proceeding. I understand and agree that if I commence, continue, join in, or in any other manner attempt to assert any Claim released herein against Anteon Releasees, or otherwise violate the terms of this Release, Anteon shall have a right to the return of all Extended Compensation Payments paid me by Anteon (together with interest thereon), and I shall reimburse Anteon for all counsel fees and expenses incurred by it in defending against such a Claim, provided that this right of return of such Extended Compensation Payments is without prejudice to the Company's other rights hereunder, including any waiver and release of any and all Claims against the Company. I understand and agree that Anteon's payment of Extended Compensation Payments to me and my signing of this Release do not in any way indicate that I have any viable 19 Claims against the Anteon Releasees or that the Anteon Releasees admit any liability to me whatsoever. I have read this Release carefully, have been given at least twenty-one (21) days to consider all its terms, have been advised to consult an attorney and any other advisors of my choice, and fully understand that by signing below I am giving up any right which I may have to sue or bring any other Claims against the Anteon Releasees. I have not been forced or pressured in any manner whatsoever to sign this Release, and I agree to all its terms voluntarily. I have not relied on any representations, promises or agreements of any kind made to me in connection with my decision to accept the Extended Compensation Payments except for those set forth in this Release. I understand that if I wish, I can consider this Release for at least twenty-one (21) days before I decide whether to sign it. I understand and agree that this Release will be governed by Virginia law. I also agree and understand if one or more of these provisions is found to be invalid, illegal or unenforceable, that will not affect any other provisions of this Release. I understand that I have seven (7) days from the date I have signed this Release below to revoke this Release, that this Release will not become effective until the eighth (8th) day following the date that I have signed this Release, and that Anteon will have no obligation to pay me the Protection Payments set forth in the Agreement unless and until this Release becomes effective. - ----------- ------------------------------- Date Employee's Signature EX-21.1 15 a2069486zex-21_1.txt EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY JURISDICTION OF ORGANIZATION - ---------- ---------------------------- Anteon Corporation Virginia Anteon Australia Pty Ltd. Australia Anteon (UK) Ltd. United Kingdom Butler Property Holdings, Inc. Delaware CITI - SIUSS LLC Delaware South Texas Ship Repair, Inc. Virginia
EX-23.2 16 a2069486zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' REPORT AND CONSENT The Board of Directors Anteon International Corporation and Subsidiaries: The audits referred to in our report dated January 31, 2002, included the related financial statement schedule as of December 31, 2001 and 2000, and for each of the years in the three-year period ended December 31, 2001, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP McLean, Virginia February 5, 2002 EX-23.3 17 a2069486zex-23_3.txt EXHIBIT 23.3 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT The Board of Directors Anteon International Corporation and Subsidiaries: We consent to the use in the Form S-1 Registration Statement of Anteon International Corporation of our report dated April 30, 1999 on the consolidated balance sheet of Analysis & Technology, Inc. and Subsidiaries as of March 31, 1999, and the related consolidated statements of earnings, changes in shareholders' equity, and cash flows for the year then ended, and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Providence, Rhode Island February 5, 2002 EX-23.4 18 a2069486zex-23_4.txt EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Anteon International Corporation and Subsidiaries: We consent to the incorporation in Amendment No. 1 to the Registration Statement of Anteon International Corporation on Form S-1 of our report dated February 24, 2000, on our audits of the financial statements of Sherikon, Inc. and Subsidiaries as of December 31, 1998 and 1999 and for the years then ended. KELLER BRUNER & COMPANY, LLP Bethesda, MD February 5, 2002 EX-23.5 19 a2069486zex-23_5.txt EXHIBIT 23.5 EXHIBIT 23.5 INDEPENDENT AUDITORS' CONSENT The Board of Directors Anteon International Corporation and Subsidiaries: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ BASON & COMPANY, P.A. Greensboro, NC February 5, 2002 -----END PRIVACY-ENHANCED MESSAGE-----