-----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, NBYNG768BJzxZB21Xw72LKNHJLd0TmZ0VDFsvBLyKLPePiuBu2AhKaA8NY973NIU OO/4/+EXN7ZTqkK4vhsOzA== 0001163842-03-000038.txt : 20030311 0001163842-03-000038.hdr.sgml : 20030311 20030311165938 ACCESSION NUMBER: 0001163842-03-000038 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030310 FILED AS OF DATE: 20030311 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31258 FILM NUMBER: 03599770 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 10-K 1 fiscal2003.txt 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 Commission File Number: 001-31258 ----------------------- ANTEON INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 13-3880755 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3211 Jermantown Road Fairfax, VA 22030-2801 (Address of Principal Executive Offices) (703) 246-0200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value per share Name of each exchange on which registered: New York Stock Exchange (NYSE) Securities registered pursuant to Section 12(g) of the Act: None ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant (1) is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |_| No |X| The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2002 was $491,132,028 (based on the closing price of $25.28 per share on June 28, 2002, as reported by the New York Stock Exchange- Corporate Transactions). For this computation, the registrant excluded the market value of all shares of its common stock reported as beneficially owned by named executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| There were 34,452,928 shares of common stock outstanding as of February 25, 2003. FORWARD-LOOKING STATEMENTS This Form 10-K includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future projects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, and may also include references to assumptions. These statements are contained in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and other sections of this Form 10-K. Such forward-looking statements include, but are not limited to: o funded backlog; o estimated contract value; o our expectations regarding the Federal government's procurement budgets and reliance on outsourcing of services; and o 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. 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: o changes in general economic and business conditions; o changes in federal government procurement laws, regulations, policies and budgets; o the number and type of contracts and task orders awarded to us; o technological changes; o the integration of acquisitions without disruption to our other business activities; o the ability to attract and retain qualified personnel; o competition; o our ability to retain our contracts during any rebidding process; and o the other factors outlined under "Risk Factors." If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. 1 RISK FACTORS 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: o budgetary constraints affecting federal government spending generally, or specific departments or agencies in particular, and changes in fiscal policies or available funding; o changes in federal government programs or requirements; o curtailment of the federal government's use of technology services firms; o the adoption of new laws or regulations; o technological developments; o federal governmental shutdowns and other potential delays in the government appropriations process; o 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; o competition and consolidation in the information technology industry; and o general economic conditions. These or other factors could cause federal governmental agencies, or prime contractors where we are acting as a subcontractor, 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. EarlyTermination 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 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." 2 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. For the twelve months ended December 31, 2002, approximately 35% of our federal contracts were cost-plus, 37% were time and materials and 28% were fixed price (a substantial majority of which were fixed price level of effort). 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, funding has not been received or costs 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. 3 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, General Services Administration, or "GSA," Schedule contracts and other multiple award and/or Government Wide Acquisition Contracts, 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 various 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: o the Federal Acquisition Regulations, and agency regulations supplemental to the Federal Acquisition Regulations, which comprehensively regulate the formation, administration and performance of government contracts; o the Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with contract negotiations; o the Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-based government contracts; and o 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 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 78% and 69% of our sales for the twelve months ended December 31, 2002 and for the twelve months ended December 31, 2001, respectively. 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. 4 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 filing 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 compete 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 and task orders, 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 and task orders 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 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 adequately 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. There is a risk that we may have disputes with subcontractors concerning a number of issues including the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontractor, our decision not to extend existing task orders or issue new task orders under a subcontract, or our hiring of former personnel of a subcontractor. 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. 5 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 systems 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. There is also a risk that our efforts to hire personnel of our competitors or subcontractors or other persons could lead to claims being asserted against us that our recruitment efforts violate contractual arrangements or are otherwise wrongful. 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 our facilities and some of our employees, to maintain security clearances. If we lose or are unable to obtain required 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 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: o lose future contract opportunities due to receipt of poor past performance evaluations from our customers; o have contracts terminated for default and be liable to our customers for reprocurement costs and other damages; o receive negative publicity, which could damage our reputation and adversely affect our ability to attract or retain clients; and 6 o 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 systems 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 may 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 contract novation agreements with the government, a routinely 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 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. 7 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, (including international operations under U.S. government contracts), we are subject to risks associated with operating in and selling to foreign countries, including: o devaluations and fluctuations in currency exchange rates; o 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; o imposition of limitations on conversions of foreign currencies into dollars; o imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; o compliance with the local labor laws of the countries in which we operate; o hyperinflation or political instability in foreign countries; o potential personal injury to our personnel who may be exposed to military conflict situations in foreign countries; o imposition or increase of investment and other restrictions or requirements by foreign governments; and o 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. Risks related to our capital structure Leverage--Our debt could adversely affect our financial health. As of December 31, 2002, our debt was $105.7 million. You should be aware that this level of debt could have important consequences. Below we have identified some of the material potential consequences resulting from this amount of debt. o We may be unable to obtain additional financing for working capital, capital expenditures, acquisitions and general corporate purposes. o 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. o Our ability to adjust to changing market conditions may be hampered. We may be more vulnerable in a volatile market. 8 Additional Borrowings Available--Despite current debt levels, we and our subsidiaries may still be able to incur substantially more debt. This could further increase 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% senior subordinated notes due 2009, or the "12% Notes," and of our Amended and Restated Credit Agreement, or "Credit Facility," limit but do not prohibit us or our subsidiaries from doing so. As of December 31, 2002, our Credit Facility would have permitted additional borrowings of up to $108.3 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: o the current economic and competitive conditions in the information technology industry; o budgetary constraints affecting federal government spending, and changes in fiscal policies or available funding; o federal government shutdowns and other potential delays in the government appropriations process; o 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; o any operating difficulties, operating costs or pricing pressures we may experience; o the passage of legislation or other regulatory developments that affect us adversely; and o any delays in implementing any strategic projects we may have. If our financial performance declines and 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. 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: o incurring or guaranteeing additional debt; o paying dividends or other distributions to our stockholders or redeeming, repurchasing or retiring our capital stock or subordinated obligations; o making investments; o creating liens on our assets; 9 o issuing or selling capital stock of our subsidiaries; o transforming or selling assets currently held by us; o engaging in transactions with affiliates; and o engaging in mergers or consolidations. The failure to comply with any of these covenants would cause a default under the indenture and our Credit Facility. 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. Item 1. BUSINESS General We are a leading provider of information technology solutions and systems engineering and integration 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 800 U.S. federal government clients, as well as state and foreign governments. For the twelve months ended December 31, 2002, we estimate that approximately 90% 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 have a weighted average term of 8 years. Additionally, we have contracts with an estimated remaining contract value of $4.3 billion as of December 31, 2002. From January 1, 1996 to December 31, 2002, we increased revenues at a compound annual growth rate, or "CAGR," of approximately 34%. Over the same period, revenues grew organically at a 15% compound annual rate (which includes revenue growth from acquired businesses only after the date of acquisition). During 2002, our revenues grew organically at a rate of 16.9%. The Federal Government Technology Services Market The U.S. federal government is the largest single customer for information technology solutions and systems engineering services in the United States. The U.S. federal government technology services market is large and growing, with total expenditures of more than $115.0 billion in the federal government's fiscal year 2002. Government agency budgets for technology services are forecast to grow at least 5% annually through government fiscal year 2005. Government agency budgets for information technology are forecast to grow by 12-14% in 2004, based on the President's requested budget. Additionally, it is anticipated that technology services spending will grow an additional $6.0 billion annually over the next five years in the areas emphasized by the U.S. government's evolving military strategy, including homeland security, missile defense, information security, logistics management systems modernization, weapon systems design improvements and military personnel training. Defense spending is projected to exceed $365.0 billion in fiscal year 2003, a 10% increase over government fiscal year 2002. The President's proposed budget for fiscal year 2004 includes defense spending of $380.0 billion, a 4% increase over fiscal year 2003, and the largest Department of Defense budget in history in actual dollars. Defense budgets are expected to grow by 32% over the next six years, based on the Department of Defense spending plan submitted to Congress. 10 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 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 creates preferred provider relationships with contractors. 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 that are open for any government agency to use for the procurement of services are commonly referred to as 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: o 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 2002, 80% of the federal government's total information technology solutions spending flowed to contractors. By government fiscal year 2007, this rate of outsourcing is projected to increase to 86% of total information technology spending. 11 o 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. o 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. o Increased Spending on National Defense. After years of spending declines, national defense spending is projected to grow substantially over the next five years with the Bush Administration increasing the government's commitment to strengthen the nation's security, defense and intelligence capabilities. This support for increased defense spending has been further reinforced by Congress following the September 2001 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 government is investing in improved homeland security, greater information systems security, more effective intelligence operations, and new approaches to warfare simulation training. Additionally, Congress passed the largest Department of Defense budget (in actual dollars) ever for fiscal year 2003. The President's proposed budget for 2004 defense spending is $380 billion, a 4% increase over fiscal year 2003 and the largest defense budget in actual dollars. o Emphasis on System Modernization. To balance the costs of new initiatives like homeland security 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. Air Force and the U.S. Navy 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 modernization activities. o 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 more targeted, 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, or "NEMIS," an enterprise wide management information system, for the Federal Emergency Management Agency, or "FEMA." This system has been procured in three phases: system definition and design, base system development and deployment, and upgrades to incorporate current web technology. 12 We also are a leading provider of systems engineering and integration 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 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 certain U.S. Navy 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 specially prescribed tasks. Our Service Competencies and Contract Examples The key to our success in both our information technology solutions and systems 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 systems engineering and integration 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. o 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. Following a six-month extension of the initial contract award, in December 2002 we began a new, one year $49 million contract for continued and expanded support. LOCE is 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 was 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. o National Emergency Management Information System. Since early 1995, we have supported the development of the NEMIS system for FEMA through a series of contracts and task orders. The NEMIS program, which is expected to continue at least through December 2003, generated total revenues of approximately $87 million through December 31, 2002. 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 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 growth as FEMA migrates to the Department of Homeland Security and its role as first responder to disasters and terrorist attacks. 13 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. o 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 Department of Defense Traffic 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 Department of Defense 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. o Joint Logistics Warfighting Initiative. 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 contract focused on facilitating the military's logistics transformation and improving military readiness through business process improvements and the insertion of new and emerging technologies. We are providing process re-engineering, system design, and data base integration as we conduct a variety of client directed process and technology experiments and demonstrations. We have developed a proof-of-concept for web enabling the military's legacy logistics systems in order to provide real-time visibility of logistics information on the battlefield (the JLWI Shared Data Environment). Third party independent validation and verification of the JLWI Shared Data Environment reflects that it has already gained significant support through its use by units in the U.S. and in overseas locations like Afghanistan and Kuwait. Government Enterprise Solutions. Our supply chain management, software engineering and integration experience allows 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. o 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 U.S. Postal Service's requirement to serve up to 100,000 employees required the development of a very robust transaction processing application. Modeling, Simulation and 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. o 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, which has been subsequently extended through December 31, 2003, and the second in May 2000, a $20 million three-year contract, which has also been subsequently extended through December 31, 2003, to design, integrate and operate the Simulation Training and Instrumentation Command's most advanced real life urban battlefield training site at Ft. Polk, Louisiana. 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. The system is also designed to control targetry and has the flexibility to support both simulated fire and live fire exercises. We have received orders for six fixed sites to be built throughout the U.S. and in Europe and Korea. In addition, two mobile sites have been ordered for use in Kuwait and Afghanistan. 14 o STRICOM. Since January 2000, we have provided life cycle support for constructive training at 14 U.S. Army Simulation and Training Command Simulation centers worldwide. This eight-year contract has grown from an initial value of $126 million to nearly $350 million, with additional growth anticipated. We have more than 500 personnel supporting this program at more than 50 sites throughout the United States, Germany, Italy and Korea. We provide program management and exercise support for computer-driven and manual battle simulations, including planning, coordination, personnel support, instructional aid development, simulation training, database and scenario development and system integrity. We support a variety of mission specific simulations using highly qualified professionals, certified in all aspects of simulation support, in each of the U.S. Army's Battle Simulation Centers. Healthcare Services. We deliver information technology solutions in healthcare programs for the Department of Defense, Army, Navy, Air Force and Marine Corps. 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. o U.S. Army Medical Department. 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 in 1989 under several contracts, generated revenue of approximately $14 million in the year ended December 31, 2001 and approximately $15 million for the year ended December 31, 2002. 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 and medical research. These services entered into areas of homeland security, domestic medical preparedness and Chemical Biological Radiological Nuclear Defense programs. SYSTEMS ENGINEERING AND INTEGRATION SERVICES Platform and Weapons Systems Engineering Support. We have more than 10 years experience in providing critical systems 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. o Secretary of the Air Force Technical and Analytical Support, or "SAFTAS." In December 2000, we entered into a 15-year contract with the U.S. Air Force to provide technical and analytical support to the Headquarters Air Force and Secretary of the Air Force organizations. Originally estimated at $544 million, the contract is now estimated to have a total 15-year value of $640 million. Our support under this contract generated revenue of approximately $27 million for the year ended December 31, 2001 and approximately $37 million for the year ended December 31, 2002. The contract includes support to the Assistant Secretary of the Air Force for Acquisition, the Joint Strike Fighter Program Office, the Under Secretary for Space, and all of the Program Executive Offices which oversee all aircraft, munitions, space and Command, Control, Computer, Communications, Intelligence, Surveillance and Reconnaissance, or "C4ISR", systems. We provide program, budgetary, policy and legislative analysis, information technology services, systems engineering and technical management services for all major Air Force acquisition programs. We believe that this program, as well as similar programs for the U.S. Navy, will continue to experience growth as the Department of Defense plans for billions of dollars of system upgrades over the next decade. 15 Missile Defense. We have more than a decade of experience in missile defense programs. We provide long-range planning, threat assessment, systems engineering and integration, acquisition support services and program management services. o 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 and technical support to the TBMD program. 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 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 Missile Defense Agency 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 this objective includes the following. o 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 three of the four 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. o Capitalize on Increased Emphasis on Information Security, Homeland Security and Intelligence. The Department of Defense budget includes a 12% increase in projected spending for government fiscal year 2003. The President's proposed Department of Defense budget for the government's fiscal year 2004 represents a 4% increase over the government's fiscal year 2003 budget. 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. o 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 for 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. o 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. 16 History and Organization In April 1996, we acquired all of the outstanding capital stock of our predecessor corporation, Anteon International Corporation (then known as Ogden Professional Services Corporation), a Virginia corporation, which we refer to in this filing as "Anteon Virginia." In connection with the acquisition we 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 operating subsidiary, and was in turn renamed Anteon Corporation. As a result, we then owned approximately 99% of Anteon Virginia and Anteon Virginia owned 100% of Anteon Corporation (formerly Techmatics). On March 15, 2002, we entered into certain reorganization transactions in connection with our initial public offering, 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" is borne solely by a single Delaware corporation, which is the direct 100% parent company of Anteon Corporation (formerly Techmatics). For a diagram illustrating these transactions, please see "Certain Relationships-Reorganization Transactions." 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, exceeded our synergy expectations, added to our technical capabilities and expanded our customer reach. The acquired businesses and their roles within our service offerings are summarized in the table below.
Revenues prior to Year Target Business Description acquisition(1) ($ in millions) 1997 Vector Data Intelligence collection, exploitation, and dissemination systems $ 35.6 1998 Techmatics Surface ship and combat systems and ballistic missile defense 56.7 program management 1999 Analysis & Undersea ship and combat systems, acoustical signal processing, 170.4 Technology modeling and simulation, information technology systems and software design 2000 Sherikon Military healthcare services systems, networking and 62.7 communications systems 2001 SIGCOM Training Training simulation systems and services 12.5 - ------------------------------------ (1) Consolidated revenue of target for its most recently completed fiscal year ended 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 systems 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 systems 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 military healthcare delivery system. In July 2001 we acquired the training division of SIGCOM, Inc. 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. 17 Existing Contract Profiles We currently have a portfolio of more than 450 active contracts. Our contract mix for the year ended December 31, 2002 was 35% cost-plus contracts, 37% time and materials contracts and 28% fixed price contracts (a substantial majority of which were firm fixed price level of effort). 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 may 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 may generate more or less than the targeted amount of profit or 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 1998 1999 2000 2001 2002 Cost-Plus................................. 34% 37% 41% 37% 35% Time and Materials........................ 47% 38% 31% 34% 37% Fixed Price............................... 19% 25% 28% 29% 28%
Our contract mix changes from year to year depending on the contract mix of companies we acquire, as well as our efforts to obtain more time and materials and fixed price work. 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 award contract or task order accounted for more than 5.5% of our total 2002 revenue. Government Wide Acquisition Contracts. We are a leading supplier of information technology services under GWACs, and a prime contractor for three of the four largest GWACs for information technology services as measured by overall contract ceiling value. 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 systems engineering program support and infrastructure management. We have been awarded over 365 task orders to date, with an annualized revenue run rate as of the fourth quarter of fiscal 2002 of approximately $118 million. We are the number one contractor among the 10 ANSWER prime contractors in terms of revenue. Our total estimated contract value for this contract is $1 billion over ten years. Listed below are the four largest GWACs.
Owning Period of Contract Ceiling Contract Name Agency Performance Value Role ANSWER GSA 1998 - 2008 $25 billion Prime Millenia GSA 1999 - 2009 $25 billion Subcontractor Millenia Lite GSA 2000 - 2010 $20 billion Prime CIO-SP II NIH 2000 - 2010 $20 billion Prime 18
Listed below are our top programs by 2002 revenue, including single award and multiple award contracts. We are a prime contractor on each of these programs.
Top Programs by 2002 Revenue ($ in millions) Estimated Remaining Contract Contract Contract Customer Period of Performance 2002 Revenue Value Type ANSWER GSA 1/1/99-12/31/08 $ 118.4 $ 758.0 T&M/FFP GSA SCHEDULE & BPAs GSA 10/30/96-10/09/07 99.0 497.8 T&M/FFP BICES Umbrella Department of Defense 6/01/99-5/31/03 38.8 13.1 CP SAFTAS U.S. Air Force 1/01/01-12/31/16 37.4 478.9 CP GSA-PES GSA 5/01/00-2/08/06 36.9 14.6 T&M/FFP Carrier BPA U.S. Navy 3/10/97-12/31/03 26.3 23.4 FFP MOUT-IS Army/STRICOM/Training 7/03/97-6/30/02 16.0 5.2 FFP HM&E Combat Support U.S. Navy 12/15/97-6/30/03 15.4 4.9 CP GSA PES Contract GSA 1/06/00-1/05/05 13.4 249.0 T&M/FFP GSA IT TDPI BPA Department of Treasury ------------------------------ 8/27/97-10/10/02 11.6 59.2 T&M/FFP
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 24.6% of our total direct costs result from work 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, 2002, our total estimated contract value was $4.3 billion, of which $418 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. 19
ESTIMATED CONTRACT VALUE Unfunded Contract Total Estimated As of December 31, Funded Backlog Value Contract Value (in millions) 2002 $ 418 $ 3,868 $ 4,286 2001 309 3,217 3,526 2000 308 2,560 2,868 1999 195 1,925 2,121 1998 128 438 566 1997 100 242 342 - -------------------------------------------------------------------------------------------------------------------
From December 31, 2000 to December 31, 2002, our estimated contract value increased at a 49.4% 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 existing 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. Customers We provide information technology and systems 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. For the twelve months ended December 31, 2002, the federal government accounted for approximately 96% of our total revenues. International and state and local governments provided the remaining 4%. Our largest customer group is the U.S. Navy, which management believes accounted for approximately 40% of revenues during the twelve months ended December 31, 2002, 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 has 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 systems engineering services industries are comprised of a large number of enterprises ranging from small, niche-oriented companies to multi-billion dollar corporations with a major presence throughout the federal government. Because of the diverse requirements of federal government clients and the highly competitive nature of large federal contracting initiatives, corporations frequently form teams to pursue contract opportunities. Prime contractors leading large proposal efforts select team members on the basis of their relevant capabilities and experience particular to each opportunity. As a result of these circumstances, companies that are competitors for one opportunity may be team members for another opportunity. 20 We frequently compete against well-known firms in our 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 As of December 31, 2002, we employed approximately 5,800 employees, 85% of whom were billable and 82% of whom held security clearances. Our workforce is well educated and experienced in the defense and intelligence sectors. Functional areas of expertise include systems engineering, computer science, business process reengineering, logistics, transportation, materials technologies, avionics and finance and acquisition management. Nearly half of our employees provide 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. Available Information Our internet address is www.anteon.com. We make available free of charge through our internet site, via a hyperlink to the 10KWizard.com web site, our annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, or the "Exchange Act," as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Item 2. Properties Our headquarters are located in leased facilities in Fairfax, Virginia. In total, we lease approximately 1.2 million square feet of office, shop and warehouse space in over 90 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. Item 3. Legal Proceedings We are involved in various legal proceedings in the ordinary course of business. On March 8, 2002, we received a letter from one of our principal competitors, which is the parent company of one of our subcontractors, claiming that we had repudiated our obligation under a subcontract with the subcontractor. The letter also alleged that we were soliciting employees of the subcontractor in violation of the subcontract and stated that the subcontractor would seek arbitration, injunctive relief and other available remedies. The subcontractor filed a demand for arbitration to which we filed an answer and counter demand. The arbitration hearing concluded on September 16, 2002. On December 18, 2002, the arbitrator issued a decision requiring us to continue to issue task orders to the subcontractor under the subcontract for so long as our customer continues to issue task orders to us for these services and enjoining us from interviewing, offering employment to, hiring or otherwise soliciting employees of the subcontractor who work on this particular project. The arbitrator's decision also denied the subcontractor's claim for monetary damages and our counter-demand. We subsequently filed an action to vacate or modify that portion of the arbitrator's decision enjoining us from hiring certain subcontractor employees under any circumstances, since the prohibition conflicts with the parties' contractual obligations as provided in the non-solicitation clause of the parties' subcontract, and imposes additional obligations solely on us and to which the parties never agreed. The subcontractor has filed an action to confirm the arbitration award. On February 21, 2003, the court heard oral argument on the parties' respective motions and a decision is pending. 21 We cannot 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. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2002, through the solicitation of proxies or otherwise. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Our common stock has been publicly traded on the New York Stock Exchange, or the "NYSE," since March 11, 2002. The following table sets forth the high and low sale price per share of our common stock during the twelve months ended December 31, 2002 as reported by the NYSE. 2002 Quarter Ended High Low --------------------- ---------- ------------ March 31 * $ 21.85 $ 19.25 June 30 $ 26.75 $ 20.10 September 30 $ 28.26 $ 18.90 December 31 $ 29.35 $ 19.40 *Trading commenced on March 11, 2002 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 the provisions of Delaware law and covenants in our Credit Facility and the indenture governing our 12% Notes. As of February 25, 2003, the number of stockholders of record of our common stock was approximately 96. Recent Sales of Unregistered Securities Below is a summary of transactions by us during 2002 involving sales of our securities that were not registered under the Securities Act. a) Between January 1, 2002 and February 1, 2002, Anteon Virginia issued 71,840 shares of common stock upon the exercise of options to some of its then current and former employees at a weighted average exercise price of $5.7193 per share. This share and price data does not give effect to the 2,449.95-1 split of our outstanding common stock effected on February 19, 2002. b) On February 19, 2002, we issued approximately 23,786,565 shares of common stock to our existing stockholders upon the split of 9,709 outstanding shares, on the basis of 2,449.95 shares for each outstanding share. c) Prior to the consummation of our initial public offering on March 15, 2002, we issued 174,152 shares of common stock to some of the selling stockholders in that offering upon the exercise of outstanding stock options at a weighted average exercise price of $1.38 per share. 22 d) Immediately prior to the consummation of our initial public offering, we issued approximately 28,595,917 shares of common stock and 28,595,917 rights to purchase shares of our Series A Preferred Stock in connection with the merger of Anteon Virginia with and into us. The issuances listed above were 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. Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2002 regarding compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
(a) (b) (c) Number of securities Number of securities remaining available for to be issued upon Weighted-average exercise future issuance under equity exercise of price of outstanding compensation plans outstanding options, options, warrants and (excluding securities Plan category warrants and rights rights reflected in column (a)) Equity compensation plans approved by security holders 4,123,208 $ 8.98 801,040 Equity compensation plans not approved by security holders -- -- -- Total 4,123,208 $ 8.98 801,040 ===================================================================================================================
Use of Proceeds We consummated an initial public offering of our common shares, or "IPO," on March 15, 2002. The use of proceeds from our IPO is described in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the notes to our consolidated financial statements appearing elsewhere in this filing. Item 6. Selected 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, 2002, 2001, 2000, 1999 and 1998. 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 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 consolidated financial data presented below in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," Item 1. "Business" and our financial statements and the related notes thereto appearing elsewhere in this filing. 23
Year ended December 31, 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- (in thousands, except per share data and percentage) Statements of operations data: Revenues........................................ $ 249,776 $ 400,850 $ 542,807 $ 715,023 $ 825,826 Costs of revenues............................... 21,588 353,245 474,924 627,342 711,328 -------------- -------------- ------------ ------------- ------------- Gross profit.................................... 28,188 47,605 67,883 87,681 114,498 General and administrative expenses, including acquisition related costs........... 15,401 27,926 28,592 51,442 48,197 Amortization of non-compete agreements.......... 530 909 866 349 -- Goodwill amortization........................... 1,814 3,440 4,714 6,704 1,907 Other intangibles amortization.................. -- -- 2,673 2,321 -- Operating income ............................... 10,443 15,330 21,038 26,865 64,394 Other Income.................................... -- -- -- -- 417 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........................................ 6,893 18,230 26,513 26,872 17,394 Minority interest in (earnings) losses of subsidiaries.................................. (26) (39) 32 (38) (18) -------------- -------------- ------------ ------------- ------------- Income (loss) before provision for (benefit from) income taxes and extraordinary loss.......................................... 3,524 (354) (5,443) 4,001 47,399 Provision for (benefit from) income taxes......................................... 1,852 710 (153) 4,413 18,374 -------------- -------------- ------------ ------------- ------------- Income (loss) before extraordinary gain (loss).................................... 1,672 (1,064) (5,290) (412) 29,025 Extraordinary gain (loss), net of.......... -- (463) -- 330 (2,581) -------------- -------------- ------------ ------------- ------------- Net income (loss).......................... $ 1,672 $ (1,527) $ (5,290) $ (82) $ 26,444 ============== ============== ============ ============= ============= Basic earnings (loss) per common share: Income (loss) before extraordinary gain (loss).............................. $ 0.07 $ (0.04) $ (0.22) $ (0.02) $ 0.90 Extraordinary gain (loss), net of tax.............. -- (0.02) -- 0.01 (0.08) -------------- --------------- ------------ ------------- ------------- Net income (loss).......................... $ 0.07 $ (0.06) $ (0.22) $ ( 0.01) $ 0.82 ============== ============== ============ ============= ============ Weighted average shares outstanding....... 23,591 23,785 23,787 23,787 32,163 Diluted earnings (loss) per common share: Income (loss) before extraordinary gain (loss).............................. $ 0.07 $ (0.04) $ (0.22) $ (0.02) $ 0.85 Extraordinary gain (loss), net of -- (0.02) -- 0.01 (0.07) tax.............. -------------- -------------- ------------ ------------- ------------- Net income (loss).......................... $ 0.07 $ (0.06) $ (0.22) $ (0.01) $ 0.78 ============== ============== ============ ============= ============= Weighted average shares outstanding........ 23,591 23,785 23,787 23,787 34,022 Other data: EBITDA (a)..................................... $ 15,869 $ 25,978 $ 36,349 47,357 $ 70,994 EBITDA margin (b)............................. 6.4% 6.5% 6.7% 6.6% 8.6% Cash flow from (used in) operating activities.......... $ (8,503) $ 11,767 $ 17,101 37,879 $ 1,278 Cash flow from (used in) investing activities.......... (35,388) (111,672) (28,912) (1,707) (1,423) Cash flow from (used in) financing 43,396 100,957 12,036 (35,676) 2,481 activities.......... Capital expenditures............................ 2,089 4,761 6,584 2,181 3,225 Balance sheet data (as of December 31): Current assets.................................. 73,557 $ 118,583 $ 148,420 144,418 208,396 Working capital................................. 33,857 48,818 56,841 27,559 80,390 Total assets.................................... 136,544 278,691 324,423 306,651 364,692 Long-term debt, including current portion............. 90,851 212,301 237,695 202,905 105,701 Net debt (c).................................... 84,721 211,092 236,261 200,975 101,435 Stockholders' equity (deficit).................. 5,603 3,672 (1,576) (3,442) 128,829
24 (a) "EBITDA", as defined, represents income before income taxes, plus depreciation, amortization and net interest expense. EBITDA is a supplemental 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, "GAAP"). We believe that EBITDA is a useful supplement to net income and other income statement data because it is used by some investors in understanding and measuring a company's cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, all companies do not calculate EBITDA in the same manner, and as a result, 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, 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ($ in thousands) Income (loss) before provision for (benefit from) income taxes and extraordinary gain (loss).............................................. $ 3,524 $ (354) $ (5,443) $ 4,001 $ 47,399 Interest expense.................................... 6,893 18,230 26,513 26,872 17,394 Depreciation and amortization....................... 5,452 8,102 15,279 16,484 6,201 ---------- ----------- ---------- ----------- ---------- EBITDA.............................................. $ 15,869 $ 25,978 $ 36,349 $ 47,357 $ 70,994 ========== =========== ========== =========== ========== Income (loss) before extraordinary gain (loss) margin 0.7% (0.3%) (1.0%) (0.1%) 3.5% EBITDA margin (b) 6.4% 6.5% 6.7% 6.6% 8.6%
(b) EBITDA margin represents EBITDA calculated as a percentage of total revenues. (c) Net debt represents total indebtedness less cash and investments in marketable securities. 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion in conjunction with Item 6. "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this filing. Some of the statements in the following discussion are forward-looking statements. See "Forward-Looking Statements." General We provide information technology solutions and systems engineering and integration 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 800 U.S federal government clients, as well as state and foreign governments. For the year ended December 31, 2002, we estimate that approximately 90% of our revenue was from contracts where we were the lead, or "prime," contractor. We provide our services under long-term contracts that have a weighted average term of eight years. We have obtained ISO 9001 registration for our quality management systems at key facilities 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. No single award contract or task order accounted for more than 5.5% of revenues for the year ended December 31, 2002. Description of Critical Accounting Policies Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities and the 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. On an ongoing basis, management evaluates its estimates including those related to uncollected accounts receivable and other contingent liabilities, revenue recognition and goodwill and other intangible assets. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable at the time the estimates are made. Actual results may differ from these estimates under different assumptions or conditions. Management believes that our critical accounting policies which require more significant judgments and estimates in the preparation of our consolidated financial statements are revenue recognition, costs of revenues, goodwill impairment, long-lived assets and identifiable intangible asset impairment and business combinations. Revenue Recognition During the twelve months ended December 31, 2002, we estimate that approximately 98% of our revenues were derived from services and approximately 2% 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 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 cost-plus award fee type contracts, we recognize the expected fee to be awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding our performance, including any interim performance evaluations rendered by the customer. Revenues are recognized under substantially all fixed price contracts based on the percentage-of-completion basis, using the cost-to-cost method for all services provided. For non-service related fixed price contracts, revenues are recognized as units are delivered (the units-of-delivery method). 26 We recognize revenues under our federal government contracts when a contract is executed, the contract price is fixed and determinable, delivery of the services or products has occurred, the contract is funded and collectibility of the contract price is considered probable. Our contracts with agencies of the federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the term of the contract as the services are provided. From time to time we may proceed with work based on customer direction pending finalization and signing of contractual funding documents. We have an internal process for approving any such work. All revenue recognition is deferred during periods in which funding is not received. Costs incurred during such periods are deferred if the receipt of funding is assessed as probable. In evaluating the probability of funding being received, we consider our previous experiences with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program. If funding is not assessed as probable, costs are expensed as they are incurred. We recognize revenues under our federal government contracts based on allowable contract costs, as mandated by the federal government's cost accounting standards. The costs we incur under federal government contracts are subject to regulation and audit by certain agencies of the federal government. Contract cost disallowances resulting from government audits have not historically been significant. 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, provide services 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 37% time and materials, 35% cost-plus and 28% fixed price (a substantial majority of which are firm fixed price level of effort) during the twelve months ended December 31, 2002. The contract mix 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 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%. We maintain reserves for uncollectible accounts receivable which may arise in the normal course of business. Historically, we have not had significant write-offs of uncollectible accounts receivable. However, we do perform work on many contracts and task orders, where on occasion, issues may arise, which would lead to accounts receivable not being fully collected. Costs of Revenues 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, worker'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 to be unallowable under the Federal Acquisition Regulations cannot be allocated to projects. Our principal unallowable costs are interest expense, amortization expense for goodwill (prior to the adoption of SFAS No. 142 in January 2002), amortization expense for separately identified intangibles from acquisitions, certain general and administrative expenses and, prior to our initial public offering, management fees paid to Caxton-Iseman Capital, Inc., an affiliate of our principal stockholders. 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. 27 Goodwill Impairment Goodwill relating to our acquisitions represents the excess of cost over the fair value of net tangible and separately identifiable intangible assets acquired. For acquisitions completed prior to July 1, 2001, and until the adoption of SFAS No. 141 and SFAS No. 142 on January 1, 2002, goodwill was amortized on a straight-line basis over periods ranging from twenty to thirty years. Determination of the amortization period was dependent on the nature of the operations acquired. Effective January 1, 2002, we adopted SFAS No. 142, and no longer amortize goodwill, but rather test for impairment of our goodwill at least annually using a fair value approach. As of June 30, 2002, we had identified our reporting units, allocated our assets and liabilities, including goodwill, to reporting units and compared the carrying value of the reporting units to their estimated fair values using a discounted cash flow approach in performing the transitional impairment analysis required under SFAS No. 142. There was no indication of goodwill impairment as a result of the transitional impairment analysis. As of September 30, 2002, we performed our annual goodwill impairment analysis required under SFAS No. 142. We applied the same methodology described above in performing our annual impairment test and we noted there was no indication of goodwill impairment for any reporting unit. We will perform our annual impairment test as of September 30, each year unless circumstances indicate that an impairment test should be performed sooner. If we are required to record an impairment charge in the future, it would have an adverse non-cash impact on our results of operations. Long-Lived Assets and Identifiable Intangible Asset Impairment Long-lived assets and identifiable intangible assets, excluding goodwill, are evaluated for impairment when events occur that suggest that such assets 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. None of these events occurred for the period ended December 31, 2002. We determine if an impairment has occurred based on a comparison of the carrying amount of such assets 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 assets exceeds their estimated fair value, as determined by an analysis of discounted cash flows using a discounted interest rate based on our cost of capital and the related risks of recoverability. In evaluating impairment, we consider, among other things, our ability to sustain our current financial performance on contracts and tasks, our access to and penetration of new markets and customers and the duration of, and estimated amounts from, our contracts. Any uncertainty of future financial performance is dependent on the ability to maintain our customers and the continued funding of our contracts and tasks by the government. Over the past four years, we have been able to win the majority of our contracts that have been recompeted. In addition, we have been able to sustain financial performance through indirect cost savings from our acquisitions, which have generally resulted in either maintaining or improving margins on our contracts and tasks. If we are required to record an impairment charge in the future, it would have an adverse impact on our results of operations. Business Combinations Subsequent to January 1, 2002 and for business combinations occurring after June 30, 2001, we apply the provisions of SFAS No. 141, Business Combinations, whereby the net tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their estimated fair market values at the acquisition date. The purchase price in excess of the estimated fair market value of the net tangible and separately identifiable intangible assets acquired represents goodwill. The allocation of the purchase price related to our business combinations involves significant estimates and management judgement that may be adjusted during the allocation period, but in no case beyond one year from the acquisition date. Costs incurred related to successful business combinations are capitalized as costs of business combinations, while costs incurred by us for unsuccessful or terminated acquisition opportunities are expensed when we determine that such opportunities will no longer be pursued. Costs incurred related to anticipated business combinations are deferred. 28 Statements of Operations The following is a description of certain line items from our consolidated statement of operations. Costs of revenues include direct labor and fringe costs for program personnel and direct expenses incurred to complete contracts and task orders. Costs of revenues also include 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 accruals. Amortization expenses relate to the costs associated with goodwill (prior to our adoption of SFAS No. 142 on January 1, 2002) and intangible assets from our acquisitions. These intangible assets represent the fair value assigned to employee workforce as part of our acquisitions of A&T and Sherikon (prior to our adoption of SFAS No. 141 on January 1, 2002) and contract backlog as part of our acquisitions of A&T, Sherikon and SIGCOM. 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 and our Credit Facility, our subordinated notes payable and subordinated convertible promissory notes held by our stockholders prior to their repayment or conversion in connection with our IPO, and other miscellaneous interest costs. In addition, approximately $1.9 million of interest expense for the twelve months ended December 31, 2002 relates to the recognition of previously unrecognized losses related to the termination of approximately $30.0 million in interest rate swaps. Other income is from non-core business items such as gains on the sales and closures of businesses and investments. Backlog Each year a significant portion of our revenue is derived from existing contracts with our government clients, and a portion of the 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 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 by approximately $760.0 million, from $3.5 billion as of December 31, 2001, to $4.3 billion at December 31, 2002, of which approximately $418.2 million was funded backlog as of December 31, 2002. Funded backlog increased approximately $108.7 million to $418.2 million at December 31, 2002 from $309.5 million 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 for 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 are 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 obligated and released for payment by the customer . In most cases, the government is in the process of funding the contract or tasks and requests that we continue work to avoid disruptions to the project. Historically, we have not recorded any significant write-offs because funding was not ultimately received. 29 Acquisitions, Divestitures and Business Closures In 1996, we were formed by 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." 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 $36.5 million to Ogden, including transaction costs. The acquisition was accounted for using the purchase method of accounting. The following table summarizes our acquisitions, divestitures and business closures.
Revenues for the most recently completed twelve month period ended prior Name Status Acquisition Date to acquisition (in thousands) ACQUISITIONS Vector Data Systems........... Acquired August 1997 $ 35,600 Techmatics.................... Acquired May 1998 56,700 Analysis & Technology......... Acquired June 1999 170,400 Sherikon...................... Acquired October 2000 62,700 SIGCOM Training............... Acquired July 2001 12,500
Revenues for the twelve months ended prior to Name Status Divestiture/Closure Date divestiture/closure (in thousands) DIVESTITURES/CLOSURES CITE Sold June 2001 $ 2,411 IMC Sold July 2001 21,710 DisplayCheck.................. Sold April 2002 270 STSR Closed December 2001 3,427
Acquisitions 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 systems 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. 30 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. We issued $7.5 million principal amount subordinated promissory notes to former shareholders of Sherikon of which $2.5 million remains outstanding. On October 18, 2002, we asserted an indemnification claim against the former shareholders of Sherikon in an aggregate amount exceeding the $2.5 million promissory note. We are treating this indemnification claim as a set off against the $2.5 million promissory note obligation. The acquisition was accounted for using the purchase method of accounting. 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 $11.0 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, U. S. Marine Corps, U. S. 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 totaled $1.0 million for the twelve 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. We do not intend to make any additional investment in developing or enhancing the existing software. 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 for 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 for the twelve months ended December 31, 2001, was approximately $3.5 million. 31 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. On April 3, 2002, we sold principally all of the assets and transferred certain liabilities of the business for an aggregate purchase price of $200,000. South Texas Ship Repair--Through our acquisition of Sherikon in October 2000, we acquired South Texas Ship Repair, or "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 of $3.3 million. For the twelve months ended December 31, 2001, 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 we incurred a number of expenses as discussed below, the impact of the amortization and reclassification principles of SFAS No.142 relating to goodwill and certain intangible assets (discussed below) and the impact of our initial public offering in March 2002. 32 The following table sets forth our consolidated results of operations based on the amounts and percentage relationship of the items listed to revenues during the period shown:
Twelve Months Ended ------------------------------------------------------------------------------------------------ December 31, 2002 2001 2000 (in thousands, except percentages) Revenues $ 825,826 100.0% $ 715,023 100.0% $ 542,807 100.0% Cost of Revenues........... 711,328 86.1 627,342 87.7 474,924 87.5 Gross Profit............... 114,498 13.9 87,681 12.3 67,883 12.5 Costs and expenses.......... General and administrative. 48,197 5.8 51,442 7.2 38,592 7.1 Amortization(1)............ 1,907 0.3 9,374 1.3 8,253 1.5 Total Operating Expenses 50,104 6.1 60,816 8.5 46,845 8.6 Income from operations........ 64,394 7.8 26,865 3.8 21,038 3.9 Interest expense, net......... 17,394 2.1 26,872 3.8 26,513 4.9 Other (income) expense, net... (417) -- (4,046) (0.6) -- -- Income before taxes and minority interest........ 47,417 5.7 4,039 0.6 (5,475) (1.0) Provision (benefit) for income taxes.................... 18,374 2.2 4,413 0.6 (153) -- Minority interest............. (18) -- (38) -- 32 -- Income (loss) before extraordinary items 29,025 3.5 (412) (0.1) (5,290) (1.0) Extraordinary gain (loss) on early extinguishment of debt, net of tax......... (2,581) (0.3) 330 -- -- -- Net income (loss)............. $ 26,444 3.2% $ (82) 0.0% $ (5,290) (1.0)%
(1) Includes amortization of non-compete agreements, amortization of contract backlog intangibles and for 2000 and 2001, before the adoption of SFAS No. 142, goodwill amortization and amortization of employee workforce intangibles. 2002 compared with 2001 Revenues For the twelve months ended December 31, 2002, revenues increased to $825.8 million, or 15.5%, from $715.0 million for the twelve months ended December 31, 2001. The increase in revenues was attributable to organic growth and the full year 2002 impact of the acquisition of SIGCOM Training in July, 2001. This increase was offset in part by the sale of the commercial business of IMC on July 20, 2001. IMC's 2001 revenue for the commercial division was $11.7 million through the sale date. For the twelve months ended December 31, 2002, our organic growth was 16.9%, or $119.2 million, excluding the impact of acquired, closed or sold businesses. The increase in our organic growth was primarily attributable to growth in contracts for the development of information technology, communications systems for the intelligence community, training, modeling and simulation across our Department of Defense customer base, support for U.S. Navy programs and support for U. S. Air Force acquisition and operations. 33 Costs of Revenues For the twelve months ended December 31, 2002, costs of revenues increased by $84.0 million, or 13.4%, to $711.3 million from $627.3 million for the twelve months ended December 31, 2001. For the twelve months ended December 31, 2002, costs of revenues as a percentage of revenues decreased to 86.1% from 87.7% for the twelve months ended December 31, 2001. The costs of revenues increase was due primarily to the corresponding growth in revenues resulting from organic growth and our acquisition of SIGCOM Training. The gross margin increased from 12.3% for the twelve months ended December 31, 2001 to 13.9% for the twelve months ended December 31, 2002, primarily due to reductions in overhead expenses and depreciation. Depreciation decreased from $7.1 million in 2001 to $4.3 million in 2002. Most of the decrease was due to the curtailment of operations of CITI-SIUSS LLC in 2001 and completion of the remaining software depreciation during the first half of 2001. General and Administrative Expenses For the twelve months ended December 31, 2002, general and administrative expenses decreased $3.2 million, or 6.3%, to $48.2 million from $51.4 million for the twelve months ended December 31, 2001. General and administrative expenses for the twelve months ended December 31, 2002, as a percentage of revenues, decreased to 5.8% from 7.2%. Excluding certain items from the twelve months ended December 31, 2001, as outlined below, and the impact of businesses sold or closed (described above), general and administrative expenses as a percentage of revenue would have been 6.3% of our revenues for the twelve months ended December 31, 2001. Certain items totaling $6.6 million that were incurred in the twelve months ended December 31, 2001, but were not incurred in the twelve months ended December 31, 2002, 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, management fees of $1.0 million paid to Caxton-Iseman Capital, Inc., 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 in the first quarter of 2001 for matters relating to a dispute with a former subcontractor, and a $181,000 severance charge relating to the termination of a former A&T executive. 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 2001, including IMC, CITE, DisplayCheck and STSR. Amortization For the twelve months ended December 31, 2002, amortization expenses decreased $7.5 million, or 79.7 %, to $1.9 million from $9.4 million for the twelve months ended December 31, 2001. Amortization as a percentage of revenues was 1.3% for the twelve months ended December 31, 2001. The decrease in amortization expenses was primarily attributable to the adoption of SFAS No. 142 as of January 1, 2002, which eliminated further amortization of goodwill. In addition, for the twelve months ended December 30, 2001, we wrote off $1.0 million in goodwill associated with the closure of STSR in 2001. See the notes to our consolidated financial statements, included elsewhere in this filing. Operating Income For the twelve months ended December 31, 2002, operating income increased $37.5 million, or 139.7%, to $64.4 million from $26.9 million for the twelve months ended December 31, 2001. Operating income as a percentage of revenues increased to 7.8% for the twelve months ended December 31, 2002 from 3.8% for the twelve months ended December 31, 2001. Absent the $6.6 million of expenses for the twelve months ended December 31, 2001 described in the general and administrative expenses section above, the $1.0 million for the write-off of goodwill as a result of the closure of STSR, assuming the allocation and amortization principles of SFAS No. 141 and SFAS No. 142 had been in effect as of January 1, 2001, assuming the elimination of our sold or closed operations, and including the operating results of SIGCOM Training for fiscal 2001, our operating income would have been $39.8 million for the twelve months ended December 31, 2001, and our operating margin would have been 5.6%. 34 Interest Expense, Net For the twelve months ended December 31, 2002, interest expense, net of interest income, decreased $9.5 million, or 35.3%, to $17.4 million from $ 26.9 million for the twelve months ended December 31, 2001. The decrease in interest expense was due primarily to a reduction in our debt as a result of our initial public offering in March 2002, which generated $75.2 million in net cash, and the conversion of our $22.5 million subordinated convertible promissory note held by Azimuth Tech. II LLC, one of our principal stockholders. In addition, interest expense decreased as a result of lower borrowing rates in 2002 compared with 2001. The decrease in interest expense was offset in part by the recognition of previously unrecognized losses of $1.9 million related to the termination of $30.0 million of interest rate swap agreements. Other Income For the twelve months ended December 31, 2002, other income decreased $3.6 million, to $417,000, from $4.0 million for the twelve months ended December 31, 2001. Other income for the twelve months ended December 31, 2002 included a gain on the sale of DisplayCheck assets and receipt of insurance proceeds for misappropriated equipment previously recorded as a loss. Other income for the twelve months ended December 31, 2001 was comprised primarily of gains on sales and closure of businesses of $4.0 million. Gains on sales and closure of businesses consisted of a $100,000 gain on the sale of CITE's assets and $487,000 representing the remaining minority interest as of the date of curtailment of operations of CITI-SIUSS, LLC. In addition, for the twelve months ended December 31, 2001, we sold IMC as discussed above, resulting in a gain of $3.5 million. Provision For Income Taxes Our effective tax rate for the twelve months ended December 31, 2002 was 38.8%, compared with 110.3% for the twelve months ended December 31, 2001, due primarily to a reduction in non-deductible goodwill amortization expense as a result of the implementation of SFAS No. 142 as of January 1, 2002. 2001 Compared with 2000 Revenues For the twelve months ended December 31, 2001, revenues increased to $715.0 million, or 31.7%, from $542.8 million for the twelve months ended December 31, 2000. The increase in revenues was attributable to organic 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 months ended December 31, 2001, organic growth was 21.0%, or $110.9 million. This growth was driven in part by the expansion of work on several large contracts with the U.S. Army, FEMA, 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 $68.7 million in revenue during the twelve month period ended December 31, 2001, which was an increase of $53.5 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 organic 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 $61.4 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. 35 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 $3.9 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, $497,000 in related legal fees incurred during the first quarter of 2001 for matters relating to a dispute with a former subcontractor (see Note 16(c) to our historical consolidated financial statements included elsewhere in this filing); 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 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 expense, 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 closure of STSR in 2001. These amounts were offset by a $500,000 decrease in non-compete amortization and a $859,000 increase 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. 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 twelve months ended December 31, 2000. Absent $6.6 million of expenses detailed in general and administrative expenses, $1.0 million for the write-off of goodwill as a result of the closure of STSR, assuming the allocation and amortization principles of SFAS No. 142 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 $39.8 million for the twelve month period ended December 31, 2001 and our operating margin would have been 5.6%. 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 prior credit facility. 36 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 of 2001 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-SIUSS, LLC. Upon cessation of the operations of CITI-SIUSS, LLC there were no excess proceeds available to us or the minority interest. Accordingly, the remaining minority interest was written off to other income. Provision for Income Taxes 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%. Liquidity and Capital Resources Cash Flow for the Twelve Months Ended December 31, 2002 and 2001 We generated $1.3 million in cash from operations for the twelve months ended December 31, 2002. By comparison, we generated $37.9 million in cash from operations for the twelve months ended December 31, 2001. The reduced level of cash from operations for the twelve months ended December 31, 2002 was primarily the result of an increase in contract receivables created by an upgrade of software systems and procedures by two government paying offices that process a substantial percentage of our invoices, which caused delays in payment of contract receivables. We saw improvement in government payment cycles in the fourth quarter of 2002, which resulted in a four day improvement in our days sales outstanding as compared to the third quarter of 2002. We expect collection of contract receivables from these two paying offices to continue to improve during 2003. Contract receivables increased $57.7 million for the twelve months ended December 31, 2002. Principally as a result of the above, total days sales outstanding were 78 days as of December 2002 compared with 66 days as of December 2001. Accounts receivable totaled $189.1 million at December 31, 2002 and represented 52% of total assets at that date. Additionally, increases in accounts payable and accrued expenses resulted in an increase of $22.6 million of cash from operations, a 43.6% increase from 2001. For the twelve months ended December 31, 2002, net cash used in investing activities was $1.4 million, which was attributable to purchases of property, plant and equipment, offset in part by $1.8 million in proceeds received from the sale of our facility in Butler, Pennsylvania. Cash provided by financing activities was $2.5 million for the twelve months ended December 31, 2002. On March 15, 2002, we completed our IPO with the sale of 4,687,500 shares of our common stock. Our net proceeds were approximately $75.2 million, based on an IPO price of $18.00 per share, after deducting underwriting discounts and commissions of $5.9 million and offering costs and expenses of $3.3 million. We used the net proceeds from the IPO to: repay $11.4 million of our debt outstanding under the term loan portion of our prior credit facility; temporarily pay down $39.5 million on the revolving loan portion of our prior credit facility on March 15, 2002 (the revolving loan was subsequently increased on April 15, 2002 to redeem $25.0 million principal amount of our 12% Notes); redeem $25.0 million principal amount of our 12% Notes on April 15, 2002, and to pay accrued interest of $1.3 million thereon and the associated $3.0 million prepayment premium (pending the permanent use of such net proceeds, we used such funds to temporarily reduce the revolving portion of our prior credit facility); to repay in full our $7.5 million principal amount subordinated promissory note held by Azimuth Technologies, L.P., one of our principal stockholders, including $50,000 aggregate principal amount of our subordinated promissory notes, held by present members of our management; and to repay $4.4 million of our subordinated notes, relating to accrued interest on our $22.5 million principal amount subordinated convertible promissory note formerly held by Azimuth Tech. II LLC, one of our principal stockholders. The remainder of the net proceeds to us from the IPO, approximately $12.5 million, was temporarily invested in short-term investment grade securities and subsequently liquidated and used to repay amounts outstanding under the revolving portion of our prior credit facility. We also used $2.5 million of the IPO proceeds temporarily to repay debt under the revolving portion of our prior credit facility with the intention of repaying in full, on or before October 20, 2002, a $2.5 million principal amount promissory note held by former stockholders of Sherikon, Inc. On October 18, 2002, we asserted an indemnification claim against the former shareholders of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory note. We are treating this indemnification claim as a set off against the $2.5 million promissory note obligation. 37 On October 21, 2002, we entered into an amended and restated credit agreement related to our Credit Facility. This amendment and restatement, among other things, provides for the potential increase to the revolving loan portion of our Credit Facility to a maximum of $200 million, loosens certain restrictions on our ability to incur indebtedness and make investments, and made appropriate revisions to the definition of change in control to reflect the fact that our IPO has occurred. The Credit Facility also permits us to elect from time to time to (i) repurchase certain amounts of our subordinated debt and outstanding common stock from our share of excess cash flow (as defined in the Credit Facility); and (ii) repurchase certain amounts of our subordinated debt from our share of net cash proceeds of issuances of equity securities. In addition, the Credit Facility provides flexibility to raise additional financing to fund future acquisitions. Historically, our primary liquidity requirements have been for debt service under our Credit Facility and 12% Notes and for acquisitions and working capital requirements. We have funded these requirements primarily through internally generated operating cash flow and funds borrowed under our existing Credit Facility. Our Credit Facility expires June 23, 2005. The facility consists of a term loan and a revolving line of credit allowing for aggregate borrowings of up to $222.3 million as of December 31, 2002. Borrowings from the revolving line of credit can be made based upon a borrowing base consisting of a portion of our eligible billed and unbilled receivable balances and our ratio of net debt to EBITDA (as defined in the Credit Facility). The Credit Facility contains affirmative and negative covenants customary for such financings. The Credit Facility also contains financial covenants customary for such financing, including, but not limited to: maximum ratio of net debt to EBITDA; maximum ratio of senior debt to EBITDA and limitation on capital expenditures. For the period ended December 31, 2002, we complied with all of the financial covenants. At December 31, 2002, total debt outstanding under our Credit Facility was approximately $28.2 million, consisting of $21.2 million of term loan, and $7.0 million outstanding under the revolving loan portion of our Credit Facility. The total funds available to us under the revolving loan portion of our Credit Facility as of December 31, 2002 were $108.3 million. Under certain conditions related to excess annual cash flow, as defined in our Credit Facility, and the receipt of proceeds from certain asset sales and debt or equity issuances, we are required to prepay, in amounts specified in our Credit Facility, borrowings under the term loan. Due to excess cash flows generated during 2001 under our Credit Facility (prior to its amendment), we made an additional principal payment of $10.7 million under the term loan portion of our Credit Facility during the quarter ended March 31, 2002. In addition, borrowings under the Credit Facility mature on June 23, 2005, and we are scheduled to pay quarterly installments of approximately $950,000 under the term portion until the Credit Facility matures on June 23, 2005. As of December 31, 2002, we did not have any capital commitments greater than $1.0 million. Our principal working capital need is for funding accounts receivable, which has increased with the growth in our business and the delays in government funding and payment. Our principal sources of cash to fund our working capital needs are cash generated from operating activities and borrowings under our Credit Facility. We have relatively low capital investment requirements. Capital expenditures were $3.2 million and $2.2 million for the twelve months ended December 31, 2002 and 2001, respectively, primarily for leasehold improvements and office equipment. We use 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, 2002 we had financed equipment with an original cost of approximately $14.6 million through operating leases. 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 $11.0 million in 2001. In 2001, we acquired SIGCOM Training. The acquisition was financed through borrowings under our prior credit facility. In the past, we have engaged in acquisition activity, and we intend to do so in the future. Historically, we have financed our acquisitions through a combination of bank debt, subordinated debt, subordinated public and private debt and equity investments. We expect to be able to finance any future acquisitions either with cash provided from operations, borrowings under our Credit Facility, bank loans, equity offerings, or some combination of the foregoing. 38 We intend to, and expect over the next twelve months to be able to, fund our operating cash, capital expenditure and debt service requirements through cash flow from operations and borrowings under 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. Inflation We do not believe that inflation has had a material effect on our business in 2002 or 2001. Recent Accounting Pronouncements 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. SFAS No. 144 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 undiscounted cash flows and measure an impairment loss as the difference between the carrying amount and fair value of the asset. SFAS No. 144 removes goodwill from its scope, which is now addressed in accordance with SFAS No. 142. We adopted SFAS No. 144 as of January 1, 2002, with no impact on our consolidated financial statements. In April 2002, the Financial Accounting Standards Board issued Statement 145 ("SFAS No. 145"), Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB Statement 13, and Technical Corrections. SFAS No. 145 addresses the reporting of gains and losses from extinguishment of debt. SFAS No. 145 rescinded FASB Statements 4 and 64. Under the new standard, only gains and losses from extinguishments meeting the criteria of Accounting Principles Board Opinion No. 30 would be classified as extraordinary items. Thus, gains or losses arising from extinguishments of debt that are part of our recurring operations would not be reported as extraordinary items. Upon adoption, previously reported extraordinary gains or losses not meeting the requirements for classification as such in accordance with Accounting Principles Board Opinion No. 30 would be required to be reclassified for all periods presented. We will adopt SFAS No.145 as of January 1, 2003, and as a result, we will be required to reclassify approximately $2.6 million of extraordinary loss and $330,000 of extraordinary gain for the years ended December 31, 2002 and 2001 respectively, to operating income. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early adoption encouraged. We have not yet determined the impact, if any, this Statement will have on our consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Interpretation No. 45 requires certain disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees, including product warranties. The disclosure provisions of this Statement are effective as of the fourth quarter of 2002. This Statement also requires a guarantor to recognize, at inception, for all guarantees issued or modified after December 31, 2002, a liability for the fair value of the obligations it has undertaken in issuing a guarantee. The adoption of the fair value provisions of this Statement did not have an impact on our consolidated financial statements. 39 In December 2002, the Emerging Issues Task Force ("EITF") issued EITF Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 provides guidance on determining whether a revenue arrangement contains multiple deliverable items and if so, requires revenue be allocated amongst the different items based on fair value. EITF 00-21 also requires revenue on any item in a revenue arrangement with multiple deliverables not delivered completely must be deferred until delivery of the item is completed. The effective date of this Issue for the Company will be July 1, 2003. We have not yet determined the impact, if any, this Statement will have on our consolidated financial statements. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. Interpretation No. 46 provides guidance for identifying a controlling interest in a Variable Interest Entity, or "VIE," established by means other than voting interests. Interpretation No. 46 also requires consolidation of a VIE by an enterprise that holds such a controlling interest. The effective date for this Interpretation will be July 1, 2003. We have not yet determined the impact, if any, this Interpretation will have on our consolidated financial statements. ITEM 7A. 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 remaining $75.0 million principal amount of our 12% Notes is fixed at 12%, the interest rate on both the term and revolving loan portions of our Credit Facility is affected by changes in market interest rates. We manage these fluctuations in part 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. On January 29, 2002, we cancelled approximately $30.0 million of interest swap agreements and recognized previously unrecognized losses of $1.9 million in interest expense for the quarter ended March 31, 2002. As of December 31, 2002, the fair value of our remaining interest rate swap agreements of $15.0 million resulted in a net liability of $763,000 and has been included in other current liabilities. A 1% change in interest rates on variable rate debt would have resulted in our interest expense fluctuating by approximately $249,000 and $208,000 for the twelve months ended December 31, 2002 and 2001, respectively. Item 8. Financial Statements and Supplementary Data Our consolidated financial statements are provided in Part IV., Item 15 of this filing. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure We had no disagreements with our independent accountants on accounting principles, practices or financial statement disclosure during the two years prior to the date of our most recent consolidated financial statements included elsewhere in this report. 40 Management Item 10. Directors and Executive Officers of the Registrant The directors and executive officers of Anteon and their respective ages as of the date of this filing are as follows:
Name Age Position Held Frederick J. Iseman.................... 50 Chairman of the Board and Director Joseph M. Kampf........................ 58 President, Chief Executive Officer and Director Thomas M. Cogburn...................... 59 Executive Vice President, Chief Operating Officer and Director Carlton B. Crenshaw.................... 57 Senior Vice President and Chief Financial Officer Mark D. Heilman........................ 54 Senior Vice President, Corporate Development Seymour L. Moskowitz................... 70 Executive Vice President, Technology Curtis L. Schehr....................... 44 Senior Vice President, General Counsel and Secretary Vincent J. Kiernan..................... 44 Vice President, Finance Gilbert F. Decker...................... 65 Director Robert A. Ferris....................... 60 Director Dr. Paul Kaminski...................... 60 Director Steven M. Lefkowitz.................... 38 Director William J. Perry....................... 75 Director General Henry Hugh Shelton, USA (ret.). 61 Director Thomas J. Tisch........................ 48 Director
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. 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. 41 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, Technology since June 2002 and as Senior Vice President, Technology, from March 1997 through June 2002. 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 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. 42 Gilbert F. Decker, Director Gilbert F. Decker has served as a director since June 1997. Mr. Decker currently serves as a private consultant to the technology industry. From April 1999 until August 2001, Mr. Decker served as Executive Vice President at Walt Disney Imagineering. 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 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. William J. Perry, Director Dr. William J. Perry has served as a director since February 2002. He is currently the Michael and Barbara Berberian Professor at Stanford University with a joint appointment in the School of Engineering and the Institute for International Studies and Co-director of the Preventive Defense Project. In a prior term at Stanford (1988-1993), Dr. Perry was Co-director of the Center for International Security and Arms Control. Dr. Perry was the 19th Secretary of Defense for the United States, serving from February 1994 to January 1997. He previously served as Deputy Secretary of Defense (1993-1994) and as Under Secretary of Defense for Research and Engineering (1977-1981). In the private sector, Dr. Perry has founded and led two technology firms and serves on the board of directors of several high technology companies. He currently serves as Chairman of Global Technology Partners. Dr. Perry has received numerous awards, including the Presidential Medal of Freedom. 43 General Henry Hugh Shelton, USA (ret.), Director General Hugh Shelton, USA (ret.), has served as a director since February 2002. During his 37 years of active service in the military, General Shelton commanded at every level, including 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. Thomas J. Tisch, Director Thomas J. Tisch has served as a director since February 2002. Since 1992, Mr. Tisch has served as Managing Partner of Four Partners, an investment partnership focusing on public securities. Prior to 1992, Mr. Tisch worked in a similar capacity in predecessor partnerships. Mr. Tisch is a Trustee of the Manhattan Institute, Mount Sinai-NYU Health System, The Henry Kaufman Campgrounds, Inc. and the Municipal Assistance Corporation for the City of New York. Mr. Tisch is also a director of InfoNXX, Inc., a provider of directory assistance to the wireless industry. Classes and Terms of Directors Our board is currently comprised of ten 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 filing, the following individuals are directors and will serve for the terms indicated: Class 1 Directors (term expiring in 2003) Robert A. Ferris William J. Perry General Henry Hugh Shelton, USA (ret.) Thomas J. Tisch 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 date of this filing, the Caxton-Iseman nominees consist of Messrs. Iseman, Ferris, Lefkowitz and Tisch. Each of Messrs. Ferris and Lefkowitz has agreed, for so long as he is a director serving or elected as a Caxton-Iseman nominee, to resign from our board, upon the request of the Caxton-Iseman Stockholders. On February 8, 2002, we increased the size of our board to twelve, and elected three new directors, thereby leaving two vacancies to be filled. Pursuant to the provisions of our amended and restated certificate of incorporation, the Caxton-Iseman Stockholders may fill one of these two vacancies. 44 Committees of Our Board Our board has established an executive committee, the members of which are Messrs. Iseman, Lefkowitz, Ferris and Kampf. Our board has also established an audit committee, the members of which are Messrs. Decker, Tisch and Kaminski. Upon completion of the IPO, our board established a compensation committee, an executive compensation committee and a nominating and corporate governance committee. Messrs. Iseman, Ferris, Lefkowitz, Kaminski and Shelton are currently members of our compensation committee and the executive compensation committee is comprised of Messrs. Kaminski and Shelton. Our nominating and corporate governance committee is currently comprised of Messrs. Lefkowitz, Shelton and Ferris. The audit committee oversees actions taken by our independent auditors and reviews our internal controls and procedures. The compensation committee reviews and approves the compensation of our officers and management personnel and administers our employee benefit plans and our Amended and Restated Omnibus Stock Plan. The executive compensation committee administers our Amended and Restated Omnibus Stock Plan and other executive plans for awards or grants to our named executive officers and persons subject to Section 16 of the Exchange Act. The nominating and corporate governance committee nominates candidates for election to our board. The executive committee exercises the authority of our board in the interval between meetings of the board. Compensation of Directors Our directors who are not employees or Caxton-Iseman Stockholders are eligible to receive the following annual compensation: $5,000 for each fiscal quarter; $1,000 for each board meeting attended; $1,500 annually for serving as chairperson of a committee; and $500 for each committee meeting attended. A deferred fee plan for non-employee directors, previously established with an effective date of January 1, 2000 and which allowed non-employee directors to defer all or any portion of the fees received from us, was amended and terminated by the board effective December 31, 2001. Each of our directors is also reimbursed for expenses incurred in connection with serving as a member of our board. Compliance with Section 16(a) of the Exchange Act Based solely on our review of copies of reports filed with the SEC, we believe that all reports on Form 3, Form 4, and Form 5 required to be filed were so filed on a timely basis except for a Form 4 on behalf of Mr. Cogburn and a Form 4 on behalf of Mr. Heilman. 45 Item 11. 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 executive officers of ours whose individual compensation exceeded $100,000 during the twelve months ended December 31, 2002 for services rendered in all capacities to us.
Annual Compensation Long-Term Compensation Awards Number of Shares Other Annual Underlying Stock Name and Principal Position Year Salary Bonus Compensation(1) Options Joseph M. Kampf..................... 2002 $457,042 $299,520 -- 200,000 President and Chief Executive 2001 415,899 240,000 -- -- Officer 2000 391,530 240,000 -- 240,000 Thomas M. Cogburn................... 2002 255,247 147,600 -- 100,000 Executive Vice President and 2001 231,254 110,000 -- -- Chief Operating Officer 2000 211,033 100,000 -- 80,000 Carlton B. Crenshaw................. 2002 220,236 120,000 -- 80,000 Senior Vice President and 2001 204,999 100,000 -- -- Chief Financial Officer 2000 198,927 100,000 -- -- Mark D. Heilman..................... 2002 211,144 120,000 -- 80,000 Senior Vice President, 2001 195,451 100,000 -- -- Corporate Development 2000 185,905 75,000 -- -- Seymour L. Moskowitz................ 2002 211,144 120,000 -- 80,000 Senior Vice President, 2001 195,451 100,000 -- -- Technology 2000 182,991 112,500 -- --
(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 for him in the two preceding columns. Option Grants in 2002
Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants Price Appreciation for Option Term ------------------------------ ------------------------------------ ------------------------------ ------------------------------------ Number of Shares % of Total Underlying Options Granted Exercise or Options to Employees in Base Price Granted 2002 Per Share Expiration 5% 10% Name Date - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Joseph M. Kampf 200,000 14.1% $18.00 3/11/2012 $ 2,264,021 $ 5,737,473 Thomas M. Cogburn 100,000 7.1% $18.00 3/11/2012 1,132,010 2,868,736 Carlton B. Crenshaw 80,000 5.6% $18.00 3/11/2012 905,608 2,294,989 Mark D. Heilman 80,000 5.6% $18.00 3/11/2012 905,608 2,294,989 Seymour L. Moskowitz 80,000 5.6% $18.00 3/11/2012 905,608 2,294,989
46 Aggregated Option Exercises in 2002 and Fiscal Year-End Option Values The following table sets forth certain information with respect to options held at the end of fiscal 2002 by each of our named executive officers:
Individual Grants Value of Unexercised Number of Shares Underlying Shares Unexercised Options at In-the-Money Options at Acquired on December 31, 2002 December 31, 2002 Exercisable/ Name Exercise(s) Value Realized Exercisable/Unexercisable(1) Unexercisable(2) Joseph M. Kampf.......... 0 0 328,320/344,000 $7,083,780/ $3,756,780 Thomas M. Cogburn........ 8,000 0 56,000/156,000 $1,032,140/ $1,606,760 Carlton B. Crenshaw...... 83,642 $1,434,983 28,510/80,000 $660,184/ $480,000 Mark D. Heilman.......... 45,760 $324,368 162,240/152,000 $3,109,236/ $1,853,580 Seymour L. Moskowitz..... 113,030 $1,519,706 292,258/115,200 $6,535,081/ $1,140,088
(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," and the split of our common stock we effected on February 19, 2002. (2) Based on the difference between the closing price of our common stock on December 31, 2002 as reported by the New York Stock Exchange- Corporate Transactions and the option exercise price. The above valuations may not reflect the actual value of unexercised options, as the value of unexercised options fluctuates with market activity. Amended and Restated Omnibus Stock Plan Purposes of the Plan On March 5, 2002, Anteon Virginia amended and restated its omnibus stock plan, which was originally adopted in January 1997 and which terminates in January 2007. We subsequently assumed the plan as part of our IPO reorganization transactions on March 15, 2002. 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 compensation committee of the board of directors. The compensation 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 compensation 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 beneficiary of any award without the consent of the affected participant, holder or beneficiary. All actions of the compensation committee are conclusive. The board of directors may resolve to directly administer the plan. All of the compensation committee's decisions under the plan will be subject to the approval of the board of directors. All awards under the plan made to persons subject to Section 16(b) of the Exchange Act or who may be named executive officers, as determined by the compensation committee, shall be granted by the executive compensation committee. All of the decisions of the executive compensation committee are subject to the approval of the compensation committee. 47 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 compensation 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 6,242,400 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 250,000 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 compensation 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 compensation 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 compensation 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. Stock appreciation rights may be granted in tandem with another award, in addition to another award, or freestanding and unrelated to another award. The board 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. 48 Stock Awards: Restricted Stock, Unrestricted Stock and Phantom Stock. Subject to the other applicable provisions of the plan, the compensation 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 compensation committee from time to time. Change in Control In the event of any proposed change in control (as defined in the plan), the compensation 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: o acceleration or change of the exercise dates of any award so that the unvested portion of any award becomes fully vested and immediately exercisable; o 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 o 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. Severance Agreements Certain of 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 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. Kampf, Crenshaw, Heilman and Moskowitz continue for a 24 month period. If terminated on December 31, 2002, cash severance payments payable to Messrs. Kampf, Crenshaw, Heilman and Moskowitz under their respective severance agreements would have been $2,252,538, $685,359, $651,263 and $676,263, respectively. 49 Item 12. Security Ownership OF Certain Beneficial Owners and Management The table below sets forth, as of February 25, 2003, the number of shares of common stock beneficially owned by each of our 5% stockholders, each of our directors, the Named Executive Officers and all our directors and executive officers as a group. 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 (1) Name of Beneficial Owner Shares % Azimuth Technologies, L.P.(2)(3)........ 11,064,460 32.1 Azimuth Tech. II LLC(2)(3).............. 3,885,465 11.3 Frederick J. Iseman(2)(3)............... 13,365,322 38.8 FMR Corp (14)........................... 2,673,926 7.7 Gilbert F. Decker(4).................... 43,320 * Dr. Paul Kaminski(4).................... 43,320 * Joseph M. Kampf(5)...................... 1,352,447 3.9 Carlton B. Crenshaw(6).................. 405,121 1.2 Seymour L. Moskowitz(7)................. 337,758 1.0 Thomas M. Cogburn(8).................... 576,089 1.7 Mark D. Heilman(9)...................... 199,680 * Robert A. Ferris(10).................... 1,130,137 3.3 Ferris Family 1987 Trust(10)............ 1,130,137 3.3 Steven M. Lefkowitz(11)................. 459,366 1.3 SML Family Investors LLC(11)............ 58,304 * William J. Perry(12).................... 3,000 * General Henry Hugh Shelton, USA (ret.)(12)......................... 3,000 * Thomas J. Tisch(12)..................... 3,000 * All Directors and Executive Officers as a Group(13)........................ 16,411,897 47.6 * Less than 1%. (1) Determined in accordance with Rule 13d-3 under the Exchange Act. (2) 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 11,773,369 shares held by these entities. Mr. Iseman has (i) sole voting and dispositive power over 11,775,819 shares of our common stock, and (ii) shared voting and dispositive power over the 1,589,503 shares of our common stock held in the aggregate by the Ferris Family 1987 Trust, Mr. Lefkowitz and SML Family Investors LLC 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. (3) Includes 1,130,137, 401,062 and 58,304 shares held by the Ferris Family 1987 Trust, Mr. Lefkowitz and SML Family Investors LLC, respectively. The Ferris Family 1987 Trust, Mr. Lefkowitz and SML Family Investors LLC are parties to 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, Mr. Lefkowitz and SML Family Investors LLC are required to vote all of their shares of common stock at the direction of Azimuth Technologies, L.P. and Azimuth Tech. II LLC, and are bound by specified transfer restrictions. 50 (4) Includes 3,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 12,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. Mr. Decker's address is 45 Glenridge Avenue, Los Gatos, California 95030. Dr. Kaminski's address is 6691 Rutledge Drive, Fairfax, Virginia 22039. (5) Includes 368,320 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 304,000 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., of which he is a limited partner. (6) Includes 88,932 shares held by the Carlton Crenshaw Grantor Trust and 25,000 shares held by Carlton Crenshaw Charitable Remainder Annuity Trust and 44,510 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Excludes 64,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. (7) Includes 308,258 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 99,200 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., of which he is a limited partner. (8) Includes 27,000 shares held by the Thomas Cogburn Charitable Remainder Annuity Trust and 76,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 136,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. (9) Includes 178,240 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 136,000 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 (10) Represents 1,130,137 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. (11) Includes 58,304 shares held by SML Family Investors LLC, a limited liability company affiliated with Mr. Lefkowitz. 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 401,062 shares with respect to which Mr. Lefkowitz shares voting and dispositive power with Azimuth Technologies, L.P., Azimuth Tech. II LLC and Mr. Iseman. (12) Includes 3,000 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Excludes 12,000 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. Gen. Shelton's address is 11911 Freedom Drive, One Fountain Square, 10th Floor Reston, VA 20190. Mr. Tisch's address is 667 Madison Avenue, New York, NY 10021. Mr. Perry's address is 320 Galvez Street, Stanford, CA 94305-6165 (13) Includes 941,968 shares of common stock issuable pursuant to stock options exercisable within 60 days of February 25, 2003. Does not include 1,053,040 shares of common stock issuable pursuant to stock options that are not exercisable within 60 days of that date. 51 (14) Based solely upon a Schedule 13G filed by FMR Corp. on February 13, 2003. The address for FMR Corp. provided in such Schedule 13G is 82 Devonshire Street, Boston, MA 02109 Tag Along Rights On March 15, 2002, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Frederick J. Iseman, Joseph M. Kampf, the Ferris Family 1987 Trust, Steven M. Lefkowitz, SML Family Investors LLC and certain members of our management and certain of our other stockholders who were selling shares in connection with our initial public offering, collectively the "Management Tag Stockholders," entered 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. 52 Item 13. Certain Relationships AND RELATED TRANSACTIONS Reorganization Transactions Immediately prior to the consummation of our initial public offering on March 15, 2002, we entered 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, was converted according to its terms into shares of our non-voting common stock. Second, our subsidiary, Anteon Virginia merged into us. We were 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 were converted into a single class of common stock. All the stock of Anteon Virginia held by us was cancelled and the stock of Anteon Virginia held by certain of our employees and former employees (other than stockholders who exercised appraisal rights) immediately prior to the consummation of the initial public offering were converted into shares of our common stock on March 15, 2002. As a result of the merger, we succeeded 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. The following diagram illustrates our organizational structure before and after these reorganization transactions:
- ----------------------------------------------------------- ------------------------------------------------------------ Prior to Reorganization After Reorganization - ----------------------------------------------------------- ------------------------------------------------------------ - ----------------------------------------------------------- ------------------------------------------------------------ Anteon International Corporation Anteon International Corporation A Delaware corporation A Delaware corporation (formerly Azimuth Technologies, Inc.) (formerly Azimuth Technologies, Inc.) o Issuer of common stock in our o Issuer of the common stock in our initial public offering initial publicoffering o Issuer of 12% Notes o Borrower under the Credit Facility - ----------------------------------------------------------- ------------------------------------------------------------ - ----------------------------------------------------------- ------------------------------------------------------------ Anteon International Corporation Anteon Corporation A Virginia corporation A Virginia corporation (which we refer to as Anteon Virginia) (formerly Techmatics, Inc.) o Borrower under 12% Notes o Main operating subsidiary o Borrower under the Credit Facility o Borrower under the Credit Facility - ----------------------------------------------------------- ------------------------------------------------------------ - ----------------------------------------------------------- ------------------------------------------------------------ Anteon Corporation A Virginia corporation (formerly Techmatics, Inc.) o Main operating subsidiary - ----------------------------------------------------------- ------------------------------------------------------------
53 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. 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. Azimuth Technologies, L.P., Azimuth Tech. II LLC, Mr. Lefkowitz, SML Family Investors LLC, a limited liability company affiliated with Mr. Lefkowitz, and the Ferris Family 1987 Trust, of which Mr. Ferris is a trustee, entered into a stockholders agreement immediately prior to the consummation of the IPO. Under this stockholders agreement, the Ferris Family 1987 Trust, Mr. Lefkowitz and SML Family Investors LLC agreed 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 this filing, the agreement provides that none of the Ferris Family 1987 Trust, Mr. Lefkowitz or SML Family Investors LLC 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, Mr. Lefkowitz and SML Family Investors LLC may participate in such sale in a pro rata amount. The Ferris Family 1987 Trust, Mr. Lefkowitz and SML Family Investors LLC 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. Registration Rights On March 11, 2002, 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, SML Family Investors LLC and the Ferris Family 1987 Trust and certain of our other selling stockholders who were selling shares in connection with our initial public offering, 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 can 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 March 15, 2002. 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 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, SML Family Investors LLC 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, SML Family Investors LLC 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. 54 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, SML Family Investors LLC 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, SML Family Investors LLC 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). Pursuant to the registration rights agreement, we paid $2.4 million in expenses related to the registration of shares of common stock in our initial public offering on behalf of the parties to the registration rights agreement. 55 PART IV ITEM 14. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of filing of this annual report, that our disclosure controls and procedures are effective to ensure that material information required to be disclosed by us in reports filed or submitted by us under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and includes controls and procedures designed to ensure that material information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Changes in internal controls. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of our evaluation. Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number in 2002 Annual Report (a) 1. Financial Statements Independent Auditors' Report F-1 Consolidated Balance Sheets as of December 31, 2002 and 2001 F-2 Consolidated Statements of Operations for Each of the Years in the Three-Year Period Ended December 31, 2002 F-3 Consolidated Statements of Stockholders' Equity for Each of the Years in the Three-Year Period Ended December 31, 2002 F-4 Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended December 31, 2002 F-5 - F-6 Notes to Consolidated Financial Statements F-7 - F-41 (a) 2. Financial Statement Schedules Independent Auditors' Report S-1 Valuation and Qualifying Accounts S-2 (a) 3. Exhibits See Exhibit Index beginning on page 60 (b) No current reports on Form 8-K were filed during the fourth quarter of 2002
56 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Anteon international Corporation By: /s/ JOSEPH M. KAMPF --------------------- Joseph M. Kampf President and Chief Executive Officer Date: March 10, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Name Title Date ---- ----- ---- /s/ Joseph M. Kampf President and Chief Executive Officer - ------------------- Joseph M. Kampf and Director March 10, 2003 (Principal Executive Officer) /s/ CARLTON B. CRENSHAW Senior Vice President and Chief Financial - ----------------------- Carlton B. Crenshaw and Administrative Officer March 10, 2003 (Principal Financial and Accounting Officer) /s/ Frederick J. Iseman Frederick J. Iseman Chairman of the Board and Director March 10, 2003 /s/ THOMAS M. COGBURN Thomas M. Cogburn Director March 10, 2003 /s/ GILBERT F. DECKER Gilbert F. Decker Director March 10, 2003 /s/ ROBERT A. FERRIS Robert A. Ferris Director March 10, 2003 /s/ PAUL KAMINSKI Paul Kaminski Director March 10, 2003 /s/ steven m. lefkowitz Steven M. Lefkowitz Director March 10, 2003 /s/ Thomas J.Tisch Thomas J. Tisch Director March 10, 2003 - -------------------- /s/ General Henry Hugh Shelton General Henry Hugh Shelton Director March 10, 2003 - -------------------------------- /s/ WILLIAM J. PERRY William J. Perry Director March 10, 2003 - ---------------------
57 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2(g) to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. McLean, Virginia KPMG LLP February 14, 2003 F-1
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Balance Sheets December 31, 2002 and 2001 (in thousands, except share data) Assets 2002 2001 ------------------ ----------------- Current assets: Cash and cash equivalents $ 4,266 $ 1,930 Accounts receivable, net 189,059 131,345 Prepaid expenses and other current assets 15,071 6,992 Deferred tax assets, net -- 4,151 ------------------ ----------------- ------------------ ----------------- Total current assets 208,396 144,418 Property and equipment, at cost, net of accumulated depreciation and amortization of $18,971 and $11,815, respectively 9,992 12,744 Goodwill, net of accumulated amortization of $17,376 and $16,323, respectively 138,619 136,622 Intangible and other assets, net of accumulated amortization of $9,279 and $7,372, respectively 7,685 12,867 ------------------ ----------------- ------------------ ----------------- Total assets 364,692 306,651 ================== ================= ================== ================= Liabilities and Stockholders' Equity (Deficit) Current liabilities: Term loan, current portion 3,798 17,266 Subordinated notes payable, current portion 2,500 2,268 Business purchase consideration payable -- 515 Accounts payable 47,630 25,028 Due to related party -- 3,600 Accrued expenses 57,603 56,041 Income tax payable 7,738 509 Other current liabilities 806 2,889 Deferred tax liability 2,230 -- Deferred revenue 5,701 8,743 ------------------ ----------------- Total current liabilities 128,006 116,859 Term loan, less current portion 17,403 29,788 Revolving facility 7,000 18,700 Senior subordinated notes payable 75,000 100,000 Subordinated convertible note payable-related party -- 22,500 Subordinated notes payable-related party -- 4,369 Subordinated notes payable to stockholders -- 7,499 Noncurrent deferred tax liabilities, net 7,808 9,261 Other long term liabilities 490 690 ------------------ ----------------- ------------------ ----------------- Total liabilities 235,707 309,666 ------------------ ----------------- ------------------ ----------------- Minority interest in subsidiaries 156 427 Stockholders' equity (deficit): Preferred stock, $.01 par value, 15,000,000 shares authorized, zero issued and outstanding as of December 31, 2002 and 2001 -- -- Common stock, $.01 par value, 175,000,000 shares authorized and 34,419,049 shares issued and outstanding as of December 31, 2002 and 2001, respectively 344 -- Common stock, Class B, voting, $0.01 par value, 3,000 shares authorized, zero and 2,450 shares issued and outstanding as of December 31, 2002 and 2001, respectively -- -- Common stock, Class A, voting, $0.01 par value, 30,000,000 shares authorized, zero and 23,784,115 shares issued and outstanding as of December 31, 2002 and 2001, respectively -- 238 Common stock, non voting, $0.01 par value, 7,500,000 shares authorized, zero issued and outstanding as of December 31, 2002 and 2001 -- -- Stock subscription receivable (12) (12) Additional paid-in capital 106,849 2,366 Accumulated other comprehensive loss (509) (1,747) Retained earnings (accumulated deficit) 22,157 (4,287) ------------------ ----------------- ------------------ Total stockholders' equity (deficit) 128,829 (3,442) ------------------ ----------------- ------------------ Commitments and contingencies Total liabilities and stockholders' equity (deficit) $ 364,692 $ 306,651 ================== ================= See accompanying notes to consolidated financial statements.
F-2
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Statements of Operations Years ended December 31, 2002, 2001 and 2000 (in thousands, except share and per share data) 2002 2001 2000 ----------------- -------------- -------------- Revenues $ 825,826 $ 715,023 $ 542,807 Costs of revenues 711,328 627,342 474,924 ----------------- -------------- -------------- Gross profit 114,498 87,681 67,883 ----------------- -------------- -------------- Operating Expenses: General and administrative expenses 48,197 51,442 38,592 Amortization of noncompete agreements -- 349 866 Goodwill amortization -- 6,704 4,714 Other intangibles amortization 1,907 2,321 2,673 ----------------- -------------- -------------- ----------------- -------------- -------------- Total operating expenses 50,104 60,816 46,845 ----------------- -------------- -------------- Operating income 64,394 26,865 21,038 Other income 417 -- -- Gains on sales and closures of businesses -- 4,046 -- Interest expense, net of interest income of $289, $344, and $410, respectively 17,394 26,872 26,513 Minority interest in (earnings) losses of subsidiaries (18) (38) 32 ----------------- -------------- -------------- Income (loss) before provision for income taxes and extraordinary gain (loss) 47,399 4,001 (5,443) Provision (benefit) for income taxes 18,374 4,413 (153) ----------------- -------------- -------------- Loss before extraordinary gain (loss) 29,025 (412) (5,290) Extraordinary gain (loss), net of tax (2,581) 330 -- ----------------- -------------- -------------- Net income (loss) $ 26,444 $ (82) $ (5,290) ================= ============== ============== ================= ============== ============== Basic earnings (loss) per common share: Income (loss) before extraordinary gain (loss) $ 0.90 $ (0.02) $ (0.22) Extraordinary gain (loss), net of tax (0.08) 0.01 -- ----------------- -------------- -------------- ----------------- -------------- -------------- Net income (loss) $ 0.82 $ (0.01) $ (0.22) ================= ============== ============== ================= ============== ============== Basic weighted average shares outstanding 32,163,150 23,786,565 23,786,565 ================= ============== ============== ================= ============== ============== Diluted earnings (loss) per common share: Income (loss) before extraordinary gain (loss) $ 0.85 $ (0.02) $ (0.22) Extraordinary gain (loss), net of tax (0.07) 0.01 -- ----------------- -------------- -------------- Net income (loss) $ 0.78 $ (0.01) $ (0.22) ================= ============== ============== Diluted weighted average shares outstanding 34,021,597 23,786,565 23,786,565 ================= ============== ============== See accompanying notes to consolidated financial statements.
F-3
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Statements of Stockholders' Equity (Deficit) Years ended December 31, 2002, 2001 and 2000 (in thousands, except share data) Accumulated Retained Total All series Stock Additional other earnings stockholders' common stock subscription paid-in comprehensive (accumulated equity receivable capital income (loss) deficit) (deficit) Shares Amount Balance, December 31, 1999 23,786,565 238 (12) 2,366 (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 23,786,565 238 (12) 2,366 37 (4,205) (1,576) Transition adjustment-interest rate swaps (net of tax of $419) -- -- -- -- (629) -- (629) Comprehensive income (loss): Interest rate swaps (net of tax of -- -- -- -- (1,075) -- (1,075) $717) Foreign currency translation -- -- -- -- (80) -- (80) Net loss -- -- -- -- -- (82) (82) Comprehensive income (loss) -- -- -- -- (1,155) (82) (1,237) Balance, December 31, 2001 23,786,565 238 (12) 2,366 (1,747) (4,287) (3,442) Issuance of common stock, net 4,687,500 47 -- 75,130 -- -- 75,177 Conversion of minority interest to common stock 180,120 2 -- 279 -- -- 281 Exercise of stock options 1,135,632 11 -- 3,954 -- 3,965 Conversion of subordinated promissory note 4,629,232 46 -- 22,454 -- -- 22,500 Tax benefit from exercise of stock options -- -- -- 2,666 -- -- 2,666 Comprehensive income (loss): Interest rate swaps (net of tax of $298) -- -- -- -- 1,239 -- 1,239 Foreign currency translation -- -- -- -- (1) -- (1) Net income -- -- -- -- -- 26,444 26,444 Comprehensive income (loss) -- -- - -- 1,238 26,444 27,682 Balance, December 31, 2002 34,419,049 $ 344 $ (12) $ 106,849 $ (509) $ 22,157 $ 128,829 See accompanying notes to consolidated financial statements.
F-4
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Statements of Cash Flows Years ended December 31, 2002, 2001 and 2000 (in thousands) 2002 2001 2000 --------------- ---------------- --------------- Cash flows from operating activities: Net income (loss) $ 26,444 $ (82) $ (5,290) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary (gain) loss before tax 4,232 (519) -- Gains on sales and closures of businesses -- (4,046) -- Interest rate swap termination (1,903) -- -- Depreciation and amortization of property and equipment 4,294 7,110 7,024 Goodwill amortization -- 6,704 4,714 Amortization of noncompete agreements -- 349 866 Other intangibles amortization 1,907 2,321 2,673 Amortization of deferred financing costs 1,210 1,216 1,208 Loss (gain) on disposals of property and equipment 25 791 (187) Deferred income taxes 4,090 3,512 (747) Minority interest in earnings (losses) of subsidiaries 18 38 (32) Changes in assets and liabilities, net of acquired assets and liabilities: Decrease (increase) in accounts receivable (57,715) 1,268 (14,261) Decrease in income tax receivable -- -- 2,535 (Increase) decrease in prepaid expenses and other (8,059) 727 (1,691) current assets Decrease in other assets 105 178 75 Increase in accounts payable and accrued expenses 22,601 15,744 13,783 Increase (decrease) in income tax payable 7,229 (22) -- (Decrease) increase in deferred revenue (3,042) 2,254 6,489 (Decrease) increase in other liabilities (158) 336 (58) ------------ ------------- ------------ Net cash provided by operating activities 1,278 37,879 17,101 ------------ ------------- ------------ Cash flows from investing activities: Purchases of property and equipment and other assets (3,225) (2,181) (6,584) Acquisition of Sherikon, Inc., net of cash acquired -- (21) (23,906) Acquisition of SIGCOM, net of cash acquired -- (10,975) -- Proceeds from sales of businesses, net -- 11,464 -- Proceeds from sale of building 1,802 -- -- Other, net -- 6 1,578 ------------ ------------- ------------ Net cash used in investing activities (1,423) (1,707) (28,912) ------------ ------------- ------------ Cash flows from financing activities: Principal payments on bank and other notes payable (47) (185) (1,629) Principal payments on Techmatics obligations -- -- (15,350) Payment on subordinated notes payable (567) (5,000) -- Payments on business purchase consideration payable -- (1,185) -- Payments on note payable to Ogden -- (3,212) -- Deferred financing costs (1,292) -- (151) Principal payments on term loan (25,853) (12,946) -- Proceeds from revolving facility 862,600 771,200 533,000 Principal payments on revolving facility (874,300) (784,500) (503,900) Redemption of senior subordinated notes payable (25,000) -- -- Prepayment premium on senior subordinated notes payable (3,000) -- -- Proceeds from issuance of common stock, net of expenses 81,808 -- -- Principal payments on subordinated notes payable to stockholders (7,499) -- -- Payment of subordinated notes payable-related party (4,369) -- -- Proceeds from minority interest, net -- 152 66 ------------ ------------- ------------ Net cash provided by (used in) financing activities 2,481 (35,676) 12,036 ------------ ------------- ------------ Net increase in cash and cash equivalents 2,336 496 225 Cash and cash equivalents, beginning of year 1,930 1,434 1,209 ------------ ------------- ------------ ------------ ------------- ------------ Cash and cash equivalents, end of year $ 4,266 $ 1,930 $ 1,434 ============ ============= ============ (continued)
F-5
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Statements of Cash Flows, continued Years Ended December 31, 2002, 2001 and 2000 2002 2001 2000 ------------- ---------------- --------------- Supplemental disclosure of cash flow information (in thousands): Interest paid $ 20,181 $ 23,396 $ 21,714 ============ =========== =========== Income taxes paid (refunds received), net $ 2,634 $ (52) $ (2,028) ============ =========== ===========
Supplemental disclosure of noncash investing and financing activities: In March 2002, in connection with the Company's initial public offering ("IPO") of shares of its common stock, a $22.5 million principal amount subordinated convertible promissory note of the Company held by Azimuth Tech. II LLC, one of the Company's principal stockholders, was converted pursuant to its terms into 4,629,232 shares of the Company's common stock at a conversion price of $4.86 per share. In March 2002, the Company exchanged approximately 90,060 shares held by minority interest holders in Anteon Virginia at December 31, 2001 into 180,120 shares of the Company. During 2001, the Company 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 5(a)). In October 2000, in connection with the acquisition of Sherikon (note 5(a)), the Company issued $7.5 million of subordinated notes payable discounted as of the date of the acquisition to approximately $6.5 million. Also in connection with the Sherikon acquisition, the Company guaranteed bonuses of approximately $1.75 million to certain former employees of Sherikon. These bonuses are not contingent on future employment with the Company and, accordingly, have been included as additional purchase consideration, discounted to approximately $1.5 million. During 2000, the Company converted approximately $3.0 million of accrued interest related to the subordinated convertible note payable (note 9(g)) to additional notes payable. In accordance with SFAS No. 133, the changes in the fair value of the interest rate swaps are reported, net of tax, in accumulated other comprehensive income. For the year ended December 31, 2002, the change in the fair value of the interest rate swaps generated an $838,000 deferred tax liability. See accompanying notes to consolidated financial statements. F-6 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Notes to Consolidated Financial Statements December 31, 2002 and 2001 (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 effective April 22, 1996, Ogden Professional Services Corporation was renamed Anteon Corporation, a Virginia corporation, and later renamed Anteon International Corporation, a Virginia corporation. Effective February 19, 2002, the Company increased the aggregate authorized shares of its common stock to 37,503,000 shares, and authorized a 2,449.95 for 1 stock split. All references to the number and per share amounts relating to the Company's common shares were retroactively restated for the stock split. On March 15, 2002, the Company's initial public offering ("IPO") of common stock was completed. Immediately prior to the IPO, the Company entered into a series of reorganization transactions. First, the Company's $22.5 million principal amount subordinated convertible promissory note, held by one of its principal stockholders, was converted according to its terms into shares of non-voting common stock. Second, the Company's majority-owned subsidiary, Anteon International Corporation, a Virginia corporation ("Anteon Virginia"), was merged with and into the Company. The Company was the surviving corporation of the merger. In the merger, all the outstanding shares of the Company's existing classes of stock, including Class A voting Common Stock, Class B Voting Common Stock and Non-Voting Common Stock, were converted into a single class of common stock. All the stock of Anteon Virginia held by the Company was cancelled and the stock of Anteon Virginia held by certain of the Company's employees and former employees immediately prior to the consummation of the IPO was converted into approximately 625,352 shares of the Company's common stock, constituting approximately 2.15% of the Company's outstanding stock immediately prior to the IPO. In connection with the merger described above, the outstanding stock options of Anteon Virginia were exchanged on a 1-for-2 basis for options of the Company. As a result of the merger, the Company succeeded to Anteon Virginia's obligations under its credit facility, the indenture governing its 12% Senior Subordinated Notes due 2009 (the "12% Notes") and its Amended and Restated Omnibus Stock Plan. On March 15, 2002, in connection with the merger of Anteon Virginia into the Company, the Company's certificate of incorporation was amended and restated to increase the aggregate authorized number of its shares of common stock to 175,000,000 and to authorize 15,000,000 shares of preferred stock. In connection with the IPO, the Company distributed one preferred share purchase right for each outstanding share of common stock to stockholders of record as of March 15, 2002, and the Company entered into a rights agreement. In general, the rights agreement imposes a significant penalty upon any person or group (subject to creation exceptions) that acquires 15% or more of the Company's outstanding common stock without the approval of the Company's board of directors. The Company and its subsidiaries provide professional information technology ("IT"), systems and software development, high technology research and systems engineering and integration 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 termination 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. F-7 (2) Summary of Significant Accounting 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) 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. (e) Impairment or Disposal of Long Lived Assets SFAS No. 144 requires the Company 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. The Company adopted SFAS No. 144 as of January 1, 2002, with no impact on the Company's consolidated financial statements. 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. (f) Goodwill The Company adopted the provisions of SFAS No. 141 and SFAS No. 142 as of January 1, 2002, except for acquisitions occurring after June 30, 2001, for which the provisions of SFAS No. 141 and SFAS No. 142 were applicable. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies the criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and, subsequently, SFAS No. 144 after its adoption. F-8 As of January 1, 2002, the Company reclassified approximately $1.9 million of intangible assets associated with an acquired employee workforce from intangible assets to goodwill, which in accordance with SFAS No. 142, are no longer separately identifiable from goodwill. As of December 31, 2002, the Company has approximately $8.5 million of intangible assets ($2.7 million net of accumulated amortization) related to contract backlog intangible assets, which are being amortized straight-line over periods of up to 5 years. Upon adoption of SFAS No. 142, the Company evaluated its existing intangible assets and goodwill that were acquired in purchase business combinations, and made any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition of intangible assets separate from goodwill. The Company also reassessed the useful lives and residual values of all definite-lived intangible assets acquired. No impairment was recognized as a result of these tests. In connection with SFAS No. 142's transitional goodwill impairment evaluation, the Company is required to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to these reporting units as of January 1, 2002. The Company determined the estimated fair value of each reporting unit and compared it to the carrying amount of the reporting unit. As a result of this comparison, no indication that the reporting units' fair values were less than their carrying values was noted. In the future, to the extent the carrying amount of a reporting unit exceeds the fair value of a reporting unit, an indication would exist that a reporting unit's goodwill may be impaired, and the Company would be required to perform the second step of the transitional impairment test as soon as possible. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. As of September 30, 2002, the Company performed its annual goodwill impairment analysis required under SFAS No. 142. The Company applied the same methodology described above in the performing its annual impairment test and did not identify any indication of goodwill impairment for any reporting unit. The Company will perform the annual impairment test as of September 30 each year unless circumstances or events indicate that an impairment test should be performed sooner. F-9 Had the amortization provisions of SFAS No. 142 been applied as of January 1, 2000, for all of the Company's acquisitions, 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 ------------- ------------ Income (loss) before extraordinary item $ (412) $ (5,290) Add back: Goodwill amortization 5,663 4,714 Add back: Workforce in place amortization 545 570 ------------- ------------ ------------- ------------ Adjusted income (loss), before extraordinary item 5,796 (6) Extraordinary gain, net of tax 330 -- ------------- ------------ ------------ Adjusted net income $ 6,126 $ (6) ============= ============ Basic earnings per share: Income (loss) before extraordinary item $ (0.02) (0.22) Goodwill amortization 0.24 0.20 Workforce amortization 0.02 0.02 ------------- ------------ Adjusted income (loss) before extraordinary item 0.24 -- Extraordinary gain, net of tax 0.01 -- ------------- ------------ ------------- ------------ Adjusted net income (loss) $ 0.25 -- ============= ============ ============= ============ Diluted earnings per share: Income (loss) before extraordinary item $ (0.02) $ (0.22) Goodwill amortization 0.24 0.20 Workforce amortization 0.02 0.02 ------------- ------------ Adjusted income (loss) before extraordinary item 0.24 -- Extraordinary gain, net of tax .01 -- ------------- ------------ Adjusted net income (loss) $ 0.25 $ --
(g) Other Intangible Assets The Company amortizes the allocated cost of noncompete agreements entered into in connection with business combinations on a straight-line basis over the terms of the agreements. Other acquired intangibles related to workforce in place (prior to the adoption of SFAS No. 142) and acquired contracts are amortized straight-line based upon expected employment and contract periods, respectively. The expected amortization expense of other intangible assets for the remaining two years beginning January 1, 2003, is as follows: 2003, $1.8 million; and 2004, $943,000. As of December 31, 2004, all other intangibles will be fully amortized Upon the adoption of SFAS No. 141, on January 1, 2002, intangible assets acquired in a business combination are recognized only 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. As of January 1, 2002, the Company reclassified approximately $1.9 million, net of accumulated amortization, of intangible assets associated with acquired employee workforce from intangible assets to goodwill, which in accordance with SFAS No. 142, are no longer separately identifiable from goodwill. F-10 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 estimated 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, approximately $4.8 million had been capitalized for software development, all of which had been amortized. (h) Revenue Recognition For each of the years ended December 31, 2002, 2001 and 2000 we estimate that in excess of 90% of our revenues were derived from services performed under contracts that may be categorized into three primary types: time and materials, cost-plus reimbursement and firm fixed price. For the year December 31, 2002, approximately 35% of our contracts are cost-plus, 37% are time and material and 28% are fixed price (a substantial majority of which are firm fixed price level of effort.) Revenue for time and materials contracts is recognized as time is spent at hourly rates, which are negotiated with the customer. 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 performance-based award fee. For cost-plus award fee type contracts, we recognize the expected fee to be awarded by the customer at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding our performance, including any interim performance evaluations rendered by the customer. Revenues are recognized under fixed price contracts for services are based on the percentage-of-completion basis, using the cost-to-cost method. For non-service related fixed price contracts, revenues are recognized using the units-of-delivery method. The Company recognizes revenues under our federal government contracts when a contract is executed, the contract price is fixed and determinable, funding has been received, delivery of the services or products has occurred and collectibility of the contract price is considered probable. The Company contracts with agencies of the federal government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the term of the contract as the services are provided. From time to time we may proceed with work based on customer direction pending finalization and signing of formal funding documents. The Company has an internal process for approving any such work. All revenue recognition is deferred during periods in which funding is not received. Allowable contract costs incurred during such periods are deferred if the receipt of funding is assessed as probable. In evaluating the probability of funding being received, the Company considers its previous experience with the customer, communications with the customer regarding funding status, and our knowledge of available funding for the contract or program. If funding is not assessed as probable costs are expensed as they are incurred. The Company recognizes revenues under our federal government contracts based on allowable contract costs, as mandated by the federal government's cost accounting standards. The costs the Company incurs under federal government contracts are subject to regulation and audit by certain agencies of the federal government. Contract cost disallowances, resulting from government audits, have not historically been significant. The Company may be exposed to variations in profitability, including potential losses, if the Company encounters variances from estimated fees earned under award fee contracts and estimated costs under fixed price contracts. 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 not multi-element arrangements, i.e., they are not bundled with any other elements, such as maintenance and consulting services, and 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 revenue 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. Subsequent to the curtailment of operations of CITI-SIUSS in 2001 (see note 3(b)), there have been no new product or license sales. All software revenue recognized in 2002 relates to maintenance services provided on existing software arrangements. Amounts collected in advance of being earned are recognized as deferred revenues. F-11 (i) 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. (j) 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 would be recognized in income in the period that includes the enactment date. (k) 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, 2002, 2001 and 2000. (l) 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. The Company has an employee stock option plan. 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. The Company has also granted stock appreciation rights to certain of its directors. The Company 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. F-12 The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation:
2002 2001 2000 ----------- ----------- ----------- (in thousands, except per share data) Net Income, as reported $ 26,444 $ (82) $ (5,290) Deduct: Total stock-based compensation expense determined under fair value method, net of tax (2,505) (742) (1,124) ----------- ----------- ----------- Pro forma net income $ 23,939 $ (824) $ (6,414) Earnings Per Share: Basic-as reported $ 0.82 $ (0.01) $ (0.22) =========== =========== =========== Basic-Pro forma $ 0.74 $ (0.03) $ (0.27) =========== =========== =========== Diluted-as reported $ 0.78 $ (0.01) $ (0.22) =========== =========== =========== Diluted-Pro forma $ 0.70 $ (0.03) $ (0.27) =========== =========== ===========
(m) Fair Value of Financial Instruments The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values as of December 31, 2002 and 2001, due to the relatively short duration of these financial instruments. Except for the senior subordinated notes payable and the subordinated notes payable to stockholders, the carrying amounts of the Company's indebtedness approximate their fair values as of December 31, 2002 and 2001, as they bear interest rates that approximate market. The fair value of the senior subordinated notes payable on principal amounts of $75.0 million and $100.0 million, based on quoted market value, was approximately $81.0 million and $105.3 million as of December 31, 2002 and 2001, respectively. The fair value of the subordinated notes payable to stockholders as of December 31, 2001, based on management's estimates considering current market conditions, was approximately $7.3 million. (n) 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. The Company 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 did not have significant impact on the Company's consolidated financial statements. (o) 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. Under the provisions of SFAS No. 128, 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 common 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 the Company's employee stock options and shares associated with the Company's subordinated convertible note payable prior to the Company's IPO. F-13 (p) 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. (q) Stock Split Effective February 19, 2002, the Company increased the aggregate authorized shares of its common stock to 37,503,000 shares, and authorized a 2,449.95-for-1 common stock split. All references to the number and per share amounts relating to the Company's common shares have been retroactively restated for the stock split. (3) Sales and Closure of Businesses (a) Sale of CITE On June 29, 2001, the Company 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 and paid in six equal, monthly payments of approximately $8,300 beginning on August 1, 2001. CITE provided evening and weekend training for individuals to attain certification in Oracle developer and Java. Revenues generated by CITE were approximately $1.2 million and $2.5 million for the years ended December 31, 2001 and 2000, 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) Curtailment of Operations of CITI-SIUSS LLC During 1999, the Company 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. The Company has the sole ability to control the management and operations of CITI-SIUSS LLC and, accordingly, consolidated its results. Under the joint venture agreement, the Company was allocated 98% of the profits and losses of CITI-SIUSS until its investment in the Venture was recovered, at which time profits and losses were shared based on the respective ownership interests of the joint venturers. As the Company had not yet recovered its investment, 98% of the Venture's losses had been allocated to the Company and 2% recognized as minority interest in losses in the consolidated statements of operations. Upon the occurrence of certain events, the Company had 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, the Company decided to cease software development operations of the Venture 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 and $880,000 for the years ended December 31, 2001 and 2000, respectively. Operating losses were approximately $2.6 million and $2.5 million for the years December 31, 2001 and 2000, respectively. The Venture was obligated to provide maintenance and support services on existing contracts through June 30, 2002. Upon the completion of this obligation, the Company anticipated that no excess proceeds would be available to the Company 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 was included in gains on sales and closures of businesses in the accompanying consolidated statement of operations. F-14 (c) Sale of Interactive Media Corporation On July 20, 2001, the Company 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. In addition, the Company had 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. Prior to the sale, IMC transferred to the Company the assets of the government division of IMC, which specializes in training services primarily to the government marketplace. 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 and $18.1 million for the years ended December 31, 2001 and 2000, respectively. Operating income (loss) was approximately $(41,000) and $686,000 for the years ended December 31, 2001 and 2000, respectively. With respect to the working capital adjustment, the Company had reserved approximately $550,000 of the gain on the sale at the time of closing. Subsequently, the Company reached an agreement with the purchaser of IMC to settle the adjustment in the amount of $475,000 as a result of working capital deficiencies at the closing of the transaction. The Company paid this amount to the purchaser on June 14, 2002. The remaining $75,000 reserve related to a retention bonus which was paid to a key employee of IMC during the year ended December 31, 2002. The total gain recognized on the sale of IMC recognized was approximately $3.5 million. As a result of the sale of IMC, the Company realized an income tax benefit of approximately $1.6 million relating to differences between the income tax and financial statement carrying amounts of the Company's investment in IMC. Approximately $760,000 of this benefit resulted from differences that existed as of the date of the Company'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, the Company 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 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, for the year ended December 31, 2001. The remaining expected costs of fulfilling STSR's existing contracts of approximately $266,000 have been accrued as of December 31, 2002. (4) Use of Proceeds from Initial Public Offering The net proceeds to the Company from the sale of 4,687,500 shares of common stock in the Company's IPO was $75.2 million, based on an initial public offering price of $18.00 per share, after deducting underwriting discounts and commissions of $5.9 million and offering costs and expenses of $3.3 million. The Company used the net proceeds from the IPO to: o repay $11.4 million of its debt outstanding under the term loan portion of its credit facility; o temporarily pay down $39.5 million on the revolving loan portion of its credit facility on March 15, 2002 (the revolving loan was subsequently increased on April 15, 2002 to redeem $25.0 million principal amount of the Company's 12% Notes); F-15 o redeem $25.0 million principal amount of its 12% Notes on April 15, 2002, and to pay accrued interest of $1.3 million thereon and the associated $3.0 million prepayment premium (pending the permanent use of such net proceeds, the Company used such funds to temporarily reduce the revolving portion of its credit facility); o repay in full its $7.5 million principal amount subordinated promissory note held by Azimuth Technologies, L.P., one of the Company's principal stockholders, including $50,000 aggregate principal amount of the Company's subordinated promissory notes held by present members of the Company's management; and o repay $4.4 million of the Company's subordinated notes, relating to accrued interest on the Company's $22.5 million principal amount subordinated convertible promissory note held by Azimuth Tech. II LLC, one of the Company's principal stockholders. The remainder of the net proceeds to the Company from the IPO, approximately $12.5 million, was temporarily invested in short-term investment grade securities and subsequently liquidated and used to repay amounts outstanding under the Company's revolving portion of its credit facility. The Company also used $2.5 million of the IPO proceeds to temporarily repay debt under the revolving portion of its credit facility with the intention of repaying in full, on or before October 20, 2002, a $2.5 million principal amount promissory note held by former stockholders of Sherikon, Inc., which was acquired by the Company in October 2000. On October 18, 2002, the Company asserted an indemnification claim against the former shareholders of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory note. The Company has not made this $2.5 million scheduled payment pending this indemnification claim. As a result of the permanent reduction of a portion of its debt under the term loan, the Company wrote-off a proportionate amount of the unamortized deferred financing fees related to the portion of the term loan that was repaid. The write-off of $185,000, net of tax, has been reflected as an extraordinary loss in the accompanying consolidated statements of operations for the period ended December 31, 2002. In addition, as a result of the redemption of the $25.0 million principal amount of the Company's 12% Notes, the Company incurred a $3.0 million prepayment premium and wrote-off a proportionate amount of the unamortized deferred financing fees related to the portion of the 12% Notes that were repaid. The prepayment premium and write-off of deferred financing fees, totaling $2.4 million, net of tax, have been reflected as an extraordinary loss in the accompanying consolidated statements of operations for the year ended December 31, 2002. (5) Acquisitions (a) Sherikon, Inc. On October 20, 2000, the Company 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 was due at the end of the second year after closing. On October 18, 2002, the Company asserted an indemnification claim against the former shareholders of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory note. The Company has not made this $2.5 million scheduled payment pending the resolution of this indemnification claim. The subordinated notes carry a 0% coupon rate and have been present-valued. 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, the Company 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 was paid in October 2002. Such bonuses were not contingent on continued employment with the Company, and the present value of such amount, assuming an 11.75% discount rate, of $1.5 million, was recognized as additional purchase consideration. 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. The identifiable intangible assets were acquired contracts and workforce in place. These assets were valued, based on an independent appraisal, at $1.3 million and $760,000, respectively. Both have expected useful lives of 4 years. As of January 1, 2002 the Company reclassified the unamortized balance of the intangible asset associated with the acquired employee workforce from intangible assets to goodwill, which in accordance with SFAS No. 142, are no longer separately identifiable from goodwill. Goodwill was being amortized on a straight-line basis over twenty years, prior to the adoption of SFAS No. 142. F-16 The total purchase price paid, including transaction costs, of $34.8 million, was 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, the Company 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, the Company 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. (b) The Training Division of SIGCOM, Inc. On July 20, 2001, the company acquired the assets, contracts and personnel of the training division of SIGCOM, Inc. ("SIGCOM"). The principal business of the training division of SIGCOM's 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 for mobile operations on urban terrain. The company's primary reason for acquiring SIGCOM was the significant capabilities of SIGCOM that will augment the Company's defense training capabilities. The total purchase price was $11.0 million, excluding $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 obligations to indemnify the Company for certain potential liabilities which were not assumed. Transaction costs included a $100,000 fee paid to Caxton-Iseman Capital, Inc., an affiliate of and 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. The Company 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, continues to be amortized over a two-year period, in accordance with SFAS No. 142. Approximately $8.1 million has been allocated to tax deductible goodwill arising from the acquisition, which in accordance with SFAS No. 141 and SFAS No. 142, is not being amortized (see note 2(f)). F-17 Unaudited Pro Forma Data The following unaudited pro forma summary presents consolidated information as if the acquisition of the Training Division of SIGCOM and the acquisition of Sherikon had occurred as of January 1, 2000. 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 ---------------- --------------- ---------------- Total revenues $ 723,498 $ 612,278 Total expenses 723,260 615,250 ---------------- --------------- Income (loss) before extraordinary item 224 (2,972) Extraordinary gain, net of tax 330 -- ---------------- --------------- Net income (loss) $ 554 $ (2,972) ================ =============== ================ =============== Basic and diluted earnings (loss) per common share: Income (loss) before extraordinary item $ 0.01 $ (0.12) Extraordinary gain, net of tax 0.01 -- ---------------- --------------- Net income (loss) $ 0.02 $ (0.12) ================ ===============
(6) Accounts Receivable The components of accounts receivable as of December 31, 2002 and 2001, are as follows (in thousands): 2002 2001 -------------- -------------- Billed and billable $ 179,216 116,539 Unbilled 8,929 15,508 Retainages due upon contract completion 5,162 3,797 Allowance for doubtful accounts (4,248) (4,499) -------------- -------------- Total $ 189,059 131,345 ============== ==============
In excess of 95% of the Company's revenues for each of 2002, 2001 and 2000 have been earned, and accounts receivable as of December 31, 2002 and 2001 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. 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 2000. Historically, such audits have not resulted in any significant disallowed costs. 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. F-18 (7) Property and Equipment Property and equipment consists of the following as of December 31, 2002 and 2001 (in thousands):
2002 2001 ------------------ ----------------- Land $ 393 544 Buildings 1,717 2,429 Computer hardware and software 13,348 10,649 Furniture and equipment 8,697 5,890 Leasehold improvements 4,808 5,047 ------------------ ----------------- 28,963 24,559 Less - accumulated depreciation and amortization (18,971) (11,815) ------------------ ----------------- $ 9,992 12,744 ================== =================
(8) Accrued Expenses The components of accrued expenses as of December 31, 2002 and 2001 are as follows (in thousands):
2002 2001 ------------------ ----------------- Accrued payroll and related benefits $ 38,819 31,585 Accrued subcontractor costs 13,396 14,438 Accrued interest 1,138 3,636 Other accrued expenses 4,250 6,382 ------------------ ----------------- $ 57,603 56,041 ================== =================
(9) Indebtedness (a) Credit Agreement On June 23, 1999, the Company entered into a Credit Agreement ("Credit Facility") with a syndicate of nine commercial banks. Under the terms of the Credit Facility, the Company entered into promissory notes with aggregate available financing facilities of $180.0 million. The Credit Facility was comprised of a revolving credit facility for aggregate borrowings of up to $120.0 million ("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 $60.0 million note ("Term Loan") with principal payments due quarterly commencing June 30, 2001, and $15.0 million 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, the Company is required to prepay, in amounts specified in the agreement, borrowings under the Term Loan. Due to excess cash flows, as defined, generated in 2001, an additional principal payment of $10.7 million was paid under the term loan on March 14, 2002. A portion of the net proceeds from the IPO were used to make an additional principal payment of $11.4 million in March 2002. Effective October 21, 2002, this Credit Facility was replaced by an Amended and Restated Credit Agreement, as discussed below. Under the Credit Facility, the interest rate on both the Revolving Facility and the Term Loan bear interest at a floating rate based upon, at the Company's option, LIBOR, or the Alternate Base Rate ("ABR"), which is the higher of CSFB's prime rate (less one quarter of one percent) and the Federal Funds Effective Rate, plus one half of one percent, in each case plus a margin determined based on our ratio of net debt to EBITDA. Interest is payable on the last day of each quarter. During the years ended December 31, 2002, 2001 and 2000, the interest rates on the Revolving Facility and Term Loan ranged from 3.53 percent to 6.00 percent, 4.61 percent to 11.75 percent, and 8.84 percent to 11.75 percent, respectively. F-19 (b) Amended and Restated Credit Agreement On October 21, 2002, the Company entered into an amendment and restatement of its existing Credit Agreement (the "Amended and Restated Credit Agreement"). Pursuant to the terms of the Amended and Restated Credit Agreement, the Credit Facility was amended to allow for the following: (1) a $200.0 million senior secured revolving credit facility (the "Revolving Credit Facility"), including a $25.0 million letter of credit sublimit; and (2) a $22.3 million three-year senior secured term loan facility (the "Term Loan Facility"). The aggregate amount available for borrowing under the Revolving Credit Facility is determined based on a portion of eligible accounts receivable. In general, the Company's borrowing availability under the Revolving Credit Facility is subject to our borrowing base (defined as portions of eligible billed and unbilled accounts receivable) and the Company's ratio of net debt to EBITDA and net senior debt to EBITDA, as defined in the Amended and Restated Credit Agreement. The Company incurred approximately $626,000 in expenses related to this Amended and Restated Credit Agreement. These expenses have been capitalized as additional deferred financing fees and are being amortized over the remaining term of the Credit Facility. Borrowings under the Term Loan Facility and the Revolving Credit Facility mature on June 30, 2005. Principal payments of approximately $950,000 are due quarterly under the Term Loan Facility, with approximately $12.7 million due at final maturity. Borrowings under the Revolving Credit Facility and Term Loan Facility bear interest at a floating rate based upon, at the Company's option, LIBOR, or the Alternate Base Rate ("ABR"), which is the higher of Credit Suisse First Boston's ("CSFB") prime rate (less one quarter of one percent) and the Federal Funds Effective Rate, plus one half of one percent, in each case plus a margin determined based upon our ratio of net debt to EBITDA (as defined in the Amended and Restated Credit Agreement). From the date of the amendment through December 31, 2002, the interest rates for the Term Loan Facility and the Revolving Credit Facility ranged from 3.63 percent to 5.75 percent. The Company may, under certain conditions described in the Amended and Restated Credit Agreement, request an extension to the maturity date of the Revolving Credit Facility. In certain cases, the Company is required to make excess cash payments (as defined in the Amended and Restated Credit Agreement) to the extent certain conditions and ratios are met. All of the Company's existing and future domestic subsidiaries unconditionally guarantee the repayment of amounts borrowed under the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement is secured by substantially all of the Company's and its domestic subsidiaries' tangible and intangible assets, including substantially all of the capital stock of the Company's subsidiaries. The Amended and Restated Credit Agreement contains affirmative and negative covenants in addition to financial covenants, customary for such financings. The Amended and Restated Credit Agreement also permits the Company to elect from time to time to (i) repurchase certain amounts of its subordinated debt and outstanding common stock from its share of excess cash flow (as defined in the credit agreement); and (ii) repurchase certain amounts of its subordinated debt from it share of net cash proceeds of issuances of equity securities. F-20 The Amended and Restated Credit Agreement contains customary events of default, certain of which allow for grace periods. As of December 31, 2002, the outstanding amounts under the Amended and Restated Credit Agreement were as follows (in thousands): 2002 Revolving Facility $ 7,000 Term Loan Facility 21,201 -------------- $ 28,201 ============== The remaining available borrowings under the Revolving Credit Facility as of December 31, 2002 was $108.3 million. For the years ended December 31, 2002, 2001 and 2000, total interest expense incurred on the Revolving Credit Facility was approximately $1.1 million, $2.7 million and $2.3 million, respectively. For the years ended December 31, 2002, 2001 and 2000, total interest expense incurred on the Term Loan Facility was approximately $1.2 million, $4.1 million and $5.9 million, respectively. (c) Senior Subordinated Notes Payable On May 11, 1999, the Company sold $100.0 million, in aggregate principal amount of ten-year, 12% Notes. The proceeds of the issuance of the 12% notes were principally used to purchase A&T. The Notes are subordinate to the Company's Amended and Restated Credit Facility but rank senior to any other subordinated indebtedness. The 12% Notes mature May 15, 2009 and interest is payable semi-annually on May 15 and November 15. The Company cannot redeem the 12% Notes prior to May 15, 2004 except under certain conditions. The Company used net proceeds from its IPO to redeem $25.0 million principal amount of its 12% Notes on April 15, 2002. In addition, as a result of the redemption of the $25.0 million principal amount of the Company's 12% Notes, the Company incurred a $3.0 million prepayment premium and wrote-off a proportionate amount of approximately $185,000, net of tax, of the unamortized deferred financing fees related to the portion of the 12% Notes that were repaid. The prepayment premium and write-off of deferred financing fees, totaling $2.6 million, net of tax, have been reflected as an extraordinary loss in the accompanying unaudited consolidated statements of operations for the year ended December 31, 2002. In addition, under certain conditions after May 15, 2004, the Company can redeem some portion of the 12% Notes at certain redemption prices. Total interest expense for the 12% Notes incurred during 2002, 2001 and 2000 approximated $9.9 million, $12.0 million, and $12.1 million, respectively. The 12% Notes are guaranteed by each of the Company's existing and certain future domestic subsidiaries (see note 17). The 12% 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, the Company entered into subordinated promissory notes with the Techmatics shareholders and option holders as of the date of acquisition in the principal amount of $10.0 million, discounted as of the date of acquisition to approximately $8.9 million. 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 year ended December 31, 2000 was approximately $117,000. F-21 In connection with the purchase of Sherikon (note 5(a)), the Company 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 were due on October 20, 2002. On October 18, 2002, the Company asserted an indemnification claim against the former shareholders of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory note. The Company has not made this $2.5 million scheduled payment pending resolution of the indemnification claim. During the year ended December 31, 2002, 2001 and 2000, total interest expense on the subordinated promissory notes with the Sherikon shareholders was approximately $232,000, $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. The principal amount of the note was due in April 2004, but could be prepaid without penalty at any time prior to maturity. On June 29, 2001, Anteon Virginia purchased from Ogden the then outstanding principal amount of 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 and 2000 was approximately $86,000, 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 $7.5 million, all bearing interest at 6%, which were payable quarterly. The principal amount of the notes was due in April 2004, but could be prepaid without penalty at any time prior to maturity. The Company used a portion of the net proceeds from its IPO to repay in full this subordinated promissory note held by Azimuth Technologies, L.P., one of the Company's principal stockholders. Total interest expense incurred on the subordinated notes payable for the years ended December 31, 2002, 2001 and 2000 was approximately $90,000, $450,000, 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 $22.5 million. The note bore interest at 12 percent, with interest payable semi-annually each June 30 and December 31, through maturity on June 23, 2010. The Company could 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 could be prepaid by the Company without penalty. The note was convertible into the Company's non-voting common stock at the option of the holder at any time at the conversion price of $4.86 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 could have been paid either in cash or additional notes which are identical to the above note, except that the additional notes were not convertible into shares of the Company's common stock. In March 2002, in connection with the Company's IPO, the Company repaid $4.4 million in accrued interest related to the note, and the $22.5 million principal amount subordinated convertible promissory note was converted pursuant to its terms into 4,629,232 shares of the Company's common stock at a conversion price of $4.86 per share. F-22 During the years ended December 31, 2002, 2001 and 2000, the Company incurred approximately $667,000, $3.2 million, and $3.0 million, respectively, of interest expense on the notes. (h) Future Maturities Scheduled future maturities under the Company's indebtedness, excluding the $2.5 million Subordinated Notes Payable, are as follows (in thousands): Year ending December 31, 2003 $ 3,798 2004 3,798 2005 20,605 2006 -- 2007 -- Thereafter 75,000 ------------ $ 103,201 ============ (i) Interest Rate Swap Agreements OBJECTIVES AND CONTEXT The Company uses variable-rate debt to finance its operations through its Revolving Facility and Term Loan. These debt obligations expose the Company 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 the Company's objective to hedge a portion of its longer-term variable interest payments for the Revolving Facility and Term Loan. 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 the Company'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, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating fixed-rate long-term debt. The Company does not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, the Company does not speculate using derivative instruments. RISK MANAGEMENT POLICIES The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. F-23 The Company monitors interest rate cash flow risk attributable to both the Company's outstanding or forecasted debt obligations as well as the Company's offsetting hedge positions and estimates the expected impact of changes in interest rates on the Company'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 affects earnings. During the year ended December 31, 2002, the Company exercised its cancellation rights under certain interest rate swap agreements and cancelled $30.0 million of such agreements. These interest rate swap agreements related primarily to term loan obligations that have been permanently reduced. Interest expense for the year ended December 31, 2002 includes losses of $1.9 million associated with these cancellations. Over the next twelve months, approximately $137,000 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, 2002, the fair value of the Company's interest swap agreements resulted in a net liability of $763,000 and has been included in other current liabilities. The Company's interest rate swap agreements effectively changed the Company's interest rate exposure for the following amounts, as of December 31, 2002, to the following fixed rates:
Fair Value as Effective of December 31, Date of Swap Notional Maturity of Fixed Rate 2002 Agreement Amount Swap Agreement of Interest (in thousands) --------------------- -- ------------- -- ---------------------- -- ------------- --- ----------------- --------------------- September 1998 $5 million September 25, 2003 5.02 percent $(137) --------------------- June 2001 $10 million June 30, 2004 5.78 percent $(626) --------------------- -- ------------- -- ---------------------- -- ------------- --- -----------------
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, 2002. (10) Common Stock The Company's authorized capital stock currently consists of 175,000,000 shares of common stock and 15,000,000 shares of preferred stock. The holders of the Company's 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, and if declared by the Company's 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. 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. F-24 Preferred Stock The Company's preferred stock may be issued from time to time in one or more series. The Company's 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. The Company has 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. Rights Agreement In connection with the Company's IPO, the Company distributed one preferred share purchase right for each outstanding share of common stock to the stockholders of record on that date (the "Rights Agreement"). Under the Company's Rights Agreement, each right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $0.01 per share, at a price of $76.50 per one one-thousandth of a share, under certain circumstances provided for in the Rights Agreement. Until a "separation date" (as defined in the Rights Agreement) occurs, the rights will: o Not be exercisable; o Be evidenced by certificates that represent shares of the Company's common stock; and o Trade with the Company's 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 the Company. (11) Income Taxes The provisions for income taxes for the years ended December 31, 2002, 2001 and 2000, consist of the following (in thousands), respectively:
Years ended December 31, ----------------------------------------------- 2002 2001 2000 ----------- ------------ ------------- Current provision (benefit): Federal $ 11,727 1,140 293 State 1,600 802 197 Foreign 119 62 104 ----------- ------------ ------------- Total current provision (benefit) 13,446 2,004 594 ----------- ------------ ------------- Deferred provision (benefit): Federal 4,331 1,501 (880) State 597 853 198 Foreign -- 55 (65) ----------- ------------ ------------- Total deferred provision (benefit) 4,928 2,409 (747) ----------- ------------ ------------- Total income tax provision (benefit) $ 18,374 4,413 (153) =========== ============ =============
F-25 The income tax provisions for the years ended December 31, 2002, 2001 and 2000, respectively, are different from that computed using the statutory U.S. federal income tax rate of 34% for the year December 31, 2000 and 35% for December 31, 2001 and 2002 as set forth below (in thousands):
Years ended December 31, ----------------------------------------------- 2002 2001 2000 ----------- ------------ ------------- Expected tax expense (benefit), computed at statutory rate $ 16,590 1,401 (1,853) State taxes, net of federal expense 1,428 1,251 7 Nondeductible expenses 330 304 264 Goodwill amortization -- 1,804 1,074 Valuation allowance -- - 295 Increase in marginal federal rate -- 200 - Stock basis difference on sale of subsidiary -- (790) - Foreign rate differences 53 (21) 8 Other (27) 264 52 ----------- ------------ ------------- $ 18,374 4,413 (153) =========== ============ =============
The tax effect of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2002 and 2001 was presented below (in thousands):
2002 2001 -------------- -------------- Deferred tax assets: Accrued expenses $ 6,244 $ 6,101 Intangible assets, due to differences in amortization 2,492 4,411 Interest rate swaps 298 1,136 Accounts receivable allowances 706 634 Property and equipment, due to differences in depreciation 831 493 Net operating loss carryforwards 356 3,262 -------------- -------------- Total gross deferred tax assets 10,927 16,037 Less: Valuation allowance (295) (295) -------------- -------------- -------------- -------------- Net deferred tax assets 10,632 15,742 -------------- -------------- -------------- -------------- Deferred tax liabilities: Deductible goodwill, due to differences in amortization 7,502 7,552 Revenue recognition differences 6,616 6,500 Accrued expenses 5,741 6,058 Property and equipment, due to differences in depreciation 811 742 -------------- -------------- Total deferred tax liabilities 20,670 20,852 -------------- -------------- -------------- Deferred tax liabilities, net $ (10,038) $ (5,110) ============== ============== ============== ==============
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 portion of the benefits of these deductible differences related to Federal income taxes. The Company has established a valuation allowance as of December 31, 2002 and 2001 of $295,000 and $295,000, respectively against certain state net operating loss carryforwards. At December 31, 2002, the Company had federal and state net operating loss carryforwards of approximately $116,000 and $5.8 million, respectively. Carryforwards have various expiration dates beginning in 2004. F-26 (12) Employee Benefit Plans Employees of the Company may participate in 401(k) retirement savings plans, whereby employees may elect to make contributions pursuant to a salary reduction agreement upon meeting eligibility requirements. Participants may contribute up to 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. The Company matches up to 50 percent of the first 6 percent of a participant's contributions, subject to certain limitations. The Company made contributions to these plans of approximately $7.1 million, $5.6 million and $5.3 million for the years ended December 31, 2002, 2001, and 2000 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 contribution to this plan for the year ended December 31, 2000 was approximately $2.3 million. (13) Stock Option and Other Compensation Plans (a) Stock Option Plan In January 1997, the Company's Board of Directors approved the adoption of the Anteon Virginia Corporation Omnibus Stock Plan ("the Stock Option Plan"). At the discretion of the Board of Directors, the stock option 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, 2002, an aggregate of 801,040 shares of the Company's common stock were reserved for issuance under the stock option plan. The exercise price of stock options granted is the market value of the common stock at the grant date. Prior to the Company's IPO, the exercise price of stock options granted was determined by the Company's Board of Directors but was 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% of the shares subject to the options vest on the first anniversary of the grant date and an additional 20% vest on each succeeding anniversary of the grant date. For options granted from the date of the adoption of the Company's stock option plan until September 21, 2000, employees have a period of three years from the vesting date to exercise the option to purchase shares of the Company's common stock. In 1997, the Company's Board of Directors approved that 20 percent of the options issued on the August 1, 1997 grant date vested immediately. On September 21, 2000, the Company's 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. On March 11, 2002, the Company's Board of Directors approved that, with respect to stock options granted from that date forward, each grantee has a period of 10 years from the date of grant in which to exercise options which vest. F-27 For stock options granted to two directors of the Company on August 1, 1997, 33 1/3% of the shares subject to the options vested on the first anniversary of the grant date, and an additional 33 1/3% vested on the two succeeding anniversaries of the grant date. As of December 31, 2002 these directors' options were fully vested and exercised. The following tables summarize information regarding options under the Company's stock option plan:
Weighted average Outstanding Number Option price exercise and of shares per share price exercisable ------------ ---------------- ---------------- ---------------- Outstanding at December 31, 1999 3,627,680 $ 0.84-5.25 $ 3.65 853,728 Granted 965,000 6.25-6.49 6.31 Exercised (42,880) 4.86-6.41 6.21 Cancelled or expired (263,800) 0.84-6.25 5.00 ------------ ---------------- ---------------- Outstanding at December 31, 2000 4,286,000 $ 0.84-6.49 $ 4.27 1,489,516 Granted 64,000 8.10 8.10 Exercised (82,680) 0.84-6.41 1.84 Cancelled or expired (250,480) 0.84-8.10 5.64 ------------ ---------------- ---------------- ------------ ---------------- ---------------- Outstanding at December 31, 2001 4,016,840 $ 0.84-8.10 $ 4.21 2,178,960 Granted 1,417,000 18.00-27.25 19.04 Exercised (1,135,632) 0.84-8.10 3.49 Cancelled or expired (175,000) 2.30-18.00 6.24 ------------ ---------------- ---------------- Outstanding as of December 31, 2002 4,123,208 $ 0.84-27.25 $ 8.98 1,647,368 ============ ================ ================
Option and weighted average price information by price group is as follows:
Shares outstanding Exercisable shares ---------------------------------------------- ------------------------------ Number Weighted Weighted Weighted average average average exercise remaining Number exercise of shares price life of shares price ------------ --------------- --------------- ------------- --------------- December 31, 2002: $0.84 596,848 $ 0.84 1.8 596,848 $ 0.84 $2.30 to $3.36 32,000 $ 2.43 2.8 30,400 $ 2.38 $4.02 to $4.66 590,320 $ 4.61 3.7 388,400 $ 4.61 $4.86 to $5.25 737,440 $ 5.20 4.6 377,520 $ 5.21 $6.25 to $6.49 722,800 $ 6.30 4.5 250,000 $ 6.30 $8.10 33,800 $ 8.10 6.3 4,200 $ 8.10 $18.00 to $27.25 1,410,000 $ 17.77 6.8 -- ------------ ------------- ------------ ------------- 4,123,208 1,647,368 ============ =============
(b) Directors' Deferred Compensation Plan Under a plan established during 2000, certain of the Company'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 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 acquired in consideration of the annual fees, or (3) a combination of each of the above. The Company recognized approximately $144,000 during the year ended December 31, 2001 as compensation expense. The amount of compensation expense for the year ended December 31, 2000 was not significant. The plan was terminated by the board effective as of December 31, 2001. (c) Pro Forma Disclosures The Company applies APB No. 25 and related interpretations in accounting for the Company stock option 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. F-28 Had compensation cost for the grants under the Company stock option 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, 2002, 2001 and 2000 would approximate $23.9 million, $(824,000) and $(6.4 million), respectively, using an expected option life of 5, 7 and 7 years, respectively, dividend yield rate of 0% and volatility rates of 47.8%, 70% and 20%, respectively, and risk-free interest rates of 2.78%, 4.84% and 5.16% for 2002, 2001 and 2000, respectively (see note 2 l). The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. (14) Comprehensive Income (Loss) Comprehensive income (loss), 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). The amount of accumulated foreign currency translation adjustment was approximately $(44,000), $(43,000) and $37,000, as of December 31, 2002, 2001 and 2000, respectively. The amount of accumulated other comprehensive income related to interest rate swaps was $763,000 ($465,000 net of tax) and $2.8 million ($1.7 million net of tax) as of December 31, 2002 and December 31, 2001, respectively. (15) Earnings (Loss) Per Common Share The computations of basic and diluted income (loss) per common share are as follows:
For the period ended December 31, 2002 Income Weighted average shares Per Share (Numerator) (Denominator) Amount (in thousands, except share and per share data) Basic earnings per share: Income before extraordinary item $ 29,025 32,163,150 $ 0.90 Extraordinary loss, net of tax (2,581) 32,163,150 (0.08) -------------------------- ========================== Net income $ 26,444 32,163,150 $ 0.82 ========================== ========================== Stock options 1,858,447 Diluted earnings per share: Income before extraordinary item $ 29,025 34,021,597 $ 0.85 Extraordinary loss, net of tax (2,581) 34,021,597 (0.07) -------------------------- ========================== Net income $ 26,444 34,021,597 $ 0.78 ========================== ==========================
F-29
For the period ended December 31, 2001 Income Weighted average shares Per Share (Numerator) (Denominator) Amount (in thousands, except share and per share data) Basic earnings per share: Loss before extraordinary item $ (412) 23,786,565 $ (0.02) Extraordinary gain, net of tax 330 23,786,565 0.01 ========================== ========================= Net loss $ (82) 23,786,565 $ (0.01) ========================== ========================= Stock options -- Diluted earnings per share: Loss before extraordinary item $ (412) 23,786,565 $ (0.02) Extraordinary gain, net of tax 330 23,786,565 0.01 ========================== ========================= Net loss $ (82) 23,786,565 $ (0.01) ========================== =========================
For the period ended December 31, 2000 Income Weighted average shares Per Share (Numerator) (Denominator) Amount (in thousands, except share and per share data) Basic earnings per share: Loss before extraordinary item $ (5,290) 23,786,565 $ (0.22) Extraordinary loss, net of tax -- 23,786,565 -- ========================== ========================== Net loss $ (5,290) 23,786,565 $ (0.22) ========================== ========================== Stock options -- Diluted earnings per share: Loss before extraordinary item $ (5,290) 23,786,565 $ (0.22) Extraordinary loss -- 23,786,565 -- ========================== ========================== Net loss, net of tax $ (5,290) 23,786,565 $ (0.22) ========================== ==========================
(16) Commitments and Contingencies (a) Leases The Company leases facilities and certain equipment under operating lease agreements expiring at various dates through 2010. As of December 31, 2002, the aggregate minimum annual rental commitments under noncancelable operating leases are as follows (in thousands): Year ending December 31, 2003 $ 26,209 2004 23,915 2005 20,839 2006 19,025 2007 15,688 Thereafter 60,474 ------------- Total minimum lease payments $ 166,150 ============= F-30 Rent expense under all operating leases for the years ended December 31, 2002, 2001 and 2000 was approximately $24.2 million, $23.1 million and $17.7 million, respectively. (b) Management Fees Effective June 1, 1999, the Company entered into an arrangement with Caxton-Iseman Capital, Inc., an affiliate and advisor to the Company, whereby the amount the Company was required to pay for management fees to Caxton-Iseman Capital, Inc. increased to $1.0 million per year. During the years ended December 31, 2002, 2001, and 2000, the Company incurred $0, $1.0 million and $1.0 million, respectively, of management fees with Caxton-Iseman Capital, Inc. Effective December 31, 2001, the Company entered into a new agreement with Caxton-Iseman Capital, Inc. that terminated the management fee agreement. Under the terms of this new agreement, the Company was 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. As a result, Caxton-Iseman no longer provides management advisory services to the Company. Any further services requested by the Company that are provided by Caxton-Iseman, if any, will be paid for by the Company at rates negotiated at that time. (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. On March 8, 2002, the Company received a letter from one of its principal competitors, which is the parent company of one of its subcontractors, claiming that the Company had repudiated its obligation under a subcontract with the subcontractor. The letter also alleged that the Company was soliciting employees of the subcontractor in violation of the subcontract and stated that the subcontractor would seek arbitration, injunctive relief and other available remedies. The subcontractor filed a demand for arbitration to which the Company filed an answer and counter demand. The arbitration hearing concluded on September 16, 2002. On December 18, 2002, the arbitrator issued a decision requiring the Company to continue to issue task orders to the subcontractor under the subcontract for so long as its customer continues to issue task orders to the Company for these services and enjoining the Company from interviewing, offering employment to, hiring or otherwise soliciting employees of the subcontractor who work on this particular project. The arbitrator's decision also denied the subcontractor's claim for monetary damages and our counter-demand. The Company subsequently filed an action to vacate or modify that portion of the arbitrator's decision enjoining it from hiring certain subcontractor employees under any circumstances, since the prohibition conflicts with the parties' contractual obligations as provided in the non-solicitation clause of the parties' subcontract, and imposes additional obligations solely on the Company and to which the parties never agreed. The subcontractor has filed an action to confirm the arbitration award. On February 21, 2003, the court heard oral argument on the parties' respective motions and a decision is pending. The Company entered into a settlement agreement on April 24, 2001 with Cambridge Technology Partners, Inc. ("Cambridge") to resolve a legal action brought by Cambridge against the Company for work performed solely by Cambridge for the United States Customs Service ("Customs Service"). In 1998, the Customs Service requested that the Company 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. The Company 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, the Company terminated the Cambridge subcontract. In 2000, Cambridge filed a lawsuit seeking payment of the subcontract amount, approximately $3.0 million, plus pre-judgment interest. Settlement discussions with Cambridge just prior to the trial date in April 2001 resulted in Anteon Virginia deciding to settle the matter. Under the terms of the settlement agreement, the Company agreed to pay Cambridge $600,000. In exchange, Cambridge agreed to dismiss all claims against the Company. The Company also agreed to dismiss its counter-claims against Cambridge. The settlement was recognized in general and administrative expense during the quarter ended March 31, 2001. F-31 (17) Domestic Subsidiaries Summarized Financial Information Under the terms of the 12% Notes and the Company's Credit Facility, the Company's 100 percent-owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the 12% Notes and the Company's Credit Facility. Such guarantees are full, unconditional and joint and several. Separate financial statements of the Guarantor Subsidiaries are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on a combined basis, condensed balance sheets, statements of operations and statements of cash flows information for the Guarantor Subsidiaries, the Company's Non-Guarantor Subsidiaries and for the Company.
As of December 31, 2002 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Balance Sheets Corporation Subsidiaries Subsidiaries Entries Corporation --------------------------------------------------------------------------------------------------------------- (in thousands) Cash and cash equivalents $ (17) $ 3,659 $ 624 $ -- $ 4,266 Accounts receivable, net -- 188,466 593 -- 189,059 Prepaid expenses and other 1,288 13,365 418 -- 15,071 current assets Property and equipment, net 2,364 7,505 123 -- 9,992 Due from Parent (22,607) 22,746 (139) -- -- Investment in and advances to 23,898 -- subsidiaries (2,630) -- (21,268) Goodwill, net 94,946 43,673 -- -- 138,619 Intangible and other assets, net 65,863 1,621 201 (60,000) 7,685 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total assets 165,735 278,405 1,820 (81,268) 364,692 ============================================================================ ============================================================================ Indebtedness 98,701 67,000 -- (60,000) 105,701 Accounts payable 526 46,804 300 -- 47,630 Accrued expenses and other 2,582 73,470 623 -- 76,675 liabilities Deferred revenue 5,512 189 -- 5,701 -- ---------------------------------------------------------------------------- Total liabilities 101,809 192,786 1,112 (60,000) 235,707 Minority interest in subsidiaries -- -- 156 -- 156 Total stockholders' equity 63,926 85,619 552 (21,268) 128,829 (deficit) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) $ 165,735 $ 278,405 $ 1,820 $ (81,268) $ 364,692 ============================================================================
F-32
For the Year Ended December 31, 2002 -------------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Operations Corporation Subsidiaries Subsidiaries Entries Corporation ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- (in thousands) Revenues $ -- $ 826,640 $ 5,252 $ (6,066) $ 825,826 Costs of revenues 2 712,725 4,667 (6,066) 711,328 ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Gross profit (2) 113,915 585 -- 114,498 Total operating expenses 1,699 63,136 368 (15,099) 50,104 ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Operating income (1,701) 50,779 217 15,099 64,394 Other income 7,181 8,335 -- (15,099) 417 Interest expense (income), net 9,559 7,850 (15) -- 17,394 Minority interest in (earnings) losses of subsidiaries -- -- (18) -- (18) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Income (loss) before provision for income taxes and extraordinary loss (4,079) 51,264 214 -- 47,399 Provision (benefit) for income (1,581) 19,835 120 -- 18,374 taxes ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Income (loss) before (2,498) 31,429 94 29,025 extraordinary loss Extraordinary loss, net of tax (2,581) -- -- -- (2,581) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Net income (loss) $ (5,079) $ 31,429 $ 94 $ -- $ 26,444 ============ ============= ============ ============= =============
F-33
For the Year Ended December 31, 2002 -------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor International Statements of Cash Flows Corporation Subsidiaries Subsidiaries Corporation ------------------------------------------------------------------------------------------------------------------ (in thousands) Net income (loss) $ (5,079) $ 31,429 $ 94 $ 26,444 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on disposals of property and equipment -- 24 1 25 Extraordinary loss before tax 4,232 -- -- 4,232 Interest rate swap termination (1,903) -- -- (1,903) Depreciation and amortization of property and equipment 632 3,613 49 4,294 Other intangibles amortization 1,687 220 -- 1,907 Amortization of deferred financing costs 1,210 -- -- 1,210 Deferred income taxes 2,537 1,553 -- 4,090 Minority interest in earnings (losses) of subsidiaries -- -- 18 18 Changes in assets and liabilities, net of acquired assets and liabilities (2,256) (37,041) 258 (39,039) --------------- ---------------- ----------- ------------- Net cash provided by (used in) operating activities 1,060 (202) 420 1,278 Cash flows from investing activities: Purchases of property and equipment and other assets (1,169) (2,009) (47) (3,225) Proceeds from sale of building -- 1,802 -- 1,802 --------------- ---------------- ----------- ------------- --------------- ---------------- ----------- ------------- Net cash used in investing activities (1,169) (207) (47) (1,423) Cash flows from financing activities: Principal payments on bank and other notes payable -- (47) -- (47) Deferred financing costs (642) (650) -- (1,292) Payment on subordinated notes payable -- (567) -- (567) Principal payments on term loan (25,853) -- -- (25,853) Proceeds from revolving facility -- 862,600 -- 862,600 Principal payments on revolving facility (18,700) (855,600) -- (874,300) Redemption of senior subordinated notes payable (25,000) -- -- (25,000) Prepayment premium on senior subordinated notes payable (3,000) -- -- (3,000) Proceeds from issuance of common stock, net of expenses 81,808 -- -- 81,808 Principal payments on subordinated notes payable to stockholders (7,499) -- -- (7,499) Payment of subordinated notes payable-related party (4,369) -- -- (4,369) ---------------- --------------- ----------- ------------- ---------------- --------------- ----------- ------------- Net cash provided by (used in) financing activities (3,255) 5,736 -- 2,481 ---------------- --------------- ----------- ------------- ---------------- --------------- ----------- ------------- Net increase (decrease) in cash and cash equivalents (3,364) 5,327 373 2,336 Cash and cash equivalents, beginning of year 3,347 (1,668) 251 1,930 ---------------- --------------- ----------- ------------- Cash and cash equivalents, end of year $ (17) $ 3,659 $ 624 $ 4,266 ================ =============== =========== =============
F-34
As of December 31, 2001 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Balance Sheets Corporation Subsidiaries Subsidiaries Entries Corporation --------------------------------------------------------------------------------------------------------------- (in thousands) Cash and cash equivalents $ 3,348 $ (1,669) $ 251 $ -- $ 1,930 Accounts receivable, net -- 129,709 1,636 -- 131,345 Prepaid expenses and other 4,045 6,603 495 -- 11,143 current assets Property and equipment, net 1,828 10,791 125 -- 12,744 Due from Parent (24,841) 25,430 (589) -- -- Investment in and advances to subsidiaries 116,220 26 -- (116,246) -- Goodwill, net 92,949 43,673 -- -- 136,622 Intangible and other assets, net 11,106 1,579 182 -- 12,867 ------------ -------------- ----------- ------------- ----------- Total assets 204,655 216,142 2,100 (116,246) 306,651 ============ ============== =========== ============= =========== Indebtedness 202,390 515 -- -- 202,905 Accounts payable -- 24,448 580 -- 25,028 Due to related party -- 3,600 -- -- 3,600 Accrued expenses and other -- current liabilities 6,479 52,633 327 59,439 Deferred revenue -- 8,529 214 -- 8,743 Other long-term liabilities -- 9,570 381 -- 9,951 ------------ -------------- ----------- ------------- ----------- ------------ -------------- ----------- ------------- ----------- Total liabilities 208,869 99,295 1,502 -- 309,666 Minority interest in subsidiaries 289 -- 138 -- 427 Total stockholders' equity (4,503) 116,847 460 (116,246) (3,442) (deficit) ------------ -------------- ----------- ------------- ----------- ------------ -------------- ----------- ------------- ----------- Total liabilities and stockholders' equity (deficit) $ 204,655 $ 216,142 $ 2,100 $ (116,246) $ 306,651 ============ ============== =========== ============= ===========
For the Year Ended December 31, 2001 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Operations Corporation Subsidiaries Subsidiaries Entries Corporation --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- (in thousands) Revenues $ -- $ 716,616 $ 8,662 $ (10,255) $ 715,023 Costs of revenues -- 629,729 7,868 (10,255) 627,342 ------------ -------------- ------------ ------------- -------------- ------------ -------------- ------------ ------------- -------------- Gross profit -- 86,887 794 -- 87,681 Total operating expenses 4,123 56,262 431 -- 60,816 ------------ -------------- ------------ ------------- -------------- ------------ -------------- ------------ ------------- -------------- Operating income (4,123) 30,625 363 -- 26,865 Other income -- 4,046 -- -- 4,046 Interest expense (income), net 17,382 9,507 (17) -- 26,872 Minority interest in (earnings) losses of subsidiaries (14) 32 (56) -- (38) ------------ -------------- ------------ ------------- -------------- ------------ -------------- ------------ ------------- -------------- Income (loss) before provision for income taxes and (21,519) 25,196 324 -- 4,001 extraordinary gain Provision (benefit) for income (8,259) 12,555 117 -- 4,413 taxes ------------ -------------- ------------ ------------- -------------- ------------ -------------- ------------ ------------- -------------- Income (loss) before (13,260) 12,641 207 -- (412) extraordinary gain Extraordinary gain, net of tax 330 -- -- -- 330 ------------ -------------- ------------ ------------- -------------- ------------ -------------- ------------ ------------- -------------- Net income (loss) $ (12,930) $ 12,641 $ 207 $ -- $ (82) ============ ============== ============ ============= ==============
F-35
For the Year Ended December 31, 2001 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Cash Flows Corporation Subsidiaries Subsidiaries Entries Corporation --------------------------------------------------------------------------------------------------------------- (in thousands) Net income (loss) $ (12,930) $ 12,641 $ 207 $ -- $ (82) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary gain (519) -- -- -- (519) Gain on sales and closures of -- (4,046) -- -- (4,046) business Depreciation and amortization of property and equipment 885 6,182 43 -- 7,110 Goodwill amortization 5,334 1,370 -- -- 6,704 Other intangibles amortization 2,223 98 -- -- 2,321 Amortization of noncompete agreements -- 349 -- -- 349 Amortization of deferred financing costs 1,216 -- -- -- 1,216 Loss on disposals of property and equipment -- 791 -- -- 791 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 43,401 (20,973) (278) (1,665) 20,485 assets and liabilities ------------ ------------- ----------- ------------ ------------- Net cash provided by (used in) operating activities 39,148 368 28 (1,665) 37,879 ------------- ------------ ----------- ------------ ------------- ------------- ------------ ----------- ------------ ------------- Cash flows from investing activities: Purchases of property and equipment and other assets (314) (1,774) (93) -- (2,181) Acquisition of Sherikon, net of cash acquired (21) -- -- -- (21) Acquisition of SIGCOM, net of cash acquired -- (10,975) -- -- (10,975) Proceeds from sales of business -- 11,464 -- -- 11,464 Other, net -- 6 -- -- 6 Intercompany transfers (338) 121 217 -- -- --------------- ------------ ----------- ------------ ------------- Net cash provided by (used in) investing activities (673) (1,158) 124 -- (1,707) --------------- ------------ ----------- ------------ ------------- Cash flows from financing activities: Principal payments on bank and other notes payable -- (185) -- -- (185) Payments on business purchase consideration payable and subordinated notes payable (5,000) (1,185) -- -- (6,185) Payments on note payable to (3,212) -- -- -- (3,212) Ogden Principal payments on term loan (12,946) -- -- -- (12,946) Proceeds from revolving 771,200 -- -- -- 771,200 facility Principal payments on (784,500) -- -- -- (784,500) revolving facility Distribution to parent for (1,665) -- -- 1,665 -- debt service Proceeds from minority 152 -- -- -- 152 interest, net --------------- ------------ ----------- ------------ ------------- --------------- ------------ ----------- ------------ ------------- Net cash provided by (used in) financing activities (35,971) (1,370) -- 1,665 (35,676) --------------- ------------ ----------- ------------ ------------- --------------- ------------ ----------- ------------ ------------- Net increase (decrease) in cash and cash equivalents 2,504 (2,160) 152 -- 496 --------------- ------------ ----------- ------------ ------------- Cash and cash equivalents, beginning of year 844 491 99 -- 1,434 --------------- ------------ ----------- ------------ ------------- Cash and cash equivalents, end of year $ 3,348 $ (1,669) $ 251 $ -- $ 1,930 =============== ============ =========== ============ =============
F-36
For the Year Ended December 31, 2000 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Operations Corporation 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 26,452 59 2 -- 26,513 (income), net Minority interests in (earnings) losses of subsidiaries 8 24 -- -- 32 ----------- ---------- ---------- -------------- ------------- ----------- ---------- ---------- -------------- ------------- Income (loss) before provision for income taxes (23,691) 18,162 86 -- (5,443) Provision (benefit) for income (7,431) 7,240 38 -- (153) taxes ----------- ---------- ---------- -------------- ------------- ----------- ---------- ---------- -------------- ------------- Net income (loss) $ (16,260) $ 10,922 $ 48 $ -- $ (5,290) =========== ========== ========== ============== =============
F-37
For the Year Ended December 31, 2000 --------------------------------------------------------------------- --------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Cash Flows Corporation Subsidiaries Subsidiaries Entries Corporation --------------------------------------------------------------------------------------------------------------- (in thousands) Net income (loss) $ (16,260) $ 10,922 $ 489 $ -- $ (5,290) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,707 5,303 14 -- 7,024 Goodwill amortization 4,714 -- -- -- 4,714 Amortization of noncompete agreements 866 -- -- -- 866 Other intangibles amortization 2,673 -- -- -- 2,673 Amortization of deferred financing 1,208 -- -- -- 1,208 costs Gain on disposals of property and -- (187) -- -- (187) equipment Deferred income taxes (674) -- (73) -- (747) Minority interest in earnings (losses) of subsidiaries (8) (24) -- -- (32) Changes in assets and liabilities, net of acquired assets and liabilities 19,131 (10,508) (466) (1,285) 6,872 ------------ ------------- ------------ ---------- ----------- Net cash provided by (used in) operating activities 13,357 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) Acquisition of Sherikon, net of cash (23,906) -- -- -- (23,906) acquired Other, net (128) 1,706 -- -- 1,578 ------------ ------------- ------------ ----------- ----------- Net cash provided by (used in) investing activities (25,365) (3,550) 3 -- (28,912) ------------ ------------- ------------ ---------- ----------- ------------ ------------- ------------ ---------- ----------- Cash flows from financing activities: Principal payments on bank and other notes payable -- (1,629) -- -- (1,629) Principal payments of Techmatics obligations (15,350) -- -- -- (15,350) Deferred financing costs (151) -- -- -- (151) Proceeds from revolving facility 533,000 -- -- -- 533,000 Principal payments on revolving (503,900) -- -- -- (503,900) facility Intercompany investment 335 (335) -- -- -- Distribution to parent for debt service (1,285) -- -- 1,285 -- Proceeds from minority interest, net 66 -- -- -- 66 ------------ ------------- --------------------------------------- ------------ ------------- --------------------------------------- Net cash provided by (used in) financing activities 12,715 (1,964) -- 1,285 12,036 ------------ ------------- --------------------------------------- ------------ ------------- --------------------------------------- Net increase (decrease) in cash and cash equivalents 707 (8) (474) -- 225 Cash and cash equivalents, beginning of 137 499 573 -- 1,209 year............................ ------------ ------------- --------------------------------------- ------------ ------------- --------------------------------------- Cash and cash equivalents, end of year $ 844 $ 491 $ 99 $ -- $ 1,434 ============ ============= =======================================
F-38
(18) Quarterly Results of Operations (Unaudited) The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2002 and 2001 (in thousands, except per share data): Quarter ended: March 31 June 30 September 30 December 31 Total -------------- ------------ --------------- --------------- ----------- 2002 Revenues $ 192,629 201,938 214,314 216,945 825,826 Operating income 14,517 16,021 16,549 17,307 64,394 Income (loss) before extraordinary gain 4,319 7,905 8,166 8,635 29,025 Net income (loss) 4,134 5,509 8,166 8,635 26,444 Basic earnings (loss) per common share: Income (loss) before extraordinary gain 0.17 0.23 0.24 0.25 0.90 Net income (loss) 0.16 0.16 0.24 0.25 0.82 Diluted earnings (loss) per common share: Income (loss) before extraordinary gain 0.15 0.22 0.22 0.24 0.85 Net income (loss) 0.14 0.15 0.22 0.24 0.78 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 (0.03) -- 0.14 (0.13) (0.02) Net income (loss) (0.03) (0.01) 0.14 (0.13) (0.01) Diluted earnings (loss) per common share: Income (loss) before extraordinary gain (0.03) -- 0.13 (0.13) (0.02) Net income (loss) (0.03) (0.01) 0.13 (0.13) (0.01)
During the second quarter of 2001, the Company acquired the training division of SIGCOM, Inc. (note 5(b)), 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 16(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, the Company acquired Sherikon (note 5(a)). (19) Segment Reporting Based on the Company's organization through July 20, 2001, the Company reported two business segments: the Company's government contracting business and the Company's commercial, custom training and performance solutions group (collectively, "IMC", which was sold by the Company during the third quarter of fiscal 2001). 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 the operations of the Company with Vector Data Systems, Ins., Techmatics, Inc., Analysis & Technology, Inc., Sherikon, Inc. and SIGCOM, prior acquisitions that have been integrated into the Company's government contracting business. The amounts shown below reflect both IMC Commercial, the unit sold on July 20, 2001 (see note 3(c)), and IMC Government. Immediately prior to the sale of IMC Commercial, the Company integrated the IMC Government unit into the government contracting business. F-39 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 and 2000 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 (38) subsidiaries -------------- Income before income taxes and 4,001 extraordinary gain Income taxes 4,413 -------------- Loss before extraordinary gain (412) Extraordinary gain, net of tax 330 -------------- -------------- Net loss $ (82) ==============
F-40
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 32 subsidiaries --------------- --------------- Loss before income taxes (5,443) Income taxes (153) --------------- Net loss $ (5,290) ===============
F-41 Certifications I, Joseph M. Kampf, certify that: 1. I have reviewed this annual report on Form 10-K of Anteon International Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 11, 2003 By: /s/ Joseph M. Kampf -------------- --------------------------------- Joseph M. Kampf President and Chief Executive Officer 58 Certifications I, Carlton B. Crenshaw, certify that: 1. I have reviewed this annual report on Form 10-K of Anteon International Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 11, 2003 By: /s/ Carlton B. Crenshaw -------------- ---------------------------- Carlton B. Crenshaw Senior Vice President and Chief Financial Officer 59 EXHIBIT INDEX 2.1 Agreement and Plan of Merger, dated as of March 7, 1999, by and among 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 Agreement and Plan of Merger between Anteon International Corporation, a Virginia corporation, and the Registrant (incorporated by reference to Exhibit 2.2 to Anteon International Corporation's Amendment No. 1 to Form S-1 registration statement, filed on February 5, 2002 (Commission File No. 333-75884)). 3.1 Amended and Restated Certificate of Incorporation of Anteon International Corporation (incorporated by reference to Exhibit 3.1 of Anteon International Corporation's Quarterly Report on Form 10-Q filed on May 14, 2002.) 3.2 Certificate of Designations of Series A Preferred Stock of Anteon International Corporation (incorporated by reference to Exhibit 3.2 of Anteon International Corporation's Quarterly Report on Form 10-Q filed on May 14, 2002.) 3.3 Amended and Restated By-laws of Anteon International Corporation (incorporated by reference to Exhibit 3.3 of Anteon International Corporation's Quarterly Report on Form 10-Q filed on May 14, 2002.) 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 Fifth Supplemental Indenture between the Registrant and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 of Anteon International Corporation's Quarterly Report on Form 10-Q filed on May 14, 2002.) 4.8 Registration Rights Agreement dated March 11, 2002, among the Registrant, Azimuth Technologies, L.P., Azimuth Tech. II LLC, Frederick J. Iseman, Joseph M. Kampf and the other parties named therein (incorporated by reference to Exhibit 4.8 to Anteon International Corporation's Amendment No. 1 to Form S-1 Registration Statement filed on February 5, 2002 (Commission File No. 333-75884)). 60 4.9 Rights Agreement, dated March 15, 2002 (incorporated by reference to Exhibit 4.1 to Anteon International Corporation's Current Report on Form 8-K, filed on April 5, 2002). 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 (incorporated by reference to Exhibit 10.10 to Anteon International Corporation's Amendment No.1 to Form S-1 Registration Statement filed on February 5, 2002 (Commission File No. 333-75884)). 10.11 Amended and Restated Credit Agreement, dated as of October 21, 2002, to the Credit Agreement, dated as of June 23, 1999, among Anteon Corporation Credit Suisse First Boston, Mellon Bank, N.A., Duetsche Bank AG and the lenders named therein. 10.15 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)). 10.16 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)). 10.17 Amended and Restated Omnibus Stock Plan (incorporated by reference to Exhibit 10.2 to Anteon International Corporation's Quarterly Report on Form 10-Q filed May 14, 2002). 10.18 Stock Option Agreement (incorporated by reference to Exhibit 10.17 to Anteon International Corporation's Amendment No. 2 to Form S-1 Registration Statement filed on February 19, 2002 (Commission File No. 333-75884)). 61 10.19 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). 10.20 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). 10.21 Stock Purchase Agreement, dated July 20, 2001, by and among Anteon International Corporation, Interactive Media Corporation and FTK Knowledge (Holdings) Inc. (incorporated by reference to Anteon International Corporation's Current Report on Form 8-K filed on August 3, 2001). 10.22 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). 10.23 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 (incorporated by reference to Exhibit 10.2 to Anteon International Corporation's Amendment No. 1 to Form S-1 Registration statement filed on February 5, 2002 (Commission File No. 333-75884)). 10.24 Retention Agreement (incorporated by reference to Exhibit 10.22 to Anteon International Corporation's Amendment No. 1 to Form S-1 Registration Statement filed on February 5, 2002 (Commission File No. 333-75884)). 21.1 Subsidiaries of the Registrant. 23.1 Consent of KPMG LLP. 99.1 Certification pursuant to section 906 of the Sarbanes Oxley Act of 2002. 99.2 Certification pursuant to section 906 of the Sarbanes Oxley Act of 2002. 62 EX-99 3 auditorsreport.txt EXHIBIT S-1 S-1 Independent Auditors' Report The Board of Directors Anteon International Corporation and subsidiaries: Under date of February 14, 2003, we reported on the consolidated balance sheets of Anteon International Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholder's equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2002, which are included in the Anteon International Corporation and subsidiaries annual report on Form 10-K.In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits. In our opinion, such consolidated 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. As discussed in Note 2(g) to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. KPMG LLP McLean, Virginia February 14, 2003 EX-99 4 qualifyingaccounts.txt EXHIBIT S-2 S-2
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (in thousands) Additions ---------------- Balance at beginning Charged to costs and Charged to Balance at of period expenses other accounts Deductions end of period -------------- ------------ --------------- ---------------- ---------------- 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 Year ended December 31, 2002................. Allowance for doubtful accounts........... $ 4,499 $ 100 $ 122 $ (473) $ 4,248 Deferred tax asset valuation allowance..... 295 $ -- $ -- $ -- $ 295 *Represents amounts recognized from acquired companies.
EX-99 5 sarbanessoxleykampf.txt EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Anteon International Corporation (the "Company") Annual Report on Form 10-K, for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph M. Kampf, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended: and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 11, 2003 By: /s/ Joseph M. Kampf ------------------------- -------------------------------- Joseph M. Kampf President and Chief Executive Officer EX-99 6 sarbanesoxleycrenshaw.txt EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Anteon International Corporation (the "Company") Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Carlton B. Crenshaw, Senior Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1). The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934, as amended: and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 11, 2003 By:/s/ Carlton B. Crenshaw ------------------------ --------------------------------- Carlton B. Crenshaw Senior Vice President and Chief Financial Officer EX-21 7 subsidiaries.txt EXHIBIT 21 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY SUBSIDIARY JURISDICTION OF ORGANIZATION Anteon Corporation...................................Virginia CITI-SIUSS LLC.......................................Delaware EX-23 8 auditorsconsent.txt EXHIBIT 23 Exhibit 23.1 Independent Auditors' Consent The Board of Directors Anteon International Corporation and subsidiaries: We consent to the incorporation by reference in the registration statement (No. 333- ) on Form S-8 of Anteon International Corporation and subsidiaries of our report dated February 14, 2003, with respect to the consolidated balance sheets of Anteon International Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity (deficit), cash flows for each of the years in the three-year period ended December 31, 2002, and all related financial statement schedules, which report appears in the December 31, 2002, annual report on Form 10-K of Anteon International Corporation and subsidiaries. As discussed in Note 2(g) to the consolidated financial statements, effective Janury 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodiwll and Other Intangibles. KPMG LLP McLean, Virginia March 7, 2003 EX-10 9 creditagreement.txt EXHIBIT 10 1 - -------------------------------------------------------------------------------- AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 21, 2002, among ANTEON INTERNATIONAL CORPORATION, ANTEON CORPORATION, THE LENDERS NAMED HEREIN, CREDIT SUISSE FIRST BOSTON, as Administrative Agent and CITIZENS BANK OF PENNSYLVANIA, as Collateral Agent --------------------------- CREDIT SUISSE FIRST BOSTON, as Sole Lead Arranger and Sole Bookrunner CITIZENS BANK OF PENNSYLVANIA, as Syndication Agent DEUTSCHE BANK TRUST COMPANY AMERICAS, as Documentation Agent - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Defined Terms..................................................2 SECTION 1.02. Terms Generally...............................................26 SECTION 1.03. Classification of Loans and Borrowings........................27 SECTION 1.04. Joint and Several Obligations.................................27 ARTICLE II The Credits SECTION 2.01. Commitments....................................................27 SECTION 2.02. Loans..........................................................28 SECTION 2.03. Borrowing Procedure............................................29 SECTION 2.04. Evidence of Debt; Repayment of Loans...........................30 SECTION 2.05. Fees...........................................................30 SECTION 2.06. Interest on Loans..............................................31 SECTION 2.07. Default Interest...............................................32 SECTION 2.08. Alternate Rate of Interest.....................................32 SECTION 2.09. Termination and Reduction of Commitments.......................32 SECTION 2.10. Conversion and Continuation of Borrowings.....................33 SECTION 2.11. Repayment of Term Borrowings...................................34 SECTION 2.12. Prepayment.....................................................35 SECTION 2.13. Mandatory Prepayments..........................................35 SECTION 2.14. Reserve Requirements; Change in Circumstances..................37 SECTION 2.15. Change in Legality.............................................38 SECTION 2.16. Indemnity......................................................39 SECTION 2.17. Pro Rata Treatment.............................................39 SECTION 2.18. Sharing of Setoffs.............................................39 SECTION 2.19. Payments.......................................................40 SECTION 2.20. Taxes..........................................................40 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate.....................................................................42 SECTION 2.22. Swingline Loans................................................43 SECTION 2.23. Letters of Credit..............................................44 SECTION 2.24. Increase in Term Loan Commitments..............................48 SECTION 2.25. ...............................................................49 Increase in Revolving Credit Commitments.....................................49 SECTION 2.26. Extension of Revolving Credit Maturity Date....................50 ARTICLE III Representations and Warranties -ii- SECTION 3.01. Organization; Powers...........................................51 SECTION 3.02. Authorization..................................................51 SECTION 3.03. Enforceability.................................................51 SECTION 3.04. Governmental Approvals; Contracts..............................52 SECTION 3.05. Financial Statements...........................................52 SECTION 3.06. No Material Adverse Change.....................................53 SECTION 3.07. Title to Properties; Possession Under Leases...................53 SECTION 3.08. Subsidiaries...................................................53 SECTION 3.09. Litigation; Compliance with Laws...............................53 SECTION 3.10. Agreements.....................................................53 SECTION 3.11. Federal Reserve Regulations....................................53 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.....53 SECTION 3.13. Use of Proceeds................................................54 SECTION 3.14. Tax Returns....................................................54 SECTION 3.15. No Material Misstatements......................................54 SECTION 3.16. Employee Benefit Plans.........................................54 SECTION 3.17. Environmental Matters..........................................55 SECTION 3.18. Insurance......................................................55 SECTION 3.19. Security Documents.............................................55 SECTION 3.20. Location of Real Property......................................56 SECTION 3.21. Labor Matters..................................................56 SECTION 3.22. Solvency.......................................................56 SECTION 3.23. Ranking........................................................57 ARTICLE IV Conditions of Lending SECTION 4.01. All Credit Events..............................................57 SECTION 4.02. First Credit Event.............................................58 SECTION 4.03. Tranche B Funding Date.........................................59 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties...........................62 SECTION 5.02. Insurance......................................................62 SECTION 5.03. Obligations and Taxes..........................................63 SECTION 5.04. Financial Statements, Reports, etc.............................63 SECTION 5.05. Litigation and Other Notices...................................66 SECTION 5.06. Employee Benefits..............................................66 SECTION 5.07. Maintaining Records; Access to Properties and Inspections......66 SECTION 5.08. Use of Proceeds................................................66 SECTION 5.09. Compliance with Environmental Laws.............................66 SECTION 5.10. Preparation of Environmental Reports...........................67 SECTION 5.11. Audits.........................................................67 SECTION 5.12. Further Assurances.............................................67 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness..................................................68 SECTION 6.02. Liens.........................................................69 SECTION 6.03. Sale and Lease-Back Transactions..............................70 SECTION 6.04. Investments, Loans and Advances...............................71 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions.....73 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends...............................................73 SECTION 6.07. Transactions with Affiliates..................................74 SECTION 6.08. Capital Expenditures..........................................75 SECTION 6.09. Interest Coverage Ratio.......................................75 SECTION 6.10. Fixed Charge Coverage Ratio...................................75 SECTION 6.11. Maximum Leverage Ratio........................................75 SECTION 6.12. Senior Leverage Ratio.........................................75 SECTION 6.13. [Intentionally Omitted].......................................75 SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc.............................................................75 SECTION 6.15. Limitation on Creation of Subsidiaries........................76 SECTION 6.16. Business......................................................76 SECTION 6.17. Designated Senior Indebtedness................................76 SECTION 6.18. Fiscal Year...................................................76 SECTION 6.19. Maintenance of Accounts.......................................77 ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent and the Collateral Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices.......................................................81 SECTION 9.02. Survival of Agreement.........................................82 SECTION 9.03. Binding Effect................................................82 SECTION 9.04. Successors and Assigns........................................82 SECTION 9.05. Expenses; Indemnity...........................................86 SECTION 9.06. Right of Setoff...............................................87 SECTION 9.07. Applicable Law................................................87 SECTION 9.08. Waivers; Amendment............................................87 SECTION 9.09. Interest Rate Limitation......................................88 -iii- SECTION 9.10. Entire Agreement..............................................89 SECTION 9.11. WAIVER OF JURY TRIAL..........................................89 SECTION 9.12. Severability..................................................89 SECTION 9.13. Counterparts..................................................89 SECTION 9.14. Headings......................................................90 SECTION 9.15. Jurisdiction; Consent to Service of Process...................90 SECTION 9.16. Confidentiality...............................................90 Schedule 1.01(a) Existing Letters of Credit Schedule 1.01(b) Subsidiary Guarantors Schedule 2.01 Lenders and Commitments Schedule 3.04 Government Contracts Schedule 3.08 Subsidiaries Schedule 3.09 Litigation Schedule 3.17 Environmental Matters Schedule 3.18 Insurance Schedule 3.19(b) UCC Filing Offices Schedule 3.20 Real Property Owned In Fee Schedule 4.03(b) Other Local Counsel Schedule 4.03(f) Foreign Subsidiary Pledged Stock Schedule 6.01 Outstanding Indebtedness on Closing Date Schedule 6.02 Liens Existing on Closing Date Schedule 6.04(m) Existing Investments Exhibit A Form of Administrative Questionnaire Exhibit B Form of Assignment and Acceptance Exhibit C Form of Borrowing Request Exhibit D Form of Amended and Restated Indemnity, Subrogation and Contribution Agreement Exhibit E Form of Amended and Restated Pledge Agreement Exhibit F Form of Amended and Restated Security Agreement Exhibit G Form of Amended and Restated Subsidiary Guarantee Agreement Exhibit H-1 Form of Restatement Date Opinion of Paul, Weiss, Rifkind, Wharton & Garrison Exhibit H-2 Form of Restatement Date Opinion of Curtis L. Schehr, Esq., General Counsel of the Borrowers Exhibit H-3 Form of Tranche B Funding Date Opinion of Paul, Weiss, Rifkind, Wharton & Garrison Exhibit H-4 Form of Tranche B Funding Date Opinion of Curtis L. Schehr, Esq., General Counsel of the Borrowers Exhibit H-5 Form of Tranche B Funding Date Opinion of Local Counsel Exhibit I Form of Compliance Certificate Exhibit J Form of Borrowing Base/Non-Default Certificate Exhibit K Form of Subordination Provisions Exhibit L Form of Solvency Certificate Exhibit M Form of Acknowledgment, Waiver and Consent of Minority Owner Exhibit N Form of Perfection Certificate -iv- 1 AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 21, 2002, among ANTEON INTERNATIONAL CORPORATION, a Delaware corporation (as the successor by merger to the Borrower under the Existing Credit Agreement (as defined below), the "Borrower"), ANTEON CORPORATION, a Virginia corporation ("Anteon" and, together with the Borrower, the "Borrowers"), the Lenders (as defined in Article I), CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its Cayman Islands branch, as issuing bank (in such capacity, the "Issuing Bank"), and as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, and CITIZENS BANK OF PENNSYLVANIA ("Citizens Bank"), as swingline lender (in such capacity, the "Swingline Lender"), and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders. The Borrower, the Existing Lenders (such term and each other capitalized term used but not defined herein having the meaning given it in Article I), the Issuing Bank, the Administrative Agent, the Swingline Lender and the Collateral Agent are parties to the Existing Credit Agreement, whereunder (a) the Existing Lenders extended credit and/or agreed to extend credit in the form of (i) Tranche A Term Loans on the Closing Date and (ii) Revolving Loans at any time and from time to time prior to the Revolving Credit Maturity Date, (b) the Swingline Lender agreed to extend credit, at any time and from time to time prior to the Revolving Credit Maturity Date, in the form of Swingline Loans, and (c) the Issuing Bank agreed to issue Letters of Credit. Pursuant to the Purchase Agreement, the Borrower intends to acquire (the "Acquisition") all the issued and outstanding Equity Interests of a company identified to the Agents prior to the Restatement Date (the "Target") for aggregate consideration not to exceed $90,000,000 in cash, subject to adjustment as provided in the Purchase Agreement (the "Cash Consideration"). The Borrowers have requested the Tranche B Lenders to extend credit in the form of Tranche B Term Loans on or after the Acquisition Closing Date, in an aggregate principal amount not in excess of $100,000,000. The Borrowers have also requested that the Total Revolving Credit Commitment be increased after the Restatement Date to an aggregate amount not to exceed $200,000,000. The proceeds of the Tranche B Term Loans are to be used solely (a) to pay (or to refinance Revolving Loans used to pay) the Cash Consideration, (b) to pay related fees and expenses and (c) for general corporate purposes. The proceeds of the Revolving Loans and the Swingline Loans are to be used solely for general corporate purposes, including Permitted Acquisitions. Letters of Credit are to be used solely to support payment obligations, performance guarantees and bid bonds incurred by the Borrowers and their Subsidiaries in the conduct of their business. Proceeds of any Incremental Term Loans are to be used solely to finance Permitted Acquisitions and to pay related fees and expenses. The Existing Lenders are willing to continue the Tranche A Term Loans and Revolving Loans as existing on the Restatement Date, and to continue to extend commitments to make Revolving Loans; the Swingline Lender is willing to continue the Swingline Loans as existing on the Restatement Date, and to continue to extend commitments to make Swingline Loans; the Issuing Bank is willing to continue to issue 2 Letters of Credit; and the Tranche B Lenders are willing to make the Tranche B Term Loans on or after the Acquisition Closing Date, in each case on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Account" shall mean any right to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Account Debtor" shall mean, with respect to any Account, the obligor with respect to such Account. "Acquisition" shall have the meaning given to such term in the preamble to this Agreement. "Acquisition Closing Date" shall mean the date on which the Acquisition shall have been consummated. "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.05(b). "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A, or such other form as may be supplied from time to time by the Administrative Agent. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided, however, that for purposes of Section 6.07, the term "Affiliate" shall also include any person that directly or indirectly owns 10% or more of any class of Equity Interests of the person specified or that is an officer or director of the person specified. "Agents" shall mean the Administrative Agent and the Collateral Agent. 3 "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day less 1/4 of 1% and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate for dollars in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Amendment Fee" shall have the meaning assigned to such term in Section 2.05(d). "Amendment No. 6" shall mean Amendment No. 6, Waiver and Agreement dated as of February 1, 2002, to the Existing Credit Agreement. "Applicable Percentage" shall mean (except as otherwise provided in the Incremental Term Loan Assumption Agreement with respect to any Incremental Term Loan), for any day, (a) with respect to any Eurodollar Tranche B Term Loan, 3.25%, (b) with respect to any ABR Tranche B Term Loan, 2.25%, and (c) with respect to any Eurodollar Tranche A Term Loan, ABR Tranche A Term Loan, Eurodollar Revolving Loan or ABR Revolving Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Tranche A/Revolving Spread", "ABR Tranche A/Revolving Spread" or "Fee Percentage", as the case may be, based upon the Leverage Ratio as of the relevant date of determination (provided, that if financial statements and a certificate with respect to the fourth fiscal quarter in any year satisfying the requirements of paragraphs (b) and (g) of Section 5.04 shall be delivered to the Administrative Agent within 60 days after the end of such fiscal quarter, then from the second Business Day following the date on which such financial statements and certificate are so delivered until the relevant date of determination following such fiscal quarter end the Applicable Percentage shall be based upon the Leverage Ratio as of such fiscal quarter end, as determined on the basis of such financial statements): 4 Eurodollar ABR Tranche A/ Tranche A/ Revolving Revolving Fee Leverage Ratio Spread Spread Percentage Category 1 3.25% 2.25% 0.500% - ---------- Greater than 4.75 to 1.00 Category 2 3.00% 2.00% 0.500% - ---------- Greater than 4.25 to 1.00 but less than or equal to 4.75 to 1.00 Category 3 2.75% 1.75% 0.375% - ---------- Greater than 3.50 to 1.00 but less than or equal to 4.25 to 1.00 Category 4 2.50% 1.50% 0.375% - ---------- Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 - ---------------------- ------------ ----------- -------------- Category 5 2.25% 1.25% 0.375% - ---------- Less than or equal to 3.00 to 1.00 ====================== =========== =========== =============== Except as set forth in the proviso immediately preceding the table above, each change in the Applicable Percentage resulting from a change in the Leverage Ratio shall be effective with respect to all Loans, Commitments and Letters of Credit outstanding on and after the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.04(a) or (b) and Section 5.04(g), respectively, indicating such change until the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change; provided, however, that (a) at any time during which the Borrower has failed to deliver when due the financial statements and certificates required by Section 5.04(a) or (b) and Section 5.04(g), respectively, or (b) at the option of the Agents or upon the request of the Required Lenders, at any time after the occurrence and during the continuance of an Event of Default, the Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. Notwithstanding the foregoing, the Applicable Percentage with respect to any Eurodollar Tranche B Term Loan or ABR Tranche B Term Loan shall, on and after the effective date of any Incremental Term Loan Assumption Agreement and so long as any Other Term Loans shall remain outstanding, automatically be increased to the extent required, if any, to ensure that the interest rate spreads of such Other Term Loans do not exceed the Applicable 5 Percentage for Eurodollar Tranche B Term Loans or ABR Tranche B Term Loans, as the case may be, by more than 1/2 of 1%. "Approved Margin Stock" shall have the meaning assigned to such term in Section 6.04(k). "Asset Sale" shall mean the sale, transfer or other disposition (by way of merger, casualty, condemnation or otherwise) by the Borrower or any of the Subsidiaries to any person other than the Borrower or any Subsidiary Guarantor of (a) any Equity Interests of any of the Subsidiaries (other than directors' qualifying shares) or (b) any other assets of the Borrower or any of the Subsidiaries (other than (i) inventory, excess, damaged, obsolete or worn out assets, scrap and Permitted Investments, in each case disposed of in the ordinary course of business, (ii) dispositions between or among Foreign Subsidiaries, (iii) dispositions of Approved Margin Stock or (iv) dispositions of Third Party Government Receivables pursuant to any Third Party Financing), provided that any asset sale or series of related asset sales described in clause (b) above having a value not in excess of $250,000 shall be deemed not to be an "Asset Sale" for purposes of this Agreement. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Assignment of Claims Act" shall mean the Assignment of Claims Act of 1940, as amended from time to time. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrower Common Stock" shall mean the Common Stock, par value $0.01 per share, of the Borrower. "Borrower's Portion of Excess Cash Flow" shall mean, at any date of determination, the cumulative amount of Excess Cash Flow for all preceding full fiscal years of the Borrower commencing on or after January 1, 2002, and ending prior to the date of determination that (a) was not or is not required to be applied to the prepayment of Term Loans as described in Section 2.13(e), and (b) has not been utilized on or prior to the date of determination (i) to optionally prepay, repurchase, redeem, defease or otherwise retire any Senior Subordinated Notes or (ii) to repurchase Borrower Common Stock. "Borrowing" shall mean a group of Loans of a single Type made, converted or continued by the Lenders on a single date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" shall mean an amount equal to the sum, without duplication, of: (a) 90% of the Net Value (as defined below) of Eligible Billed Borrowing Base Receivables representing amounts due and owing from Domestic Account Debtors that are outstanding less than 91 days from the date of original invoice, plus (b) 70% of the Net Value of Eligible Billed Borrowing Base Receivables representing amounts due and owing from Foreign Account Debtors that are not fully 6 supported by a letter of credit, guarantees, bonds or similar credit support issued by a financial institution in form and substance reasonably acceptable to the Agents and that are outstanding less than 61 days from the date of original invoice, plus (c) 90% of the Net Value of Eligible Billed Borrowing Base Receivables that represent amounts due and owing from Foreign Account Debtors that are fully supported by letters of credit, guarantees, bonds or similar credit support issued by financial institutions in form and substance reasonably acceptable to the Agents and that are outstanding less than 91 days from the date of original invoice, plus (d) 75% of the Net Value of Eligible Unbilled Borrowing Base Receivables; plus (e) the Eligible Margin Stock Amount. As used herein, the "Net Value" of an Eligible Billed Borrowing Base Receivable or an Eligible Unbilled Borrowing Base Receivable shall be its face amount, net of any discount for prompt payment (and net of any other amount representing payment of finance charges, late charges or interest (however denominated)), and net of any portion thereof that constitutes payment of sales, use or other taxes. The Borrowing Base shall be computed from time to time in accordance with Section 5.04(h). The Borrowing Base at any time in effect shall be determined by reference to the Borrowing Base/Non-Default Certificate most recently delivered hereunder. "Borrowing Base/Non-Default Certificate" shall have the meaning assigned to such term in Section 5.04(h). "Borrowing Request" shall mean a request by the Borrowers in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C, or such other form as shall be approved by the Administrative Agent or the Swingline Lender, as applicable. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" shall mean, for any period and with respect to any person, all expenditures during such period by such person that would be classified as capital expenditures in accordance with GAAP or are made in property that is the subject of a Synthetic Lease to which such person becomes a lessee party during such period, but excluding any such expenditure made (a) to restore, replace or rebuild property to the condition of such property immediately prior to any damage, loss, destruction or condemnation of such property, to the extent such expenditure is made with insurance proceeds, condemnation awards or indemnification or damage recovery proceeds relating to any such damage, loss, destruction or condemnation, (b) with proceeds from the sale or exchange of property to the extent utilized to purchase functionally equivalent property or equipment, (c) as the purchase price of any Permitted Acquisition or (d) with the proceeds of a substantially contemporaneous Equity Issuance. "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to 7 use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" shall mean (a) 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 (i) 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 and (ii) at least 15% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests in the Borrower; (b) 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 (c) 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. "Change in Law" shall mean (a) the adoption of any law, rule or regulation after the Closing Date, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Closing Date or (c) compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.14, by any lending office of such Lender or by such Lender's or the Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Closing Date. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Tranche A Term Loans, Tranche B Term Loans, Other Term Loans or Swingline Loans and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Credit Commitment, Term Loan Commitment, Incremental Term Loan Commitment in respect of Other Term Loans or Swingline Commitment. "Closing Date" shall mean June 23, 1999. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral" as defined in any Security Document. "Collateral Agent's Fee Letter" shall mean the Fee Letter dated April 29, 1999, between the Borrower and the Collateral Agent. "Collateral Agent's Fees" shall have the meaning assigned to such term in Section 2.05(b). "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment. 8 "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). "Commitment Letter" shall mean the Commitment Letter dated October 15, 2002, among the Borrowers and Credit Suisse First Boston. "Compliance Certificate" shall have the meaning assigned to such term in Section 5.04(g). "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower dated on or about November 2002, relating to the Tranche B Term Loans. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Event" shall have the meaning assigned to such term in Section 4.01. "Current Assets" shall mean, at any time, the consolidated current assets (other than cash and Permitted Investments) of the Borrower and its consolidated Subsidiaries. "Current Liabilities" shall mean, at any time, the consolidated current liabilities of the Borrower and its consolidated Subsidiaries at such time, but excluding, without duplication, (a) the current portion of any long-term Indebtedness and (b) outstanding Revolving Loans and Swingline Loans. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "Disability" shall mean, for purposes of Section 6.06(a), the substantial inability to perform the employee's then present duties and responsibilities by reason of any medically determinable physical or mental impairment which can be expected to last for a period of not less than 6 months in a 12-month period, or any substantially similar definition contained in any stock option or stock repurchase agreement between the Borrower or any of its Subsidiaries and any of their employees. "dollars" or "$" shall mean lawful money of the United States of America. "Domestic Account Debtor" shall mean an Account Debtor incorporated or organized under the laws of, or with its principal place of business in, and any Governmental Authority that is, the United States, any State thereof, any municipality of any such State or the District of Columbia. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "EBITDA" for any period shall mean Net Income for such period, to which shall be added back (a) the Interest Expense of the Borrower and its consolidated Subsidiaries for such period to the extent deducted in calculating Net Income for such period, (b) all charges against income calculated in accordance with GAAP for Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with 9 respect to such amounts, of the Borrower and its consolidated Subsidiaries for such period, to the extent deducted in calculating Net Income for such period, (c) the aggregate depreciation expense of the Borrower and its consolidated Subsidiaries for such period, (d) the aggregate amortization expense of the Borrower and its consolidated Subsidiaries for such period, (e) Noncash Nonrecurring Charges (only to the extent that such Noncash Nonrecurring Charges do not exceed 25% of Net Income for such period), minus any noncash gain to the extent included in determining Net Income, all as determined on a consolidated basis in accordance with GAAP. 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 prior to December 31, 2002 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 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 (as defined in Amendment No. 6) in an aggregate amount not to exceed $1,000,000. "Eligible Billed Borrowing Base Receivables" shall mean all rights to payment due and to become due to the Borrower or any Subsidiary Guarantor that (a) constitute an "account" as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction, (b) represent amounts due and owing (i) for products actually delivered or services actually performed or rendered by or on behalf of the Borrower or any Subsidiary Guarantor pursuant to a written contract or written agreement now or hereafter entered into by the Borrower or any Subsidiary Guarantor and a person that is not an Affiliate of the Borrower, or (ii) as interim billings or progress payments in accordance with fixed price contracts between the Borrower or any Subsidiary Guarantor and a person that is not an Affiliate of the Borrower, (c) have been properly billed, (d) arise in the ordinary course of the Loan Parties' business, (e) are due, owing and not subject to any defense, setoff or counterclaim, except if the person that is the obligor under any such account has disputed liability or made any claim of setoff or counterclaim, only the portion of the account subject to such defense, setoff or counterclaim shall be deemed an Ineligible Receivable, (f) are not final invoices and (g) are not Ineligible Receivables. "Eligible Margin Stock Amount" at any time, shall mean an amount equal to 75% of the fair market value of any Approved Margin Stock pledged to the Collateral Agent to secure the Obligations. For purposes of the foregoing, the fair market value of any Approved Margin Stock on any date shall be the average of the closing prices on the principal U.S. securities exchange on which such Approved Margin Stock is traded for the period of 20 consecutive trading days preceding the date of determination. In the event (x) any Approved Margin Stock is not listed or traded on a securities exchange or (y) the fair market value of any Approved Margin Stock cannot be determined in accordance with the preceding sentence because closing prices for such Approved Margin Stock are not available, the Agents may use any reasonable estimate of the market value of such Approved Margin Stock as of the close of business on the Business Day preceding the date of determination. "Eligible Unbilled Borrowing Base Receivables" shall mean rights to payment due and to become due to the Borrower or any Subsidiary Guarantor (a) under Government Contracts or (b) under contracts with any other Account Debtor that are approved by the 10 Agents from time to time (the "Approved Contracts"), that (i) constitute an "account" as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction, (ii) in the case of Government Contracts, are eligible to be billed to the Government in accordance with the applicable Government Contract or are eligible to be billed to a prime contractor pursuant to a subcontract under a contract between the prime contractor and the Government, and in the case of Approved Contracts, are eligible to be billed to the Account Debtor in accordance with the applicable Approved Contract, in any case within 30 days of the "as of " date of the applicable Borrowing Base/Non-Default Certificate (with no additional performance required by any person, and no condition to payment by the Government or prime contractor or Account Debtor, as applicable, other than receipt of an appropriate invoice), (iii) have not been billed to the Government or the prime contractor or Account Debtor under the Approved Contract, as applicable, solely as a result of timing differences between the date the revenue is recognized on the applicable Loan Party's books and the date the invoice is actually rendered, (iv) represent revenue recognized on the books of the Borrower or any Subsidiary Guarantor not more than 30 days prior to the "as of" date of the applicable Borrowing Base/Non-Default Certificate, (v) may, in accordance with GAAP, be included as current assets of the Borrower or any Subsidiary Guarantor, even though such amounts have not been billed to the Government or the prime contractor or Account Debtor under the Approved Contract, as applicable, and (vi) are not Ineligible Receivables. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. ss.ss. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 5101 11 et seq., and any similar or implementing state, local or foreign law, and all amendments or regulations promulgated under any of the foregoing. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Interests" shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a person. "Equity Issuance" shall mean any issuance or sale by the Borrower or any Subsidiary of any Equity Interests of the Borrower or any Subsidiary, as applicable, or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such Equity Interests or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to the Borrower or any Subsidiary, (b) any issuance of directors' qualifying shares, and (c) sales or issuances of common stock of the Borrower to management or employees of the Borrower or any Subsidiary under any employee stock option or stock purchase plan or employee benefit plan in existence from time to time. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or Multiemployer Plan; (g) the receipt by the Borrower or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from the Borrower or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; or (h) any Foreign Benefit Event. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" shall have the meaning assigned to such term in Article VII. 12 "Excess Cash Flow" shall mean, for any fiscal year of the Borrower, the excess of (a) the sum, of (i) EBITDA for such fiscal year and (ii) reductions to noncash working capital of the Borrower and its consolidated Subsidiaries for such fiscal year (i.e., the decrease, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year) over (b) the sum, without duplication, of (i) the amount of any Tax Payments payable with respect to such fiscal year, (ii) cash interest paid (net of cash interest received) by the Borrower and its consolidated Subsidiaries during such fiscal year, (iii) Capital Expenditures made in cash in accordance with Section 6.08 during such fiscal year, except to the extent financed with the proceeds of Indebtedness, casualty or condemnation proceeds, (iv) permanent repayments of Indebtedness made by the Borrower and its consolidated Subsidiaries during such fiscal year, but only to the extent that such prepayments by their terms cannot be reborrowed or redrawn and do not occur in connection with a refinancing of all or any portion of such Indebtedness and (v) additions to noncash working capital for such fiscal year (i.e., the increase, if any, in Current Assets minus Current Liabilities from the beginning to the end of such fiscal year); provided that to the extent otherwise included therein, the Net Cash Proceeds of Asset Sales shall be excluded from the calculation of Excess Cash Flow. "Excluded Taxes" shall mean, with respect to the Administrative Agent, any Lender, the Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Borrowers hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrowers are located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under Section 2.21(a)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.20(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 2.20(a). "Existing Credit Agreement" shall mean the Credit Agreement dated as of June 23, 1999, as amended, among the Borrower, Credit Suisse First Boston, as issuing bank and as administrative agent, Citizens Bank, as syndication agent, swingline lender and as collateral agent, and Deutsche Bank AG, New York Branch, as documentation agent. "Existing Lenders" shall mean the lenders under the Existing Credit Agreement. "Existing Letters of Credit" shall mean each Letter of Credit previously issued for the account of the Borrower that is (a) outstanding on the Restatement Date and (b) listed on Schedule 1.01(a). "Fee Letters" shall mean (a) the Fee Letter dated October 15, 2002, among the Borrowers and Credit Suisse First Boston and (b) the Fee Letter dated March 7, 1999, between the Borrower and the Administrative Agent. "Fees" shall mean the Commitment Fees, the Administrative Agent's Fees, the Collateral Agent's Fees, the L/C Participation Fees, the Issuing Bank Fees, the Amendment Fees and the Incremental Revolving Credit Commitment Fees. 13 "Financial Officer" of any person shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such person. "Fixed Charge Coverage Ratio" for any period shall mean the ratio of (a) EBITDA plus the aggregate amount of all rent and lease payments made by the Borrower and its consolidated Subsidiaries pursuant to operating leases minus Capital Expenditures and Tax Payments for such period to (b) Fixed Charges for such period. "Fixed Charges" for any period shall mean, without duplication, the sum of (a) Interest Expense (excluding amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts, provided, however, that the aggregate amount of amortization excluded hereby shall not exceed 5% of the aggregate amount of the financing giving rise to the debt issuance costs associated with such amortization) for such period, plus (b) the aggregate amount of all rent and lease payments made by the Borrower and its consolidated Subsidiaries pursuant to operating leases for such period, plus (c) scheduled payments (whether or not made) on long term Indebtedness (including Capital Lease Obligations) of the Borrower and its consolidated Subsidiaries for such period, all as determined on a consolidated basis in accordance with GAAP. "Foreign Account Debtor" shall mean any Account Debtor that is not a Domestic Account Debtor. "Foreign Benefit Event" shall mean, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $2,500,000 (or the equivalent thereof in another currency) by the Borrower or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by the Borrower or any of its Subsidiaries, or the imposition on the Borrower or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $2,500,000 (or the equivalent thereof in another currency). "Foreign Lender" shall mean any Lender that is organized under the laws of a jurisdiction other than the United States of America, each State thereof and the District of Columbia. "Foreign Pension Plan" shall mean any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. 14 "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Government" shall mean the United States government or any department or agency thereof. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Government Contracts" shall mean written contracts between the Borrower or any Subsidiary Guarantor and the Government. "Granting Lender" shall have the meaning specified in Section 9.04(i). "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" shall mean all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in interest or currency exchange rates and not entered into for speculation. "Inactive Subsidiary" shall mean any Subsidiary of the Borrower that (a) does not conduct any business operations, (b) has assets with a total book value not in excess of $10,000 and (c) does not have any Indebtedness outstanding. "Incremental Revolving Credit Assumption Agreement" shall mean an Incremental Revolving Credit Assumption Agreement in form and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the Administrative Agent and one or more Incremental Revolving Credit Lenders. "Incremental Revolving Credit Commitment" shall mean the commitment of any Lender, established pursuant to Section 2.25, to make Revolving Loans to the Borrowers. 15 "Incremental Revolving Credit Commitment Amount" shall mean, at any time, the excess, if any, of $80,000,000 over the aggregate amount of all Incremental Revolving Credit Commitments established prior to such time pursuant to Section 2.25. "Incremental Revolving Credit Commitment Fee" shall have the meaning assigned to such term in Section 2.05(e). "Incremental Revolving Credit Lender" shall mean a Lender with an Incremental Revolving Credit Commitment. "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 Borrowers, 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 Borrowers. "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 Borrowers pursuant to an Incremental Term Loan Assumption Agreement. Incremental Term Loans may be made in the form of additional Term Loans or, to the extent permitted by Section 2.24 and provided for in the relevant Incremental Term Loan Assumption Agreement, Other Term Loans. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid (other than solely on past due amounts), (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in 16 respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements, (j) all obligations of such person as an account party in respect of letters of credit and (k) all obligations of such person as an account party in respect of bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, except to the extent that, by its terms, such Indebtedness is nonrecourse to such person. "Indemnified Taxes" shall mean Taxes other than Excluded Taxes. "Indemnity, Subrogation and Contribution Agreement" shall mean the Amended and Restated Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit D, among the Borrower, the Subsidiary Guarantors and the Collateral Agent. "Ineligible Receivables" shall mean all receivables that are (a) evidenced by a promissory note or similar instrument; (b) owed or payable by an Account Debtor that is more than 120 days past the last date set for payment in an original invoice in the payment of 50% or more of the aggregate balance due from such Account Debtor to the Borrower or a Subsidiary Guarantor; (c) owing from any person that is the subject of any (i) suit, lien, levy or judgment which could reasonably be expected to affect the collectability of such receivable, or (ii) bankruptcy, insolvency or similar process or proceeding; (d) unbilled as a result of cost variances, retainage provisions, "milestone" requirements or any other reason, except for timing differences; (e) owed in a currency other than dollars; (f) deemed ineligible by either Agent, in its reasonable and good faith discretion; or (g) Third Party Governmental Receivables. "Interest Coverage Ratio" for any period shall mean the ratio of EBITDA for such period to the Interest Expense (excluding amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts, provided, however, that the aggregate amount of amortization excluded hereby shall not exceed 5% of the aggregate amount of the financing giving rise to the debt issuance costs associated with such amortization) for such period. "Interest Expense" for any period shall mean the total interest expense of the Borrower and its consolidated Subsidiaries (including amortization of deferred financing fees, premiums or interest rate protection agreements and original issue discounts), for such period determined on a consolidated basis in accordance with GAAP. "Interest Payment Date" shall mean (a) with respect to any ABR Loan (other than a Swingline Loan), the last Business Day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of a Eurodollar Borrowing or conversion of a Eurodollar Borrowing to an ABR Borrowing and (c) with respect to any Swingline Loan, the day that such Loan is repaid or required to be repaid. "Interest Period" shall mean, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrowers may elect (or such other period thereafter as the Borrowers may request and all the Lenders with Loans included in such 17 Borrowing may agree); provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the succeeding Business Day unless, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Issuing Bank" shall mean, as the context may require, (a) Credit Suisse First Boston, with respect to Letters of Credit issued by it, (b) with respect to each Existing Letter of Credit, the Lender that issued such Existing Letter of Credit, (c) any other Lender that may become an Issuing Bank pursuant to Section 2.23(i) or (k), with respect to Letters of Credit issued by such Lender, or (d) collectively, all the foregoing. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(c). "L/C Commitment" shall mean the commitment of the Issuing Bank to issue Letters of Credit pursuant to Section 2.23. "L/C Disbursement" shall mean a payment or disbursement made by the Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(c). "Lenders" shall mean (a) the financial institutions listed on Schedule 2.01 and/or 1.01(a) (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance, an Incremental Revolving Credit Assumption Agreement or an Incremental Term Loan Assumption Agreement. Unless the context clearly indicates otherwise, the term "Lenders" shall include the Swingline Lender. "Letter of Credit" shall mean any letter of credit issued pursuant to Section 2.23 and the Existing Letters of Credit. "Leverage Ratio" shall mean, on any date, the ratio of Net Debt on such date to EBITDA for the period of four consecutive fiscal quarters of the Borrower most recently ended as of such date. Solely for purposes of this definition, if, at any time the Leverage Ratio is being determined, the Borrower or any Subsidiary shall have completed a Permitted Acquisition or Asset Sale since the beginning of the relevant four fiscal quarter period, the Leverage Ratio shall be determined on a pro forma basis as if such Permitted Acquisition or Asset Sale, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period and taking into account any identifiable cost savings documented to the reasonable satisfaction of the Administrative Agent. 18 "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of the relevant Interest Period by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent that has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates) for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBO Rate" shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in dollars are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Administrative Agent at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" shall mean this Agreement, the Subsidiary Guarantee Agreement, the Security Documents, the Indemnity, Subrogation and Contribution Agreement, each Incremental Term Loan Assumption Agreement and each Incremental Revolving Credit Assumption Agreement. "Loan Parties" shall mean the Borrowers and the Subsidiary Guarantors. "Loans" shall mean the Revolving Loans, the Term Loans and the Swingline Loans. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" shall mean a materially adverse effect on (a) the business, results of operations, condition (financial or otherwise) or prospects of the Borrower and the Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights, remedies or benefits available to the Lenders thereunder. "Material Contract" shall mean any and all Government Contracts and/or other contracts or agreements of the Borrower or any Subsidiary involving amounts in excess of $2,000,000. "Moody's" shall mean Moody's Investors Service, Inc. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received), net of (i) selling expenses (including reasonable broker's fees or commissions, legal fees, transfer and similar taxes and the Borrower's good faith estimate of income taxes paid or payable in connection with such sale), (ii) amounts provided 19 as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale and which is repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); provided, however, that, if (x) the Borrower shall deliver a certificate of a Financial Officer to the Agents at the time of receipt thereof setting forth the Borrower's intent to reinvest such proceeds in productive assets of a kind then used or usable in the business of the Borrower and its Subsidiaries within 270 days of receipt of such proceeds and (y) no Default or Event of Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used or contractually committed to be used at the end of such 270-day period, at which time such proceeds shall be deemed to be Net Cash Proceeds; and (b) with respect to any issuance or disposition of Indebtedness or any Equity Issuance, the cash proceeds thereof, net of all taxes and customary fees, commissions, costs and other expenses incurred in connection therewith. "Net Debt" at any time shall mean (a) the total Indebtedness of the Borrower and the Subsidiaries at such time (excluding Indebtedness of the type described in clause (i) of the definition of such term and, except to the extent of any unreimbursed drawings, clause (j) of the definition of such term), less (b) the sum of (i) the amount at such time of all cash and Permitted Investments of the Borrower and the Subsidiaries and (ii) the Eligible Margin Stock Amount. "Net Income" shall mean, for any period, net income or loss of the Borrower and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of that income is prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to the Subsidiary, and (b) the income (or loss) of any person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any of the Subsidiaries or the date that person's assets are acquired by the Borrower or any of the Subsidiaries. "Net Senior Debt" at any time shall mean the Net Debt at such time less, to the extent included therein, the amount of any Indebtedness that is subordinated to the Obligations pursuant to the subordination provisions contained in Exhibit K or subordination provisions no less favorable to the Lenders than those contained in the Senior Subordinated Note Indenture. "Noncash Nonrecurring Charges" shall mean charges to income (a) that are not expected to occur in the future and (b) whereby the underlying asset was not created at least 12 months before the period end in which the charge is reflected in the Borrower's financial statements. "Non-Extending Lender" shall have the meaning assigned to such term in Section 2.26(b). "Obligations" shall mean all obligations defined as "Obligations" in the Subsidiary Guarantee Agreement and the Security Documents. 20 "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "Other Term Loans" shall have the meaning assigned to such term in Section 2.24(a). "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Exhibit N. "Permitted Acquisition" shall have the meaning assigned to such term in Section 6.04(i). "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any Lender or any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria of clause (c) above; (e) investments in municipal securities maturing within one year from the date of acquisition thereof and having, at such date of acquisition, a rating of at least "AA" by S&P or at least "Aa" by Moody's; and (f) other short-term investments utilized by Foreign Subsidiaries in accordance with normal investment practices for cash management in investments of a type analogous to the foregoing. "Permitted Investors" shall mean (a) Caxton Corporation, Frederick J. Iseman, Steven M. Lefkowitz, Joseph A. Kampf, Robert A. Ferris and any other person who is a Controlled Affiliate of any of the foregoing and any member of senior management of the Borrower on the Restatement Date and (b) any Related Party of any of the foregoing. 21 "person" shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Amended and Restated Pledge Agreement, substantially in the form of Exhibit E, among the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Properties" shall have the meaning specified in Section 3.17. "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment. "Purchase Agreement" shall mean the Stock Purchase Agreement to be entered into on or around October 31, 2002, by and among the Borrower, the Target and the existing stockholders of the Target. "Register" shall have the meaning given such term in Section 9.04(d). "Regulation T" shall mean Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Fund" shall mean, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Related Party" shall mean (a) any controlling stockholder, general partner, wholly owned Subsidiary, or spouse or immediate family member (in the case of an individual) of any Permitted Investor or (b) any trust, corporation, partnership or other entity, all the beneficiaries, stockholders, partners or owners of which consist solely of one or more Permitted Investors and/or such other persons referred to in the immediately preceding clause (a). "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any 22 Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. "Required Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments representing greater than 50% of the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such time. "Responsible Officer" of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof responsible for the administration of the obligations of such person in respect of this Agreement. "Restatement Date" shall mean October 21, 2002. "Restatement Required Lenders" shall mean the Tranche B Lenders, the Swingline Lender and the Required Lenders under the Existing Credit Agreement immediately prior to the effectiveness of this Agreement. "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 or Section 2.21(a), (b) increased by the amount of such Lender's Incremental Revolving Credit Commitment and (c) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. Unless the context shall otherwise require, after the effectiveness of any Incremental Revolving Credit Commitment, the term "Revolving Credit Commitment" shall include such Incremental Revolving Credit Commitment. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lender's L/C Exposure, plus the aggregate amount at such time of such Lender's Swingline Exposure. "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment. "Revolving Credit Maturity Date" shall mean June 30, 2005, or such later date to which the Revolving Credit Maturity Date may be extended pursuant to Section 2.26. "Revolving Loans" shall mean the revolving loans made by the Lenders to the Borrowers pursuant to clause (b) of Section 2.01. Each Revolving Loan shall be a Eurodollar Revolving Loan or an ABR Revolving Loan. 23 "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. "Security Agreement" shall mean the Amended and Restated Security Agreement, substantially in the form of Exhibit F, among the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Security Documents" shall mean the Security Agreement, the Pledge Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.12. "Senior Leverage Ratio" shall mean, on any date, the ratio of Net Senior Debt on such date to EBITDA for the period of four consecutive fiscal quarters of the Borrower most recently ended as of such date. Solely for purposes of this definition, if, at any time the Senior Leverage Ratio is being determined, the Borrower or any Subsidiary shall have completed a Permitted Acquisition or Asset Sale since the beginning of the relevant four fiscal quarter period, the Senior Leverage Ratio shall be determined on a pro forma basis as if such Permitted Acquisition or Asset Sale, and any related incurrence or repayment of Indebtedness, had occurred at the beginning of such period and taking into account any identifiable cost savings documented to the reasonable satisfaction of the Administrative Agent. "Senior Subordinated Note Documents" shall mean the Senior Subordinated Notes, the Senior Subordinated Note Indenture and all other documents executed and delivered with respect to the Senior Subordinated Notes or the Senior Subordinated Note Indenture. "Senior Subordinated Note Indenture" shall mean the indenture dated as of May 11, 1999, between the Borrower, the Subsidiary Guarantors and IBJ Whitehall Bank and Trust Company, as trustee. "Senior Subordinated Notes" shall mean the Borrower's 12% Senior Subordinated Notes Due 2009 in the initial principal amount of $100,000,000 issued pursuant to the Senior Subordinated Note Indenture and any notes issued by the Borrower in exchange for, and as contemplated by, the Senior Subordinated Notes with substantially identical terms as the Senior Subordinated Notes. "S&P" shall mean Standard and Poor's Ratings Service. "SPC" shall have the meaning specified in Section 9.04(i). "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. 24 "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power are, at the time any determination is being made, owned, controlled or held, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of the Borrower. "Subsidiary Guarantee Agreement" shall mean the Amended and Restated Subsidiary Guarantee Agreement, substantially in the form of Exhibit G, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties. "Subsidiary Guarantor" shall mean each Subsidiary of the Borrower listed on Schedule 1.01(b), and each other Subsidiary that is or becomes a party to a Subsidiary Guarantee Agreement. "Supermajority Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments representing at least two-thirds of the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit and Term Loan Commitments at such time. "Swingline Commitment" shall mean the commitment of the Swingline Lender to make loans pursuant to Section 2.22, as the same may be reduced from time to time pursuant to Section 2.09 or Section 2.22. "Swingline Exposure" shall mean at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time. "Swingline Loan" shall mean any loan made by the Swingline Lender pursuant to Section 2.22. "Synthetic Lease" shall mean any synthetic lease, tax retention operating lease, off- balance sheet loan or similar off-balance sheet financing product where the transaction is considered indebtedness for borrowed money for Federal income tax purposes but is classified as an operating lease in accordance with GAAP for financial reporting purposes. "Target" shall have the meaning given such term in the preamble to this Agreement. "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges, liabilities or withholdings imposed by any Governmental Authority. "Tax Payments" shall mean payments in cash in respect of Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with respect to such amounts, paid or payable by or on behalf of the Borrower and its consolidated Subsidiaries. "Term Borrowing" shall mean a Borrowing comprised of Term Loans. 25 "Term Loan Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Tranche B Term Loans hereunder as set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. Unless the context shall otherwise require, after the effectiveness of any Incremental Term Loan Commitment, the term "Term Loan Commitment" shall include such Incremental Term Loan Commitment. "Term Loans" shall mean the Tranche A Term Loans and the Tranche B Term Loans. Unless the context shall otherwise require, the term "Term Loans" shall include any Incremental Term Loans. "Third Party Financing" shall mean the purchase on a nonrecourse basis from the Borrower or any Subsidiary of Third Party Government Receivables by a person that is not an Affiliate of the Borrower. "Third Party Government Receivables" shall mean all Accounts of the Borrower or any Subsidiary with respect to which the Account Debtor is the Government, which arise pursuant to a Third Party Sale and which are sold pursuant to a Third Party Financing. "Third Party Sale" shall mean the sale to the Government by the Borrower or any Subsidiary of products and/or services acquired from or to be provided by, respectively, a person that is not the Borrower or an Affiliate of the Borrower, so long as the Account arising therefrom is promptly sold pursuant to a Third Party Financing. "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. "Tranche A Lenders" shall mean Lenders having outstanding Tranche A Term Loans. "Tranche A Maturity Date" shall mean June 30, 2005. "Tranche A Repayment Date" shall have the meaning given such term in Section 2.11(a). "Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans. "Tranche A Term Loans" shall mean the term loans made by the Lenders to the Borrower as described in Section 2.01(a). Each Tranche A Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan. "Tranche B Credit Facility" shall mean the Term Loan Commitments and extensions of credit thereunder. "Tranche B Funding Date" shall mean the date of the Borrowing of the Tranche B Term Loans. "Tranche B Lenders" shall mean Lenders having a Term Loan Commitment or outstanding Tranche B Term Loans. 26 "Tranche B Maturity Date" shall mean November 15, 2008. "Tranche B Repayment Date" shall have the meaning given such term in Section 2.11(b). "Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche B Term Loans. "Tranche B Term Loans" shall mean the term loans made by the Lenders to the Borrowers pursuant to Section 2.01(b). Each Tranche B Term Loan shall be a Eurodollar Term Loan or an ABR Term Loan. "Transactions" shall have the meaning assigned to such term in Section 3.02. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate. "wholly owned Subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall"; and the words "asset" and "property" shall be construed as having the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any document shall mean such document as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof and of this Agreement and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the 27 relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. SECTION 1.03. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). SECTION 1.04. Joint and Several Obligations. The obligations of the Borrowers hereunder, including with respect to the payment of all principal of, and interest on, all Loans and L/C Disbursements, whether outstanding prior to or on and after the Restatement Date, and all fees, expenses, indemnities and other amounts payable hereunder, shall be joint and several. ARTICLE II The Credits SECTION 2.01. Commitments. (a) Tranche A Term Loans. The Borrowers and the Lenders acknowledge the making of Tranche A Term Loans in the aggregate principal amount of $60,000,000 on the Closing Date in accordance with the terms of the Existing Credit Agreement. Prior to the Restatement Date, the Borrower has repaid or prepaid $37,848,774.71 aggregate principal amount of the Tranche A Term Loans and, accordingly, the Borrowers and the Lenders acknowledge and agree that Tranche A Term Loans in an aggregate principal amount of $22,151,225.29 shall continue to be outstanding as of the Restatement Date pursuant to the terms and conditions of this Agreement and the other Loan Documents. Amounts paid or prepaid in respect of Tranche A Term Loans may not be reborrowed. (b) Tranche B Term Loans and Revolving Loans. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (i) to make a Tranche B Term Loan to the Borrowers on or after the Acquisition Closing Date in a principal amount not to exceed its Term Loan Commitment, and (ii) to make Revolving Loans to the Borrowers, at any time and from time to time on or after the Restatement Date, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding the lesser of (x) such Lender's Revolving Credit Commitment and (y) such Lender's Pro Rata Percentage of the Borrowing Base, each as in effect at such time. Within the limits set forth in clause (ii) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, prepay and reborrow Revolving Loans. The Tranche B Term Loans shall be made in a single drawing on or after the Acquisition Closing Date. Amounts paid or prepaid in respect of Tranche B Term Loans may not be reborrowed. The Borrowers and the Lenders acknowledge the making of Revolving Loans that are outstanding on the Restatement Date in accordance with the terms of the Existing Credit Agreement and agree that such Revolving Loans shall continue to be outstanding pursuant to the terms and conditions of this Agreement and the other Loan Documents. 28 (c) Without limiting Anteon's obligations under the Subsidiary Guarantee Agreement with respect to the Obligations outstanding under the Existing Credit Agreement, Anteon hereby assumes, jointly and severally with the Borrower, all liability as a Borrower with respect to such outstanding Obligations. SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 2.08 and 2.15, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrowers may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrowers shall not be entitled to request any Borrowing that, if made, would result in more than eight Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Eurodollar Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 11:00 a.m., New York City time, in the case of a Eurodollar Borrowing, or 1:00 p.m., New York City time, in the case of an ABR Borrowing, and the Administrative Agent shall promptly credit the amounts so received to an account in the name of a Borrower, maintained with the Administrative Agent and designated by the Borrowers in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the Borrowers on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrowers severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrowers until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrowers, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of 29 overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request any Revolving Credit Borrowing if the Interest Period requested with respect thereto would end after the Revolving Credit Maturity Date. (f) If the Issuing Bank shall not have received from the Borrowers the payment required to be made by Section 2.23(e) within the time specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 11:00 a.m., New York City time, on the immediately following Business Day), an amount equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Administrative Agent will promptly pay to the Issuing Bank any amounts received by it from the Borrowers pursuant to Section 2.23(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Revolving Credit Lenders that shall have made such payments and to the Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, such Lender and the Borrowers severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the Issuing Bank at (i) in the case of the Borrowers, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Alternate Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Borrowing (other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f), as to which this Section 2.03 shall not apply), the Borrowers shall hand deliver or fax to the Administrative Agent a duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrowers and shall specify the following information: (i) whether the Borrowing then being requested is to be a Tranche B Term Borrowing, an Incremental Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; 30 provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrowers shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the applicable Lenders of any notice given pursuant to this Section 2.03 (and the contents thereof), and of each Lender's portion of the requested Borrowing. SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrowers hereby unconditionally promise to pay to (i) the Administrative Agent (x) for the account of each Lender holding Term Loans, the principal amount of each Term Loan of such Lender as provided in Section 2.11, and (y) for the account of each Revolving Credit Lender, the then unpaid principal amount of each Revolving Loan of such Lender on the Revolving Credit Maturity Date, and (ii) the Swingline Lender, the then unpaid principal amount of each Swingline Loan on the Revolving Credit Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrowers or any Subsidiary Guarantor and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Loans in accordance with their terms. (e) Any Lender may request that Loans made by it hereunder be evidenced by a promissory note. In such event, the Borrowers shall execute and deliver to such Lender a promissory note payable to such Lender and its registered assigns and in a form and substance reasonably acceptable to the Administrative Agent and the Borrowers. Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive such a promissory note, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.05. Fees. (a) The Borrowers agree to pay to each Lender, through the Administrative Agent, on the last day of March, June, September and December in each year and on each date on which any Revolving Credit Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage per annum in effect from time to time on the daily unused amount of the Revolving Credit Commitment of such Lender during the preceding quarter (or other 31 period ending with the Revolving Credit Maturity Date or the date on which the Revolving Credit Commitment of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the Restatement Date and shall cease to accrue on the date on which the Revolving Credit Commitment of such Lender shall expire or be terminated as provided herein. For purposes of calculating Commitment Fees only, no portion of the Revolving Credit Commitments shall be deemed utilized under Section 2.17 as a result of outstanding Swingline Loans. (b) The Borrowers agree to pay to the Administrative Agent, for its own account, the administration fees set forth in the Fee Letters at the times and in the amounts specified therein (the "Administrative Agent Fees"). The Borrowers agree to pay to the Collateral Agent, for its own account, the collateral agent's fees set forth in the Collateral Agent's Fee Letter at the times and in the amounts specified therein (the "Collateral Agent's Fees"). (c) The Borrowers agree to pay (i) to each Revolving Credit Lender, through the Administrative Agent, on the last Business Day of March, June, September and December of each year and on the date on which the Revolving Credit Commitment of such Lender shall be terminated as provided herein, a fee (an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of the average daily aggregate L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements) during the preceding quarter (or shorter period ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to the Applicable Percentage from time to time used to determine the interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (d) The Borrowers agree to pay, through the Administrative Agent, to each Lender that executes and delivers to the Administrative Agent a counterpart of this Agreement signed on behalf of such party (or written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this agreement) on or prior to the Restatement Date a fee (an "Amendment Fee") on the Restatement Date in an amount equal to 0.25% of the sum of such Lender's outstanding Term Loans and Revolving Credit Commitments (whether used or unused) under the Existing Credit Agreement immediately prior to the effectiveness of this Agreement. (e) The Borrowers agree to pay to each Incremental Revolving Credit Lender, through the Administrative Agent, the fees (the "Incremental Revolving Credit Commitment Fees") in the amounts and on the dates provided for in such Incremental Revolving Credit Lender's Incremental Revolving Credit Assumption Agreement. (f) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances. 32 SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan, shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times and calculated from and including the date of such Borrowing to but excluding the date of repayment thereof) at a rate per annum equal to the Alternate Base Rate plus the Applicable Percentage in effect from time to time. (b) Subject to the provisions of Section 2.07, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect from time to time. (c) Interest on each Loan shall be payable to the Administrative Agent on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.07. Default Interest. If the Borrowers shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrowers shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) (a) in the case of overdue principal, at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2.00% per annum and (b) in all other cases, at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the rate that would be applicable to an ABR Revolving Loan plus 2.00%. SECTION 2.08. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to a majority in interest of the Lenders making or maintaining such Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or fax notice of such determination to the Borrowers and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist (which the Administrative Agent agrees to do as soon as practicable after such circumstances cease to exist), any request by the Borrowers for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be deemed to be a request for an ABR Borrowing. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error. SECTION 2.09. Termination and Reduction of Commitments. (a) The Term Loan Commitments (other than any Incremental Term Loan Commitments, which shall terminate in accordance with the applicable Incremental Term Loan Assumption Agreement) shall automatically terminate at 5:00 p.m., New York City time, on the Tranche B Funding Date. 33 The Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date. Notwithstanding the foregoing, the Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on December 31, 2002, or such later date as may be agreed to by the Borrowers and each of the Tranche B Lenders, if the Tranche B Funding Date shall not have occurred by such time. (b) Upon at least three Business Days' prior irrevocable written or fax notice to the Administrative Agent, the Borrowers may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Term Loan Commitments or the Revolving Credit Commitments; provided, however, that (i) each partial reduction of the Term Loan Commitments or the Revolving Credit Commitments shall be in an integral multiple of $1,000,000 and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount that is less than the sum of the Aggregate Revolving Credit Exposure at the time. (c) Each reduction in the Term Loan Commitments or the Revolving Credit Commitments hereunder shall be made ratably among the Lenders in accordance with their respective applicable Commitments. The Borrowers shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Conversion and Continuation of Borrowings. The Borrowers shall have the right at any time upon prior irrevocable notice to the Administrative Agent (a) not later than 12:00 (noon), New York City time, on the day of conversion, to convert any Eurodollar Borrowing into an ABR Borrowing, (b) not later than 10:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest Period, and (c) not later than 10:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Borrowing to another permissible Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Borrowing; (ii) if less than all the outstanding principal amount of any Borrowing shall be converted or continued, then each resulting Borrowing shall satisfy the limitations specified in Sections 2.02(a) and 2.02(b) regarding the principal amount and maximum number of Borrowings of the relevant Type; (iii) each conversion shall be effected by each Lender and the Administrative Agent by recording for the account of such Lender the new Type and/or Interest Period for such Borrowing resulting from such conversion; accrued interest on any Eurodollar Loan (or portion thereof) being converted shall be paid by the Borrowers at the time of conversion; (iv) if any Eurodollar Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrowers shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.16; 34 (v) any portion of a Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Borrowing; (vi) any portion of a Eurodollar Borrowing that cannot be converted into or continued as a Eurodollar Borrowing by reason of the immediately preceding clause shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; (vii) no Interest Period may be selected for any Eurodollar Term Borrowing that would end later than a Tranche A Repayment Date, a Tranche B 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 Tranche A Term Loans, Tranche B Term Loans and Incremental Term Loans, as applicable, with Interest Periods ending on or prior to such Tranche A Repayment Date, Tranche B Repayment Date or Incremental Term Loan Repayment Date, respectively, and (B) the ABR Term Loan Borrowings comprised of Tranche A Term Loans, Tranche B 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 Tranche A Repayment Date, Tranche B Repayment Date or Incremental Tem Loan Repayment Date, respectively; and (viii) upon notice to the Borrowers from the Administrative Agent given at the request of the Required Lenders, after the occurrence and during the continuance of a Default or Event of Default, no outstanding Loan may be converted into, or continued as, a Eurodollar Loan. Each notice pursuant to this Section 2.10 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Borrowing that the Borrowers request be converted or continued, (ii) whether such Borrowing is to be converted to or continued as a Eurodollar Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Borrowing is to be converted to or continued as a Eurodollar Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Borrowing, the Borrowers shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall advise the Lenders of any notice given pursuant to this Section 2.10 and of each Lender's portion of any converted or continued Borrowing. If the Borrowers shall not have given notice in accordance with this Section 2.10 to continue any Eurodollar Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be converted into an ABR Borrowing. SECTION 2.11. Repayment of Term Borrowings. (a) The Tranche A Term Borrowings shall be payable as to principal in 17 consecutive installments payable on the last Business Day of March, June, September and December of each year, commencing on the last Business Day in June 2001 and ending on the Tranche A Maturity Date (each such date being called a "Tranche A Repayment Date"). Each of the first 16 installments shall be in an amount equal to 4.6875% of the initial aggregate principal amount of the Tranche A Term Borrowings, with the balance due and payable on the Tranche A Maturity Date. 35 (b) The Tranche B Term Borrowings (other than Term Borrowings consisting of Other Term Loans) shall be payable as to principal in 25 consecutive installments payable on the last Business Day of March, June, September and December of each year, commencing on the last Business Day in December 2002 and ending on the Tranche B Maturity Date (each such date being called a "Tranche B Repayment Date"). Each of the first 21 installments shall be in an amount equal to 0.25% of the initial aggregate principal amount of the Tranche B Term Borrowings, and each of the final 4 installments shall be in an amount equal to 23.6875% of the initial aggregate principal amount of the Tranche B Term Borrowings, with the balance due and payable on the Tranche B Maturity Date. (c) The Borrowers 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. (d) Each payment of Term Borrowings pursuant to this Section 2.11 shall be accompanied by accrued interest on the principal amount paid to but excluding the date of payment. SECTION 2.12. Prepayment. (a) The Borrowers shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or fax notice (or telephone notice promptly confirmed by written or fax notice) in the case of Eurodollar Loans, or written or fax notice (or telephone notice promptly confirmed by written or fax notice) on or prior to the date of prepayment in the case of ABR Loans, to the Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000. (b) Optional prepayments of Term Loans made by the Borrowers pursuant to paragraph (a) above shall be allocated among the Tranche A Term Loans, the Tranche B Term Loans and any Other Term Loans (and to the remaining scheduled installments of principal due in respect of any such Term Loans) in a manner determined at the discretion of the Borrowers. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrowers to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments of Eurodollar Loans under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. Interest on ABR Loans prepaid under this Section 2.12 shall be paid in accordance with Section 2.06(c). SECTION 2.13. Mandatory Prepayments. (a) In the event of any termination of all the Revolving Credit Commitments, the Borrowers shall, on the date of such termination, repay or prepay all their outstanding Revolving Credit Borrowings and all outstanding Swingline Loans and replace all outstanding Letters of Credit and/or deposit an amount equal to the L/C Exposure in cash in a cash collateral account established with the Collateral Agent for the benefit of the Secured Parties. In the event of any partial reduction of the Revolving Credit Commitments, then (i) at or prior to the effective date of such reduction, the 36 Administrative Agent shall notify the Borrowers and the Revolving Credit Lenders of the Aggregate Revolving Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment after giving effect to such reduction or termination, then the Borrowers shall, on the date of such reduction or termination, repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess. (b) If on any date the Aggregate Revolving Credit Exposure shall exceed the Borrowing Base, the Borrowers shall on such date repay or prepay Revolving Credit Borrowings or Swingline Loans (or a combination thereof) and/or replace or cash collateralize outstanding Letters of Credit in an amount sufficient to eliminate such excess. (c) Not later than the third Business Day following the completion of any Asset Sale, the Borrowers shall apply 100% of the Net Cash Proceeds received with respect thereto to prepay outstanding Term Loans in accordance with Section 2.13(g). (d) In the event and on each occasion that an Equity Issuance occurs, the Borrowers shall, substantially simultaneously with (and in any event not later than the third Business Day next following) the occurrence of such Equity Issuance, apply the lesser of (i) 50% of the Net Cash Proceeds therefrom and (ii) the amount required to achieve a Senior Leverage Ratio that is at least 0.25 to 1.0 less than the maximum Senior Leverage Ratio permitted under Section 6.12 applicable at the time of, and after giving effect to, such Equity Issuance, to prepay outstanding Term Loans in accordance with Section 2.13(g). (e) No later than the earlier of (i) 90 days after the end of each fiscal year of the Borrower, commencing with the fiscal year ending on December 31, 2002, and (ii) the date on which the financial statements with respect to such period are delivered pursuant to Section 5.04(a), the Borrowers shall prepay outstanding Term Loans in accordance with Section 2.13(g) in an aggregate principal amount equal to 50% of Excess Cash Flow for the fiscal year then ended only if the Senior Leverage Ratio at the end of such year shall have been greater than 0.25 to 1.0 less than the maximum Senior Leverage Ratio permitted under Section 6.12 at the end of such fiscal year. (f) In the event that any Loan Party or any subsidiary of a Loan Party shall receive Net Cash Proceeds from the issuance or other disposition of Indebtedness for money borrowed of any Loan Party or any subsidiary of a Loan Party (other than Indebtedness for money borrowed permitted pursuant to Section 6.01), the Borrowers shall, substantially simultaneously with (and in any event not later than the third Business Day next following) the receipt of such Net Cash Proceeds by such Loan Party or such subsidiary, apply an amount equal to 100% of such Net Cash Proceeds to prepay outstanding Term Loans in accordance with Section 2.13(g). (g) Mandatory prepayments of outstanding Term Loans under this Agreement shall be applied pro rata between the then-outstanding Tranche A Term Loans, Tranche B Term Loans and Other Term Loans, and subject to paragraph (i) below, applied pro rata against the remaining scheduled installments of principal due in respect of Tranche A Term Loans, Tranche B Term Loans and Other Term Loans under Sections 2.11 (a), (b) and (c), respectively. (h) The Borrowers shall deliver to the Administrative Agent, at the time of each pre payment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the 37 Borrowers setting forth in reasonable detail the calculation of the amount of such prepayment and (ii) to the extent practicable, at least three days prior written notice of such prepayment. Each notice of prepayment shall specify the prepayment date, the Type of each Loan being prepaid and the principal amount of each Loan (or portion thereof) to be prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject to Section 2.16, but shall otherwise be without premium or penalty. (i) Any Tranche B Lender and, to the extent so provided in the applicable Incremental Term Loan Assumption Agreement, any Incremental Term Lender, so long as any Tranche A Term Loans shall remain outstanding, 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 Tranche B Term Loans or Incremental Term Loans, as the case may be, required to be made by the Borrowers 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 Tranche A Term Loans in accordance with paragraph (g) above. SECTION 2.14. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or the Issuing Bank (except any such reserve requirement which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or the Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein, and the result of any of the foregoing shall be to increase the cost to such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or increase the cost to any Lender of issuing or maintaining any Letter of Credit or purchasing or maintaining a participation therein or to reduce the amount of any sum received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or otherwise), in each case, by an amount deemed by such Lender or the Issuing Bank to be material, then the Borrowers will pay to such Lender or the Issuing Bank, as the case may be, upon demand in accordance with paragraph (c) below such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered. (b) If any Lender or the Issuing Bank shall have determined that any Change in Law regarding capital adequacy has or would have the effect of reducing the rate of return on such Lender's or the Issuing Bank's capital or on the capital of such Lender's or the Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made or participations in Letters of Credit purchased by such Lender pursuant hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a level below that which such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company could have achieved but for such Change In Law (taking into consideration such Lender's or the Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's holding company with respect to capital adequacy) by an amount deemed by such Lender or the Issuing Bank to be material, then from time to time in accordance with paragraph (c) below the Borrowers shall pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) above, together with supporting 38 documentation or computations in each case in reasonable detail, shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay such Lender or the Issuing Bank the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrowers shall not be under any obligation to compensate any Lender or the Issuing Bank under paragraph (a) or (b) above with respect to increased costs or reductions with respect to any period prior to the date that is 120 days prior to such request if such Lender or the Issuing Bank knew or could reasonably have been expected to know of the circumstances giving rise to such increased costs or reductions and of the fact that such circumstances would result in a claim for increased compensation by reason of such increased costs or reductions; provided further that the foregoing limitation shall not apply to any increased costs or reductions arising out of the retroactive application of any Change in Law within such 120-day period. SECTION 2.15. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the Closing Date, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrowers and to the Administrative Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing for an additional Interest Period) shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such or to convert a Eurodollar Loan into an ABR Loan, as the case may be), unless such declaration shall be subsequently withdrawn (which such Lender agrees to do as promptly as practicable after circumstances allow); and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.15, a notice to the Borrowers by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period then applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrowers. 39 SECTION 2.16. Indemnity. The Borrowers shall indemnify each Lender against any loss or expense (other than any loss of margin over funding cost or anticipated profit) that such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor, (ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of the Interest Period with respect to any Eurodollar Loan, in each case other than on the last day of the Interest Period in effect therefor, or (iii) any Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be made pursuant to a conversion or continuation under Section 2.10) not being made after notice of such Loan shall have been given by the Borrowers hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender in reasonable detail with supporting calculations setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 shall be delivered to the Borrowers and shall be conclusive absent manifest error. SECTION 2.17. Pro Rata Treatment. Except as provided below in this Section 2.17 with respect to Swingline Loans and as required under Section 2.15, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Term Loan Commitments or the Revolving Credit Commitments and each conversion of any Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). For purposes of determining the available Revolving Credit Commitments of the Lenders at any time, each outstanding Swingline Loan shall be deemed to have utilized the Revolving Credit Commitments of the Lenders (including those Lenders which shall not have made Swingline Loans) pro rata in accordance with such respective Revolving Credit Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrowers or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Obligation as a result of which the unpaid portion of its Obligations shall be proportionately less than the unpaid portion of the Obligations of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Obligations of such other Lender, so that the aggregate unpaid amount of the Obligations and participations in Obligations held by each Lender shall be in the same proportion to the aggregate unpaid 40 amount of all Obligations then outstanding as the amount of its Obligations prior to such exercise of banker's lien, setoff or counterclaim or other event was to the amount of all Obligations outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrowers expressly consent to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrowers to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrowers in the amount of such participation. SECTION 2.19. Payments. (a) The Borrowers shall make each payment (including principal of or interest on any Borrowing or any L/C Disbursement or any Fees or other amounts) hereunder and under any other Loan Document not later than 1:00 p.m., New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim; provided, however, that the Borrowers shall make each payment of principal of or interest on Swingline Loans not later than 12:00 (noon), New York City time . Each such payment (other than (i) Issuing Bank Fees, which shall be paid directly to the Issuing Bank, and (ii) principal of and interest on Swingline Loans, which shall be paid directly to the Swingline Lender except as otherwise provided in Section 2.22(e)) shall be made to the Administrative Agent at its offices at Eleven Madison Avenue, New York, New York. (b) Except as otherwise expressly provided herein, whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by or on account of any obligation of the Borrowers or any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrowers or any Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or such Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers or such Loan Party shall make such deductions and (iii) the Borrowers or such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrowers shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrowers or any Loan Party hereunder or under any other Loan Document (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any 41 penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrowers by a Lender, or by the Administrative Agent on its behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers or any other Loan Party to a Governmental Authority, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of a jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrowers (with a copy to the Administrative Agent), on or prior to the Restatement Date, or in the case of a Lender that is an assignee or transferee of an interest under this Credit Agreement pursuant to Section 9.04 (unless the Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, such accurate, properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrowers as will permit such payments to be made without withholding or at a reduced rate. In addition, each Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrowers and the Administrative Agent new accurate, properly completed and executed documentation prescribed by applicable law or as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Credit Agreement and any Revolving Loan, or it shall immediately notify the Borrowers and the Administrative Agent of its inability to deliver any such documentation, in which case such Lender shall not be required to deliver any such documentation, pursuant to this Section 2.20(e). Notwithstanding anything to the contrary contained in Section 2.20 but subject to Section 9.04 and the immediately succeeding sentence, (x) each Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender which is a Foreign Lender to the extent that such Lender has not provided to the Borrowers accurate, properly completed and executed documentation that establishes a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 2.20 to make any additional payments to a Lender pursuant to Section 2.20(b) or 2.20(c), as the case may be (the "Gross-Up Payments") if such Lender has not provided to the Borrowers the documentation required to be provided to the Borrowers pursuant to this Section 2.20(e). Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 2.20 and except as set forth in Section 9.04, the Borrowers agree to pay additional amounts and to indemnify each Lender in the manner set forth in Sections 2.20(b) and 2.20(c) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. 42 (f) If the Borrowers pay any additional amount under this Section 2.20 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax Liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrowers an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15, (iii) the Borrowers are required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank pursuant to Section 2.20 or (iv) any Lender refuses to consent to any amendment, waiver or other modification of any Loan Document requested by the Borrowers that requires the consent of a greater percentage of the Lenders than the Required Lenders and such amendment, waiver or other modification is consented to by the Required Lenders, the Borrowers may, at their sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender or the Issuing Bank and the Administrative Agent, require such Lender or the Issuing Bank to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrowers shall have received the prior written consent of the Administrative Agent (and, if a Revolving Credit Commitment is being assigned, of the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, and (z) the Borrowers or such assignee shall have paid to the affected Lender or the Issuing Bank in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans or L/C Disbursements of such Lender or the Issuing Bank, respectively, plus all Fees and other amounts accrued for the account of such Lender or the Issuing Bank hereunder (including any amounts under Section 2.14 and Section 2.16); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's or the Issuing Bank's claim for compensation under Section 2.14 or notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the case may be, cease to cause such Lender or the Issuing Bank to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.15, or cease to result in amounts being payable under Section 2.20, as the case may be (including as a result of any action taken by such Lender or the Issuing Bank pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall waive its right to claim further compensation under Section 2.14 in respect of such circumstances or event or shall withdraw its notice under Section 2.15 or shall waive its right to further payments under Section 2.20 in respect of such circumstances or event, as the case may be, then such Lender or the Issuing Bank shall not thereafter be required to make any such transfer and assignment hereunder. (b) If (i) any Lender or the Issuing Bank shall request compensation under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice described in Section 2.15 or (iii) the Borrowers are required to pay any additional amount to any Lender or the Issuing Bank or any Governmental Authority on account of any Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the Issuing Bank shall use reasonable efforts (which 43 shall not require such Lender or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrowers or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.14 or enable it to withdraw its notice pursuant to Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the case may be, in the future. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender or the Issuing Bank in connection with any such filing or assignment, delegation and transfer. SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Swingline Lender agrees to make loans to the Borrowers at any time and from time to time on and after the Restatement Date and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitments in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of all Swingline Loans exceeding $20,000,000 in the aggregate, (ii) the Revolving Credit Exposure of any Lender, after giving effect to any Swingline Loan, exceeding such Lender's Revolving Credit Commitment or (iii) the Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan, exceeding the lesser of (x) the Total Revolving Credit Commitment and (y) the Borrowing Base in effect at such time. Each Swingline Loan shall be in a principal amount that is an integral multiple of $100,000. The Swingline Commitment may be terminated or reduced from time to time as provided herein. Within the foregoing limits, the Borrowers may borrow, pay or prepay and reborrow Swingline Loans hereunder, subject to the terms, conditions and limitations set forth herein. (b) Swingline Loans. The Borrowers shall notify the Swingline Lender by fax, or by telephone (confirmed by fax), with a copy of such notice to the Administrative Agent, not later than 12:00 (noon), New York City time, on the day of a proposed Swingline Loan. Such notice shall be delivered on a Business Day, shall be irrevocable and shall refer to this Agreement and shall specify the requested date (which shall be a Business Day) and amount of such Swingline Loan. The Swingline Lender shall make each Swingline Loan available to the Borrowers by means of a credit to the general deposit account of a Borrower with the Swingline Lender by 3:00 p.m. on the date such Swingline Loan is so requested. Pursuant to Section 5.01(c) of the Security Agreement, the Swingline Lender may apply the funds on deposit in the Concentration Account (as such term is defined in the Security Agreement) on any Business Day to repay outstanding Swingline Loans. (c) Prepayment. The Borrowers shall have the right at any time and from time to time to prepay any Swingline Loan, in whole or in part, upon giving written or fax notice (or telephone notice promptly confirmed by written, or fax notice) to the Swingline Lender and to the Administrative Agent before 1:00 p.m., New York City time on the date of prepayment at the Swingline Lender's address for notices specified on Schedule 2.01. All principal payments of Swingline Loans shall be accompanied by accrued interest on the principal amount being repaid to the date of payment. (d) Interest. Each Swingline Loan shall be an ABR Loan and, subject to the provisions of Section 2.07, shall bear interest at the rate provided for ABR Revolving Loans in accordance with Section 2.06(a). 44 (e) Participations. The Swingline Lender may by written notice given to the Administrative Agent not later than 11:00 a.m., New York City time, on any Business Day require the Revolving Credit Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which the Revolving Credit Lenders will participate. The Administrative Agent will, promptly upon receipt of such notice, give notice to each Revolving Credit Lender, specifying in such notice such Lender's Pro Rata Percentage of such Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Revolving Credit Lender's Pro Rata Percentage of such Swingline Loan or Loans. Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Revolving Credit Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the payment obligations of the Lenders) and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrowers of any participations in any Swingline Loan acquired pursuant to this paragraph and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrowers (or other party on behalf of the Borrowers) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrowers (or other party liable for obligations of the Borrowers) of any default in the payment thereof. SECTION 2.23. Letters of Credit. (a) General. Each of the Borrowers may request the issuance of a Letter of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time while the Revolving Credit Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Issuing Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the Borrowers shall hand deliver or fax to the Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrowers 45 shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (i) the L/C Exposure shall not exceed $25,000,000 and (ii) the Aggregate Revolving Credit Exposure shall not exceed the lesser of (x) the Total Revolving Credit Commitment and (y) the Borrowing Base in effect at such time. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the earlier of the date one year after the date of the issuance of such Letter of Credit and the date that is five Business Days prior to the Revolving Credit Maturity Date, unless such Letter of Credit expires by its terms on an earlier date; provided that a Letter of Credit may provide for automatic extension of any expiration date for additional periods of up to one year, subject to a right on the part of the Issuing Bank to prevent any such automatic extension from occurring by giving reasonable notice to the beneficiary during a period satisfactory to the Administrative Agent. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby acquires from the applicable Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit (or, in the case of the Existing Letters of Credit, effective upon the Restatement Date). In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing Bank and not reimbursed by the Borrowers (or, if applicable, another party pursuant to its obligations under any other Loan Document) forthwith on the date due as provided in Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, the Borrowers shall pay to the Administrative Agent an amount equal to such L/C Disbursement not later than two hours after the Borrowers shall have received notice from the Issuing Bank that payment of such draft will be made, or, if the Borrowers shall have received such notice later than 10:00 a.m., New York City time, on any Business Day, not later than 10:00 a.m., New York City time, on the immediately following Business Day. (f) Obligations Absolute. The Borrowers' obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; 46 (iii) the existence of any claim, setoff, defense or other right that the Borrowers, any other party guaranteeing, or otherwise obligated with, the Borrowers, any Subsidiary or other Affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Issuing Bank, the Administrative Agent or any Lender or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Issuing Bank, the Lenders, the Administrative Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrowers' obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Issuing Bank. However, the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by the Issuing Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Issuing Bank. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall as promptly as possible give telephonic notification, confirmed by fax, to the Administrative Agent and the Borrowers of such demand for payment and whether the Issuing Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve 47 the Borrowers of their obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to any such L/C Disbursement. The Administrative Agent shall promptly give each Revolving Credit Lender notice thereof. (h) Interim Interest. If the Issuing Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the Borrowers shall reimburse such L/C Disbursement in full on such date, the unpaid amount thereof shall bear interest for the account of the Issuing Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the Borrowers or the date on which interest shall commence to accrue thereon as provided in Section 2.02(f), at the rate per annum that would apply to such amount if such amount were an ABR Revolving Loan. (i) Resignation or Removal of the Issuing Bank. The Issuing Bank may resign at any time by giving 30 days' prior written notice to the Administrative Agent, the Lenders and the Borrowers, and may be removed at any time by the Borrowers by notice to the Issuing Bank, the Administrative Agent and the Lenders. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Bank hereunder by a Lender that shall agree to serve as successor Issuing Bank, such successor shall succeed to and become vested with all the interests, rights and obligations of the retiring Issuing Bank and the retiring Issuing Bank shall be discharged from its obligations to issue additional Letters of Credit hereunder. At the time such removal or resignation shall become effective, the Borrowers shall pay all accrued and unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment as the Issuing Bank hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a form satisfactory to the Borrowers and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor Lender shall have all the rights and obligations of the previous Issuing Bank under this Agreement and the other Loan Documents and (ii) references herein and in the other Loan Documents to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the resignation or removal of the Issuing Bank hereunder, the retiring Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement and the other Loan Documents with respect to Letters of Credit issued by it prior to such resignation or removal, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, the Borrowers shall, on the Business Day they receive notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit) thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C Exposure as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the Obligations. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits in Permitted Investments, which investments shall be made at the option and sole discretion of the Collateral Agent, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for L/C Disbursements for which it has not been reimbursed, (ii) be held for the satisfaction of the reimbursement obligations of the Borrowers for the L/C Exposure at such time and (iii) if the maturity of the Loans has 48 been accelerated (but subject to the consent of Revolving Credit Lenders holding participations in outstanding Letters of Credit representing greater than 50% of the aggregate undrawn amount of all outstanding Letters of Credit), be applied to satisfy the Obligations. If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrowers within three Business Days after all Events of Default have been cured or waived. (k) Additional Issuing Banks. The Borrowers may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender designated as an issuing bank pursuant to this paragraph (k) shall be deemed (in addition to being a Lender) to be the Issuing Bank with respect to Letters of Credit issued or to be issued by such Lender, and all references herein and in the other Loan Documents to the term "Issuing Bank" shall, with respect to such Letters of Credit, be deemed to refer to such Lender in its capacity as Issuing Bank. SECTION 2.24. Increase in Term Loan Commitments. (a) The Borrowers 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). Each 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, commitments to make term loans with the same economic terms as the Tranche A Term Loans 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 Borrowers 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 Tranche B 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 Tranche B 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 49 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 Borrowers, 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 Restatement 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 Tranche A Term Loans or Tranche B Term Loans, as the case may be, on a pro rata basis. This may be accomplished at the discretion of the Administrative Agent by requiring each outstanding Eurodollar Tranche A Term Borrowing or Eurodollar Tranche B Term Borrowing, as the case may be, 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 Tranche A Term Borrowing or Eurodollar Tranche B Term Borrowing, as applicable, 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)(i) or (ii), as applicable, 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 Borrowers and the Lenders an updated amortization schedule which shall be conclusive absent manifest error. SECTION 2.25. Increase in Revolving Credit Commitments. (a) The Borrowers may, by written notice to the Administrative Agent from time to time after the Restatement Date, request Incremental Revolving Credit Commitments in an amount not to exceed the Incremental Revolving Credit Commitment Amount from one or more Incremental Revolving Credit Lenders, which may include any existing Lender; provided that each Incremental Revolving Credit Lender, if not already a Revolving Credit Lender hereunder, shall be subject to the approval of the Administrative Agent, the Issuing Bank and the Swingline Lender (which approvals shall not be unreasonably withheld). Each such notice shall set forth (i) the amount of the Incremental Revolving Credit Commitments being requested (which shall be in minimum increments of $1,000,000 and a minimum amount of $5,000,000 or equal to the remaining Incremental Revolving Credit Commitment Amount) and (ii) the date on which such Incremental Revolving Credit 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). (b) The Borrowers and each Incremental Revolving Credit Lender shall execute and deliver to the Administrative Agent an Incremental Revolving Credit Assumption Agreement and such other documentation as the Administrative Agent shall reasonably specify to 50 evidence the Incremental Revolving Credit Commitment of such Incremental Revolving Credit Lender. The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Incremental Revolving Credit Assumption Agreement. Each of the parties hereto hereby agrees that, upon the effectiveness of any Incremental Revolving Credit 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 Revolving Credit Commitment evidenced thereby. (c) Each of the parties hereto hereby agrees that the Administrative Agent may take any and all actions as may be reasonably necessary to ensure that, after giving effect to any Incremental Revolving Credit Commitment pursuant to this Section 2.25, the outstanding Revolving Loans (if any) are held by the Revolving Credit Lenders in accordance with their new Pro Rata Percentages. This may be accomplished at the discretion of the Administrative Agent (i) by requiring the outstanding Revolving Loans to be prepaid with the proceeds of a new Revolving Credit Borrowing, (ii) by causing the existing Revolving Credit Lenders to assign portions of their outstanding Revolving Loans to Incremental Revolving Credit Lenders, (iii) by permitting the Revolving Credit Borrowings outstanding at the time of any increase in the Total Revolving Credit Commitment pursuant to this Section 2.25 to remain outstanding until the last days of the respective Interest Periods therefor, even though the Revolving Credit Lenders would hold such Revolving Credit Borrowings other than in accordance with their new Pro Rata Percentages, or (iv) by any combination of the foregoing. Any prepayment or assignment described in this paragraph (c) shall be subject to indemnification by the Borrowers pursuant to Section 2.16, but otherwise without premium or penalty. (d) Notwithstanding the foregoing, no Incremental Revolving Credit Commitment shall become effective under this Section 2.25 unless 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 Borrowers. SECTION 2.26. Extension of Revolving Credit Maturity Date. (a) The Borrowers may, by notice (an "Extension Request") to the Administrative Agent (which shall promptly deliver a copy to each of the Revolving Credit Lenders) not less than 30 days prior to the Revolving Credit Maturity Date then in effect (the "Existing Revolving Credit Maturity Date"), request that the Revolving Credit Lenders extend the Existing Revolving Credit Maturity Date to a date no later than the Tranche B Maturity Date and specified by the Borrowers in such notice. Each Revolving Credit Lender shall, by notice to the Borrowers and the Administrative Agent given not more than 15 days after receipt by it of the Extension Request, advise the Borrowers whether or not such Lender agrees to such extension (and any Lender that does not so advise the Borrowers on or prior to such date shall be deemed not to have agreed to such extension). The decision to agree or withhold agreement to any extension of the Existing Revolving Credit Maturity Date hereunder shall be at the sole discretion of each Revolving Credit Lender. (b) If any Extension Request shall not have been approved by each Revolving Credit Lender (each such Lender, a "Non-Extending Lender") but shall have been approved by Revolving Credit Lenders holding a majority of the Total Revolving Credit Commitment (whether used or unused), then the Borrowers may (i) cause one or more Non-Extending Lenders to assign their Revolving Credit Commitments in accordance with Section 2.21(a) and/or (ii) prepay the outstanding Revolving Loans of one or more Non-Extending Lenders, together with accrued and unpaid interest thereon, and permanently terminate the Revolving 51 Credit Commitment of such Non-Extending Lenders (provided that the Borrowers may not so terminate Revolving Credit Commitments to the extent that, after giving effect thereto, the Aggregate Revolving Credit Exposure would exceed the Total Revolving Credit Commitment). (c) If (and only if) each of the Revolving Credit Lenders (after giving effect to any assignments and terminations of Commitments pursuant to paragraph (b) above) shall have agreed to extend the Existing Revolving Credit Maturity Date, then the Revolving Credit Maturity Date shall be extended to the date so requested by the Borrowers in the Extension Request. (d) The proposed effectiveness of any extension of the Revolving Credit Maturity Date provided for in this Section 2.26 shall be deemed to be a Credit Event for all purposes of this Agreement and it shall be a further condition precedent to such effectiveness that the Administrative Agent shall have received a certificate, dated the Existing Revolving Credit Maturity Date and signed by a Financial Officer of the Borrowers, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01. ARTICLE III Representations and Warranties The Borrowers represent and warrant to the Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders that: SECTION 3.01. Organization; Powers. The Borrower and each of the Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, and (d) has the power and authority to execute, deliver and perform its obligations under each of the Loan Documents and each other agreement or instrument contemplated hereby or thereby to which it is or will be a party and, in the case of the Borrowers, to borrow hereunder. SECTION 3.02. Authorization. The execution, delivery and performance by (a) the Borrower of the Purchase Agreement and (b) each Loan Party of each of the Loan Documents and the consummation of the transactions contemplated by the Purchase Agreement and the Loan Documents (including the borrowings hereunder) (collectively, the "Transactions") (i) have been duly authorized by all requisite corporate and, if required, stockholder action and (ii) will not (x) violate (A) any material provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any indenture or any other material agreement or other instrument to which the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (y) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture, agreement or other instrument or (z) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the 52 Borrower or any Subsidiary (other than any Lien created hereunder or under the Security Documents). SECTION 3.03. Enforceability. This Agreement has been duly executed and delivered by the Borrowers and constitutes, and each other Loan Document when executed and delivered by each Loan Party thereto will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization and other similar laws relating to or affecting creditors' rights generally and general equitable principles. SECTION 3.04. Governmental Approvals; Contracts. (a) No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (i) the filing of Uniform Commercial Code financing statements, filings pursuant to the Assignment of Claims Act and filings with the United States Copyright Office, in each case with respect to the personal property to be acquired in the Acquisition, (ii) such as have been made or obtained and are in full force and effect and (iii) such actions, consents, approvals, registrations or filings, the failure of which to make or obtain could not reasonably be expected to result in a Material Adverse Effect. (b) No notice of suspension, debarment of termination for default has been received by the Borrower or any Subsidiary and no cure notice (other than any immaterial cure notice under any General Services Administration contract) has been received by the Borrower or any Subsidiary in connection with any Government Contract or other contract pursuant to which the Borrower or any Subsidiary is directly or indirectly acting as a subcontractor under or in connection with a Government Contract. All Government Contracts that as of the Restatement Date constitute Material Contracts are listed on Schedule 3.04, and documentation necessary for compliance with the Assignment of Claims Act has been executed and delivered by the Borrower or any Subsidiary, as applicable, with respect to each Government Contract for which Assignment of Claims Act perfection is currently being required by the Lenders (as noted on Schedule 3.04). SECTION 3.05. Financial Statements. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheets and statements of income, stockholder's equity and cash flows (i) as of and for the fiscal year ended December 31, 2001, audited by and accompanied by the opinion of KPMG LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended June 30, 2002, certified by its chief financial officer. Such financial statements present fairly in all material respects the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. (b) The Borrower has heretofore delivered to the Lenders its unaudited pro forma consolidated balance sheet and statements of income, stockholder's equity and cash flows as of June 30, 2002, prepared giving effect to the Transactions as if they had occurred, with respect to such balance sheet, on such date and, with respect to such other financial statements, on the first day of the 12-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Borrower, based on the assumptions used to prepare the pro forma financial information contained in the 53 Confidential Information Memorandum (which assumptions at the time made were believed by the Borrower to be reasonable), were based on the best information available to the Borrower as of the date of delivery thereof, accurately reflect all adjustments required to be made to give effect to the Transactions and present fairly in all material respects on a pro forma basis the estimated consolidated financial position of the Borrower and its consolidated Subsidiaries as of such date and for such period, assuming that the Transactions had actually occurred at such date or at the beginning of such period, as the case may be. SECTION 3.06. No Material Adverse Change. There has been no material adverse change in the business, results of operations, property, condition (financial or otherwise) or prospects of the Borrower and the Subsidiaries, taken as a whole, since December 31, 2001. SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of the Borrower and the Subsidiaries has good and marketable title to, or valid leasehold interests in, all its material properties and assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.02. (b) Each of the Borrower and the Subsidiaries has complied with all obligations under all material leases to which it is a party and all such leases are in full force and effect. Each of the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases. SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Restatement Date a list of all Subsidiaries and the percentage ownership interest of the Borrower therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.08 and, on and after the Acquisition Closing Date the shares of capital stock or other ownership interests of the Target and its subsidiaries are fully paid and non-assessable and are owned by the Borrower, directly or indirectly, free and clear of all Liens (other than Liens created pursuant to the Loan Documents). SECTION 3.09. Litigation; Compliance with Laws. Except as set forth on Schedule 3.09, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. SECTION 3.10. Agreements. None of the Borrower or any of the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any Material Contract, where such default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. Federal Reserve Regulations. (a) None of the Borrower or any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose 54 that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation T, U or X. SECTION 3.12. Investment Company Act; Public Utility Holding Company Act. None of the Borrower or any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.13. Use of Proceeds. The Borrowers will use the proceeds of the Loans and will request the issuance of Letters of Credit only for the purposes specified in the preamble to this Agreement. SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all material taxes due and payable by it and all material assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, shall have set aside on its books adequate reserves. SECTION 3.15. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading; provided that to the extent any such information, report, financial statement, exhibit or schedule was based upon or constitutes a forecast or projection, the Borrower represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.16. Employee Benefit Plans. (a) Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Borrower or any of its ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of all such underfunded Plans. (b) Each Foreign Pension Plan is in compliance in all material respects with all requirements of law applicable thereto and the respective requirements of the governing documents for such plan except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Pension Plan, none of the Borrower, its Affiliates or any of its directors, officers, employees or agents has engaged in a transaction that subjects the Borrower or any of its Subsidiaries, directly or indirectly, to a material tax or civil penalty. With respect to each Foreign Pension Plan, 55 reserves have been established in the financial statements furnished to the Lenders in respect of any unfunded liabilities in accordance with applicable law and prudent business practice or, where required, in accordance with ordinary accounting practices in the jurisdiction in which such Foreign Pension Plan is maintained. The aggregate unfunded liabilities, with respect to such Foreign Pension Plans could not reasonably be expected to result in a Material Adverse Effect. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened against the Borrower or any of its Affiliates with respect to any Foreign Pension Plan that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17: (a) The properties owned or operated by the Borrower and the Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, (ii) require Remedial Action under, or (iii) could give rise to liability under, Environmental Laws, which violations, Remedial Actions and liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Subsidiaries are in compliance, and in the last six years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (c) There have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Borrower or the Subsidiaries, which Releases or threatened Releases, in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (d) None of the Borrower or any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Subsidiaries or with regard to any person whose liabilities for environmental matters the Borrower or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could reasonably be expected to result in a Material Adverse Effect, nor do the Borrower or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; and (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Borrower or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could reasonably be expected to result in a Material Adverse Effect. SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the Restatement Date. As of the Restatement Date, such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its 56 Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice. SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Pledge Agreement) and, when the Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the pledgors thereunder in such Collateral, in each case prior and superior in right to any other person. (b) The Security Agreement is effective to create in favor of the Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral (as defined in the Security Agreement) and, (i) assuming that financing statements in appropriate form have been filed in the offices specified in Section 3.19(b) of the Existing Credit Agreement, and (ii) when financing statements in appropriate form are filed in the offices specified on Schedule 3.19(b), the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in such Collateral (other than the Intellectual Property, as defined in the Security Agreement), in each case prior and superior in right to any other person, other than with respect to Liens expressly permitted by Section 6.02. (c) Assuming that the Security Agreement has been filed in the United States Patent and Trademark Office and the United States Copyright Office, the Security Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the grantors thereunder in the Intellectual Property (as defined in the Security Agreement), in each case prior and superior in right to any other person (it being understood that subsequent recordings in the United States Patent and Trademark Office and the United States Copyright Office may be necessary to perfect a lien on registered trademarks, trademark applications and copyrights acquired by the grantors after the date hereof). SECTION 3.20. Location of Real Property. Schedule 3.20 lists completely and correctly as of the Restatement Date all real property owned by the Borrower and the Subsidiaries and the addresses thereof. The Borrower and the Subsidiaries own in fee all the real property set forth on Schedule 3.20. SECTION 3.21. Labor Matters. As of the Restatement Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. SECTION 3.22. Solvency. Immediately after the consummation of the Transactions to occur on the Restatement Date and immediately following the making of each Loan and after giving effect to the application of the proceeds of each Loan, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, 57 subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (c) each Loan Party will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) each Loan Party will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following the Restatement Date. SECTION 3.23. Ranking. The Obligations constitute "Bank Indebtedness", "Senior Indebtedness" and "Designated Senior Indebtedness" under and as defined in the Senior Subordinated Note Indenture. ARTICLE IV Conditions of Lending The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder are subject to the satisfaction of the following conditions: SECTION 4.01. All Credit Events. On the date of each Borrowing, including each Borrowing of a Swingline Loan but excluding the conversion of a Eurodollar Borrowing to an ABR Borrowing or vice versa or the continuation or conversion of the Interest Period of a Eurodollar Borrowing into another permitted Interest Period, and on the date of each issuance, amendment, extension or renewal of a Letter of Credit (each such event being called a "Credit Event"): (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall have received a notice requesting the issuance, amendment, extension or renewal of such Letter of Credit as required by Section 2.23(b) or, in the case of the Borrowing of a Swingline Loan, the Swingline Lender and the Administrative Agent shall have received a notice requesting such Swingline Loan as required by Section 2.22(b). (b) The representations and warranties set forth in Article III hereof and in each other Loan Document shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) At the time of and immediately after such Credit Event, no Event of Default or Default shall have occurred and be continuing. (d) If, after giving effect to such Borrowing or the issuance of any Letter of Credit, the Aggregate Revolving Credit Exposure would exceed $110,000,000, the Administrative Agent shall have received a certificate of a Financial Officer of the Borrower in form and substance satisfactory to the Administrative Agent demonstrating that either (i) on the date of such Borrowing or upon the issuance of any Letter of Credit, as the case may be, the Consolidated Coverage Ratio exceeds 2.25 to 1.00 and the Consolidated Leverage Ratio is 58 less than 5.50 to 1.00, in each case, as calculated in accordance with Section 4.03(a) of the Senior Subordinated Note Indenture or (ii) the Aggregate Revolving Credit Exposure would not exceed 90% of accounts receivable of the Borrower and its Subsidiaries as calculated in accordance with Section 4.03(b)(1) of the Senior Subordinated Note Indenture. (e) If such Credit Event is the making of a Revolving Credit Borrowing or a Swingline Loan then, after giving effect to such Credit Event and the proposed use of the proceeds thereof, the amount of all cash and Permitted Investments of the Borrower and the Subsidiaries shall not exceed $20,000,000. Each Credit Event shall be deemed to constitute a representation and warranty by the Borrowers on the date of such Credit Event as to the matters specified in paragraphs (b) and (c) and, if such Credit Event is the making of a Revolving Credit Borrowing or a Swingline Loan, paragraph (e) of this Section 4.01. SECTION 4.02. First Credit Event. On the Restatement Date: (a) The Administrative Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Borrowers, substantially to the effect set forth in Exhibit H-1 and (ii) Curtis L. Schehr, Esq., General Counsel of the Borrowers, substantially to the effect set forth in Exhibit H-2, in each case (A) dated the Restatement Date, (B) addressed to the Issuing Bank, the Administrative Agent and the Lenders, and (C) covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and the Borrowers hereby request such counsel to deliver such opinions. (b) All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder and the other Loan Documents shall be reasonably satisfactory to the Lenders, to the Issuing Bank and to the Administrative Agent. (c) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Restatement Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Loan Party as in effect on the Restatement Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such person is a party and, in the case of the Borrowers, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above; and (iv) such other documents as the Lenders, the Issuing Bank or the Administrative Agent may reasonably request. 59 (d) The conditions precedent 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 the Restatement Date and signed by a Financial Officer of the Borrowers. (e) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Restatement Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder or under any other Loan Document. (f) Each of the Indemnity, Subrogation and Contribution Agreement, the Pledge Agreement, the Security Agreement and the Subsidiary Guarantee Agreement shall have been duly executed by the parties thereto and delivered to the Administrative Agent, and shall be in full force and effect. (g) The Lenders shall have received financial projections of the Borrower covering a period of four years subsequent to the Restatement Date, which projections shall not be materially inconsistent with the forecasts previously provided to the Administrative Agent. SECTION 4.03. Tranche B Funding Date. The obligations of the Tranche B Lenders to make Tranche B Term Loans hereunder shall be subject to the satisfaction of the following additional conditions precedent: (a) A Borrowing Request shall have been delivered by the Borrowers to the Administrative Agent in accordance with Section 2.03. (b) The Administrative Agent shall have received, on behalf of itself, the Lenders and the Issuing Bank, a favorable written opinion of (i) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Borrowers, substantially to the effect set forth in Exhibit H-3, (ii) Curtis L. Schehr, Esq., General Counsel of the Borrowers, substantially to the effect set forth in Exhibit H-4, and (iii) each local counsel listed on Schedule 4.03(b), substantially to the effect set forth in Exhibit H-5, in each case (A) dated the Tranche B Funding Date, (B) addressed to the Issuing Bank, the Administrative Agent and the Lenders, and (C) covering such other matters relating to the Loan Documents and the Transactions as the Administrative Agent shall reasonably request, and the Borrowers hereby request such counsel to deliver such opinions. (c) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Loan Party (after giving effect to the Acquisition), certified as of a recent date by the Secretary of State of the state of its organization (or, in the case of persons that were Loan Parties prior to the Acquisition Closing Date, a certificate of a Responsible Officer of the Borrower to the effect that there has been no change to such documents since the last such documents previously delivered to the Administrative Agent), and a certificate as to the good standing of each Loan Party as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of each Loan Party dated the Tranche B Funding Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Loan Party as in effect on the Tranche B Funding Date and at all times since a date prior to the date of the resolutions described in clause (B) below (or a certificate of a Responsible Officer of the Borrower to the effect that there has been no change to such documents since the last such documents previously delivered to the Administrative Agent), (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which 60 such person is a party and, in the case of the Borrowers, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above; and (iv) such other documents as the Lenders, the Issuing Bank or the Administrative Agent may reasonably request. (d) The Administrative Agent shall have received a certificate, dated the Tranche B Funding Date and signed by a Financial Officer of the Borrowers, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01. (e) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the Tranche B Funding Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder or under any other Loan Document. (f) Supplements to the Pledge Agreement shall have been duly executed by the Loan Parties acquired or organized in connection with or as a result of the Acquisition and delivered to the Collateral Agent and shall be in full force and effect, and (i) all the outstanding capital stock of each Domestic Subsidiary then owned by the Borrower and each other Domestic Subsidiary and (ii) 65% of the voting capital stock and 100% of the nonvoting capital stock (if any) of each Foreign Subsidiary listed on Schedule 4.03(f), shall have been duly and validly pledged thereunder to the Collateral Agent for the ratable benefit of the Secured Parties and certificates representing such shares, accompanied by instruments of transfer and stock powers endorsed in blank, shall be in the actual possession of the Collateral Agent. (g) Supplements to the Security Agreement shall have been duly executed by the Loan Parties acquired or organized in connection with or as a result of the Acquisition and shall have been delivered to the Collateral Agent and shall be in full force and effect on such date and each document (including each Uniform Commercial Code financing statement and each Assignment of Claims Act notice) required by law or reasonably requested by the Agents to be filed, registered or recorded in order to create in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority security interest in and lien on the Collateral (subject to any Lien expressly permitted by Section 6.02) described in such agreement shall have been delivered to the Collateral Agent. (h) The Agents shall have received the results of a search of the Uniform Commercial Code filings (or equivalent filings) made with respect to the Loan Parties acquired or organized in connection with or as a result of the Acquisition in the states (or other jurisdictions) of organization of such persons, in which the chief executive office of each such person is located and in the other jurisdictions in which such persons maintain property, in each case as indicated on the Perfection Certificate, together with copies of the financing statements (or similar documents) disclosed by such search, and accompanied by evidence reasonably satisfactory to the Collateral Agent that the Liens indicated in any such financing statement (or similar document) would be permitted under Section 6.02 or have been or will be contemporaneously released or terminated. The Agents shall have also received (i) a schedule of all Material Contracts of the Target and its subsidiaries and (ii) all 61 information required for the proper assignment under the Assignment of Claims Act of all such Material Contracts for which the Agents or the Required Lenders shall have requested. (i) The Collateral Agent shall have received a Perfection Certificate with respect to the Loan Parties (including those acquired or organized in connection with or as a result of the Acquisition) dated the Tranche B Funding Date and duly executed by a Responsible Officer of the Borrower. (j) Supplements to each of the Subsidiary Guarantee Agreement and the Indemnity, Subrogation and Contribution Agreement shall have been duly executed by the Loan Parties acquired or organized in connection with or as a result of the Acquisition and shall have been delivered to the Collateral Agent and shall be in full force and effect. (k) The Agents shall have received a copy of, or a certificate as to coverage under, the insurance policies required by Section 5.02 and the applicable provisions of the Security Documents, each of which shall be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement and to name the Collateral Agent as additional insured, in form and substance satisfactory to the Agents. (l) The Acquisition shall have been consummated or shall be consummated simultaneously with the making of the Tranche B Term Loans on the Tranche B Funding Date, in each case in all material respects in accordance with the terms of the relevant documentation therefor, including the Purchase Agreement and the related schedules and attachments thereto; and the Agents shall be reasonably satisfied with the material terms of all such documentation. (m) All requisite Governmental Authorities and third parties shall have approved or consented to the Transactions and the other transactions contemplated hereby to the extent required, in each case to the extent failure to obtain such consent or approval will or is reasonably likely to have a Material Adverse Effect and there shall be no governmental or judicial action, actual or threatened, that has or would have, singly or in the aggregate, a reasonable likelihood of restraining, preventing or imposing burdensome conditions on the Transactions or the other transactions contemplated hereby. (n) The Lenders shall have received a certificate substantially in the form of Exhibit L from the chief financial officer of the Borrower to the effect that, after giving effect to the Transactions, the Borrower and the Subsidiaries taken as a whole will not (i) be insolvent, (ii) be rendered insolvent by the Indebtedness incurred in connection therewith, (iii) be left with unreasonably small capital with which to engage in its business or (iv) have incurred debts beyond its ability to pay such debts as they mature. (o) The Tranche B Credit Facility provided for by this Agreement shall be rated not lower than BB- by S&P and not lower than Ba3 by Moody's, and the Administrative Agent shall have received satisfactory evidence thereof. (p) The Lenders shall have received a certificate of a Financial Officer of the Borrower in form and substance satisfactory to the Administrative Agent demonstrating that, after giving effect to the Transactions (including the borrowing of the Tranche B Term Loans and the use of the proceeds thereof), the Consolidated Coverage Ratio exceeds 2.25 to 1.00 and the Consolidated Leverage Ratio is less than 5.50 to 1.00, in each case as calculated in accordance with Section 4.03(a) of the Senior Subordinated Note Indenture. 62 (q) Each of the conditions precedent to funding set forth or referred to in the Commitment Letter shall have been satisfied or waived in writing by the Lenders party thereto, and the Borrowers shall have complied with all of their obligations thereunder and under the Fee Letters. ARTICLE V Affirmative Covenants The Borrowers covenant and agree with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrowers will, and will cause each of the Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations, decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.02. Insurance. (a) Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. (b) Cause all such policies covering any Collateral to be endorsed or otherwise amended to include a "standard" or "New York" lender's loss payable endorsement, in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent, which endorsement shall provide that, from and after the Closing Date, if the insurance carrier shall have received written notice from the Administrative Agent or the Collateral Agent of the occurrence of an Event of Default, the insurance carrier shall pay all proceeds otherwise payable to the Borrower or the Loan Parties under such policies directly to the Collateral Agent; cause all such policies to provide that neither the Borrowers, the Administrative Agent, the Collateral Agent nor any other party shall be a coinsurer 63 thereunder and to contain a "Replacement Cost Endorsement", without any deduction for depreciation, and such other provisions as the Administrative Agent or the Collateral Agent may reasonably require from time to time to protect their interests; deliver original or certified copies of all such policies to the Collateral Agent; cause each such policy to provide that it shall not be canceled, modified or not renewed (i) by reason of nonpayment of premium upon not less than 10 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent (giving the Administrative Agent and the Collateral Agent the right to cure defaults in the payment of premiums) or (ii) for any other reason upon not less than 30 days' prior written notice thereof by the insurer to the Administrative Agent and the Collateral Agent; deliver to the Administrative Agent and the Collateral Agent, prior to the cancelation, modification or nonrenewal of any such policy of insurance, a copy of a renewal or replacement policy (or other evidence of renewal of a policy previously delivered to the Administrative Agent and the Collateral Agent) together with evidence satisfactory to the Administrative Agent and the Collateral Agent of payment of the premium therefor. (c) Notify the Administrative Agent and the Collateral Agent immediately whenever any separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 5.02 is taken out by the Borrower; and promptly deliver to the Administrative Agent and the Collateral Agent a duplicate original copy of such policy or policies. SECTION 5.03. Obligations and Taxes. Pay its material Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that (a) such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien and (b) failure to pay any Indebtedness shall not be a breach of this covenant unless such failure would give rise to an Event of Default under paragraph (f) of Article VII. SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Administrative Agent, the Collateral Agent and each Lender: (a) within 90 days after the end of each fiscal year, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by KPMG LLP or other independent public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP; 64 (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related statements of income, stockholders' equity and cash flows showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments; (c) [Intentionally Omitted]; (d) at the time of delivery of the financial statements referred to in paragraph (a) or (b) above, the unaudited consolidating balance sheet and related statements of income and cash flows, showing the financial position of the Borrower and each of its Subsidiaries as of the close of, and the results of operations of the Borrower and each of its Subsidiaries during, the relevant period referred to in paragraph (a) or (b) above, as the case may be, all certified by one of its Financial Officers as fairly presenting in all material respects the financial condition and results of operations of the Borrower and each of its Subsidiaries in accordance with GAAP (except for consolidation), subject in the case of monthly and quarterly reports, to normal year- end audit adjustments; (e) within 45 days after the end of each fiscal year, consolidated and consolidating projections of revenues, expenditures and results of operations and cash positions of the Borrower and each Subsidiary as of the end of each fiscal quarter in the forthcoming year, together with a statement of assumptions and estimates upon which such projections are based, all in detail reasonably satisfactory to the Administrative Agent; (f) within 90 days after the end of each fiscal year, projections of backlog and rolloff of the Borrower and each Subsidiary as of the end of each calendar quarter in the forthcoming year, together with a statement of assumptions and estimates upon which such projections are based, all in detail reasonably satisfactory to the Administrative Agent; (g) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate in the form of Exhibit I (a "Compliance Certificate") of (i) the accounting firm (in the case of paragraph (a)) or Financial Officer (in the case of paragraph (b)) opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (A) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (B) setting forth computations in detail reasonably satisfactory to the Agents demonstrating compliance with the covenants contained in Sections 6.08 (in the case of paragraph (a)), 6.09, 6.10, 6.11 and 6.12, and (ii) the Financial Officer in the case of paragraph (a) or (b) setting forth compliance with the covenants contained in Sections 6.01(c), 6.01(f), 6.01(g), 6.01(h), 6.01(i), 6.01(j), 6.01(k), 6.04(d), 6.04(h), 6.04(k), 6.04(p), 6.05(b), 6.06, 6.07(d) and 6.14(b), and, in the case of a certificate delivered with the financial 65 statements required by paragraph (a) above, setting forth the Borrower's calculation of Excess Cash Flow; (h) from time to time at the discretion of the Borrower and, in any event, within 37 days after the end of each calendar quarter a certificate in the form of Exhibit J (a "Borrowing Base/Non-Default Certificate") showing the Borrowing Base as of the close of business on a recent date (not to exceed 37 days) prior to the delivery of such Borrowing Base/Non-Default Certificate or the last day of such calendar quarter, as applicable, each such Borrowing Base/Non-Default Certificate to be certified as complete and correct on behalf of the Borrower by a Financial Officer of the Borrower; (i) promptly upon their becoming available, and in any event within 30 days following the end of each calendar quarter, (i) a quarterly report, in form and detail reasonably satisfactory to the Agents, setting forth the current billed accounts receivable agings reports, as well as a detailed subcontractor invoice report, of the Borrower and each Subsidiary Guarantor as of the end of the preceding calendar quarter, and (ii) a contract status backlog report of the Borrower and each Subsidiary Guarantor prepared as of the last day of the calendar quarter most recently ended; (j) within 6 weeks following the end of each calendar quarter, a quarterly report, in form and detail reasonably satisfactory to the Agents, setting forth unbilled active accounts relating to Material Contracts of the Borrowers as of the end of such calendar quarter; (k) promptly after the same become publicly available, copies of all periodic and other reports, final proxy statements and, upon notice of filing to the Administrative Agent and upon the request of the Administrative Agent, other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be, and all press releases; (l) promptly after the receipt thereof by the Borrower or any of its Subsidiaries, a copy of any "management letter" in final form (or if such final letter has not been delivered to the Borrower or any of its Subsidiaries by the date that is 8 months after the Borrower's fiscal year end, the then current draft of any "management letter") received by any such person from its certified public accountants and the management's responses thereto; (m) each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to clause (a) above, the Borrower shall deliver to the Agents a certificate of a Financial Officer of the Borrower (i) setting forth the information required pursuant to Section 2 of the Perfection Certificate or confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Tranche B Funding Date or the date of the most recent certificate delivered pursuant to this Section, as applicable, and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the 66 extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); (n) within 45 days after the end of the first and third fiscal quarters of the Borrower, a certificate of a Financial Officer of the Borrower listing all new Government Contracts since the date of the last perfection certificate which constitute Material Contracts and which are required by this Agreement to be assigned to the Collateral Agent, on behalf of the Lenders, in accordance with the Assignment of Claims Act; and (o) promptly, from time to time, subject to any restrictions requiring confidentiality or secrecy, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request. SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative Agent, the Issuing Bank and each Lender prompt written notice of the following: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; and (c) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 5.06. Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within 10 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrower in an aggregate amount exceeding $1,000,000, a statement of a Financial Officer of the Borrower setting forth details as to such ERISA Event and the action, if any, that the Borrower proposes to take with respect thereto. SECTION 5.07. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, subject to any restrictions requiring confidentiality or secrecy, permit any representatives designated by the Agents or any Lender to visit and inspect the financial records and the properties of the Borrower or any Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Agents or any Lender to discuss the affairs, finances and 67 condition of the Borrower or any Subsidiary with the officers thereof and independent accountants therefor. SECTION 5.08. Use of Proceeds. Use the proceeds of the Loans and request the issuance of Letters of Credit only for the purposes set forth in the preamble to this Agreement. SECTION 5.09. Compliance with Environmental Laws. Comply, and cause all lessees and other persons occupying its Properties to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that none of the Borrower or any of the Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. SECTION 5.10. Preparation of Environmental Reports. If a Default caused by reason of a breach of Section 3.17 or 5.09 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties which are the subject of such Default prepared by an environmental consulting firm acceptable to the Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. SECTION 5.11. Audits. Upon the occurrence and continuance of an Event of Default, permit the Collateral Agent or the Required Lenders through the Administrative Agent or professionals (including investment bankers, consultants, accountants, lawyers and appraisers) retained by the Collateral Agent or the Required Lenders to conduct evaluations and appraisals of (a) the Borrower's practices in the computation of the Borrowing Base and (b) the assets included in the Borrowing Base, and pay the reasonable fees and expenses of such professionals. SECTION 5.12. Further Assurances. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements, mortgages and deeds of trust and preparing all documentation relating to filings under the Assignment of Claims Act) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Security Documents. The Borrower will cause any subsequently acquired or organized Domestic Subsidiary (other than any Inactive Subsidiary) or any Domestic Subsidiary that ceases to be an Inactive Subsidiary to execute a Subsidiary Guarantee Agreement, Indemnity, Subrogation and Contribution Agreement, Pledge Agreement, Security Agreement and each other applicable Security Document in favor of the Collateral Agent. In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its assets and properties as either Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by substantially all the assets of the Borrower and its Subsidiaries (including real and 68 other properties acquired subsequent to the Closing Date)). Such security interests and Liens will be created under the Security Documents and other security agreements, mortgages, deeds of trust and other instruments and documents in form and substance reasonably satisfactory to the Collateral Agent, and the Borrower shall deliver or cause to be delivered to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Collateral Agent shall reasonably request to evidence compliance with this Section. The Borrower agrees to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. In furtherance of the foregoing, the Borrower will give prompt notice to the Agents of the acquisition by the Borrower or any Domestic Subsidiary of any real property (or any interest in real property) having a value in excess of $750,000. ARTICLE VI Negative Covenants The Borrowers covenant and agree with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, the Borrowers will not, nor will they cause or permit any of the Subsidiaries to: SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness for borrowed money existing on the Closing Date and set forth in Schedule 6.01, and any extensions, renewals or replacements of such Indebtedness to the extent the principal amount of such Indebtedness is not increased, the weighted average life to maturity of such Indebtedness is not decreased, such Indebtedness, if subordinated to the Obligations, remains so subordinated on terms not less favorable to the Lenders and the original obligors in respect of such Indebtedness remain the only obligors thereon; (b) Indebtedness created hereunder and under the other Loan Documents; (c) Indebtedness evidenced by Capital Lease Obligations, or secured pursuant to Section 6.02(h), in each case so long as (i) the related Capital Expenditure is permitted by Section 6.08 and (ii) the aggregate principal amount of all Indebtedness permitted to be outstanding under this paragraph (c) shall not exceed $2,000,000; (d) Indebtedness in favor of a Lender (or an Affiliate thereof) under one or more Hedging Agreements approved by the Administrative Agent (such approval not to be unreasonably withheld); (e) intercompany Indebtedness of the Borrower and its Subsidiaries to the extent permitted by Sections 6.04(f) and (h); 69 (f) Indebtedness with respect to any surety bonds required in the ordinary course of business of the Borrower and the Subsidiaries, provided that such Indebtedness shall not at any time exceed $750,000 in the aggregate; (g) Indebtedness of Foreign Subsidiaries in an aggregate principal amount not to exceed $7,500,000 at any time outstanding; and (h) unsecured Indebtedness of the Borrower incurred in connection with a Permitted Acquisition subordinated to the Obligations on terms and conditions no less favorable to the Lenders than those contained in Exhibit K in an aggregate principal amount not to exceed $7,500,000 at any time outstanding; (i) other unsecured Indebtedness of the Borrower and the Subsidiaries in an aggregate principal amount not to exceed $2,500,000 at any time outstanding; (j) Indebtedness to Citizens Bank in connection with purchase cards issued by Citizens Bank in an aggregate amount not to exceed $3,000,000 at any time outstanding; (k) Indebtedness of any Subsidiary that exists at the time such person becomes a Subsidiary and that was not incurred in contemplation of or in connection with the acquisition by the Borrower or a Subsidiary of such person in an aggregate principal amount not to exceed $4,000,000 at any time outstanding; (l) unsecured Indebtedness of the Borrower incurred in connection with a Permitted Acquisition subordinated to the Obligations on terms and conditions no less favorable to the Lenders than those contained in Exhibit K in an aggregate principal amount not to exceed $5,500,000 at any time outstanding; provided that notwithstanding Section 1(b) of Exhibit K, Indebtedness incurred pursuant to this paragraph (l) may have a stated maturity date and, so long as no Default or Event of Default has occurred and is continuing or would result therefrom, such Indebtedness may be paid or prepaid, on a date that is prior to the Tranche B Maturity Date; and (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. SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including stock or other securities of any person, including any Subsidiary) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the Closing Date and set forth in Schedule 6.02; provided that such Liens shall secure only those obligations which they secure on the date hereof; (b) any Lien created under the Loan Documents; (c) Liens for taxes not yet due or which are being contested in compliance with Section 5.03; 70 (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due and payable or which are being contested in compliance with Section 5.03; (e) Liens (other than any Lien imposed by ERISA), pledges and deposits made in the ordinary course of business in compliance with workmen's compen sation, unemployment insurance and other social security laws or regulations; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (h) purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by Section 6.01, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 90 days after such acquisition (or construction), (iii) the Indebtedness secured thereby does not exceed 100% of the lesser of the cost or the fair market value of such real property, improvements or equipment at the time of such acquisition (or construction) and (iv) such security interests do not apply to any other property or assets of the Borrower or any Subsidiary; (i) Liens on assets of Foreign Subsidiaries; provided that (i) such Liens do not extend to, or encumber, assets of the Borrower or any of its Domestic Subsidiaries and (ii) such Liens secure only Indebtedness incurred by such Foreign Subsidiaries pursuant to Section 6.01(g); (j) Liens that are contractual rights of setoff (i) relating to the establishment of depository relations with any Lender or any bank with which the Borrower may maintain accounts in accordance with Section 6.19 and which are not given in connection with the issuance of Indebtedness or (ii) pertaining to pooled deposit and/or sweep accounts of the Borrower or any Subsidiary with any Lender to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and the Subsidiaries; (k) judgment liens securing judgments that have not resulted in an Event of Default under paragraph (i) of Article VII; (l) any Lien existing on any property or asset of any person that exists at the time such person becomes a Subsidiary and that secured Indebtedness permitted by Section 6.01(k); provided that (i) such Lien was not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any property or assets of the Borrower or any other Subsidiary; and 71 (m) any Lien on Third Party Government Receivables purporting to be sold pursuant to a Third Party Financing in favor of the provider thereof. SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred unless (a) the sale of such property is permitted by Section 6.05 and (b) the Capital Lease Obligations arising therefrom are permitted by Section 6.01(c). SECTION 6.04. Investments, Loans and Advances. Purchase, hold or acquire any Equity Interests, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except: (a) investments by the Borrower existing on the date hereof in the Equity Interests of the Subsidiaries and additional investments in the Equity Interests of domestic Subsidiary Guarantors; (b) Permitted Investments; (c) Accounts owing to the Borrower or any of its Subsidiaries arising from sales of inventory under usual and customary terms in the ordinary course of business; (d) advances to officers and employees of the Borrower or any of its Subsidiaries to meet expenses incurred by such officers and employees in the ordinary course of business, in an aggregate amount not to exceed $500,000 at any time outstanding; (e) securities of any customer of the Borrower or any Subsidiary received in lieu of cash payment, if the Borrower reasonably deems such customer to be in a reorganization or unable to make a timely cash payment on Indebtedness of such customer owing to it, provided that the Borrower or such Subsidiary, as the case may be, has paid no new consideration (other than forgiveness of Indebtedness) therefor; (f) any Subsidiary may make intercompany loans to the Borrower or any Subsidiary Guarantor and the Borrower may make intercompany loans and advances to any Subsidiary Guarantor; provided that any promissory notes evidencing such intercompany loans shall be pledged (and delivered) by the Borrower or the respective Domestic Subsidiary Guarantor that is the lender of such intercompany loan as Collateral pursuant to the Pledge Agreement; provided further that (i) neither the Borrower nor any Domestic Subsidiaries may make loans to any Foreign Subsidiaries of the Borrower pursuant to this paragraph (f) and (ii) any loans made by any Foreign Subsidiaries to the Borrower or any of its Domestic Subsidiaries pursuant to this paragraph (f) shall be subordinated to the obligations of the Loan Parties pursuant to subordination provisions in substantially the form of Exhibit K; (g) the Borrower may establish Subsidiaries to the extent permitted by Section 6.15; 72 (h) the Borrower and its Domestic wholly owned Subsidiaries may make loans and advances to, or other investments in, Foreign Subsidiaries of the Borrower so long as the aggregate amount of any loans, advances or other investments at any time outstanding (determined without regard to any write-downs or write-offs thereof) pursuant to this paragraph (h) shall not exceed $6,000,000; (i) the Borrower may acquire all or substantially all the assets of a person or line of business of such person, or not less than 80% of the Equity Interests of a person (referred to herein as the "Acquired Entity"); provided that (i) the Acquired Entity shall be a going concern and shall be in a similar line of business as that of the Borrower and its Subsidiaries as conducted during the current and most recent calendar year; (ii) at the time of such transaction (A) both before and after giving effect thereto, no Event of Default or Default shall have occurred and be continuing or shall exist; (B) the Borrower would be in compliance with the covenants set forth in Sections 6.09, 6.10, 6.11 and 6.12 as of the most recently completed period of four consecutive fiscal quarters ending prior to such transaction for which the financial statements and certificates required by Section 5.04(a) or 5.04(b) have been delivered or for which comparable financial statements have been filed with the Securities and Exchange Commission, after giving pro forma effect to such transaction and to any other event occurring after such period as to which pro forma recalculation is appropriate (including any other transaction described in this Section 6.04(i) occurring after such period) as if such transaction had occurred as of the first day of such period; (C) based on projections of the Borrower after giving pro forma effect to such transaction and such other events or transactions, the Borrower would be in compliance with the covenants set forth in Sections 6.09, 6.10, 6.11 and 6.12 for each of the four succeeding calendar quarters; (D) after giving effect to such acquisition, there must be at least $10,000,000 of unused and available Revolving Credit Commitments; and (E) the Senior Leverage Ratio, after giving pro forma effect to such transaction and any Indebtedness permitted by Section 6.01 incurred in connection with such transaction, shall be at least 0.25 to 1.0 less than the maximum Senior Leverage Ratio permitted under Section 6.12 applicable at such time; (iii) the Acquired Entity shall have had a positive EBITDA for the 12-month period immediately preceding the transaction; (iv) the Borrower shall assume no Indebtedness in connection with such acquisition, except as permitted by Section 6.01; (v) the Acquired Entity shall not be subject to any material pending litigation or material contingent liabilities (any acquisition of an Acquired Entity meeting all the criteria of this Section 6.04(i) being referred to herein as a "Permitted Acquisition") and (vi) if the Acquired Entity would not constitute a wholly owned Subsidiary, each holder of an Equity Interest therein (other than the Borrower or any wholly owned Subsidiary) shall have executed and delivered to the Collateral Agent an acknowledgment, waiver and consent substantially in the form of Exhibit M. All pro forma calculations required to be made pursuant to this Section 6.04(i) shall (i) include only those adjustments that (A) except with respect to the projections referred to in clause (C) of the preceding sentence, would be permitted or required by Regulation S-X, and (B) are based on reasonably detailed written assumptions reasonably acceptable to the Administrative Agent and (ii) be certified to by a Financial Officer as having been prepared in good faith based upon reasonable assumptions; (j) the Borrower may enter into Hedging Agreements to the extent permitted in Section 6.01(d); 73 (k) the Borrower or any Subsidiary Guarantor may acquire Margin Stock of entities in a similar line of business as that of the Borrower and its Subsidiaries as conducted during the current and most recent calendar year; provided, however, that (i) the Borrower or any Subsidiary Guarantor must notify the Agents promptly after any such acquisition, (ii) after giving effect to such acquisition, there must be at least $10,000,000 of unused and available Revolving Credit Commitments and (iii) the Borrower and the Subsidiaries shall not hold Margin Stock with a cost basis in excess of $25,000,000 in the aggregate at any time (any Margin Stock acquired and held by the Borrower or any Subsidiary Guarantor in accordance with this Section 6.04(k) being referred to herein as "Approved Margin Stock"); (l) the Borrower and the Subsidiaries may consummate the Transactions (including the Acquisition); (m) investments existing on the Closing Date and set forth on Schedule 6.04; (n) investments consisting of non-cash proceeds of Asset Sales for which the consideration consists of at least 75% cash as required under Section 6.05; (o) the Borrower may make loans or advances permitted by clause (ii) of the first proviso of Section 6.06(a); and (p) other investments, loans and advances (other than investments in and loans and advances to Foreign Subsidiaries) in an aggregate amount (valued at cost or outstanding principal amount, as the case may be) not greater than $15,000,000 at any time outstanding. SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of the assets of the Borrower (whether now owned or hereafter acquired) or less than all the Equity Interests of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that (i) the Borrower and any Subsidiary may purchase and sell inventory in the ordinary course of business, (ii) the Borrower or any wholly owned Subsidiary may make Permitted Acquisitions, (iii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (x) any wholly owned Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation and (y) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Subsidiary (or, in order to consummate a Permitted Acquisition, any other person) in a transaction in which the surviving entity is a wholly owned Subsidiary and (except in the case of Permitted Acquisitions) no person other than the Borrower or a wholly owned Subsidiary receives any consideration, provided that if any such merger described in this clause (y) shall involve a Domestic Subsidiary, the surviving entity of such merger shall be a Domestic Subsidiary, and (iv) the Borrower or any wholly owned Subsidiary may consummate the Acquisition. (b) Engage in any Asset Sale otherwise permitted under paragraph (a) above unless (i) such Asset Sale is for consideration at least 75% of which is cash (provided that such 75% requirement shall not apply to any Asset Sale constituting the sale of a business unit if the cash portion of the consideration received therefor is no less than an amount equal to the 74 product of (A) six and (B) the amount of EBITDA for the preceding fiscal year directly attributable to the assets included in such Asset Sale), (ii) such consideration is at least equal to the fair market value of the assets being sold, transferred, leased or disposed of and (iii) the fair market value of all assets sold, transferred, leased or disposed of after the Restatement Date pursuant to this paragraph (b) shall not exceed (i) $10,000,000 in any fiscal year or (ii) $15,000,000 in the aggregate. SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any of its Equity Interests or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any of its Equity Interests or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions ratably to the holders of its Equity Interests, (ii) so long as no Event of Default or Default shall have occurred and be continuing or would result therefrom, the Borrower may 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 and (iii) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower may use the Borrower's Portion of Excess Cash Flow to repurchase Borrower Common Stock, provided that the amount so expended pursuant to this clause (iii) shall not exceed (x) $10,000,000 in any fiscal year or (y) $25,000,000 in the aggregate (in each case, as the same may be reduced pursuant to Section 6.14(b)). (b) Permit its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (i) pay any dividends or make any other distributions on its Equity Interests or (ii) make or repay any loans or advances to the Borrower or the parent of such Subsidiary except (v) for such encumbrances or restrictions existing under or by reason of (A) applicable law, (B) this Agreement and the other Loan Documents, (C) the Senior Subordinated Note Documents or (D) with respect to Foreign Subsidiaries only, Indebtedness of such Foreign Subsidiaries permitted to be incurred hereunder, (w) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower, (x) customary provisions restricting assignment of any agreement entered into by the Borrower or a Subsidiary in the ordinary course of business, (y) any holder of a Lien permitted by Section 6.02 may restrict the transfer of the asset or assets subject thereto and (z) subordination provisions in favor of the Lenders and required by Section 6.04(f). SECTION 6.07. Transactions with Affiliates. Except for transactions by or among Loan Parties, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that: (a) the Borrower or any Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; 75 (b) dividends may be paid to the extent provided in Section 6.06; (c) loans may be made and other transactions may be entered into between and among the Borrower, the Subsidiaries and their respective Affiliates to the extent permitted by Sections 6.01 and 6.04; and (d) so long as no Event of Default or Default shall have occurred and be continuing or would result therefrom, customary fees may be paid to non-officer directors of the Borrower in an aggregate amount not to exceed $250,000 in any fiscal year. SECTION 6.08. Capital Expenditures. Make any Capital Expenditures, except that during each fiscal year (in each case, taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed 1.25% of the consolidated net sales of the Borrower and its consolidated Subsidiaries for the preceding fiscal year, as shown on the consolidated financial statements for such year delivered pursuant to Section 5.04(a) after giving pro forma effect to the Acquisition and Permitted Acquisitions consummated in such preceding fiscal year as if the Acquisition or such Permitted Acquisitions, as the case may be, had occurred as of the first day of such fiscal year. SECTION 6.09. Interest Coverage Ratio. Permit the Interest Coverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, ending on a date or during any period set forth below to be less than the amount set forth opposite such date or period below: Date or Period Ratio March 31, 2002 through December 31, 2002 2.25:1.0 January 1, 2003 through December 31, 2003 2.50:1.0 January 1, 2004 and thereafter 3.00:1.0 SECTION 6.10. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, to be less than 1.05 to 1.0. SECTION 6.11. Maximum Leverage Ratio. Permit the Leverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, to be greater than 4.0 to 1.0. SECTION 6.12. Senior Leverage Ratio. Permit the Senior Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below: Date or Period Ratio January 1, 2002 through December 31, 2003 2.50:1.0 January 1, 2004 and thereafter 2.25:1.0 SECTION 6.13. [Intentionally Omitted]. 76 SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc. (a) Amend or modify, or permit the amendment or modification of, any provision of existing Indebtedness or of any agreement (including any purchase agreement, indenture, loan agreement or security agreement) relating thereto other than any amendments or modifications to Indebtedness which do not in any way materially adversely affect the interests of the Lenders, (b) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Senior Subordinated Notes; provided that the Borrower may use (i) the Borrower's Portion of Excess Cash Flow and (ii) the Net Cash Proceeds of any Equity Issuance occurring after the Restatement Date that were not required to be applied to the prepayment of Term Loans as described in Section 2.13(d), to optionally prepay, repurchase, redeem, defease or otherwise retire any Senior Subordinated Notes, so long as (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (ii) the amount so expended shall not exceed $30,000,000 in the aggregate and (iii) any amounts so expended in excess of $20,000,000 shall be deemed to reduce the ability of the Borrower to repurchase Borrower Common Stock pursuant to Section 6.06(a)(iii) by the amount of such excess for the fiscal year in which made and in the aggregate, (c) amend or modify, or permit the amendment or modification of, the Purchase Agreement or any of the operating agreements entered into in connection therewith or any tax sharing agreement, in each case except for amendments or modifications which are not in any way adverse in any material respect to the interests of the Lenders, (d) amend, modify or change its Certificate of Incorporation (including by the filing or modification of any certificate of designation) or By-laws, or any agreement entered into by it, with respect to its Equity Interests (including any shareholders' agreement), or enter into any new agreement with respect to its Equity Interests, other than any amendments, modifications or changes pursuant to this clause (d) or any such new agreements pursuant to this clause (d) which do not in any way materially adversely affect the interests of the Lenders; provided that nothing in this clause (d) shall prevent the Borrower or any of its Subsidiaries from amending its Certificate of Incorporation or By-laws to provide indemnification to any officer or director of the Borrower or any such Subsidiary to the maximum extent permitted by the law of its jurisdiction of incorporation or (e) amend, modify or change, or permit the amendment, modification or change of, the charter, by-laws or other organizational documents of each of Anteon VDS Foreign Enterprises LLC and Anteon VDS Foreign Investments LLC, each a Delaware limited liability company and wholly owned subsidiary of the Borrower, to permit such companies to engage in any activity other than owning all the outstanding shares of capital stock of Yuhan Hoeysa Anteon VDS-Korea. SECTION 6.15. Limitation on Creation of Subsidiaries. Establish or create any additional Subsidiaries; provided that the Borrower may establish or create one or more Subsidiaries of the Borrower so long as (a) at least 80% of the Equity Interests of such Subsidiary is owned by the Borrower or a wholly owned Subsidiary, (b) 100% of the Equity Interests so owned by Borrower or such Subsidiary of any new Subsidiary (except that not more than 65% of the voting Equity Interests of any Foreign Subsidiary owned by a Loan Party shall be required to be so pledged) is upon the creation or establishment of any such new Subsidiary pledged and delivered to the Collateral Agent for the benefit of the Secured Parties under the Pledge Agreement and (c) upon the creation or establishment of any such new Domestic Subsidiary such Domestic Subsidiary becomes a party to the applicable Security Documents in accordance with Section 5.12 and the other Loan Documents (and if such new Domestic Subsidiary is not a wholly owned Subsidiary of Borrower, each owner of any minority Equity Interest in such new Domestic Subsidiary shall have consented to such new Domestic Subsidiary becoming party to the applicable Security Documents and 77 other Loan Documents and executed an acknowledgment, waiver and consent substantially in the form of Exhibit M). SECTION 6.16. Business. Engage (directly or indirectly) in any business other than the business in which the Borrower and its Subsidiaries are engaged on the Restatement Date and other businesses reasonably related thereto. SECTION 6.17. Designated Senior Indebtedness. Designate any indebtedness as "Designated Senior Indebtedness" for purposes of the Senior Subordinated Note Indenture unless the Required Lenders specifically consent thereto in writing. SECTION 6.18. Fiscal Year. With respect to the Borrower, change its fiscal year end to a date other than December 31. SECTION 6.19. Maintenance of Accounts. With respect to the Borrower and the Domestic Subsidiaries, maintain any bank account, other than payroll and petty cash accounts, with any financial institution that is not a Lender. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or the borrowings or issuances of Letters of Credit hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan or the reimbursement with respect to any L/C Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Fee or L/C Disbursement or any other amount (other than an amount referred to in (b) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five Business Days; (d) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.01(a) insofar as it relates to the existence of the Borrowers, 5.05 or 5.08 or in Article VI; (e) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 20 days after notice thereof from the Administrative Agent or any Lender to the Borrower; 78 (f) the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any one or more items of Indebtedness in a principal amount in excess of $3,000,000 in the aggregate, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Subsidiary, or of a substantial part of the property or assets of the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or a Subsidiary or (iii) the winding-up or liquidation of the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Subsidiary to enforce any such judgment; (j) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Borrower and its ERISA Affiliates in an aggregate amount exceeding $5,000,000; (k) any security interest purported to be created by any Security Document shall cease to be, or shall be asserted by the Borrower or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under 79 the Pledge Agreement and except to the extent that such loss is covered by a lender's title insurance policy and the related insurer promptly after such loss shall have acknowledged in writing that such loss is covered by such title insurance policy; (l) any of the Obligations shall cease to constitute "Senior Indebtedness" under and as defined in the Senior Subordinated Note Indenture; (m) there shall have occurred a Change in Control; or (n) (i) A notice of debarment, notice of suspension or notice of termination for default shall have been issued under any Government Contract; (ii) the Borrower is barred or suspended from contracting with any part of the Government; (iii) a Government investigation shall have resulted in a criminal or civil liability in excess of $5,000,000; (iv) the actual termination of any Material Contract due to alleged fraud, wilful misconduct, neglect, default or any other wrongdoing; or (v) a cure notice (other than any immaterial cure notice under any General Services Administration contract) issued under any Government Contract shall remain uncured (subject to expiration of extensions that may have been received) beyond (A) the expiration of the time period available to the Borrower pursuant to such Government Contract and/or such cure notice, to cure the noticed default, or (B) the date on which the other contracting party is entitled to exercise its rights and remedies under the Government Contract as a consequence of such default; then, and in every such event (other than an event with respect to a Borrower described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to a Borrower described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrowers, anything contained herein or in any other Loan Document to the contrary notwithstanding. ARTICLE VIII The Administrative Agent and the Collateral Agent In order to expedite the transactions contemplated by this Agreement, Credit Suisse First Boston is hereby appointed to act as Administrative Agent and Citizens Bank is hereby appointed to act as Collateral Agent, each on behalf of the Lenders and the Issuing Bank. Each of the Lenders and each assignee of any such Lender, hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions 80 hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders and the Issuing Bank all payments of principal of and interest on the Loans, all payments in respect of L/C Disbursements and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender or the Issuing Bank its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents. Neither the Agents nor any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document. The Agents shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Documents, instruments or agreements. The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Agents nor any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower or any other Loan Party on account of the failure of or delay in performance or breach by any Lender or the Issuing Bank of any of its obligations hereunder or to any Lender or the Issuing Bank on account of the failure of or delay in performance or breach by any other Lender or the Issuing Bank or the Borrower or any other Loan Party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agree ment unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrowers. Upon any such resignation, the Required Lenders shall have the right (with the consent of the Borrowers, not to be unreasonably withheld) to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment 81 within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent (with the consent of the Borrowers, not to be unreasonably withheld) which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent in its individual capacity and not as Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent, and the Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent. Each Lender agrees (a) to reimburse the Agents, on demand, in the amount of its pro rata share (based on the aggregate amount of its outstanding Term Loans and Revolving Credit Commitments hereunder) of any expenses incurred for the benefit of the Lenders by the Agents, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrowers and (b) to indemnify and hold harmless each Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or any of them in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document, to the extent the same shall not have been reimbursed by the Borrower or any other Loan Party, provided that no Lender shall be liable to an Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent or any of its directors, officers, employees or agents. Each Revolving Credit Lender agrees to reimburse the Issuing Bank and its directors, employees and agents, in each case, to the same extent and subject to the same limitations as provided above for the Agents. Each Lender acknowledges that it has, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. 82 ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax, as follows: (a) if to the Borrowers, to it at 3211 Jermantown Road, Suite 700, Fairfax, Virginia 22030-2801, Attention of Curtis L. Schehr, Esq. (Fax No. (703) 246-0629), with a copy to Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064, Attention of Eric Goodison, Esq. (Fax No. (212) 373-2523); (b) if to the Administrative Agent, to Credit Suisse First Boston, Eleven Madison Avenue, New York, New York 10010, Attention of David Dodd (Fax No. (212) 325-8304, with a copy to Credit Suisse First Boston, at Eleven Madison Avenue, New York, New York 10010, Attention of Matthew Carter (Fax No. (212) 325-8304); (c) if to the Collateral Agent, to Citizens Bank of Pennsylvania, 8521 Leesburg Pike, Suite 405, Vienna, Virginia 22182, Attention of Leslie Grizzard (Fax No. (703) 610-6070); and (d) if to a Lender, to it at its address (or fax number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by fax or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. Any party may change its address for notices by giving notice of such change to each party in accordance with this Section 9.01 SECTION 9.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and the Issuing Bank and shall survive the making by the Lenders of the Loans and the issuance of Letters of Credit by the Issuing Bank, regardless of any investigation made by the Lenders or the Issuing Bank or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not been terminated. The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation 83 made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. SECTION 9.03. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrowers and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of the Restatement Required Lenders, and thereafter shall be binding upon and inure to the benefit of the Borrowers, the Agents, the Issuing Bank, the Swingline Lender and the Lenders and their respective permitted successors and assigns. SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrowers, the Administrative Agent, the Issuing Bank or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate or Related Fund of a Lender, (x) the Borrowers and the Administrative Agent (and, in the case of any assignment of a Revolving Credit Commitment, the Issuing Bank and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed); provided, however, that the consent of the Borrowers shall not be required to any such assignment during the continuance of any Event of Default described in subsection (g) or (h) of Article VII, and (y) the amount of the Commitment or Loan of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $2,500,000, if in respect of a Revolving Credit Commitment or a Revolving Loan, or $1,000,000, if in respect of a Term Loan Commitment or a Term Loan (or, if less, the entire remaining amount of such Lender's applicable Commitment) or such lesser amount as the Borrowers and the Administrative Agent may from time to time agree (such agreement to be conclusively evidenced by the execution of the related Assignment and Acceptance by all the parties thereto), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together (except in the case of any assignment to an Affiliate or a Related Fund) with a processing and recordation fee of $3,500 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with 84 each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.05(a) or delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrowers, the Administrative Agent, the Issuing Bank, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers, the Issuing Bank, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrowers, the Swingline Lender, the Issuing Bank and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). 85 (f) Each Lender may without the consent of the Borrowers, the Swingline Lender, the Issuing Bank or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.14, 2.16 and 2.20 and shall be bound by the confidentiality provisions contained in Section 9.16 to the same extent as if they were Lenders and (iv) the Borrowers, the Administrative Agent, the Issuing Bank and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrowers relating to the Loans or L/C Disbursements and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans, increasing or extending the Commitments or releasing all or substantially all the Guarantors or the Collateral). All amounts payable by the Borrowers to any Lender hereunder in respect of any Loan and the applicability of the cost protection provisions contained in Section 2.14, 2.16 and 2.20 shall be determined as if such Lender had not sold or agreed to sell any participation in such Loan, and as if such Lender were funding the participated portion of such Loan the same way that it is funding the portion of such Loan in which no participation has been sold. (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16. (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to secure extensions of credit to such Lender or in support of obligations owed by such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. (i) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall 86 remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrowers and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Borrowers and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. (j) The Borrowers shall not assign or delegate any of their rights or duties hereunder without the prior written consent of the Administrative Agent, the Issuing Bank and each Lender, and any attempted assignment without such consent shall be null and void. (k) In the event that S&P, Moody's, and Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender becomes a Revolving Credit Lender, downgrade the long-term certificate deposit ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)), then the Issuing Bank shall have the right, but not the obligation, at its own expense, upon notice to such Lender and the Administrative Agent, to replace (or to request the Borrower to use its reasonable efforts to replace) such Lender with an assignee (in accordance with and subject to the restrictions contained in paragraph (b) above), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in paragraph (b) above) all its interests, rights and obligations in respect of its Revolving Credit Commitment to such assignee; provided, however, that (i) no such assignment shall conflict with any law, rule and regulation or order of any Governmental Authority and (ii) the Issuing Bank or such assignee, as the case may be, shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. (l) Notwithstanding the foregoing, the processing and recordation fee payable to the Administrative Agent pursuant to paragraph (b) above shall be waived in connection with any assignment made to either (i) a person that is not a bank, an investment bank or an Affiliate of a bank or an investment bank or (ii) a bank, an investment bank or an Affiliate of a bank or an investment bank (a "Financial Institution") which has, to the satisfaction of the Administrative Agent, announced and adopted a general policy that (x) is in effect on the date of the proposed assignment, (y) is binding on such Financial Institution and (z) provides that such Financial Institution has agreed to waive its rights to receive all similar processing, recordation or assignment fees which would be payable as a result of an assignment by any person of any commitments, loans or other extensions of credit under a syndicated leveraged credit facility. 87 SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree to pay all out-of- pocket expenses incurred by the Administrative Agent, the Collateral Agent, the Issuing Bank and the Swingline Lender in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made or Letters of Credit issued hereunder, including the fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent, and, in connection with any such enforcement or protection, the fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent or any Lender. (b) The Borrowers agree to indemnify the Administrative Agent, the Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of the foregoing persons and each of their respective directors, officers, trustees, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or Release of Hazardous Materials on any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Claim related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 9.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the expiration of any Letter of Credit, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05 shall be payable on written demand therefor. SECTION 9.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, except to the extent prohibited by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrowers against any of and all the obligations of the Borrowers now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9.06 are in 88 addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS MOST RECENTLY PUBLISHED AND IN EFFECT, ON THE DATE SUCH LETTER OF CREDIT WAS ISSUED, BY THE INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK. SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan or any date for reimbursement of an L/C Disbursement, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan or L/C Disbursement, without the prior written consent of each Lender affected thereby, (ii) decrease other than on a pro rata basis or increase or extend the Commitment or decrease or extend the date for payment of the Commitment Fees of any Lender without the prior written consent of such Lender, (iii) amend or modify the pro rata requirements of Section 2.17, the provisions of Section 9.04(j), the provisions of this Section, the definition of the term "Required Lenders" or release any Guarantor (other than pursuant to a permitted sale or liquidation of a Subsidiary Guarantor) or all or any substantial part of the Collateral, without the prior written consent of each Lender, (iv) amend or modify the protections afforded to an SPC pursuant to the provisions of Section 9.04(i) without the written consent of such SPC or (v) increase the advance rates set forth in the definition of the term "Borrowing Base" in Section 1.01 or change the definition of the term "Eligible Billed Borrowing Base Receivables", "Eligible Unbilled Borrowing Base Receivables" or "Eligible Margin Stock Amount" without the prior written consent of the Supermajority Lenders; provided further that no such agreement shall 89 amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, respectively. Notwithstanding the foregoing, if the Borrower shall request the release of any Collateral to be sold as part of any Asset Sale permitted under Section 6.05 and shall deliver to the Collateral Agent a certificate to the effect that such Asset Sale and the disposition of the proceeds thereof will comply with the terms of this Agreement, the Collateral Agent, if satisfied that the applicable certificate is correct, shall and is hereby authorized to, without the consent of any Lender, execute and deliver all such instruments as may be required to effect the release of such Collateral. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement, the Fee Letters, the Collateral Agent's Fee Letter, the other Loan Documents and, prior to the Tranche B Funding Date, the Commitment Letter, constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any person (other than the parties hereto and thereto, their respective successors and assigns permitted hereunder (including any Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders) any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. Pursuant to the Fee Letter dated October 15, 2002, the Borrower has given Credit Suisse First Boston the right to change certain of the terms of the Tranche B Credit Facility in connection with the syndication thereof. Prior to the Tranche B Funding Date, any such changes may be effected pursuant to an amendment to this Agreement that is executed by the Borrower and Lenders holding a majority of the Term Loan Commitments. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO 90 ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforce able provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.03. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) Each of the Borrowers hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in the Borough of Manhattan in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrowers or their respective properties in the courts of any jurisdiction. (b) Each of the Borrowers hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or here after have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any such New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 91 (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep confidential (and to use its reasonable best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to a potential assignee or participant of such Lender or any direct or indirect contractual counterparty in any swap agreement relating to the Loans or such potential assignee's or participant's or counterparty's advisors who need to know such Information (provided that any such potential assignee or participant or counterparty shall, and shall use its reasonable best efforts to cause its advisors to, keep confidential all such Information on the terms set forth in this Section 9.16), (c) to the extent requested by any regulatory authority, (d) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (e) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (f) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a nonconfidential basis from a source other than the Borrowers. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender based on any of the foregoing) that are received from the Borrowers and related to the Borrowers, any shareholder of the Borrowers or any employee, customer or supplier of the Borrowers, other than any of the foregoing that were available to the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrowers, and which are in the case of Information provided after the date hereof, clearly identified at the time of delivery as confidential or of such a nature that a prudent person would expect such Information to be confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration and term of this Agreement. 92 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ANTEON INTERNATIONAL CORPORATION, by: ------------------------- Name: Title: ANTEON CORPORATION, by: ------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands branch, individually and as Administrative Agent and Issuing Bank, by: ------------------------- Name: Title: by: -------------------------- Name: Title: CITIZENS BANK OF PENNSYLVANIA, individually and as Collateral Agent and Swingline Lender, by: ------------------------- Name: Title: 93 SIGNATURE PAGE TO THE ANTEON INTERNATIONAL CORPORATION AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN Name of Lender: ________________________________ by:________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----