-----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, N7e/ZdefDmBdVuLfJMEkpo9Dl9tjjHqmZX3qSKV21lKZtmCKhoZzRa1O3lUsqGll gnoD769hUtDjkfPmwFH2Sw== 0001163842-04-000010.txt : 20040308 0001163842-04-000010.hdr.sgml : 20040308 20040308122352 ACCESSION NUMBER: 0001163842-04-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040308 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: 04654084 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 anteon2003.txt UNITED STATES 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, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _____________ 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 [x] No [x] The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003 was $549,497,718 (based on the closing price of $27.91 per share on June 30, 2003, 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. |X| There were 35,441,075 shares of common stock outstanding as of February 23, 2004. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the 2004 Annual Meeting of Shareholders Part III 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. Forward-looking statements relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. 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 remaining contract value; o our expectations regarding the U.S. 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 U.S. federal government procurement laws, regulations, policies and budgets: o the number and type of contracts and task orders awarded to us; o the integration of acquisitions without disruption to our other business activities; o changes in general economic and business conditions; o technological changes; 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 U.S. 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 U.S. federal government prime contracts, and we believe that the success and development of our business will continue to depend on our successful participation in U.S. federal government programs. Accordingly, changes in U.S. federal government contracting policies could directly affect our financial performance. Among the factors that could materially adversely affect our U.S. federal government contracting business are: o budgetary constraints affecting U.S. federal government spending generally, or specific departments or agencies in particular, and changes in fiscal policies or available funding; o changes in U.S. federal government programs or requirements; o curtailment of the U.S. federal government's use of technology services firms; o the adoption of new laws or regulations; o technological developments; o U.S. 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 U.S. 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 U.S. federal government customers are subject to stringent budgetary constraints. We have substantial contracts in place with many U.S. federal departments and agencies, and our continued performance under these contracts, or award of additional contracts from these agencies, could be materially adversely affected by spending reductions or budget cutbacks at these agencies. Early Termination of Contracts-- Our U.S. 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 U.S. 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. U.S. 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. 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. 2 Most U.S. federal government contract awards are subject to protest by competitors. If specified legal requirements are satisfied, these protests require the U.S. 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 U.S. 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 U.S. 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 U.S. federal government: time and materials, cost-plus, and fixed price. For the year ended December 31, 2003, approximately 38% were time and materials, 32% of our U.S. federal contracts were cost-plus, and 30% were fixed price (a substantial majority of which were fixed price level of effort). 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 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 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 U.S. 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 certain 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 export 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 U.S. federal agencies that are designed to safeguard against unauthorized persons', including foreigners', access to classified information. If we were to come under foreign ownership, control or influence, our U.S. federal government customers could terminate or decide not to renew our contracts, which 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 U.S. federal government. Risks Relating to Reductions or Changes in Military and Department of Defense-related Intelligence Agency 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 sales under subcontracts having the Department of Defense as the ultimate purchaser, represented approximately 88% and 78% of our sales for the year ended December 31, 2003 and for the year ended December 31, 2002, 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 currently provide limited or no services. A change in the U.S. Presidential Administration or in the composition of Congress could also materially affect levels of support for military expenditures. 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 U.S. 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 U.S. 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 U.S. federal government's discretion. In addition, funding for orders from the U.S. 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. Further, there is a risk that a subcontractor's technology solution on which certain of our contracts and task orders are dependent could become obsolete or fall out of favor with customers. 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 U.S. 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 o suffer claims for substantial damages against us, regardless of our responsibility for the failure. 6 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 six strategic acquisitions since 1997. The U.S. 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 include the coordination of geographically dispersed organizations, the integration of personnel with disparate business backgrounds and the reconciliation of different corporate cultures. In addition, in certain acquisitions, U.S. 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 of our acquisitions, 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 U.S. 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 U.S. 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 U.S. 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 legal regulations and social, 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 compliance with the 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 or other hostile situations in foreign countries; o imposition or increase of investment and other restrictions or requirements by foreign governments; and o compliance with 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, 2003, our debt was $158.8 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 Over time, 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. 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 our Amended and Restated Credit Agreement of December 19, 2003, or "Credit Facility," limit, but do not prohibit us or our subsidiaries from doing so. As of December 31, 2003, our Credit Facility would have permitted additional borrowings of up to $203.7 million. If new debt is added by us or our subsidiaries, the related risks that we and they now face could intensify. 8 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 U.S. federal government spending, and changes in fiscal policies or available funding; o U.S. 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 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 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. Our Credit Facility imposes significant operating and financial restrictions on us and our subsidiaries and requires 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; 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. 9 The failure to comply with any of these covenants would cause a default under 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 have broad service competencies that include strengths in intelligence systems, emergency response management, logistics modernization, secure identification and access management solutions, training, platform and weapons systems engineering support, ballistic missile defense, healthcare services and government enterprise solutions. We currently serve over 1,000 U.S. federal government clients in more than 50 government agencies, as well as state and foreign governments. For the year ended December 31, 2003, approximately 88% of our revenues were derived from the Department of Defense, or "DOD," and DOD-related intelligence agencies, and approximately 10% from civilian agencies of the U.S. federal government, of which approximately 3% is derived from the Department of Homeland Security, or "DHS". For the year ended December 31, 2003, approximately 89% of our revenues were 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 seven years, assuming the exercise of all potential contract options. Additionally, we have contracts with an estimated remaining contract value of $5.6 billion as of December 31, 2003, of which approximately $661.1 million is funded backlog. From January 1996 to December 31, 2003, we increased revenues from $141.8 million to $1.0 billion, at a compound annual growth rate, of approximately 33%. Our revenues grew organically by approximately 16% from 2002 to 2003 and approximately 17% from 2001 to 2002. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions, divestitures and closures of businesses in comparable periods. The U.S. 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, which includes information technology solutions and system engineering services, is large and growing, with total estimated expenditures of more than $121.7 billion in the U.S. federal government's fiscal year ending September 30, 2004. Government agency budgets for these technology services are forecast to grow more than 5% annually through government fiscal year 2005. Additionally, it is anticipated that technology services spending will grow more than $4.5 billion annually over the next four 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 $375.0 billion in government fiscal year 2004, a 3% increase over government fiscal year 2003. The President's proposed budget for government fiscal year 2005 includes defense spending of $401.7 billion, a 7% increase over government fiscal year 2004, and the largest Department of Defense budget in history in actual dollars. The 2005 Department of Defense spending plan submitted to Congress includes a 30% increase over the next six years. 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. U.S. 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 U.S. 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 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 U.S. 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 U.S. federal government. In order for a company to provide services under a GSA Schedule contract, the company must be pre-qualified and awarded a contract by GSA. When an agency uses a GSA Schedule contract to meet its requirements, 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 is expected to provide the user agency with reduced procurement time and lower procurement costs. ID/IQ contracts are contract forms through which the U.S. 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 U.S. 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 U.S. federal technology services market and our business: o Increased Outsourcing. The downsizing of the U.S. federal government workforce, declining availability of information technology management skills among government personnel, and a corresponding 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 U.S. federal government information technology expenditures. In government fiscal year 2003, 83% of the U.S. federal government's total information technology solutions spending flowed to contractors. By government fiscal year 2008, this rate of outsourcing is projected to increase to 87% of total information technology spending. 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. 11 o Continued Dependence on Commercial Off-the-Shelf Hardware and Software. The U.S. 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 U.S. 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 U.S. federal government increasing its commitment to strengthen the nation's security, defense and intelligence capabilities. The U.S. federal government is investing in improved homeland security, greater information systems security, more effective intelligence operations, and new approaches to warfare simulation training. Defense spending is projected to exceed $375.0 billion in government fiscal year 2004, an increase of almost 13% over government fiscal year 2003. The President's proposed budget for 2005 defense spending is $401.7 billion, a 7% increase over the government fiscal year 2004 budget and the largest defense budget in history 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 U.S. 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. U.S. 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 6% annually over the next four 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 high priority 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 built, and continuously maintain and upgrade, the National Emergency Management Information System, or "NEMIS," an enterprise wide management information system, for the U.S. 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 ten 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. An example of our working in this area includes: o Coalition Enterprise Regional Information Exchange System CENTRIXS and CENTRIXS N.A.T.O. Since 1993, through a series of contracts, we have provided services to the 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. CENTRIXS is one of the most widely-used command, control, computers, communication and intelligence, 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 additional system deployments to the coalition countries in the war on terrorism and Operation Iraqi Freedom. 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. Our work in this area includes: o National Emergency Management Information System. Since early 1996, we have supported the development of the NEMIS system for FEMA through a series of contracts and task orders. We believe our support to FEMA will continue to grow with FEMA's increased responsibility as a first responder to disasters and terrorist attacks and as FEMA supports its mission within DHS. NEMIS provides mission critical functionality for FEMA's core mission of disaster response and recovery. This enterprise-wide management information system connects several thousand desktop and mobile terminals/handsets, providing FEMA with a fully mobile, nationwide, rapid response disaster assessment and mitigation system. We continue to provide enhancements to the current system, and we are in the process of expanding our support to this mission area to include an internet-based capability that will integrate with the DHS technology infrastructure. 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. Our working logistics modernization includes: 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 DOD 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 or "JLWI." In March 2000, we entered into the Joint Logistics Warfighting Initiative contract. JLWI represents the DOD's efforts focused on facilitating the military's logistics transformation and improving military readiness through business process improvements and the implementation of new and emerging technologies. We are providing process re-engineering, system design, and database 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, or 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 U.S. 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. We have been providing lifecycle information technology services to the U.S. Postal Service since 1983. We have developed and implemented an electronic commerce application to serve an estimated 80,000 to 100,000 U.S. Postal Service employees who purchase a wide range of products on the U.S. Postal Service intranet web 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. Fulfilling the U.S. Postal Service's requirement to serve up to 100,000 employees required the development of a very robust transaction processing application. o Joint and Service Enterprise Information Technology Support. We have provided Enterprise Information Technology support for numerous Joint and Service Commands, or the "Commands," for the past decade, both in the U.S. and in numerous locations abroad. Our support comprises all functions of the Enterprise including telecommunications engineering, planning and operation, network development, administration and management, software life-cycle support, and business process engineering. Our employees deploy with the Commands during both peacetime operations and war and are making vital contributions to the Commands' capabilities to accomplish their missions. The supported Commands include U.S. Central Command and its Army, Third U.S. Army/ARCENT, and the U.S. Air Force, 9th U.S. Air Force/CENTAF, component commands, U.S. Army Forces Command, the U.S. Army Reserve Command, and the U.S. Army Network Engineering and Technology Command. 14 o Coalition, Joint and Service Training Exercise Support Commands. We have provided mission Exercise Program Support from the individual unit to multi-national coalition level. We plan events that prepare commanders and their staff to measure training proficiency, correct deficiencies, and prepare for wartime missions. We are adept at planning, implementing, and critiquing all aspects of these events to include augmentation with senior mentor and subject matter experts. We have planned every facet of the events to include logistical support, communications system planning and provisioning, and other support functions. These exercises have played a major part in preparation of United States and Coalition Forces to meet the global war on Terrorism, and Operations Iraqi Freedom and DHS missions. 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. We provide service to the following programs: o Program Executive Office Simulation Training and Instrumentation, or "PEO STRI." Since January 2000, we have provided life cycle support for constructive training at fourteen U.S. Army Simulation and Training Command Simulation centers worldwide. We have more than 700 personnel supporting this program at more than 50 sites throughout the United States, Germany, Italy and South Korea. We provide 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, providing highly qualified professionals who are certified in all aspects of simulation support, to each of the U.S. Army's Battle Simulation Centers. o Military Operations on Urban Terrain, or "MOUT." We have supported the U.S. Army's MOUT program since July 1997. Our support to MOUT primarily focuses on the design and instrumentation of the most advanced MOUT site in the world located at the Joint Readiness Training Center, Fort Polk, LA, as well as other sites worldwide. 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 high-speed local area network to the control room. The system is also designed to control targetry and multiple battlefield effects and has the flexibility to support both simulated fire and live fire exercises. We have also developed a mobile version of MOUT to facilitate training in the theater of operation. For example, two Mobile MOUT, or "Mobile MOUT," sites were ordered and delivered for use in Kuwait and Afghanistan in early 2003 to support operations in the global war on terrorism. Secure Identification and Access Management Solutions. Our acquisition of ISI enhances our position in this market and provides us with capabilities in optical memory card technology, which is used primarily for high-capacity portable secure data storage and authentication through multiple biometrics. This capability, combined with our expertise in integrated circuit card technology, which is used primarily for access control and related transaction processing, positions us to capitalize on the growing demand in this market. Both of the secure identification and access control technologies are gaining significant and increased support with U.S. federal agencies, including the DOD, DHS and foreign governments. o Integrated Card Production System. We are the prime contractor for secure identification and border control card solutions for the DHS's Bureau of Citizenship and Immigration Services, or "BCIS." Through a contract with the BCIS, we provide the Permanent Resident Card solution, as well as the Department of State Border Crossing "LaserVisa" Card solution. To date, the U.S. federal government has procured over 20 million secure identification cards through this contract. We are positioned to grow from the expanding budget of DHS, as secure identification and credential card technologies proliferate within DHS and other U.S. federal government agencies. 15 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. We have been providing this support since 1989 under several contracts. 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. 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 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. o Shipbuilding Engineering Support. For over twenty years, we have provided acquisition management and engineering support to the U.S. Navy's shipbuilding program offices. Today, this includes the AEGIS shipbuilding program, the aircraft carrier program, all submarine programs and the developmental programs, such as the new DDX destroyer, and the Littoral Combatant Ship. We also develop software serving the global ship design industry. In addition to support for the acquisition offices and industry, we provide support for the ships during their in-service phase of the life cycle through multiple contracts. This includes installation support, refurbishment of equipment and provision of new software. o Research, Development, Test and Evaluation Support. We support various DOD laboratories and field activities in the provision of technology, testing, operation of facilities and general research and development, or "R&D," support. Our technologies range from the provision of advanced algorithms for the Virginia class submarines, software for decision support systems, video compression algorithms, advanced sonar concepts and unique software for technology assessment. We operate the Air Force Research Laboratory's Laser Facilities and conduct material testing on their behalf. We operate special test facilities in Annapolis, MD that are nationally unique and include a deep diving test facility. We support almost every U.S. Navy R&D facility and have a significant presence in the Office of Naval Research. 16 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." Since January 1999, we have supported the U.S. Navy by providing 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 TBMD System experience, we were selected to provide similar support to the National Missile Defense program. We believe missile programs will experience near-and-long-term growth as the DOD moves forward to meet the U.S. federal government's mandate for a national missile defense system. Our Growth Strategy Our goal is to become the first pure-play technology services company to be included in the top tier of government technology service providers. Our objective is to continue to profitably grow our business as a premier provider of comprehensive technology solutions and services to the U.S. federal government market. Our strategy to achieve this objective includes the following: o Continue to Increase Market Penetration. In the past 10 years, the U.S. 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. Defense spending is projected to exceed $375.0 billion in government fiscal year 2004, an increase of almost 3% over government fiscal year 2003, and is expected to reach $401.7 billion in government fiscal year 2005, a 7% increase over projected government fiscal year 2003 spending. Defense budgets are expected to grow by 30% over the next six years, based on the Department of Defense spending plan submitted to Congress. We believe that many of the key operational goals of the U.S. federal government correlate with our expertise, including developing a national missile defense system, increasing homeland security, protecting information systems from attack, conducting effective intelligence homeland security, protecting information systems from attack, conducting effective intelligence operations, and training for new approaches to warfare through simulation. o Capitalize on Growing Demand in the Secure Identification and Access Management Solutions Market. The use of credential card technologies for secure identification and access control solutions is rapidly gaining momentum with U.S. federal agencies, the DOD and foreign governments. These cards are used for cardholder authentication, physical access control and logical access control. Our acquisition of ISI enhances our position in this market and provides us with a full range of capabilities to meet our customers' requirements. ISI brings us extensive experience with optical storage card technology, which is used primarily for authentication using biometrics and physical access control. This capability, combined with our expertise in integrated circuit card technology, used primarily for logical access control, uniquely positions us to capitalize on the growing demand in this market regardless of the application or credential card technology selected by customers. 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, we believe our strong performance record and detailed understanding of customer requirements developed on the U.S. Air Force Cargo Movement Operations System led directly to our being awarded a contract relating to the Joint Logistics Warfighting Initiative. 17 o Continue our Disciplined Acquisition Strategy. We employ a disciplined methodology to evaluate and select acquisition candidates. We have completed six strategic acquisitions since 1997. Our industry remains highly fragmented and we believe the changing government procurement environment will continue to provide additional opportunities for industry consolidation. We will continue to selectively review acquisition candidates with complementary skills or market focus. History and Organization In April 1996, we acquired all of the outstanding capital stock of 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. 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). Acquisitions We employ a highly disciplined methodology to evaluate acquisitions. Since 1997 we have evaluated several hundred targets and have successfully completed and integrated six 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 Acquired Business 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 2003 ISI Secure identification and access management solutions and military 130.5 logistics and training
- -------------------------------------------------------- (1) Consolidated revenue of acquired business for its most recently completed fiscal year ended prior to the acquisition date. 18 In August 1997, we purchased Vector Data Systems, Inc., or "Vector Data," 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., or "A&T," 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., or "Sherikon," 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. In May 2003, we purchased ISI, a provider of secure identification and access management solutions and military logistics and training to primarily the Department of Defense. Existing Contract Profiles We currently have a portfolio of more than 500 active contracts. Our contract mix for the year ended December 31, 2003 was 38% time and materials contracts, 32% cost-plus contracts and 30% fixed price contracts (a substantial majority of which were firm fixed price level of effort). 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. 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 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. The substantial majority of these fixed price contracts involve a defined number of hours or a defined category of personnel. We refer to such contracts as "level of effort" 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 1999 2000 2001 2002 2003 - -------------------------------------------------------------------------------- Cost-Plus............................. 37% 41% 37% 35% 32% Time and Materials.................... 38% 31% 34% 37% 38% Fixed Price........................... 25% 28% 29% 28% 30% 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 3,600 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 8% of our total 2003 revenue. 19 Government Wide Acquisition Contracts. We are one of the leading suppliers 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 560 task orders to date, with an annualized revenue run rate as of the fourth quarter of fiscal 2003 of approximately $150 million. Our total estimated contract value for this contract is approximately $1.6 billion for the period January 1999 to December 2008. Listed below are the four largest GWACs. Contract Owning Period of 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 $20 billion Prime Listed below are our top programs by 2003 revenue, including single award and multiple award contracts. We are a prime contractor on each of these programs.
Top Programs by 2003 Revenue ($ in millions) Estimated Period of Remaining Contract Contract Customer Performance 2003 Revenue Contract Value Type - ---------------------------------------------------------------------------------------------------------------------------- ANSWER GSA 1/1/99-12/31/08 $ 158.3 $ 818.5 T&M/FFP GSA SCHEDULE & BPAs GSA 10/30/96-10/09/07 102.6 469.8 T&M/FFP SAFTAS U.S. Air Force 01/01/01-12/31/15 42.8 436.1 CP GSA PES Contract GSA 01/06/00-01/05/05 33.1 381.5 CP CENTRIX/LOCE Department of Defense 12/01/02-05/31/04 26.4 22.6 CP Millenia Lite-Area GSA 07/06/00-07/05/10 2 24.7 272.5 CP GSA-PES GSA 05/01/00-02/08/06 24.5 10.3 FFP GSA-MOBIS GSA 11/21/97-09/30/07 21.6 58.1 CP Carrier BPA U.S. Navy 03/10/97-12/31/03 19.2 0.7 T&M/FFP MOUT-IS Army/STRICOM/Training 07/03/97-08/31/05 17.0 7.5 FFP
20 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 U.S. 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. For the year ended December 31, 2003, approximately 22% 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 Remaining Contract Value and New Business Development On December 31, 2003, our estimated remaining contract value was $5.6 billion, of which $661.1 million was funded backlog. In determining estimated remaining contract value, we do not include any provision for an increased level of work likely to be awarded under our GWACs. The estimated remaining contract value is calculated as current revenue run rate over the remaining term of the contract. Our estimated remaining 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 remaining contract value are subject to termination at the election of the customer. ESTIMATED REMAINING CONTRACT VALUE Unfunded Estimated Funded Contract Remaining As of December 31, Backlog Value Contract Value - -------------------------------------------------------------------------------- (in millions) 2003 $ 661 $ 4,948 $ 5,609 2002 418 3,868 4,286 2001 309 3,217 3,526 2000 308 2,560 2,868 1999 195 1,926 2,121 From December 31, 1999 to December 31, 2003, our estimated remaining contract value increased at a 28% compound 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 U.S. federal, state, local and international government organizations worldwide. Domestically, we service more than 50 agencies, bureaus and divisions of the U.S. federal government, including nearly all cabinet-level agencies and all branches of the military. For the year ended December 31, 2003, the U.S. federal government accounted for approximately 99% of our total revenues. International and state and local governments provided the remaining 1%. The DOD accounted for approximately 88% of our total revenues and services to U.S. federal civilian organizations were approximately 10%. Our largest customer group is the U.S. Navy, which management believes accounted for approximately 44% of revenues during the year ended December 31, 2003, through 30 different Navy organizations. 21 An account receivable from a U.S. federal government agency enjoys the overall credit worthiness of the U.S. 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 U.S. federal government. Because of the diverse requirements of U.S. federal government clients and the highly competitive nature of large U.S. 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. 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 keys 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, 2003, we employed approximately 7,600 employees, 97% of whom were billable and 69% 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. None of our employees is represented by any 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 1.3 million square feet of office, shop and warehouse space in over 100 facilities across the United States, Canada, the 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. 22 Item 3. Legal Proceedings We are involved in various legal proceedings in the ordinary course of business. 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, 2003, through the solicitation of proxies or otherwise. 23 Part II 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 year ended December 31, 2003 and 2002 as reported by the NYSE. 2003 Quarter Ended High Low --------------------- ---------- ------------ March 31 $ 25.85 $ 20.00 June 30 $ 29.50 $ 21.86 September 30 $ 35.10 $ 27.30 December 31 $ 38.95 $ 30.71 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. As of February 23, 2004, the number of stockholders of record of our common stock was approximately 402. 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, 2003, 2002, 2001, 2000 and 1999. 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 1999, 2000, 2001, and 2003. 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 consolidated financial statements and the related notes thereto appearing elsewhere in this filing. 24
Year ended December 31, 1999 (a) 2000 2001 (a) 2002 (a) 2003 -------- ------ ---------- ---------- ------- (in thousands, except per share data and percentages) ----------------------------------------------------- Statements of operations data: Revenues........................................$ 400,850 $ 542,807 $ 715,023 $ 825,826 $ 1,042,474 Costs of revenues............................... 353,245 474,924 627,342 711,328 897,264 ------------ -------------- ------------ -------------- -------------- Gross profit.................................... 47,605 67,883 87,681 114,498 145,210 General and administrative expenses, including acquisition related costs........... 27,926 38,592 51,442 48,197 58,647 Amortization of non-compete agreements.......... 909 866 349 -- 101 Goodwill amortization........................... 3,440 4,714 6,704 -- -- Other intangibles amortization.................. -- 2,673 2,321 1,907 2,349 ------------ -------------- ---------- ------------ -------------- Operating income ............................... 15,330 21,038 26,865 64,394 84,113 Other Income.................................... -- -- -- 417 -- Gains on sales and closures of business......... -- -- 4,046 -- -- Gains on sales of investments and other, net........................................... 2,585 -- -- -- -- Secondary offering expenses..................... -- -- -- -- 852 Interest expense, net of interest income........................................ 19,002 26,513 26,353 21,626 24,244 Minority interest in (earnings) losses of subsidiaries.................................. (39) 32 (38) (18) (54) ------------ -------------- ------------ -------------- -------------- Income (loss) before provision for (benefit from) income taxes............................ (1,126) (5,443) 4,520 43,167 58,963 Provision for (benefit from) income taxes......................................... 401 (153) 4,602 16,723 22,773 ------------ -------------- ------------ -------------- -------------- Net income (loss)..........................$ (1,527) $ (5,290) $ (82) $ 26,444 $ 36,190 ============ ============== ============ ============== ============== Basic earnings (loss) per common share $ (0.06) $ (0.22) $ (0.01) $ 0.82 $ 1.04 ============ ============== ============ ============== ============== Weighted average shares outstanding........ 23,785 23,787 23,787 32,163 34,851 Diluted earnings (loss) per common share.......$ (0.06) $ (0.22) $ (0.01) $ 0.78 $ 0.98 ============ ============== ============ ============== ============== Weighted average shares outstanding........ 23,785 23,787 23,787 34,022 36,925 Other data: EBITDA (b)......................................$ 25,978 $ 36,347 $ 47,357 $ 70,994 $ 90,097 EBITDA margin (c).............................. 6.5% 6.7% 6.6% 8.6% 8.6% Cash flow from (used in) operating activities....................................$ 11,767 $ 17,101 $ 37,879 $ (1,722) $ 37,443 Cash flow from (used in) investing activities.................................... (111,672) (28,912) (1,707) (1,423) (95,431) Cash flow from (used in) financing activities.................................... 100,957 12,036 (35,676) 5,481 55,810 Capital expenditures............................ 4,761 6,584 2,181 3,225 3,049 Balance sheet data (as of December 31): Current assets..................................$ 118,583 $ 148,420 $ 144,418 $ 208,396 $ 244,591 Working capital (d)............................. 48,818 56,841 27,559 80,390 105,287 Total assets.................................... 278,691 324,423 306,651 364,692 479,280 Long-term debt, including current portion....................................... 212,301 237,695 202,905 105,701 158,776 Stockholders' equity (deficit).................. 3,672 (1,576) (3,442) 128,829 174,492
(a) On January 1, 2003, we adopted SFAS No. 145, and as a result, reclassified $4.2 million ($2.6 million net of tax) of losses, $519,000 ($330,000 net of tax) of gains and $772,000 ($463,000 net of tax) of loss previously recorded as extraordinary items in 2002, 2001 and 1999, respectively, to interest expense, net of interest income. Additionally, the tax impact as a result of the reclassifications has been adjusted in the tax provision amounts shown. (b) "EBITDA", as defined, represents income before income taxes, plus depreciation, amortization and net interest expense. EBITDA is a supplemental financial measure but should not be construed as an alternative to operating income or cash flows from operating activities (as determined in accordance with accounting principles generally accepted in the United States of America, "GAAP"). We believe that EBITDA is a useful supplement to net income and other income statement data because it is used by some investors in understanding and measuring a company's cash flows generated from operations that are available for taxes, debt service and capital expenditures. However, all companies do not calculate EBITDA in the same manner, and as a result, the EBITDA measures presented may not be comparable to similarly titled measures of other companies. The computations of EBITDA are as follows: 25
Year ended December 31, 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ($ in thousands) Net income (loss)............................. $ (1,527) $ (5,290) $ (82) $ 26,444 $ 36,190 Provision for (benefit from) income tax 401 (153) 4,602 16,723 22,773 Interest expense, net of interest income...... 19,002 26,513 26,353 21,626 24,244 Depreciation.................................. 3,753 7,024 7,110 4,294 4,440 Amortization.................................. 4,349 8,253 9,374 1,907 2,450 ----------- ---------- ---------- ---------- ---------- EBITDA........................................ $ 25,978 $ 36,347 $ 47,357 $ 70,994 $ 90,097 Secondary offering expenses................... -- -- -- -- 852 ----------- ---------- ----------- ---------- ---------- Adjusted EBITDA (e)........................... $ 25,978 $ 36,347 $ 47,357 $ 70,994 $ 90,949 =========== ========== =========== ========== ========== Net income (loss)............................. (0.3%) (1.0%) (0.1%) 3.2% 3.5% EBITDA margin (c)............................. 6.5% 6.7% 6.6% 8.6% 8.6% Adjusted EBITDA margin (f).................... 6.5% 6.7% 6.6% 8.6% 8.7%
(c) EBITDA margin represents EBITDA calculated as a percentage of total revenues. (d) Working Capital is equal to current assets minus current liabilities. (e) Adjusted EBITDA is presented herein because we believe it to also be relevant and useful to our investors. Adjusted EBITDA represents EBITDA plus the additional costs associated with the secondary offering. (f) Adjusted EBITDA margin represents Adjusted EBITDA calculated as a percentage of total revenues. 26 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 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 have a broad client and contract base and a diverse contract mix. We currently serve over 1,000 U.S. federal government clients in more than 50 government agencies, as well as state and foreign governments. For the year ended December 31, 2003, approximately 88% of our revenue was derived from contracts with the DOD and intelligence agencies, and approximately 10% from civilian agencies of the U.S. federal government. For the year ended December 31, 2003, approximately 89% of our revenue was from contracts where we were the lead, or "prime," contractor. Our diverse contract base has approximately 500 active contracts and more than 3,600 active task orders. For the year ended December 31, 2003, our largest contract or task order accounted for approximately 7% of our revenues. We have a diverse mix of contract types, with approximately 38%, 32%, and 30% of our revenues for the year ended December 31, 2003 derived from time and materials, cost-plus and fixed price contracts, respectively. In addition, we generally do not pursue fixed price software development contracts that may create financial risk. Additionally, we have contracts with an estimated remaining contract value of $5.6 billion as of December 31, 2003, of which $661.1 million is funded backlog. Our contracts have a weighted-average term of approximately seven years. From December 31, 1999 to December 31, 2003, our estimated remaining contract value increased at a 28% compound annual growth rate. 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, 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 year ended December 31, 2003, 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). In addition, we evaluate our contracts for multiple deliverables which may require the segmentation of each deliverable into separate accounting units for proper revenue recognition. 27 We recognize revenues under our U.S. 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 U.S. 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 U.S. federal government contracts based on allowable contract costs, as mandated by the U.S. federal government's cost accounting standards. The costs we incur under U.S. federal government contracts are subject to regulation and audit by certain agencies of the U.S. federal government. Historically, 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. Contract revenue recognition inherently involves estimation. Examples of such estimates include the level of effort needed to accomplish the tasks under the contract, the cost of those efforts, and a continual assessment of our progress toward the completion of the contract. From time to time, circumstances may arise which require us to revise our estimated total revenue or costs. Typically, these revisions relate to contractual changes involving our services. To the extent that a revised estimate affects contract revenue or profit previously recognized, we record the cumulative effect of the revision in the period in which it becomes known. In addition, the full amount of an anticipated loss on any type of contract is recognized in the period in which it becomes known. 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 38% time and materials, 32% cost-plus and 30% fixed price (a substantial majority of which are firm fixed price level of effort) during the year ended December 31, 2003. The contract mix can change over time depending on contract awards and acquisitions. For example, ISI has a higher proportion of cost plus contracts which we believe provides us with an opportunity, over time, to migrate those contracts to higher margin time and materials and fixed-price labor work. Under cost-plus contracts with the U.S. federal government, 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 U.S. 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. 28 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. Costs of revenues are considered to be a critical accounting policy because of the direct relationship to revenue recognized. 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, and has a carrying amount of approximately $212.2 million and $138.6 million as of December 31, 2003 and 2002, respectively. The majority of the increase in goodwill is related to the acquisition of ISI in May 2003. For acquisitions completed prior to July 1, 2001, and until the adoption of 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. We completed our transition analysis under SFAS No. 142 as of June 30, 2002 and our annual impairment analyses as of September 30, 2002 and 2003, noting no indications of impairment for any of our reporting units. As of December 31, 2003, there have been no events or circumstances that would indicate an impairment test should be performed sooner than our planned annual test as of September 30, 2004. Long-Lived Assets and Identifiable Intangible Asset Impairment - -------------------------------------------------------------- The carrying amount of long-lived assets and identifiable intangible assets was approximately $17.9 million and $12.7 million at December 31, 2003 and 2002, respectively. Of the $17.9 million at December 31, 2003, approximately $7.3 million of the assets are related to our acquisition of ISI. 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 U.S. federal government appropriations or funding of certain programs, or other similar events. None of these events occurred for the year ended December 31, 2003. 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 as the amount by which the carrying value 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. During the year ended December 31, 2003, we recognized an impairment charge of approximately $135,000, included in general and administrative expenses, in the accompanying consolidated statement of operations, to write-down the carrying value of a building held for sale to its estimated fair market value. 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. 29 Business Combinations - --------------------- 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 probable business combinations are deferred. On May 23, 2003, we purchased all of the outstanding stock of ISI, a provider of credential card technologies and military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transaction costs of approximately $737,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations, whereby the net tangible and identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair market values at the date of acquisition. The identifiable intangible assets consisted of $4.8 million of contracts and related customer relationships and $500,000 for the value of a non-compete agreement. The value of the contracts and related customer relationships is based, in part, on an independent appraisal and other studies performed by us. At the time of the acquisition, the contracts and related customer relationships had an expected useful life of approximately 5.3 years. The non-compete agreement is being amortized straight-line over the three year term of the agreement. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill arising from the transaction is not being amortized. The total purchase price paid, including transaction and other deal related costs, of $92.4 million was allocated to the assets acquired and liabilities assumed as follows (in thousands): Accounts receivable $ 22,792 Prepaid and other current assets 764 Property and equipment 3,312 Other assets 120 Current income tax receivable 655 Accounts payable and accrued expenses (11,186) Deferred income tax, net (458) Deferred revenue (2,645) Other liabilities (558) Contracts and customer relationships 4,751 Goodwill 74,335 Non-compete agreement 500 ---------- Total consideration $ 92,382 ========== Statements of Operations The following is a description of certain line items from our consolidated statements of operations. Revenues for the year ended December 31, 2003 include the operations of ISI for the period beginning May 23, 2003, the date of the acquisition. 30 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 depreciation, overhead, and other direct contract costs, which include subcontract work, consultant fees, and materials. Overhead consists of indirect costs relating to operational managers, rent/facilities, administration, travel and other expenses. General and administrative expenses are primarily for corporate functions such as management, legal, finance and accounting, contracts and administration, human resources, company management information systems and depreciation, and also include other unallowable costs such as marketing, certain legal fees and reserves. Amortization expenses relate to the costs associated with goodwill (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, SIGCOM Training, and ISI. Amortization expenses also include costs associated with certain non-compete agreements related to the ISI acquisition. Interest expense is primarily related to our Senior Subordinated Notes due 2009, or the "12% Notes," our term loans and revolving Credit Facility, our subordinated debt 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 year ended December 31, 2002 relates to the recognition of previously unrecognized losses from the termination of approximately $30.0 million in interest rate swaps. During the year ended December 31, 2003, in conjunction with our tender offer for our 12% Notes, we incurred approximately $7.2 million of interest expense for the bond premium and consent payment. Other income is from non-core business items such as gains on the sales and closures of businesses and investments. Funded Backlog and Estimated Remaining Contract Value 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 effective management of costs makes us competitive on price. Historically, 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. We have increased our estimated remaining contract value by approximately $1.3 billion, from $4.3 billion as of December 31, 2002, to $5.6 billion at December 31, 2003, of which approximately $66.1 million was funded backlog as of December 31, 2003. Funded backlog increased approximately $242.9 million to $661.1 million at December 31, 2003, from $418.2 million as of December 31, 2002. Our estimated remaining contract value represents the aggregate contract revenue we estimate will be earned 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 estimated remaining 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 U.S. federal government operates under annual appropriations, agencies of the U.S. federal government typically fund contracts on an incremental basis. Accordingly, the majority of the estimated remaining contract value is not funded backlog. Our estimated remaining 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. 31 Acquisitions, Divestitures and Business Closures 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 ISI........................... Acquired May 2003 130,500 Name Status Divestiture/Closure Revenues for the twelve months ended prior to 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 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 $40.4 million to Ogden, including transaction costs. The acquisition was accounted for using the purchase method of accounting. Vector Data Systems--On August 29, 1997, we acquired all of the outstanding stock of 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 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. 32 Sherikon--On October 20, 2000, we purchased all of the outstanding stock of Sherikon, a technology solutions and services firm, for an aggregate consideration, including transaction costs, of approximately $34.8 million. The acquisition was accounted for using the purchase method of accounting. 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 $11.4 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. Information Spectrum, Inc. - On May 23, 2003, we purchased all of the outstanding stock of ISI, a provider of secure identification and access management solutions and military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $92.4 million, including transaction costs of approximately $737,000. 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 the Center for Information Technology Education, or "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 year 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 year 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 year 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 Interactive Media Corp., or "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 year ended December 31, 2001, as compared to $18.1 million for the year ended December 31, 2000. Operating loss was approximately $41,000 for the year ended December 31, 2001, as compared to operating income of $686,000 for the year ended December 31, 2000. The total gain from the sale recorded for the year ended December 31, 2001, was approximately $3.5 million. 33 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 year 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 year ended December 31, 2001, we incurred operating losses of $2.1 million on revenues of $3.3 million. For the year 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 of the incurrence of a number of expenses as discussed below and the impact of the amortization principles of SFAS No. 142. 34 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:
Years Ended December 31, ------------------------------------------------------------------------------------- 2003 2002 (1) 2001 (1) ------------------------------------------------------------------------------------- (in thousands, except percentages) Revenues $ 1,042,474 100.0% $ 825,826 100.0% $ 715,023 100.0% Costs of Revenues.......... 897,264 86.1 711,328 86.1 627,342 87.7 ------------- ----------- ------------- ------------ ------------ ------------ Gross Profit............... 145,210 13.9 114,498 13.9 87,681 12.3 Costs and expenses.......... General and administrative. 58,647 5.6 48,197 5.8 51,442 7.2 Amortization(2)............ 2,450 0.2 1,907 0.3 9,374 1.3 ------------- ----------- ------------- ------------ ------------ ------------ Total Operating Expenses......... 61,097 5.8 50,104 6.1 60,816 8.5 ------------- ----------- ------------- ------------ ------------ ------------ Operating income.............. 84,113 8.1 64,394 7.8 26,865 3.8 Secondary offering expenses 852 0.1 -- -- -- -- Interest expense, net......... 24,244 2.3 21,626 2.6 26,353 3.7 Minority interest............. (54) -- (18) -- (38) -- Other (income) expense, net... -- -- (417) -- (4,046) (0.6) ------------- ----------- ------------- ------------ ------------ ------------ Income before provision for income taxes............. 58,963 5.7 43,167 5.2 4,520 0.7 Provision for income taxes.... 22,773 2.2 16,723 2.0 4,602 0.7 ------------- ----------- ------------- ------------ ------------ ------------ Net income (loss)............. $ 36,190 3.5% $ 26,444 3.2% $ (82) 0.0% ============= =========== ============ ============ ============ ============
(1) On January 1, 2003, we adopted SFAS No. 145, and as a result, reclassified $4.2 million ($2.6 million net of tax) of losses and $519,000 ($330,000 net of tax) of gains previously recorded as extraordinary items in 2002 and 2001, respectively, to interest expense, net of interest income. Additionally, the tax impact as a result of these reclassifications has been adjusted in the tax provision amounts shown. (2) Includes amortization of non-compete agreements, amortization of contract backlog intangibles and 2001, before the adoption of SFAS No. 142, goodwill amortization and amortization of employee workforce intangibles. 2003 compared with 2002 Revenues For the year ended December 31, 2003, revenues increased by $216.6 million, or 26.2%, to $1.0 billion from $825.8 million for the year ended December 31, 2002. The increase in revenues, was attributable to organic growth and the acquisition of ISI. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions, divestitures and closures of businesses in comparable periods. We believe organic growth is a useful supplemental measure to revenue. Management uses organic growth as part of its evaluation of core operating results and underlying trends. For the year ended December 31, 2003, our organic growth was 16.2%, or $134.2 million. The acquisition of ISI accounted for approximately $82.5 million of the growth for the year ended December 31, 2003. The increase in revenue was primarily driven by growth in the following contracts: Secretary of the Air Force Technical and Analytical Support, Battlefield Information Collection Exploitation Systems, contracts with the U.S. Army for military operations on urban terrain, ANSWER, our Professional Engineering Services schedule contract, our other GSA contracts, and contracts with DHS. In 2003, approximately 3% of our revenues were derived from DHS. In addition, our revenues derived from DOD increased from approximately 78% in 2002 to 88% in 2003. 35 Costs of Revenues For the year ended December 31, 2003, costs of revenues increased by $186.0 million, or 26.1%, to $897.3 million from $711.3 million for year ended December 31, 2002. The increase in costs of revenues was due in part to the corresponding growth in the revenues resulting from organic growth and the acquisition of ISI. The majority of the increase in costs of revenues for the year ended December 31, 2003 was due to increases of $68.9 million, $20.7 million, and $86.9 million in direct labor, fringe costs, and other direct contract costs, respectively. The increases in direct labor, fringe costs and other direct contract costs were offset in part by reductions in certain overhead expenses. General and Administrative Expenses For the year ended December 31, 2003, general and administrative expenses increased $10.4 million, or 21.6%, to $58.6 million from $48.2 million for the year ended December 31, 2002. General and administrative expenses for the year ended December 31, 2003, as a percentage of revenues, decreased to 5.6% from 5.8%. This decline in the percentage of revenues was driven primarily by operational cost efficiencies achieved in connection with acquired operations and their, successful integration. The dollar increase was primarily attributable to the corresponding growth in revenues. Amortization For the year ended December 31, 2003, amortization expenses increased $500,000, or 28.5 %, to $2.4 million from $1.9 million for the year ended December 31, 2002. The increase in amortization expense is a result of additional amortization related to intangible assets acquired in connection with the purchase of ISI and a related non-compete agreement. As a result of the increase in revenues, amortization expense as a percentage of revenues decreased. Operating Income For the year ended December 31, 2003, operating income increased $19.7 million, or 30.6%, to $84.1 million from $64.4 million for the year ended December 31, 2002. The increase in operating income is primarily a result of the corresponding increase in revenues. Operating income as a percentage of revenues increased to 8.1% for the year ended December 31, 2003 from 7.8% for the year ended December 31, 2002. The increase in the percentage of revenues was driven by the decline in the percentage of general and administrative expenses as a percentage of revenues. Interest Expense, Net For the year ended December 31, 2003, interest expense, net of interest income, increased $2.6 million, or 12.1%, to $24.2 million from $21.6 million for the year ended December 31, 2002. The increase in interest expense is primarily a result of a $7.2 million bond premium and consent payment we incurred in connection with our tender offer in December 2003 for our 12% Notes. Excluding the interest expense related to our refinancing including the $7.2 million bond premium and consent payment for our 12% Notes , the write off of $2.6 million of deferred financing fees, and $300,000 of fees, interest expense for the year ended December 31, 2003 would have been approximately $14.1 million, which would have represented a 35% decrease from 2002. Our debt balance as of December 31, 2003 exceeds the debt balance as of December 31, 2002. The debt balance increased due to $150.0 million in new term loan borrowings made under the Amended and Restated Credit Agreement of December 19, 2003 offset, in part, by the repayment of approximately $18.4 million in existing term loans and $73.1 million in our 12% Notes. This amendment and restatement is discussed further in "Liquidity and Capital Resources". Secondary Offering Expenses On September 22, 2003, certain of our stockholders sold 6,600,000 shares of our common stock in an underwritten offering pursuant to a registration statement on Form S-3 filed with the SEC (Commission File Nos. 333-108147 and 333-108858). In the fourth quarter of 2003, the underwriters of this offering partially exercised their over-allotment option with respect to additional shares held by the selling stockholders. As a result, on October 16, 2003, certain of the selling stockholders sold an additional 297,229 shares of our common stock in a second closing pursuant to the same underwritten offering. In connection with this offering, we incurred approximately $852,000 of expenses for the year ended December 31, 2003, which amounts were reimbursed by certain of the selling stockholders and recorded by us as a contribution to additional paid-in capital. 36 Other Income We did not have any other income for the year ended December 31, 2003. Other income for the year 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. Provision For Income Taxes As a result of certain non-deductible secondary offering expenses referred to above, state legislative changes and other federal and state credits and incentives, our effective tax rate for the year ended December 31, 2003 was 38.6%, compared with 38.8% for the year ended December 31, 2002. 2002 compared with 2001 Revenues For the year ended December 31, 2002, revenues increased to $825.8 million, or 15.5%, from $715.0 million for the year 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, which contributed revenues of approximately $23.1 million in 2002 and approximately $7.9 million in 2001. This increase was offset in part by the sale of the commercial business of Interactive Media Corp., or "IMC," on July 20, 2001, which contributed $11.7 million in revenue through the sale date and the sale or closure of other businesses in 2001, which contributed revenues of approximately $6.7 million. For the year ended December 31, 2002, our revenues grew organically by approximately 16.5% to $802.7 million from $688.7 million for the year ended December 31, 2001. We define organic growth as the increase in revenues excluding the revenues associated with acquisitions, divestitures and closures of businesses in comparable periods. We believe organic growth is a useful supplemental measure to revenue. Management uses organic growth as part of its evaluation of core operating results and underlying trends. 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. Costs of Revenues For the year 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 year ended December 31, 2001. For the year ended December 31, 2002, costs of revenues as a percentage of revenues decreased to 86.1% from 87.7% for the year 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 year ended December 31, 2001 to 13.9% for the year 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 year 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 year ended December 31, 2001. General and administrative expenses for the year ended December 31, 2002, as a percentage of revenues, decreased to 5.8% from 7.2%. Certain items totaling $6.6 million that were incurred in the year ended December 31, 2001, but were not incurred in the year 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 building held-for-sale), 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 year 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. 37 Amortization For the year ended December 31, 2002, amortization expenses decreased $7.5 million, or 79.7%, to $1.9 million from $9.4 million for the year ended December 31, 2001. Amortization as a percentage of revenues was 1.3% for the year 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 year 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 prospectus. Operating Income For the year ended December 31, 2002, operating income increased $37.5 million, or 139.7%, to $64.4 million from $26.9 million for the year ended December 31, 2001. Operating income as a percentage of revenues increased to 7.8% for the year ended December 31, 2002 from 3.8% for the year ended December 31, 2001. Interest Expense, Net For the year ended December 31, 2002, interest expense, net of interest income, decreased $4.7 million, or 17.9%, to $21.6 million from $26.4 million for the year 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. Interest expense in 2002 includes $1.9 million of previously unrecognized losses related to the termination of approximately $30.0 million in interest rate swaps. Also included in the 2002 amount is $4.2 million related to prepayment penalties and write-off of deferred financing costs Other Income For the year ended December 31, 2002, other income decreased $3.6 million to $417,000 from $4.0 million for the year ended December 31, 2001. Other income for the year 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 year ended December 31, 2001 was primarily comprised 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 year 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 year ended December 31, 2002 was 38.8%, compared with 101.8% for the year ended December 31, 2001, primarily due to a reduction in non-deductible goodwill amortization expense as a result of the implementation of SFAS No. 142 as of January 1, 2002. Liquidity and Capital Resources Cash Flow for the Years Ended December 31, 2003 and 2002 We generated $37.4 million in cash from operations for the year ended December 31, 2003. By comparison, we used $1.7 million in cash from operations for the year ended December 31, 2002. Compared to the year ended December 31, 2002, the collection of contract receivables in 2003 improved seven days from 78 to 71 days sales outstanding, or "DSO." The improvement in total DSO from December 31, 2002 to December 31, 2003 was attributable to our improved billing and collection processes and an improvement in government payment cycles. Contract receivables increased $33.8 million to $222.9 million for the year ended December 31, 2003 as compared to $189.1 million in 2002. Accounts receivable at December 31, 2003 represented 46.5% of total assets at that date. As a result of our acquisition of ISI, accounts receivable increased by approximately $22.8 million. The remaining increase is attributable to the overall growth of our business. For the year ended December 31, 2003, net cash used in investing activities was $95.4 million, which was attributable primarily to our acquisition of ISI. Cash provided by financing activities was $55.8 million for the year ended December 31, 2003, due to additional borrowings under the revolving portion of our Credit Facility to finance the acquisition of ISI. 38 On December 19, 2003, we amended and restated our Credit Facility. This amendment and restatement provided for, among other things, a new term loan of $150.0 million, or "Term Loan B," with a maturity date of December 31, 2010, the extension of the maturity date of the revolving loan portion of our Credit Facility to December 31, 2008, a revolving loan commitment in the aggregate principal amount of $200.0 million, the repayment of our existing term loan, or the "Term Loan A," and the financing of our tender offer and consent solicitation completed on December 23, 2003 in respect of our 12% Notes. In addition, the Credit Facility permits us to raise up to $200.0 million of additional debt in the form of additional term loans, subordinated debt or revolving loans. All borrowings under our Credit Facility are subject to financial covenants customary for such financings, including, but not limited to: maximum ratio of net debt to EBITDA and maximum ratio of senior debt to EBITDA, as defined in the Credit Facility. Additionally, as a result of changes made in the amendment and restatement, revolving loans are now based upon an asset test or maximum ratio of net eligible accounts receivable to revolving loans. The proceeds of the $150.0 million Term Loan B were used to repay the balance of our Term Loan A, together with interest of approximately $18.5 million, finance the tender offer and consent solicitation for our 12% Notes, as described below, in the amount of approximately $81.2 million, pay fees and expenses incurred in connection with these transactions of approximately $1.5 million, and repay outstanding revolving loans together with interest of approximately $38.2 million. On December 23, 2003, we repurchased $73.1 million aggregate principal amount, or approximately 97%, of our outstanding 12% Notes. As of the expiration date of the tender offer and as of December 31, 2003, approximately $1.9 million in aggregate principal amount of the 12% Notes remained outstanding. The repurchase price for our 12% Notes was $1,110.95 per $1,000 principal amount of the 12% Notes, which included accrued and unpaid interest of $12.67 per $1,000 in principal amount of the 12% Notes up to, but not including, December 23, 2003, the payment date, and a consent payment of $20.00 per $1,000 principal amount of the 12% Notes tendered prior to December 5, 2003, the consent date. The repurchase price for those 12% Notes tendered after the consent date was $1,090.95 per $1,000 principal amount of 12% Notes, which excludes the consent payment of $20.00 per $1,000 principal amount of the 12% Notes. The aggregate repurchase price for all of the 12% Notes validly surrendered for repurchase and not withdrawn was approximately $81.2 million, which includes a $7.2 million bond premium and consent payment and approximately $900,000 of accrued interest. 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. The Credit Facility contains affirmative and negative covenants customary for such financings. For the year ended December 31, 2003, we were not in compliance with one of the financial covenants required by our Credit Facility. We subsequently obtained a waiver for compliance with this covenant for the year ended December 31, 2003. We were in compliance with all other financial covenants required by our Credit Facility. At December 31, 2003, total debt outstanding under our Credit Facility was approximately $154.4 million, consisting of $150.0 million of Term Loan B, and $4.4 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, 2003 were $112.7 million. As of December 31, 2003, our Credit Facility would have permitted additional borrowings of up to $203.7 million. Beginning with our fiscal year 2004, we are required to prepay, in amounts specified in our Credit Facility, borrowings under the Term Loan B under certain conditions related to excess annual cash flow and the receipt of proceeds from certain asset sales and debt or equity issuances. In addition, beginning on March 31, 2004, we are scheduled to pay quarterly principal installments of approximately $375,000 against the Term Loan B until it matures on December 31, 2010 at which time the remaining balance will be due. As of December 31, 2003, we did not have any capital commitments greater than $1.5 million. Our principal working capital need is for funding accounts receivable, which has increased with the growth of our business. Our principal sources of cash to fund our working capital needs are cash generated from operations and borrowings under our Credit Facility. 39 We have relatively low capital investment requirements. Capital expenditures were $3.0 million and $3.2 million for the years ended December 31, 2003 and 2002, respectively, primarily for leasehold improvements and office equipment. Our business acquisition expenditures relating to ISI were $92.4 million in 2003. The acquisition was financed through borrowings under our 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. 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. Off-Balance Sheet Arrangements and Aggregate Contractual Obligation We use off-balance sheet financing, primarily to finance certain capital items. Operating leases are used primarily to finance computers, servers, phone systems, and to a lesser extent, other fixed assets, such as furnishings. As of December 31, 2003, we financed equipment with an original cost of approximately $13.4 million through operating leases. Had we not used operating leases, we would have used our existing Credit Facility to purchase these assets. Other than the operating leases described above, and facilities leases, we do not have any other off-balance sheet financing. The following table provides information (in thousands) as of December 31, 2003 regarding our off-balance sheet arrangements and contractual obligations.
Payments due by period --------------------------------------------------------------------------- Less than More than Contractual Obligations Total 1 year 1-3 year 3-5 years 5 years - ------------------------------ -------- --------- ------------ ----------- ------------ Long-term debt $ 158,776 $ 4,000 $ 3,000 $ 7,400 $ 144,376 Capital lease obligations 977 421 343 213 -- Operating leases 151,573 29,991 44,585 31,693 45,304 Purchase obligations -- -- -- -- -- Other long-term liabilities -- -- -- -- -- ----------- ----------- ------------ ---------- ----------- Total $ 311,326 $ 34,412 $ 47,928 $ 39,306 $ 189,680 =========== =========== ============ ========== ===========
40 Inflation We do not believe that inflation has had a material effect on our business in 2003, 2002, or 2001. Recent Accounting Pronouncements In December 2002, the Emerging Issue Task Force, or "EITF", issued a consensus on Issue 00-21, or "EITF 00-21," Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. It also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in an arrangement. EITF 00-21 does not apply to deliverables in arrangements to the extent the accounting for such deliverables is within the scope of other existing higher-level authoritative accounting literature. The effective date of EITF 00-21 for the Company was July 1, 2003. The adoption of EITF 00-21 did not have a significant impact on our consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a significant impact on our consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how certain free standing financial instruments with characteristics of both liabilities and equity are classified and measured. Financial instruments within the scope of SFAS No. 150 are required to be recorded as liabilities (or assets in certain circumstances) which may require reclassification of amounts previously reported in equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The cumulative effect of a change in accounting principle should be reported for financial instruments created before the issuance of this Statement and still existing at the beginning of the period of adoption. The adoption of SFAS No. 150 did not have a significant impact on our consolidated financial statements. In December 2003, the FASB issued Interpretation No. 46(R), or "Interpretation No. 46(R)," Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. Interpretation No. 46(R) provides guidance for identifying a controlling interest in a Variable Interest Entity, or "VIE," established by means other than voting interests. Interpretation No. 46(R) also requires consolidation of a VIE by an enterprise that holds such a controlling interest. The effective date for interests qualifying as VIEs is December 31, 2003. We do not have any interests qualifying as VIEs, including residual value guarantees or fixed purchase options under leases as of December 31, 2003. As a result, Interpretation No. 46(R) does not have a significant impact 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. The remaining $1.9 million of our 12% Notes have a fixed interest rate of 12%. The interest rates on both the Term Loan B and the revolving loan portion of our Credit Facility are affected by changes in market interest rates. We manage these fluctuations in part through interest rate swaps that are currently in place. In addition, we have a cash flow management plan focusing on billing and collecting receivables to pay down debt. A 1% change in interest rates on variable rate debt would have resulted in our interest expense fluctuating by $514,000 and $249,000 for the year ended December 31, 2003 and 2002, respectively. 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, 2003, the fair value of our remaining interest rate swap agreements with a notional amount of $10.0 million resulted in a net liability of $230,000 and has been included in other current liabilities. 41 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. Item 9A. Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2003. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2003, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 42 PART III Management Item 10. Directors and Executive Officers of the Registrant The information required by this item is incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to Regulation 14A. Item 11. Executive Compensation The information required by this item is incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions The information required by this item is incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to Regulation 14A. Item 14. Principal Accountants Fees and Services The information required by this item is incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K pursuant to Regulation 14A. 43
PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page Number in 2003 Annual Report (a) 1. Financial Statements Independent Auditors' Report F-1 Consolidated Balance Sheets as of December 31, 2003 and 2002 F-2 Consolidated Statements of Operations for Each of the Years in the Three-Year Period Ended December 31, 2003 F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income for Each of the Years in the Three-Year Period Ended December 31, 2003 F-4 Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended December 31, 2003 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 46
(b) Reports on Form 8-K On October 29, 2003, the Company furnished in a Current Report on Form 8-K under Item 12 thereof a press release and financial supplement relating to the Company's financial results for the quarter ended September 30, 2003. On November 20, 2003, the Company furnished in a Current Report on Form 8-K under Item 9 thereof a press release relating to the Company's commencement of a tender offer and consent solicitation with respect to its outstanding 12% Senior Subordinated Notes due 2009. On December 23, 2003, the Company filed a Current Report on Form 8-K under Item 5 thereof a press release announcing the completion of its tender offer and consent solicitation with respect to its outstanding 12% Senior Subordinated Notes due 2009 and the closing of certain amendments to its existing credit agreement. 44 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 4, 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 March 4, 2003 ------------------------------------ ----------------- Joseph M. Kampf President and Chief Executive Officer and Director (Principal Executive Officer) /s/: Charles S. Ream March 4, 2003 ------------------------------------ ----------------- Charles S. Ream Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/: Frederick J. Iseman ------------------------------------ Frederick J. Iseman Chairman of the Board and Director March 4, 2003 ----------------- /s/: Gilbert F. Decker ------------------------------------ Gilbert F. Decker Director March 4, 2003 ----------------- /s/: Robert A. Ferris ------------------------------------ Robert A. Ferris Director March 4, 2003 ----------------- /s/: Paul G. Kaminski ------------------------------------ Paul G. Kaminski Director March 4, 2003 ----------------- /s/: Steven M. Lefkowitz ------------------------------------ Steven M. Lefkowitz Director March 4, 2003 ----------------- /s/: Thomas J. Tisch ------------------------------------ Thomas J. Tisch Director March 4, 2003 ----------------- /s/: General Henry Hugh Shelton ------------------------------------ General Henry Hugh Shelton Director March 4, 2003 ----------------- /s/: William J. Perry ------------------------------------ William J. Perry Director March 4, 2003 -----------------
45 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). 4.7 Sixth Supplemental Indenture, dated as of March 15, 2002, among Anteon International Corporation (formerly Azimuth Technologies, Inc.), a Delaware corporation, Anteon International Corporation (formerly Anteon Corporation), a Virginia corporation, and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.2 of Anteon International Corporation's Quarterly Report on Form 10-Q filed on May 14, 2002). 46 4.8 Seventh Supplemental Indenture, dated as of May 23, 2003, among Anteon International Corporation (formerly Azimuth Technologies, Inc.) and The Bank of New York, as trustee. 4.9 Eighth Supplemental Indenture, dated as of December 5, 2003, among Anteon International Corporation, Anteon Corporation, Information Spectrum, Inc. and The Bank of New York, as trustee. 4.10 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)). 4.11 Amendment No. 1, dated as of September 3, 2003, to the 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 4.5 to Anteon International Corporation's Form S-3 Registration Statement filed on December 17, 2003 (Commission File No. 333-111249)). 4.12 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)). 47 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 (incorporated by reference to Exhibit 10.11 to Anteon International Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed on March 11, 2003). 10.12 Amendment Agreement, dated as of December 19, 2003 to the Amended and Restated Credit Agreement, dated as of October 21, 2002, among Anteon International Corporation, Anteon Corporation, Credit Suisse First Boston and Citizens Bank of Pennsylvania. 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 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). 10.17 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)). 10.18 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). 10.19 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). 10.20 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). 10.21 Stock Purchase Agreement, dated as of April 22, 2003, by and among Anteon International Corporation, Information Spectrum, Inc., the Shareholders of Information Spectrum, Inc. and Mark Green as Shareholder's Representative (incorporated by reference to Exhibit 2.1 to Anteon International Corporation's Current Report on Form 8-K filed on May 29, 2003). 10.22 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. 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 48 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, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2003. 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, 2003 and 2002 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Our audits were performed for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information included in Schedule II is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. As discussed in note 2(f) to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statements of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As discussed in note 2(r) to the consolidated financial statements, effective January 1, 2003, the Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB Statement 13 and Technical Corrections. McLean, Virginia KPMG LLP February 17, 2004 F-1
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Balance Sheets December 31, 2003 and 2002 (in thousands, except share and per share data) Assets 2003 2002 ------------------ ----------------- Current assets: Cash and cash equivalents $ 2,088 $ 4,266 Accounts receivable, net 222,937 189,059 Prepaid expenses and other current assets 17,925 15,071 Deferred tax assets, net 1,641 -- ------------------ ----------------- Total current assets 244,591 208,396 Property and equipment, at cost, net of accumulated depreciation and amortization of $22,489 and $18,971, respectively 12,759 9,992 Goodwill, net of accumulated amortization of $17,376 and $17,376, respectively 212,205 138,619 Intangible and other assets, net of accumulated amortization of $11,729 and $9,279, respectively 9,725 7,685 ------------------ ----------------- Total assets $ 479,280 $ 364,692 ================== ================= Liabilities and Stockholders' Equity Current liabilities: Term Loan A, current portion $ -- $ 3,798 Term Loan B, current portion 1,500 -- Subordinated notes payable, current portion 2,500 2,500 Obligations under capital leases, current portion 341 -- Accounts payable 36,793 47,630 Due to related party 48 -- Accrued expenses 85,468 57,603 Income tax payable 641 7,738 Other current liabilities 230 806 Deferred tax liability -- 2,230 Deferred revenue 11,783 5,701 ------------------ ----------------- Total current liabilities 139,304 128,006 Term Loan A, less current portion -- 17,403 Term Loan B, less current portion 148,500 -- Revolving credit facility 4,400 7,000 Senior subordinated notes payable 1,876 75,000 Obligations under capital leases, less current portion 465 -- Noncurrent deferred tax liabilities, net 10,017 7,808 Other long term liabilities 16 490 ------------------ ----------------- Total liabilities 304,578 235,707 ------------------ ----------------- Minority interest in subsidiaries 210 156 Stockholders' equity: Preferred stock, $0.01 par value, 15,000,000 shares authorized, zero issued and outstanding as of December 31, 2003 and 2002 -- -- Common stock, $0.01 par value, 175,000,000 shares authorized and 35,354,996 and 34,419,049 shares issued and outstanding as of December 31, 2003 and 2002, respectively 354 344 Common stock, Class B, voting, $0.01 par value, 3,000 shares authorized, zero issued and outstanding as of December 31, 2003 and 2002 -- -- Common stock, Class A, voting, $0.01 par value, 30,000,000 shares authorized, zero issued and outstanding as of December 31, 2003 and 2002 -- -- Common stock, non voting, $0.01 par value, 7,500,000 shares authorized, zero issued and outstanding as of December 31, 2003 and 2002 -- -- Stock subscription receivable -- (12) Additional paid-in capital 115,863 106,849 Accumulated other comprehensive loss (72) (509) Retained earnings 58,347 22,157 ------------------ ----------------- Total stockholders' equity 174,492 128,829 ------------------ ----------------- Commitments and contingencies Total liabilities and stockholders' equity $ 479,280 $ 364,692 ================== ================= 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, 2003, 2002 and 2001 (in thousands, except share and per share data) 2003 2002 2001 ----------------- -------------- -------------- (reclassified-see note 2(r)) Revenues $ 1,042,474 $ 825,826 $ 715,023 Costs of revenues 897,264 711,328 627,342 ----------------- -------------- -------------- Gross profit 145,210 114,498 87,681 ----------------- -------------- -------------- Operating Expenses: General and administrative expenses 58,647 48,197 51,442 Amortization of noncompete agreements 101 -- 349 Goodwill amortization -- -- 6,704 Other intangibles amortization 2,349 1,907 2,321 ----------------- -------------- -------------- Total operating expenses 61,097 50,104 60,816 ----------------- -------------- -------------- Operating income 84,113 64,394 26,865 Other income -- 417 -- Gains on sales and closures of businesses -- -- 4,046 Secondary offering expenses 852 -- -- Interest expense, net of interest income of $239, $289, and $344, respectively 24,244 21,626 26,353 Minority interest in (earnings) losses of subsidiaries (54) (18) (38) ----------------- -------------- -------------- Income before provision for income taxes 58,963 43,167 4,520 Provision for income taxes 22,773 16,723 4,602 ----------------- -------------- -------------- Net income (loss) $ 36,190 $ 26,444 $ (82) ================= ============== ============== Basic earnings (loss) per common share $ 1.04 $ 0.82 $ (0.01) ================= ============== ============== Basic weighted average shares outstanding 34,851,281 32,163,150 23,786,565 Diluted earnings (loss) per common share $ 0.98 $ 0.78 $ (0.01) ================= ============== ============== Diluted weighted average shares outstanding 36,925,488 34,021,597 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) and Comprehensive Income (Loss) Years ended December 31, 2003, 2002 and 2001 (in thousands, except share data) Accumulated Retained Total Stock Additional other earnings stockholders' All series subscription paid-in comprehensive (accumulated equity common stock receivable capital income (loss) deficit) (deficit) Shares Amount ---------- ---------- ----------- ---------- ------------ ------------- ---------- 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 $717) -- -- -- -- (1,075) -- (1,075) Freign 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 $838) -- -- -- -- 1,239 -- 1,239 Foreign currency translation -- -- -- -- (1) -- (1) Net income -- -- -- -- -- 26,444 26,444 ---------- ------- ----------- ---------- ------------ ------------ ----------- Comprehensive income -- -- -- -- 1,238 26,444 27,682 ---------- ------- ----------- ---------- ------------ ------------ ----------- Balance, December 31, 2002 34,419,049 344 (12) 106,849 (509) 22,157 128,829 Exercise of stock options 935,947 10 -- 4,878 -- -- 4,888 Tax benefit from exercise of stock options -- -- -- 3,281 -- -- 3,281 Stock based compensation expense -- -- -- 3 -- -- 3 Proceeds from certain stockholder related to secondary offering -- -- -- 852 -- -- 852 Write-off uncollectible stock subscription -- -- 12 -- -- -- 12 Comprehensive income : Interest rate swaps (net of tax of $209) -- -- -- -- 324 -- 324 Foreign currency translation -- -- -- -- 113 -- 113 Net income -- -- -- -- -- 36,190 36,190 ---------- ------- ----------- ---------- ------------ ------------ ----------- Comprehensive income: -- -- -- -- 437 36,190 36,627 ---------- ------- ----------- ---------- ------------ ------------ ----------- Balance, December 31, 2003 35,354,996 $ 354 $ -- $115,863 $ (72) $ 58,347 $ 174,492 ---------- ------- ----------- ---------- ------------ ------------ ----------- 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, 2003, 2002 and 2001 (in thousands) 2003 2002 2001 --------------- ---------------- --------------- Cash flows from operating activities: Net income (loss) $ 36,190 $ 26,444 $ (82) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gains on sales and closures of businesses -- -- (4,046) Interest rate swap termination -- (1,903) -- Depreciation and amortization of property and equipment 4,440 4,294 7,110 Goodwill amortization -- -- 6,704 Amortization of noncompete agreements 101 -- 349 Other intangibles amortization 2,349 1,907 2,321 Amortization of deferred financing costs 4,014 2,442 697 Loss on disposals of property and equipment 190 25 791 Deferred income taxes (1,742) 4,090 3,512 Minority interest in earnings (losses) of subsidiaries 54 18 38 Changes in assets and liabilities, net of acquired assets and liabilities: (Increase) decrease in accounts receivable (12,477) (57,715) 1,268 Decrease in prepaid expenses and other current assets (1,245) (8,059) 727 (Increase) decrease in other assets 142 105 178 Increase in accounts payable and accrued expenses 5,592 22,601 15,744 Increase (decrease) in income tax payable (2,998) 7,229 (22) (Decrease) increase in deferred revenue 3,306 (3,042) 2,254 (Decrease) increase in other liabilities (473) (158) 336 --------------- ---------------- --------------- Net cash provided (used in) by operating activities 37,443 (1,722) 37,879 --------------- ---------------- --------------- Cash flows from investing activities: Purchases of property and equipment and other assets (3,049) (3,225) (2,181) Acquisition of Sherikon, Inc., net of cash acquired -- -- (21) Acquisition of SIGCOM, net of cash acquired -- -- (10,975) Acquisition of Information Spectrum, Inc., net of cash acquired (92,382) -- -- Proceeds from sales of businesses, net -- -- 11,464 Proceeds from sale of building -- 1,802 -- Other, net -- -- 6 --------------- ---------------- --------------- Net cash used in investing activities (95,431) (1,423) (1,707) --------------- ---------------- --------------- Cash flows from financing activities: Principal payments on bank and other notes payable (43) (47) (185) 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 (2,728) (1,292) -- Principal payments on Term Loan A (21,202) (25,853) (12,946) Proceeds from Term Loan B 150,000 -- -- Proceeds from certain stockholders related to secondary offering 852 -- -- Proceeds from revolving credit facility 1,009,500 862,600 771,200 Principal payments on revolving credit facility (1,012,100) (874,300) (784,500) Redemption of senior subordinated notes payable (73,124) (25,000) -- Proceeds from issuance of common stock, net of expenses 4,902 81,808 -- Principal payments under capital lease obligations (247) -- -- 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 --------------- ---------------- --------------- Net cash provided by (used in) financing activities 55,810 5,481 (35,676) --------------- ---------------- --------------- Net increase (decrease) in cash and cash equivalents (2,178) 2,336 496 Cash and cash equivalents, beginning of year 4,266 1,930 1,434 --------------- ---------------- --------------- Cash and cash equivalents, end of year $ 2,088 $ 4,266 $ 1,930 =============== ================ =============== (continued)
F-5
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Consolidated Statements of Cash Flows, continued Years Ended December 31, 2003, 2002 and 2001 2003 2002 2001 ------------- ---------------- --------------- Supplemental disclosure of cash flow information (in thousands): Interest paid: Tender offer of senior subordinated notes payable $ 7,177 $ -- $ -- Other 14,199 18,971 23,396 ----------- ------------ ------------- Total interest paid $ 21,376 $ 18,971 $ 23,396 =========== ============ ============= Income taxes paid (refunds received), net $ 27,410 $ 2,634 $ (52) =========== ============ =============
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 4(a)). 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 years ended December 31, 2003 and 2002, the change in the fair value of the interest rate swaps generated a deferred tax liability of $209,000 and $838,000, respectively. During 2003, the Company recorded approximately $1.0 million of equipment utilizing capitalized leases. See accompanying notes to consolidated financial statements. F-6 ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES (a Delaware Corporation) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (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. The Company provides professional information technology solutions and advanced systems engineering services to government clients. The Company designs, integrates, maintains and upgrades information systems for national defense, intelligence, emergency response and other government missions. The Company also provides many of its clients with the systems analysis, integration and program management skills necessary to manage their mission systems development and operations. 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 for 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. (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. Property and equipment under capital leases are stated at the present value of minimum lease payments. 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 Property and equipment under capital leases shorter of estimated useful life or lease term (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. F-7 (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 undiscounted 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 2003 and 2001, the Company recognized an impairment charge of approximately $135,000 and $750,000, respectively, included in general and administrative expenses in the accompanying consolidated statement of operations, to write-down the carrying value of a building held-for-sale 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. 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. 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. In connection with SFAS No. 142's 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 impairment test. 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. 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, 2003 and 2002, the Company performed its annual goodwill impairment analysis required under SFAS No. 142. The Company applied the same methodology described above in 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-8 Had the amortization provisions of SFAS No. 142 been applied as of January 1, 2001, for all of the Company's acquisitions, the Company's loss, net income and earnings per common share would have been as follows (unaudited) (in thousands, except per share data): Year ended December 31, 2001 ----------------- Loss $ (82) Add back: Goodwill amortization 5,663 Add back: Workforce amortization 545 ----------------- Adjusted net income $ 6,126 ================= Basic earnings per share: Loss $ (0.01) Goodwill amortization 0.24 Workforce amortization 0.02 ----------------- Adjusted net income $ 0.25 ================= Diluted earnings per share: Loss $ (0.01) Goodwill amortization 0.24 Workforce amortization 0.02 ----------------- Adjusted net income $ 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 (prior to the adoption of SFAS No. 142) and acquired contracts are amortized straight-line based upon expected employment and contract periods, respectively. 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. As of December 31, 2003, the Company has approximately $13.3 million of intangible assets ($5.2 million net of accumulated amortization) related to contracts and related customer relationships intangible assets, which are being amortized straight-line over periods of up to 5.3 years 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. There were no capitalized software costs after 2001 due to the curtailment of operations of CITI-SIUSS. F-9 (h) Revenue Recognition For each of the years ended December 31, 2003, 2002 and 2001, in excess of 95% of the Company's 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 ended December 31, 2003, approximately 38% of the Company's contracts were time and material, 32% cost-plus and 30% 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, the expected fee to be awarded by the customer is recognized at the time such fee can be reasonably estimated, based on factors such as our prior award experience and communications with the customer regarding the Company's 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). In addition, the Company evaluates its contracts for multiple deliverables which may require the segmentation of each deliverable into separate accounting units for proper revenue recognition. The Company recognizes revenues under its 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 the Company 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 the Company's 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 its 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. Contract revenue recognition inherently involves estimation. Examples of such estimates include the level of effort needed to accomplish the tasks under the contract, the cost of those efforts, and a continual assessment of our progress toward the completion of the contract. From time to time, circumstances may arise which require us to revise the Company's estimated total revenue or costs. Typically, these revisions relate to contractual changes involving its services. To the extent that a revised estimate affects contract revenue or profit previously recognized, the Company records the cumulative effect of the revision in the period in which it becomes known. In addition, the full amount of an anticipated loss on any type of contract is recognized in the period in which it becomes known. F-10 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 including maintenance and consulting services are recognized at their fair values when all other recognition criteria are met. Service revenues consists of maintenance and technical support and is recognized ratably over the service period. Other service revenues are recognized as the related services are provided. Revenues from sales of products are generally recognized upon acceptance by the customer, which is typically within thirty days of shipment. 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. There were no CITI-SIUSS software revenues in 2003. Amounts collected in advance of being earned are recognized as deferred revenues. (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 probable 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, 2003, 2002 and 2001. (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, and Related Interpretations. 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. Through 2001, the Company recognized an insignificant amount of compensation expense associated with the stock appreciation rights equal to the excess 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-11 The Company accounts for stock options granted to non-employees using the fair value method of accounting as prescribed by SFAS No. 123. Compensation expense related to stock options granted to non-employees is not significant. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, to stock-based employee compensation:
2003 2002 2001 ------------ ------------ ------------ (in thousands, except per share data) Net income (loss), as reported $ 36,190 $ 26,444 $ (82) Add: Stock based compensation recorded 3 -- -- Deduct: Total stock-based compensation expense determined under fair value method, net of tax (3,749) (3,477) (1,206) ----------- ---------- ----------- Pro forma net income (loss) $ 32,444 $ 22,967 $ (1,288) Earnings (loss) per share: Basic-as reported $ 1.04 $ 0.82 $ (0.01) =========== ========= =========== Basic-pro forma $ 0.93 $ 0.71 $ (0.05) =========== ========== =========== Diluted-as reported $ 0.98 $ 0.78 $ (0.01) =========== ========== =========== Diluted-pro forma $ 0.88 $ 0.68 $ (0.05) =========== ========== ===========
(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, 2003 and 2002, 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, 2003 and 2002, as they bear interest rates that approximate the market. The fair value of the senior subordinated notes payable on principal amounts of $1.9 million and $75.0 million, based on quoted market value, was approximately $2.1 million and $81.0 million as of December 31, 2003 and 2002, respectively. (n) Derivative Instruments and Hedging Activities The Company accounts for derivatives and hedging activities in accordance with Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for Derivative Instruments and Hedging Activities, as amended, which requires that derivative instruments be recognized at fair value in the balance sheet. The Company has entered into certain interest rate swap agreements, which are accounted for under SFAS No. 133. 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. F-12 (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. (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 carrying amounts of reported assets and liabilities, including property, plant, and equipment, intangible assets and goodwill, valuations for income taxes and accounts receivable, and the valuation of derivative instruments 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. (r) Reclassification Pursuant to SFAS 145 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 and rescinds 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 the Company's 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 were required to be reclassified for all periods presented. The Company adopted SFAS No. 145 as of January 1, 2003, and as a result, the Company reclassified $4.2 million ($2.6 million net of tax) of losses and $519,000 ($330,000 net of tax) of gains previously recorded as extraordinary items for the year ended December 31, 2002 and 2001, respectively, to interest expense. Additionally, the tax impact as a result of these reclassifications has been adjusted in the tax provision amounts shown. (s) Recently Issued Accounting Pronouncements In December 2002, the Emerging Issue Task Force, or ("EITF"), issued a consensus on Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. It also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in an arrangement. EITF 00-21 does not apply to deliverables in arrangements to the extent the accounting for such deliverables is within the scope of other existing higher-level authoritative accounting literature. The effective date of EITF 00-21 for the Company is July 1, 2003. The adoption of EITF 00-21 did not have a significant impact on the Company's consolidated financial statements. F-13 In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the financial condition or the operating results of the Company. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how certain free standing financial instruments with characteristics of both liabilities and equity are classified and measured. Financial instruments within the scope of SFAS No. 150 are required to be recorded as liabilities (or assets in certain circumstances) which may require reclassification of amounts previously reported in equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The cumulative effect of a change in accounting principle should be reported for financial instruments created before the issuance of this Statement and still existing at the beginning of the period of adoption. The adoption of SFAS No. 150 did not have an impact on the financial condition or the operating results of the Company. In December 2003, the FASB issued Interpretation No. 46(R), ("Interpretation No. 46(R)"), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. Interpretation No. 46(R) provides guidance for identifying a controlling interest in a Variable Interest Entity, or "VIE," established by means other than voting interests. Interpretation No. 46(R) also requires consolidation of a VIE by an enterprise that holds such a controlling interest. The effective date for interests qualifying as VIEs is December 31, 2003. The Company does not have any interests qualifying as VIEs, including residual value guarantees or fixed purchase options under leases as of December 31, 2003. As a result, Interpretation No. 46(R) does not have an impact on its consolidated financial statements. (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 for the year ended December 31, 2001. 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. F-14 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 for the year ended December 31, 2001. Operating losses were approximately $2.6 million for the year December 31, 2001. 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. (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 for the year ended December 31, 2001. Operating loss was approximately $(41,000) for the year ended December 31, 2001. 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 in 2001 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 operating loss was $(2.1) million for the year ended December 31, 2001. 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 $169,000 have been accrued as of December 31, 2003. F-15 (4) Acquisitions (a) 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 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 to an intangible asset related to contract backlog, which was 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. 142, is not being amortized (see note 2(f)). (b) Information Spectrum, Inc. On May 23, 2003, the Company purchased all of the outstanding stock of Information Spectrum, Inc. ("ISI"), a provider of credential card technologies, military logistics and training systems, based in Annandale, Virginia, for a total purchase price of approximately $91.6 million, excluding transactions costs of approximately $737,000. The transaction was accounted for in accordance with SFAS No. 141, Business Combinations, 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 estimates made by management. The identifiable intangible assets consisted of $4.8 million of contracts and related customer relationships and $500,000 for the value of a non-compete agreement. The value of the contracts and related customer relationships is based, in part, on an independent appraisal and other studies performed by the Company. The contracts and related customer relationships are being amortized straight-line over its expected useful life of approximately 5.3 years. The non-compete agreement value was based on the consideration paid for the agreement and is being amortized straight-line over the three year term of the agreement. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill arising from the transaction is not being amortized. F-16 The total purchase price paid, including transaction costs, of $92.4 million was allocated to the assets acquired and liabilities assumed as follows (in thousands):
Accounts receivable $ 22,792 Prepaid and other current assets 764 Property and equipment 3,312 Other assets 120 Current income tax receivable 655 Accounts payable and accrued expenses (11,186) Deferred income tax, net (458) Deferred revenue (2,645) Other liabilities (558) Contracts and customer relationships 4,751 Goodwill 74,335 Non-compete agreement 500 ----------- Total consideration $ 92,382 ===========
Unaudited Pro Forma Data The following unaudited pro forma summary presents consolidated information as if the acquisition of ISI and SIGCOM had occurred as of January 1, 2001. 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):
2003 2002 2001 ---------------- ------------- ---------------- Total revenues $ 1,096,152 $ 955,590 $ 826,298 Total expenses 1,059,467 927,976 823,395 ---------------- ------------- ---------------- Net income $ 36,685 $ 27,614 $ 2,903 ================ ============= ================ Basic earnings per common share $ 1.05 $ 0.86 $ 0.12 ================ ============= ================ Diluted earning per common share $ 0.99 $ 0.81 $ 0.12 ================ ============= ================
(5) Accounts Receivable The components of accounts receivable as of December 31, 2003 and 2002, are as follows (in thousands): 2003 2002 ------------- ------------- Billed and billable $ 198,144 $ 179,216 Unbilled 22,210 8,929 Retainages due upon contract completion 6,705 5,162 Allowance for doubtful accounts (4,122) (4,248) ------------ ------------ Total $ 222,937 $ 189,059 ============ ============ In excess of 95% of the Company's revenues for each of 2003, 2002 and 2001 have been earned, and accounts receivable as of December 31, 2003 and 2002 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. F-17 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 2001. 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. (6) Property and Equipment Property and equipment consists of the following as of December 31, 2003 and 2002 (in thousands):
2003 2002 ------------ ------------ Land $ 393 $ 393 Buildings 1,581 1,717 Computer hardware and software 19,686 13,348 Furniture and equipment 6,732 8,697 Leasehold improvements 6,856 4,808 ------------ ----------- 35,248 28,963 Less - accumulated depreciation and amortization 22,489) (18,971) ------------ ----------- Total $ 12,759 $ 9,992 ============ ===========
(7) Accrued Expenses The components of accrued expenses as of December 31, 2003 and 2002 are as follows (in thousands):
2003 2002 ------------ ------------ Accrued payroll and related benefits $ 52,602 $ 38,819 Accrued subcontractor costs 25,987 13,396 Accrued interest 153 1,138 Other accrued expenses 6,726 4,250 ------------ ------------ Total $ 85,468 $ 57,603 ============ ============
(8) 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 in the Credit Facility, 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 was 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. 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 $304,000 has been reflected as interest expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2002. Effective October 21, 2002, this Credit Facility was replaced by an Amended and Restated Credit Agreement, as discussed below. F-18 Under the Credit Facility, the interest rate on both the Revolving Facility and the Term Loan was 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 on the Company's ratio of net debt to EBITDA. Interest was payable on the last day of each quarter. During the years ended December 31, 2002 and 2001, the interest rates on the Revolving Facility and Term Loan ranged from 3.53 percent to 6.00 percent and 4.61 percent to 11.75 percent, respectively. (b) Amended and Restated Credit Agreement of October 21, 2002 On October 21, 2002, the Company entered into an amendment and restatement of its existing Credit Agreement (the "2002 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"); 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 was determined based on a portion of eligible accounts receivable. In general, the Company's borrowing availability under the Revolving Credit Facility was subject to its 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 Revolving Credit Facility. Borrowings under the Term Loan Facility and the Revolving Credit Facility would have matured on June 30, 2005. Borrowings under the Revolving Credit Facility and Term Loan Facility bore interest at a floating rate based upon, at the Company's option, LIBOR, or the ABR, which is the higher of 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). In certain cases, the Company was required to make excess cash payments (as defined in the Amended and Restated Credit Agreement) to the extent certain conditions and ratios are met. From January 1, 2003 through December 18, 2003 and 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 3.35 percent to 5.25 and 3.63 percent to 5.75 percent, respectively. Effective December 19, 2003, this credit facility was replaced by an additional Amended and Restated Credit Agreement, as discussed below. (c) Amended and Restated Credit Agreement of December 19, 2003 On December 19, 2003, the Company entered into an amended and restated credit agreement (the "2003 Amended and Restated Credit Agreement") related to our Credit Facility. This current amendment and restatement, among other things, provides for the following: (1) a new Term Loan B under the Term Loan Facility in the amount of $150.0 million with a maturity date of December 31, 2010; (2) the extension of Revolving Credit Facility's maturity date to December 31, 2008; (3) the repayment of the outstanding balance of approximately $18.4 million of the Term Loan A; and (4) the financing of the tender offer and consent solicitation made on November 23, 2003, related to the outstanding Senior Subordinated Notes (see below). In addition, the 2003 Amended and Restated Credit Agreement permits the Company to raise up to $200.0 million of additional debt in the form of additional term loans, subordinated debt or revolving loans, with certain restrictions on the amount of revolving loans. All borrowings under the 2003 Amended and Restated Credit Agreement are subject to financial covenants customary for such financings, including, but not limited to: maximum ratio of net debt to EBITDA (as defined in the 2003 Amended and Restated Credit Agreement) and maximum ratio of senior debt to EBITDA. For the year ended December 31, 2003, the Company was not in compliance with one of the financial covenants required by its 2003 Amended and Restated Credit Agreement. The Company subsequently obtained a waiver for compliance with this covenant for the year ended December 31, 2003. The Company was in compliance with all other financial covenants required by its 2003 Amended and Restated Credit Agreement. Additionally, as a result of the changes made in this amendment and restatement, revolving loans are based upon an asset test or maximum ratio of net eligible accounts receivable to revolving loans. From the date of the amendment through December 31, 2003, the interest rates for the Term Loan Facility and the Revolving Credit Facility ranged from 3.16 percent to 5.00 percent. F-19 In connection with the repayment of the Term A Loan, the Company wrote off the related unamortized deferred financing fees. The write-off of $485,000 has been reflected as interest expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2003. All of the Company's existing and future domestic subsidiaries unconditionally guarantee the repayment of amounts borrowed under the 2003 Amended and Restated Credit Agreement. The 2003 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 2003 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 2003 Amended and Restated Credit Agreement); and (ii) repurchase certain amounts of its subordinated debt from it share of net cash proceeds of issuances of equity securities. The 2003 Amended and Restated Credit Agreement contains customary events of default, certain of which allow for grace periods. As of December 31, 2003 and 2002, the outstanding amounts under the 2002 and 2003 Amended and Restated Credit Agreement were as follows (in thousands):
2003 2002 ------------ ----------- Revolving Credit Facility $ 4,400 $ 7,000 Term Loan A -- 21,201 Term Loan B 50,000 -- ------------ ----------- Total debt 154,400 28,201 Less current installments (1,500) (3,798) ------------ ----------- Long-term debt, excluding current installments $ 152,900 $ 24,403 ============ ===========
The remaining available borrowings under the Revolving Credit Facility as of December 31, 2003 were $112.7 million. As of December 31, 2003, the 2003 Amended and Restated Credit Agreement would have permitted additional borrowings of up to $203.7 million. For the years ended December 31, 2003, 2002 and 2001, total interest expense incurred on the Revolving Credit Facility was approximately $1.9 million, $1.1 million, and $2.7 million, respectively. For the years ended December 31, 2003, 2002 and 2001, total interest expense incurred on the Term Loan A was approximately $700,000, $1.2 million, and $4.1 million, respectively. For the year ended December 31, 2003, total interest expense incurred on the Term Loan B was approximately $156,000. F-20 (d) Senior Subordinated Notes Payable On May 11, 1999, the Company sold $100.0 million, in aggregate principal amount of 12% senior subordinated notes due 2009, or "12% Notes." The proceeds of the issuance of the 12% Notes were principally used to purchase Analysis & Technology, Inc. The 12% Notes are subordinate to the Company's 2003 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 used net proceeds from its initial public offering ("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 $928,000 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 for both the term loan and the 12% Notes totaling $4.2 million, have been reflected as interest expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2002. On December 23, 2003, the Company repurchased $73.1 million in aggregate principal amount, or approximately 97% of the outstanding 12% Notes. As of the expiration date of the tender offer and December 31, 2003, approximately $1.9 million in aggregate principal amount remained outstanding, which is callable on May 15, 2004. The repurchase price for the 12% Notes was $1,110.95 per $1,000 principal amount of Notes tendered prior to December 5, 2003, the Consent Date. The repurchase price for those Notes tendered after December 5, 2003 was $1,090.95 per $1,000 principal amount of the 12% Notes, which excludes the consent payment of $20.0 per $1,000 principal amount. The aggregate repurchase price for all of the 12% Notes validly surrendered for repurchase and not withdrawn was approximately $81.2 million. In addition, as a result of the tender offer, the Company incurred a $7.2 million bond premium and consent payment and wrote-off approximately $2.1 million of the unamortized deferred financing fees related to the portion of the 12% Notes that were repurchased. The tender premium, consent payment and write-off of deferred financing fees have been reflected as interest expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2003. Total interest expense for the 12% Notes incurred during 2003, 2002 and 2001was approximately $8.8 million, $9.9 million, and $12.0 million, respectively. (e) Subordinated Notes Payable In connection with the purchase of Sherikon, Inc. in 2000, the Company entered into subordinated promissory notes with the Sherikon, Inc. 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; however, $124,000 of interest has been accrued and outstanding as of December 31, 2003. During the year ended December 31, 2003, 2002 and 2001, total interest expense on the subordinated promissory notes with the Sherikon, Inc. shareholders was approximately $124,000, $232,000, and $665,000, respectively. F-21 (f) 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% 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 interest income of $519,000, on the retirement of the subordinated note payable to Ogden, which is included in interest expense, net of interest income, on the accompanying Consolidated Statement of Operations for the year ended December 31, 2001. Total interest expense incurred on the subordinated note payable to Ogden for the year ended December 31, 2001 was approximately $86,000, respectively. (g) Subordinated Notes Payable to Stockholders Concurrent with the acquisition of Anteon Virginia, the Company and its majority stockholder at that time, 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. In March 2002, the Company used a portion of the net proceeds from its IPO to repay in full this subordinated promissory note. Total interest expense incurred on the subordinated notes payable for the years ended December 31, 2002 and 2001 was approximately $90,000 and $450,000, respectively. (h) 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 at that time, and Caxton-Iseman Capital, Inc., entered into a subordinated convertible promissory note agreement for $22.5 million. The note bore interest at 12%, 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. During the years ended December 31, 2002 and 2001, the Company incurred approximately $667,000, and $3.2 million, respectively, of interest expense on these notes. F-22 (i) 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, 2004 $ 1,500 2005 1,500 2006 1,500 2007 1,500 2008 5,900 Thereafter 144,376 -------------- $ 156,276 ============== (j) Interest Rate Swap Agreements OBJECTIVES AND CONTEXT The Company uses variable-rate debt to finance its operations through its Revolving Facility and Term Loan B. 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 2003 Amended and Restated Credit Agreement. 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. 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. F-23 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 notional amount of such agreements. These interest rate swap agreements related primarily to term loan obligations that had been permanently reduced. Interest expense for the year ended December 31, 2002 included losses of $1.9 million associated with these cancellations. Over the next twelve months, approximately $230,000 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, 2003, the fair value of the Company's interest swap agreements resulted in a net liability of $230,000 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, 2003, to the following fixed rates:
Fair Value as Effective of Date of Swap Notional Maturity of Fixed Rate December 31, Agreement Amount Swap Agreement of Interest (in thousands) --------------- ------------ --------------- ------------ ------------- June 2001 $10 million June 30, 2004 5.78% $(230) --------------- ------------ --------------- ------------ -------------
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, 2003. (9) Capital 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 the Company's common stock are entitled to receive dividends, when, and if declared by the Company's board out of legally available funds. Upon the Company's liquidation or dissolution, the holders of common stock will be entitled to share ratably in the Company's 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. On December 17, 2003, the Company registered approximately 11.1 million shares of its common stock for sale in an underwritten offering pursuant to a registration statement on Form S-3 filed with the SEC. These securities may be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended. 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. F-24 Depending upon the rights of such preferred stock, the issuance of preferred stock could have an adverse effect on holders of the Company's 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. (10) Income Taxes The provisions for income taxes for the years ended December 31, 2003, 2002 and 2001, consist of the following (in thousands), respectively:
Years ended December 31, ----------------------------------------------- 2003 2002 2001 ----------- ------------ ------------- Current provision: Federal $ 21,718 10,245 1,321 State 2,305 1,431 810 Foreign 121 119 62 ----------- ------------ ------------- Total current provision 24,144 11,795 2,193 ----------- ------------ ------------- Deferred provision: Federal (1,145) 4,331 1,501 State (226) 597 853 Foreign -- -- 55 ----------- ------------ ------------- Total deferred provision (1,371) 4,928 2,409 ----------- ------------ ------------- Total income tax provision $ 22,773 16,723 4,602 =========== ============ =============
F-25 The income tax provisions for the years ended December 31, 2003, 2002 and 2001, respectively, are different from those computed using the statutory U.S. federal income tax rate of 35% as set forth below (in thousands):
Years ended December 31, ----------------------------------------------- 2003 2002 2001 ----------- ------------ ------------- Expected tax expense, computed at statutory rate $ 20,637 15,108 1,582 State taxes, net of federal expense 1,501 1,259 1,259 Nondeductible expenses 332 330 304 Goodwill amortization -- -- 1,804 Secondary offering expenses 265 -- -- Increase in marginal federal rate -- -- 200 Stock basis difference on sale of subsidiary -- -- (790) Foreign rate differences (15) 53 (21) Other 53 (27) 264 ----------- ------------ ------------- $ 22,773 16,723 4,602 =========== ============ =============
The tax effect of temporary differences that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2003 and 2002 is presented below (in thousands):
2003 2002 -------------- ------------- Deferred tax assets: Accrued expenses $ 8,505 $ 6,244 Intangible assets, due to differences in amortization 2,399 2,492 Interest rate swaps 89 298 Accounts receivable allowances 1,607 706 Property and equipment, due to differences in depreciation 1,334 831 Net operating loss and credit carryforwards 540 356 -------------- ------------- Total gross deferred tax assets 14,474 10,927 Less: valuation allowance (295) (295) -------------- ------------- Net deferred tax assets 14,179 10,632 -------------- ------------- Deferred tax liabilities: Deductible goodwill, due to differences in amortization 9,087 7,502 Revenue recognition differences 5,536 6,616 Accrued expenses 6,630 5,741 Property and equipment, due to differences in depreciation 1,302 811 -------------- ------------- Total deferred tax liabilities 22,555 20,670 -------------- ------------- Deferred tax liabilities, net $ (8,376) $ (10,038) ============== =============
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, 2003 and 2002 of $295,000 and $295,000, respectively against certain state net operating loss carryforwards. At December 31, 2003, the Company had federal and state net operating loss carryforwards of approximately $69,000 and $6.8 million, respectively. Carryforwards have various expiration dates beginning in 2004. F-26 (11) 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 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, and participants immediately vest in the Company's contributions. The Company made contributions to these plans of approximately $8.3 million, $7.1 million, and $5.6 million for the years ended December 31, 2003, 2002, and 2001 respectively. Employees vest immediately in the Company's contributions. ISI had a 401(k) and a profit-sharing plan ("ISI Plan") in effect covering all employees at least 18 years of age. The ISI Plan provided for both employee and employer contributions. Employees vested immediately in their own contributions. The Company's contributions are discretionary as determined by management. Employees become 100 percent vested in these contributions after five years of service. The Company did not contribute to the ISI plan in 2003. Profit-sharing expense for the year ended December 31, 2003 was $1.8 million. As of January 1, 2004, the ISI Plan terminated and the ISI Plan assets were transferred to the Company's 401(k) Plan. (12) 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, 2003, an aggregate of 383,540 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 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, 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 at December 31, 2002 4,123,208 $ 0.84-27.25 $ 8.98 1,647,368 Granted 641,500 23.30-33.75 28.53 Exercised (935,947) 0.84-27.25 5.23 Cancelled or expired (221,600) 4.66-27.25 14.39 ------------ -------------- ------------- Outstanding as of December 31, 2003 3,607,161 $ 0.84-33.75 $ 13.59 1,520,301 ============ ============== =============
Option and weighted average price information by price group is as follows:
Shares outstanding Exercisable shares ------------------------------------------- ------------------------------ Number Weighted Weighted Number of Weighted average average exercise remaining average of shares price life shares exercise price ------------ -------------- ------------- ------------- --------------- December 31, 2003: $0.84 411,618 $ 0.84 0.8 411,618 $ 0.84 $2.30 to $3.36 14,400 $ 2.53 1.8 14,400 $ 2.53 $4.02 to $4.66 336,000 $ 4.61 2.7 336,000 $ 4.61 $4.86 to $5.25 457,266 $ 5.20 3.6 281,706 $ 5.20 $6.25 to $6.49 531,600 $ 6.30 3.5 257,200 $ 6.30 $8.10 19,800 $ 8.10 5.3 1,200 $ 8.10 $18.00 to $27.25 1,194,977 $ 19.18 5.8 218,177 $ 19.18 $23.30 to $33.75 641,500 $ 28.54 7.5 -- ------------ ------------- 3,607,161 1,520,301 ============ =============
(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 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, 2003, 2002 and 2001 would approximate $32.4 million, $23.0 million, and $(1.3 million), respectively, using an expected option life of 5, 5, and 7 years, respectively, dividend yield rate of 0% and volatility rates of 43.3%, 47.8%, and 70%, respectively, and risk-free interest rates of 3.28%, 2.78%, and 4.84% for 2003, 2002 and 2001, respectively (see note 2(l)). The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. (13) Comprehensive Income (Loss) Comprehensive income (loss) includes the 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 $69,000, $(44,000) and $(43,000), as of December 31, 2003, 2002 and 2001, respectively. The amount of accumulated other comprehensive income related to interest rate swaps was $230,000 ($141,000 net of tax) and $763,000 ($465,000 net of tax) as of December 31, 2003 and December 31, 2002, respectively. (14) Earnings (Loss) Per Common Share The computations of basic and diluted income (loss) per common share are as follows:
For the year ended December 31, 2003 Weighted average Income shares Per Share (Numerator) (Denominator) Amount -------------- ----------------- --------- (in thousands, except share and per share data) Basic earnings per share $ 36,190 34,851,281 $ 1.04 ============== =========== Stock options 2,074,207 Diluted earnings per share $ 36,190 36,925,488 $ 0.98 ============== ===========
For the year ended December 31, 2002 Weighted average Income shares Per Share (Numerator) (Denominator) Amount -------------- ----------------- ----------- (in thousands, except share and per share data) Basic earnings per share $ 26,444 32,163,150 $ 0.82 ============== =========== Stock options 1,858,447 Diluted earnings per share $ 26,444 34,021,597 $ 0.78 ============== ===========
F-29 For the year ended December 31, 2001 Weighted average Income shares Per Share (Numerator) (Denominator) Amount -------------- --------------- ----------- (in thousands, except share and per share data) Basic losses per share $ (82) 23,786,565 $ (0.01) ============== =========== Stock options -- Diluted losses per share $ (82) 23,786,565 $ (0.01) ============== ===========
(15) Commitments and Contingencies (a) Leases The Company is obligated under capital leases covering certain property and equipment that expire at various dates during the next five years. At December 31, 2003 and 2002, the gross amount of property and equipment and related accumulated amortization recorded under capital leases were as follows:
2003 2002 ------------- ------------- Property and equipment $ 1,037 $ -- Less accumulated amortization (265) -- ------------- ------------- $ 772 $ -- ============= =============
Amortization of assets held under capital leases is included in depreciation expense in the accompanying Consolidated Statements of Operations. The Company also leases facilities and certain equipment under operating lease agreements expiring at various dates through 2010. These leases generally contain renewal options for periods ranging from 3 to 5 years, and require the Company to pay all executory costs such as maintenance, taxes, and insurance. As of December 31, 2003, the aggregate minimum annual rental commitments under noncancelable operating leases are as follows (in thousands):
Year ending December 31 Capital Operating ----------------------- Leases Leases ------------ ---------------- 2004 $ 421 $ 29,991 2005 212 23,785 2006 132 20,800 2007 121 17,173 2008 91 14,520 Thereafter -- 45,304 ----------- ---------------- Total minimum lease payments $ 977 $ 151,573 ================ Less estimated executory costs (at 7.25%) (71) ----------- Net minimum lease payments 906 Less amount representing interest (at rates ranging from 5.88% to 10.50%) 100 ----------- Present value of net minimum capital 806 lease payments Less current installments of obligations under capital leases 341 ----------- Obligations under capital leases, excluding current installments $ 465 ===========
F-30 Rent expense under all operating leases for the years ended December 31, 2003, 2002 and 2001 was approximately $25.4 million, $24.2 million, and $23.1 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 Company was required to pay $1.0 million to Caxton-Iseman Capital, Inc. as a management fee. 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. During the year ended December 31, 2001, the Company incurred $1.0 million of management fees with Caxton-Iseman Capital, Inc. (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. (16) Secondary Offering Expenses On September 22, 2003, certain of the Company's stockholders sold 6,600,000 shares of the Company's common stock in an underwritten offering pursuant to a registration statement on Form S-3 filed with the SEC. In the fourth quarter of 2003, the underwriters of this offering partially exercised their over-allotment option with respect to additional shares held by the selling stockholders. As a result, on October 16, 2003, certain of the selling stockholders sold an additional 297,229 shares of the Company's common stock in a second closing pursuant to the same underwritten offering. In connection with this offering, the Company incurred approximately $852,000 of expenses for the year ended December 31, 2003. These expenses were reimbursed by certain of the selling stockholders and the reimbursement was recorded by the Company as a contribution to paid-in-capital. (17) Domestic Subsidiaries Summarized Financial Information Under the terms of the Company's Credit Facility, the Company's wholly owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the Company's Credit Facility. Such guarantees are full, unconditional, joint and several. Separate unaudited condensed financial statements of the Guarantor Subsidiaries are not presented because the Company's management has determined that they would not be material to investors. Non-guarantor subsidiaries include the Company's foreign subsidiaries. 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. F-31
As of December 31, 2003 --------------------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Balance Sheets Corporation Subsidiaries Subsidiaries Entries Corporation -------------------------------------------------------------------------------------------------------------------- (in thousands) Cash and cash equivalents $ (9) $ 437 $ 1,660 $ -- $ 2,088 Accounts receivable, net -- 222,511 426 -- 222,937 Prepaid expenses and other current 303 29,484 115 (10,336) 19,566 assets Property and equipment, net 2,024 10,646 89 -- 12,759 Due from parent (188,718) 188,911 (193) -- -- Investment in and advances to subsidiaries 30,780 (21,730) -- (9,050) -- Goodwill, net 168,532 43,673 -- -- 212,205 Intangible and other assets, net 73,230 4,495 -- (68,000) 9,725 ------------- ------------ ------------- ----------- ---------- Total assets $ 86,142 $ 478,427 $ 2,097 $ (87,386) $ 479,280 ------------- ------------ ------------- ----------- ---------- Indebtedness $ 4,376 $ 222,400 $ -- $ (68,000) $ 158,776 Accounts payable 405 36,212 176 -- 36,793 Due to related party 48 -- -- -- 48 Accrued expenses and other current liabilities 3,267 82,917 496 -- 86,680 Deferred revenue 10,336 11,372 411 (10,336) 11,783 Other long-term liabilities -- 10,498 -- -- 10,498 ------------- ------------ ------------- ----------- ---------- Total liabilities 18,432 363,399 1,083 (78,336) 304,578 Minority interest in subsidiaries -- -- 210 -- 210 Total stockholders' equity (deficit) 67,710 115,028 804 (9,050) 174,492 ------------- ------------ ------------- ----------- ---------- Total liabilities and stockholders' equity (deficit) $ 86,142 $ 478,427 $ 2,097 $ (87,386) $ 479,280 ============= ============ ============= =========== ==========
F-32
For the Year Ended December 31, 2003 ------------------------------------------------------------------------------ Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor Elimination International Statements of Operations Corporation Subsidiaries Subsidiaries Entries Corporation ----------------------------------------------------------------------------------------------------------------------- (in thousands) Revenues $ 2 $ 1,033,596 $ 9,521 $ (645) $ 1,042,474 Costs of revenues -- 889,424 8,485 (645) 897,264 ------------- ------------- ------------- ----------- ------------- Gross profit 2 144,172 1,036 -- 145,210 Total operating expenses 3,418 87,412 744 (30,477) 61,097 ------------- ------------- ------------- ----------- ------------- Operating income (3,416) 56,760 292 30,477 84,113 Other income 9,595 20,882 -- (30,477) -- Secondary offering expenses 852 -- -- -- 852 Interest and other expense (income), net 14,461 9,805 (22) -- 24,244 Minority interests in (earnings) losses of subsidiaries -- -- (54) -- (54) ------------- ------------- ------------- ----------- ------------- Income (loss) before provision for income taxes (9,134) 67,837 260 -- 58,963 Provision (benefit) for income taxes (3,589) 26,241 121 -- 22,773 ------------- ------------- ------------- ----------- ------------- Net income (loss) $ (5,545) $ 41,596 $ 139 $ -- $ 36,190 ============= ============= ============= =========== =============
F-33
For the Year Ended December 31, 2003 -------------------------------------------------------------- Consolidated Anteon Non- Anteon Condensed Consolidated International Guarantor Guarantor International Statements of Cash Flows Corporation Subsidiaries Subsidiaries Corporation ------------------------------------------------------------------------------------------------------------- (in thousands) Net income (loss) $ (5,545) $ 41,596 $ 139 $ 36,190 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 782 3,589 69 4,440 Amortization of noncompete agreements -- 101 -- 101 Other intangibles amortization 2,227 122 -- 2,349 Amortization of deferred financing costs 3,896 118 -- 4,014 Loss on disposals of property and equipment -- 170 20 190 Deferred income taxes -- (1,742) -- (1,742) Minority interest in earnings (losses) of subsidiaries -- -- 54 54 Changes in assets and liabilities, net of acquired assets and liabilities 179,518 (188,480) 809 (8,153) ------------- ------------ ----------- ----------- Net cash provided by (used in) operating activities 180,878 (144,526) 1,091 37,443 ------------- ------------ ----------- ----------- Cash flows from investing activities: Purchases of property and equipment and other assets (442) (2,552) (55) (3,049) Acquisition of ISI, net of cash acquired (92,164) (218) -- (92,382) ------------- ------------ ----------- ----------- Net cash used in investing activities (92,606) (2,770) (55) (95,431) ------------- ------------ ----------- ----------- Cash flows from financing activities: Principal payments on bank and other notes payable -- (43) -- (43) Deferred financing costs 308 (3,036) -- (2,728) Principal payments on Term Loan A (21,202) -- -- (21,202) Proceeds from Term Loan B -- 150,000 -- 150,000 Proceeds from certain selling stockholders related to our secondary offering 852 -- -- 852 Proceeds from revolving credit facility -- 1,009,500 -- 1,009,500 Principal payments on revolving credit facility -- (1,012,100) -- (1,012,100) Redemption of senior subordinated notes payable (73,124) -- -- (73,124) Proceeds from issuance of common stock, net of expenses 4,902 -- -- 4,902 Principal payments under capital lease obligations -- (247) -- (247) ------------- ------------ ----------- ----------- Net cash provided by (used in) financing activities (88,264) 144,074 -- 55,810 ------------- ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents 8 (3,222) 1,036 (2,178) Cash and cash equivalents, beginning of year (17) 3,659 624 4,266 ------------- ------------ ----------- ----------- Cash and cash equivalents, end of year $ (9) $ 437 $ 1,660 $ 2,088 ============= ============ =========== ===========
F-34
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 65,401 394 -- 68,377 liabilities Deferred revenue 5,512 189 -- 5,701 -- Other long-term liabilities 8,069 229 -- 8,298 ------------- ---------- ------------ ------------ ----------- Total liabilities 101,809 192,786 1,112 (60,000) 235,707 Minority interest in subsidiaries -- -- 156 -- 156 Total stockholders' equity (deficit) 63,926 85,619 552 (21,268) 128,829 ------------- ---------- ------------ ----------- ----------- Total liabilities and stockholders' equity (deficit) $ 165,735 $ 278,405 $ 1,820 $ (81,268) $ 364,692 ============= ========== ============ ============ ===========
F-35
For the Year Ended December 31, 2002 ---------------------------------------------------------------------------- (reclassified-see note 2(r)) 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 13,791 7,850 (15) -- 21,626 Minority interest in (earnings) losses of subsidiaries -- -- (18) -- (18) ------------ ------------ ------------- ----------- ------------- Income (loss) before provision for income taxes (8,311) 51,264 214 -- 43,167 Provision (benefit) for income taxes (3,232) 19,835 120 -- 16,723 ------------- ------------ ------------- ----------- ------------- Net income (loss) $ (5,079) $ 31,429 $ 94 $ -- $ 26,444 ============= ============ ============= =========== =============
F-36
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 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 2,442 -- -- 2,442 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 (1,940) (202) 420 (1,722) ------------- ------------ ------------ ------------- 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 A (25,853) -- -- (25,853) Proceeds from revolving credit facility -- 862,600 -- 862,600 Principal payments on revolving credit facility (18,700) (855,600) -- (874,300) Redemption of senior subordinated notes payable (25,000) -- -- (25,000) 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 (255) 5,736 -- 5,481 ------------- ------------ ------------ ------------- 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-37
For the Year Ended December 31, 2001 -------------------------------------------------------------------------- (reclassified-see note 2(r)) 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 16,863 9,507 (17) -- 26,353 Minority interest in (earnings) losses of subsidiaries (14) 32 (56) -- (38) -------------- ------------- ------------- ----------- ----------- Income (loss) before provision for income taxes (21,000) 25,196 324 -- 4,520 Provision (benefit) for income taxes (8,070) 12,555 117 -- 4,602 -------------- ------------- ------------- ----------- ----------- Net income (loss) $ (12,930) $ 12,641 $ 207 $ -- $ (82) ============== ============= ============= =========== ===========
F-38
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: Gain on sales and closures of business -- (4,046) -- -- (4,046) 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 697 -- -- -- 697 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 assets and liabilities 43,401 (20,973) (278) (1,665) 20,485 ------------- ----------- ------------- ----------- ----------- 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 Inc., net of cash acquired (21) -- -- -- (21) Acquisition of SIGCOM, net of cash acquired -- (10,975) -- -- (10,975) Proceeds from sales of businesses -- 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 Ogden (3,212) -- -- -- (3,212) Principal payments on Term Loan A (12,946) -- -- -- (12,946) Proceeds from revolving credit facility 771,200 -- -- -- 771,200 Principal payments on revolving credit facility (784,500) -- -- -- (784,500) Distribution to parent for debt service (1,665) -- -- 1,665 -- Proceeds from minority interest, net 152 -- -- -- 152 ------------- ----------- ------------- ----------- ----------- 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-39 (18) Quarterly Results of Operations (Unaudited) The following summarizes the unaudited quarterly results of operations for the years ended December 31, 2003 and 2002 (in thousands, except per share data):
Quarter ended: March 31 June 30 September 30 December 31 Total -------------- ------------ --------------- --------------- ----------- 2003 Revenues $ 228,591 254,093 279,080 280,710 1,042,474 Operating income 17,966 20,254 22,699 23,194 84,113 Net income 9,075 10,309 10,943 5,863 36,190 Basic earnings per common share 0.26 0.30 0.31 0.17 1.04 Diluted earnings per common share: 0.25 0.28 0.30 0.16 0.98 2002 Revenues $ 192,629 201,938 214,314 216,945 825,826 Operating income 14,517 16,021 16,549 17,307 64,394 Net income 4,134 5,509 8,166 8,635 26,444 Basic earnings per common share 0.16 0.16 0.24 0.25 0.82 Diluted earnings per common share: 0.14 0.15 0.22 0.24 0.78
During the second quarter of 2003, the Company acquired Information Spectrum, Inc. (note 4(b)). (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, Inc., Techmatics, Inc., Analysis & Technology, Inc., Sherikon, Inc., SIGCOM, and ISI. These prior acquisitions were consolidated and merged into Anteon Corporation, a wholly owned subsidiary of the Company. 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. The Company's chief operating decision maker utilized 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 were allocated to the segments. Allocation of overhead costs to segments was based on measures such as revenue and employee headcount. General and administrative costs was allocated to segments based on the government-required three-factor formula, which used 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 was not allocated to the Company's segments. F-40 The following tables present information about the Company's segments as of and for the year ended December 31, 2001 (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 26,353 Minority interest in earnings of (38) subsidiaries -------------- Income before provision for income taxes 4,520 Provision for income taxes 4,602 -------------- Net loss $ (82) ==============
F-41 EX-10 3 creditagreement.txt EX 10.12 AMENDED AND RESTATED CREDIT AGREEMENT EXECUTION COPY AMENDMENT AGREEMENT dated as of December 19, 2003 (this "Agreement"), to the Amended and Restated Credit Agreement dated as of October 21, 2002 (the "Existing Credit Agreement"), among ANTEON INTERNATIONAL CORPORATION, a Delaware corporation (the "Borrower"), ANTEON CORPORATION, a Virginia corporation (together with the Borrower, the "Borrowers"), the lenders party thereto (the "Existing Lenders"), CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands branch, as issuing bank (in such capacity, the "Existing Issuing Bank") and as administrative agent for the Existing Lenders (in such capacity, the "Existing Administrative Agent"), and CITIZENS BANK OF PENNSYLVANIA, as swingline lender (in such capacity, the "Existing Swingline Lender") and as collateral agent for the Existing Lenders. Capitalized terms used but not defined herein (except for capitalized terms that expressly relate to the Existing Credit Agreement, which shall have the meanings given them in the Existing Credit Agreement) shall have the meanings given them in the Amended and Restated Credit Agreement attached hereto as Exhibit A (the "Restated Credit Agreement"). Pursuant to the Existing Credit Agreement, the Existing Lenders, the Existing Issuing Bank and each other Issuing Bank thereunder have extended, and have agreed to extend, credit to the Borrowers. The Borrowers have requested that (a) the Term Lenders make Term Loans to the Borrowers on the Restatement Date (as defined below), in an aggregate principal amount of $150,000,000, (b) the Revolving Credit Lenders under the Existing Credit Agreement (the "Existing Revolving Lenders") extend the Revolving Credit Maturity Date under the Existing Credit Agreement to the date specified in the Restated Credit Agreement and (c) Bank of America, N.A. ("Bank of America") act as the administrative agent for the Lenders (in such capacity, the "New Administrative Agent") and as the issuing bank (in such capacity, the "New Issuing Bank") and, in its capacity as the New Issuing Bank, issue Letters of Credit, in an aggregate face amount at any time outstanding not in excess of $20,000,000. The Term Lenders are willing to make the Term Loans to the Borrowers on the Restatement Date, the Existing Revolving Lenders (as determined on the Restatement Date, after giving effect to the assignments and purchases provided for herein) are willing to approve the Borrowers' request for an extension of the Revolving Credit Maturity Date under the Existing Credit Agreement to the date specified in the Restated Credit Agreement, and Bank of America is willing to act as the New Administrative Agent and as the New Issuing Bank and, in its capacity as the New Issuing Bank, to issue Letters of Credit, in each case subject to the terms and conditions set forth in the Restated Credit Agreement. The Existing Revolving Lenders set forth on Schedule 1 under the caption "Departing Revolving Lenders" (collectively, the "Assignors") wish to assign all of their interests in the Revolving Credit Commitments and outstanding Revolving Loans under the Existing Credit Agreement to the lenders set forth on Schedule 1 hereto under the caption "Additional Revolving Lenders" (the "Additional Revolving Lenders") and to certain of the Existing Revolving Lenders set forth on Schedule 1 hereto under the caption "Continuing Revolving Lenders" (all the Existing Revolving Lenders under such caption, the "Continuing Revolving Lenders"), and such Lenders (collectively, the "Assignees") are willing to accept such assignments. The Borrowers and the Restatement Required Lenders (as defined below) desire to amend and restate the Existing Credit Agreement in the form of the Restated Credit Agreement to, among other things, set forth the terms and conditions under which the Lenders will make the Loans to the Borrowers and to make certain other amendments thereto. The amendment and restatement of the Existing Credit Agreement evidenced by the Restated Credit Agreement is subject to the satisfaction of the conditions precedent to effectiveness referred to in Section 9 hereof and shall become effective as provided in Section 15 hereof. Accordingly, the parties hereto hereby agree as follows: SECTION 1. Assignments. (a) On and as of the Restatement Date, each of the Assignors shall sell, assign and transfer, and each of the Assignees shall purchase and assume, in each case without recourse, such interests in each Assignor's rights and obligations under the Existing Credit Agreement (including such Assignor's Revolving Credit Commitment and the outstanding Revolving Loans owing to it) in each case as shall be necessary in order that, after giving effect to all such assignments and purchases, the Revolving Credit Commitments and the Revolving Loans will be held by the Continuing Revolving Lenders and the Additional Revolving Lenders ratably in accordance with their Revolving Credit Commitments as set forth on Schedule 2.01 to the Restated Credit Agreement. Each of the Assignees purchasing interests of any type under this Section 1 shall be deemed to have purchased such interests from each of the Assignors ratably in accordance with the amounts of such interests sold by them. The purchase price for each such assignment and purchase shall equal the principal amount of the Revolving Loans under the Existing Credit Agreement so purchased. (b) On the Restatement Date, (i) each Assignee shall pay the purchase price for the interests purchased by it pursuant to paragraph (a) above by wire transfer of immediately available funds, not later than 12:00 (noon) New York City time, to such account as the New Administrative Agent shall designate for such purpose, and (ii) the New Administrative Agent shall promptly thereafter pay to each Assignor, out of the amounts received by the New Administrative Agent from each Assignee pursuant to clause (i) above, the purchase price for the interests assigned by it pursuant to paragraph (a) above by wire transfer of immediately available funds. (c) Each of the Assignors and the Assignees hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 9.04(c) of the Existing Credit Agreement (in the case of the Assignors) and Section 9.04(c) of the Restated Credit Agreement (in the case of the Assignees), a copy of which has been received by each such party (and all references in such Sections to the Assignment and Acceptance shall be deemed to be references to this Agreement). (d) If and to the extent required under the Existing Credit Agreement, each of the Borrowers, the Existing Administrative Agent, the Existing Swingline Lender, the Existing Issuing Bank, each other Issuing Bank under the Existing Credit Agreement, the Assignors and the Assignees hereby consents to the assignments and purchases provided for in paragraphs (a) and (b) above, and the Existing Administrative Agent hereby accepts the assignments provided for in paragraph (a) above in accordance with Section 9.04(e) of the Existing Credit Agreement and waives the processing and recordation fees due to it under Section 9.04(b) of the Existing Credit Agreement in connection therewith. From and after the Restatement Date, (i) each Assignee shall be a party to the Restated Credit Agreement and, to the extent of the interest assigned to it pursuant to paragraph (a) above, shall have the rights and obligations of a Lender under the Restated Credit Agreement and (ii) each Assignor shall cease to be a party to the Existing Credit Agreement and shall be released from all further obligations thereunder and shall have no further rights to or interest in any of the Collateral; provided, however, that each Assignor shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05 of the Existing Credit Agreement as in effect immediately prior to the Restatement Date. (e) On the Restatement Date, the Borrowers shall pay each Assignor, through the New Administrative Agent, any and all Fees under the Existing Credit Agreement accrued for its account as of such date and not yet paid. SECTION 2. Matters Relating to the Issuing Bank. (a) The Existing Issuing Bank hereby resigns as the Issuing Bank under the Existing Credit Agreement and the New Issuing Bank is hereby appointed, and hereby accepts such appointment, as the Issuing Bank under the Restated Credit Agreement, in each case, effective as of and subject to the occurrence of the Restatement Date. From and after the Restatement Date, the Existing Issuing Bank shall have no further obligation to issue Letters of Credit; provided, however, that the Existing Issuing Bank shall continue to be entitled to the benefits of Sections 2.14, 2.20 and 9.05 of the Existing Credit Agreement as in effect immediately prior to the Restatement Date. From and after the Restatement Date, (i) the New Issuing Bank shall become the Issuing Bank under the Restated Credit Agreement and the other Loan Documents and (ii) references in such other Loan Documents to the term "Issuing Bank" shall be deemed to refer to the New Issuing Bank, except as otherwise contemplated by the term "Issuing Bank" in Section 1.01 of the Restated Credit Agreement. (b) The Borrowers shall use their commercially reasonable efforts to ensure that, on or prior to the Restatement Date, all Letters of Credit issued by the Existing Issuing Bank and outstanding under the Existing Credit Agreement (the "Outstanding Letters of Credit") be returned to the Existing Issuing Bank for cancelation. On the Restatement Date, the New Issuing Bank shall issue a Letter of Credit (the "Replacement Letter of Credit") to and for the benefit of the Existing Issuing Bank, in form and substance reasonably satisfactory to the Existing Issuing Bank and in a face amount equal to the maximum aggregate face amount of all Outstanding Letters of Credit that have not been returned for cancelation pursuant to the immediately preceding sentence (the "Continuing Letters of Credit"). The Borrowers hereby request the issuance of the Replacement Letter of Credit by the New Issuing Bank. (c) On the Restatement Date, the Borrowers shall pay the Existing Issuing Bank and the Existing Revolving Lenders all Issuing Bank Fees and L/C Participation Fees, respectively, accrued under the Existing Credit Agreement in respect of the Outstanding Letters of Credit as of such date and not yet paid. Upon the delivery to, and acceptance by, the Existing Issuing Bank of the Replacement Letter of Credit, the Borrowers' obligations to pay Issuing Bank Fees and L/C Participation Fees to the Existing Issuing Bank and the Existing Revolving Lenders, respectively, and the Lenders' obligations to participate in L/C Disbursements, in each case in respect of the Continuing Letters of Credit, shall cease. SECTION 3. Matters Relating to the Administrative Agent. The Existing Administrative Agent hereby resigns as the Administrative Agent under the Existing Credit Agreement, effective as of and subject to the occurrence of the Restatement Date. The Required Lenders hereby appoint the New Administrative Agent as the Administrative Agent under the Restated Credit Agreement, and the New Administrative Agent hereby accepts, and the Borrowers hereby consent to, such appointment, effective as of and subject to the occurrence of the Restatement Date. Upon its resignation, the Existing Administrative Agent shall be discharged from its duties and obligations under the Existing Credit Agreement; provided, however, that the provisions of Sections 2.20 and 9.05 and Article VIII of the Existing Credit Agreement (as in effect immediately prior to the Restatement Date) 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 the Administrative Agent under the Existing Credit Agreement. From and after the Restatement Date, (i) the New Administrative Agent shall be the Administrative Agent under the Restated Credit Agreement and the other Loan Documents and (ii) references in such other Loan Documents to the term "Administrative Agent" shall be deemed to refer to the New Administrative Agent. SECTION 4. Amendment and Restatement of the Existing Credit Agreement. The Borrowers and the Restatement Required Lenders agree that the Existing Credit Agreement (including all exhibits and schedules thereto) shall be amended and restated on the Restatement Date such that, on the Restatement Date, the terms set forth in Exhibit A hereto shall replace the terms of the Existing Credit Agreement. As used in the Restated Credit Agreement, the terms "Agreement", "this Agreement", "herein", "hereinafter", "hereto", "hereof" and words of similar import shall, unless the context otherwise requires, mean, from and after the replacement of the terms of the Existing Credit Agreement by the terms of the Restated Credit Agreement, the Restated Credit Agreement. SECTION 5. Commitments; Termination; Agreements. (a) On and as of the Restatement Date, the Commitment of each Revolving Credit Lender and each Term Lender shall be as set forth on Schedule 2.01 to the Restated Credit Agreement. (b) Subject to the terms and conditions set forth in the Restated Credit Agreement, each Term Lender agrees, severally and not jointly, to make a Term Loan to the Borrowers on the Restatement Date in a principal amount not to exceed its Term Loan Commitment. (c) On the Restatement Date, the Borrowers shall repay all Existing Term Loans, together with accrued interest thereon, with a portion of the proceeds of the Term Loans (the "Term Loan Repayment"). Upon the Borrowers' making of the Term Loan Repayment, each of the Term Lenders (as defined in the Existing Credit Agreement, the "Existing Term Lenders"), other than those lenders that are Term Lenders, shall cease to be a party to the Existing Credit Agreement and shall be released from all further obligations thereunder and shall have no further rights to or interest in any of the Collateral; provided, however, that each Existing Term Lender shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05 of the Existing Credit Agreement as in effect immediately prior to the Restatement Date. (d) On the Restatement Date, upon the effectiveness of the Restated Credit Agreement, (i) each Revolving Loan outstanding under the Existing Credit Agreement shall be deemed to be a Revolving Loan under the Restated Credit Agreement and (ii) each Swingline Loan outstanding under the Existing Credit Agreement shall be deemed to be a Swingline Loan under the Restated Credit Agreement, and the amount of the unused Revolving Credit Commitments shall be adjusted accordingly. In order to facilitate the assignments provided for in Section 1 hereof, the Borrowers shall ensure that, on the Restatement Date, all outstanding Revolving Loans under the Existing Credit Agreement shall be maintained as ABR Revolving Loans thereunder. SECTION 6. Representations and Warranties. To induce the other parties hereto to enter into this Agreement, the Borrowers represent and warrant to each of the other parties hereto, that, at the time of and immediately after giving effect to this Agreement, (a) the representations and warranties contained in Article III of the Restated Credit Agreement and in each other Loan Document are true and correct in all material respects on and as of the date hereof with the same effect as though made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date, and (b) no Event of Default or Default has occurred and is continuing. SECTION 7. Fees. The Borrowers agree to pay to each Additional Revolving Lender and each Continuing Revolving Lender that executes and delivers a copy of this Agreement to the Existing Administrative Agent (or its counsel) at or prior to 12:00 (noon), New York City time, on December 19, 2003, through the New Administrative Agent, an amendment fee (collectively, the "Amendment Fees") in an amount equal to 0.375% of the Revolving Credit Commitment (whether used or unused) of such Lender on the Restatement Date, after giving effect to the assignments and purchases provided for in Section 1 hereof and as set forth on Schedule 2.01 to the Restated Credit Agreement. The Amendment Fees shall be payable in full, in immediately available funds, on the Restatement Date. Once paid, none of such fees shall be refundable under any circumstances. SECTION 8. Release of Inactive Subsidiaries. (a) The Borrower represents and warrants to each of the other parties hereto that each Subsidiary listed on Schedule 2 hereto (collectively, the "Released Subsidiaries") is an Inactive Subsidiary, disregarding, for the purpose of determining the status of such Subsidiary as an Inactive Subsidiary, any Indebtedness of such Subsidiary created under the Loan Documents. (b) On the Restatement Date, (i) each Released Subsidiary shall be released from its obligations under the Subsidiary Guarantee Agreement as a Subsidiary Guarantor and shall cease to be a party thereto and (ii) each Released Subsidiary shall be released from its obligations under the Security Agreement and the Pledge Agreement, and shall cease to be a party thereto, and the Security Interest (as defined in the Security Agreement) in the Collateral (as defined in the Security Agreement) of such Released Subsidiary shall be released and terminated (the actions set forth in clauses (i) and (ii) collectively, the "Release"). The Collateral Agent, the New Administrative Agent and each of the Required Restatement Lenders hereby consent to the Release. (c) The Borrower acknowledges its obligation pursuant to Section 5.11 of the Restated Credit Agreement to cause any Domestic Subsidiary that ceases to be an Inactive Subsidiary to execute the Subsidiary Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement, the Pledge Agreement, the Security Agreement and each other applicable Security Document in favor of the Collateral Agent. SECTION 9. Conditions to the Effectiveness of the Restated Credit Agreement. The Restated Credit Agreement shall become effective on the date (the "Restatement Date") on which each of the conditions in Section 4.02 of the Restated Credit Agreement is satisfied or waived. SECTION 10. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 11. No Novation. Neither this Agreement nor the effectiveness of the Restated Credit Agreement shall extinguish the obligations for the payment of money outstanding under the Existing Credit Agreement or discharge or release the Lien or priority of any Loan Document or any other security therefor or any guarantee thereof, except as expressly provided for herein with respect to the Term Loan Repayment and the Release. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Existing Credit Agreement or instruments guaranteeing or securing the same, which shall remain in full force and effect, except as modified hereby or by instruments executed concurrently herewith. Nothing expressed or implied in this Agreement, the Restated Credit Agreement or any other document contemplated hereby or thereby shall be construed as a release or other discharge of the Borrowers under the Existing Credit Agreement or the Borrowers or any other Loan Party under any Loan Document (as defined in the Existing Credit Agreement) from any of its obligations and liabilities thereunder. The Existing Credit Agreement and each of the other Loan Documents (as defined in the Existing Credit Agreement) shall remain in full force and effect, until and except as modified hereby or thereby in connection herewith or therewith. This Agreement shall constitute a Loan Document for all purposes of the Existing Credit Agreement and the Restated Credit Agreement. SECTION 12. Notices. All notices hereunder shall be given in accordance with the provisions of Section 9.01 of the Restated Credit Agreement. SECTION 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 15 hereof. 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 14. Headings. Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 15. Effectiveness; Amendment. This Agreement shall become effective as of the date set forth above on the date on which the Existing Administrative Agent (or its counsel) shall have received counterparts of this Agreement that, when taken together, bear the signatures of the Borrower, Anteon, the Existing Issuing Bank, the New Issuing Bank, the Existing Administrative Agent, the New Administrative Agent, the Existing Swingline Lender and the Restatement Required Lenders. As used herein, the term "Restatement Required Lenders" shall mean (a) each Continuing Revolving Lender, (b) each Additional Revolving Lender and (c) each Term Lender. This Agreement may not be amended nor may any provision hereof be waived except pursuant to a writing signed by each of the parties hereto. 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: ------------------------------- BANK OF AMERICA, N.A., individually and as New Administrative Agent and New Issuing Bank, By Name: ------------------------------- Title: ------------------------------- CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands branch, individually and as Existing Administrative Agent and Existing Issuing Bank, By Name: ------------------------------- Title: ------------------------------- By Name: ------------------------------- Title: ------------------------------- SIGNATURE PAGE TO AMENDMENT AGREEMENT DATED AS OF DECEMBER 19, 2003 TO THE ANTEON INTERNATIONAL CORPORATION CREDIT AGREEMENT CITIZENS BANK OF PENNSYLVANIA, individually and as Existing Swingline Lender and Issuing Bank under the Existing Credit Agreement, By Name: ------------------------------- Title: ------------------------------- Name of Lender: By Name: ------------------------------- Title: ------------------------------- Schedule 1 Continuing Revolving Lenders Bank of America, N.A. Citizens Bank of Pennsylvania General Electric Capital Corporation Riggs Bank N.A. Branch Banking and Trust Company Chevy Chase Bank, F.S.B. Manufacturers and Traders Trust Company Departing Revolving Lenders Fleet National Bank PNC Bank NA Deutsche Bank AG New York and/or Cayman Islands Branches Transamerica Business Capital Corporation UniCredito Italiano New York Branch Credit Suisse First Boston Additional Revolving Lenders US Bank N.A. Wachovia Bank, National Association Schedule 2 Inactive Subsidiaries Butler Property Holdings, Inc. CITI-SIUSS LLC South Texas Ship Repair, Inc. EXHIBIT A ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 19, 2003, among ANTEON INTERNATIONAL CORPORATION, ANTEON CORPORATION, THE LENDERS NAMED HEREIN, BANK OF AMERICA, N.A., as Administrative Agent and CITIZENS BANK OF PENNSYLVANIA, as Collateral Agent --------------------------- CREDIT SUISSE FIRST BOSTON and BANC OF AMERICA SECURITIES LLC, as Joint Lead Arrangers and Joint Bookrunners CREDIT SUISSE FIRST BOSTON, as Syndication Agent WACHOVIA CAPITAL MARKETS, LLC and U.S. BANCORP, as Co-Documentation Agents ================================================================================
TABLE OF CONTENTS Page ARTICLE I Definitions SECTION 1.01. Defined Terms.............................................................................2 SECTION 1.02. Terms Generally..........................................................................29 SECTION 1.03. Classification of Loans and Borrowings...................................................30 SECTION 1.04. Joint and Several Obligations............................................................30
ARTICLE II The Credits SECTION 2.01. Commitments..............................................................................30 SECTION 2.02. Loans....................................................................................31 SECTION 2.03. Borrowing Procedure......................................................................32 SECTION 2.04. Evidence of Debt; Repayment of Loans.....................................................33 SECTION 2.05. Fees.....................................................................................34 SECTION 2.06. Interest on Loans........................................................................35 SECTION 2.07. Default Interest.........................................................................35 SECTION 2.08. Alternate Rate of Interest...............................................................36 SECTION 2.09. Termination and Reduction of Commitments.................................................36 SECTION 2.10. Conversion and Continuation of Borrowings...............................................36 SECTION 2.11. Repayment of Term Borrowings.............................................................38 SECTION 2.12. Prepayment...............................................................................38 SECTION 2.13. Mandatory Prepayments....................................................................39 SECTION 2.14. Reserve Requirements; Change in Circumstances...........................................40 SECTION 2.15. Change in Legality.......................................................................41 SECTION 2.16. Indemnity................................................................................42 SECTION 2.17. Pro Rata Treatment.......................................................................43 SECTION 2.18. Sharing of Setoffs.......................................................................43 SECTION 2.19. Payments.................................................................................44 SECTION 2.20. Taxes....................................................................................44 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate..................46 SECTION 2.22. Swingline Loans..........................................................................48 SECTION 2.23. Letters of Credit........................................................................49 SECTION 2.24. Increase in Term Loan Commitments........................................................54 SECTION 2.25. Increase in Revolving Credit Commitments.................................................55
ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers.....................................................................57 SECTION 3.02. Authorization............................................................................57 SECTION 3.03. Enforceability...........................................................................57 SECTION 3.04. Governmental Approvals; Contracts........................................................57 SECTION 3.05. Financial Statements.....................................................................58 SECTION 3.06. No Material Adverse Change...............................................................58 SECTION 3.07. Title to Properties; Possession Under Leases.............................................59 SECTION 3.08. Subsidiaries.............................................................................59 SECTION 3.09. Litigation; Compliance with Laws.........................................................59 SECTION 3.10. Agreements...............................................................................59 SECTION 3.11. Federal Reserve Regulations..............................................................59 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act...............................59 SECTION 3.13. Use of Proceeds..........................................................................60 SECTION 3.14. Tax Returns..............................................................................60 SECTION 3.15. No Material Misstatements................................................................60 SECTION 3.16. Employee Benefit Plans...................................................................60 SECTION 3.17. Environmental Matters....................................................................61 SECTION 3.18. Insurance................................................................................62 SECTION 3.19. Security Documents.......................................................................62 SECTION 3.20. Location of Real Property................................................................62 SECTION 3.21. Labor Matters............................................................................62 SECTION 3.22. Solvency.................................................................................63 SECTION 3.23. Ranking..................................................................................63 SECTION 3.24. Certain Treasury Regulation Matters......................................................63
ARTICLE IV Conditions of Lending SECTION 4.01. All Credit Events........................................................................63 SECTION 4.02. Restatement Date.........................................................................64
ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties.....................................................67 SECTION 5.02. Insurance................................................................................67 SECTION 5.03. Obligations and Taxes....................................................................68 SECTION 5.04. Financial Statements, Reports, etc.......................................................68 SECTION 5.05. Litigation and Other Notices.............................................................71 SECTION 5.06. Employee Benefits........................................................................72 SECTION 5.07. Maintaining Records; Access to Properties and Inspections................................72 SECTION 5.08. Use of Proceeds..........................................................................72 SECTION 5.09. Compliance with Environmental Laws.......................................................72 SECTION 5.10. Preparation of Environmental Reports.....................................................72 SECTION 5.11. Further Assurances.......................................................................73 SECTION 5.12. Certain Treasury Regulation Matters......................................................74
ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness.............................................................................74 SECTION 6.02. Liens 75 SECTION 6.03. Sale and Lease-Back Transactions.........................................................77 SECTION 6.04. Investments, Loans and Advances..........................................................77 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions................................80 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends....80 SECTION 6.07. Transactions with Affiliates.............................................................81 SECTION 6.08. Capital Expenditures.....................................................................82 SECTION 6.09. Interest Coverage Ratio..................................................................82 SECTION 6.10. Fixed Charge Coverage Ratio..............................................................82 SECTION 6.11. Maximum Leverage Ratio...................................................................82 SECTION 6.12. Senior Leverage Ratio....................................................................82 SECTION 6.13. Asset Coverage Ratio.....................................................................82 SECTION 6.14. Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-laws and Certain Other Agreements, etc...........................82 SECTION 6.15. Limitation on Creation of Subsidiaries...................................................83 SECTION 6.16. Business.................................................................................84 SECTION 6.17. Designated Senior Indebtedness...........................................................84 SECTION 6.18. Fiscal Year..............................................................................84 SECTION 6.19. Maintenance of Accounts..................................................................84
ARTICLE VII Events of Default ARTICLE VIII The Administrative Agent and the Collateral Agent ARTICLE IX Miscellaneous SECTION 9.01. Notices..................................................................................90 SECTION 9.02. Survival of Agreement....................................................................91 SECTION 9.03. Binding Effect...........................................................................91 SECTION 9.04. Successors and Assigns...................................................................92 SECTION 9.05. Expenses; Indemnity......................................................................96 SECTION 9.06. Right of Setoff..........................................................................97 SECTION 9.07. Applicable Law...........................................................................97 SECTION 9.08. Waivers; Amendment.......................................................................97 SECTION 9.09. Interest Rate Limitation.................................................................98 SECTION 9.10. Entire Agreement.........................................................................99 SECTION 9.11. Waiver of Jury Trial.....................................................................99 SECTION 9.12. Severability.............................................................................99 SECTION 9.13. Counterparts............................................................................100 SECTION 9.14. Headings................................................................................100 SECTION 9.15. Jurisdiction; Consent to Service of Process.............................................100 SECTION 9.16. Confidentiality.........................................................................100 SECTION 9.17. Effect of Restatement...................................................................101 SECTION 9.18. U.S.A. Patriot Act Notice...............................................................102
Schedules Schedule 1.01(a) Existing Letters of Credit Schedule 1.01(b) Subsidiary Guarantors Schedule 2.01 Lenders and Commitments Schedule 3.04(b) 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 6.01 Outstanding Indebtedness on Restatement Date Schedule 6.02 Liens Existing on Restatement Date Schedule 6.04(m) Investments Existing on Restatement Date Exhibits Exhibit A Form of Administrative Questionnaire Exhibit B Form of Assignment and Acceptance Exhibit C Form of Borrowing Request Exhibit D Amended and Restated Indemnity, Subrogation and Contribution Agreement, as supplemented Exhibit E Amended and Restated Pledge Agreement, as supplemented Exhibit F Amended and Restated Security Agreement, as supplemented Exhibit G-1 Amended and Restated Subsidiary Guarantee Agreement, as supplemented Exhibit G-2 Form of Reaffirmation of Guarantee and Security Documents Exhibit H-1 Form of Restatement Date Opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP Exhibit H-2 Form of Restatement Date Opinion of Curtis L. Schehr, Esq., General Counsel of the Borrowers Exhibit I Form of Compliance Certificate Exhibit J Form of Subordination Provisions Exhibit K Form of Solvency Certificate Exhibit L Form of Acknowledgment, Waiver and Consent of Minority Owner Exhibit M First Restatement Date Perfection Certificate AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 19, 2003, among ANTEON INTERNATIONAL CORPORATION, a Delaware corporation (the "Borrower"), ANTEON CORPORATION, a Virginia corporation ("Anteon" and, together with the Borrower, the "Borrowers"), the LENDERS (as defined in Article I), BANK OF AMERICA, N.A. ("Bank of America"), as issuing bank (in such capacity, the "Issuing Bank") and as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), and CITIZENS BANK OF PENNSYLVANIA ("Citizens Bank"), as swingline lender (in such capacity, the "Swingline Lender") and as collateral agent for the Lenders (in such capacity, the "Collateral Agent"). The Borrowers, certain lenders party thereto (the "Existing Lenders"), Credit Suisse First Boston, as issuing bank and as administrative agent, and Citizens Bank, as swingline lender and as collateral agent, are parties to that certain Credit Agreement dated as of June 23, 1999, as amended and restated as of October 21, 2002 (as so amended and restated, the "Existing Credit Agreement") pursuant to which, (a) the Existing Lenders (i) made Tranche A Term Loans (as defined in the Existing Credit Agreement, the "Existing Term Loans") (of which approximately $18,400,000 in aggregate principal amount is outstanding as of the Restatement Date (such term and each other capitalized term used but not defined herein having the meaning given it in Article I)) and (ii) extended credit or agreed to extend credit in the form of Revolving Loans, in an aggregate principal amount at any time outstanding not in excess of $200,000,000, (b) the Swingline Lender agreed to extend credit in the form of Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $20,000,000, and (c) the issuing bank thereunder agreed to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $25,000,000. The Borrowers have requested that (a) the Term Lenders make Term Loans to the Borrowers on the Restatement Date in an aggregate principal amount of $150,000,000, (b) the Revolving Credit Lenders extend the Revolving Credit Maturity Date under the Existing Credit Agreement to the date specified herein and agree to make Revolving Loans to the Borrowers at any time and from time to time prior to the Revolving Credit Maturity Date specified herein, in an aggregate principal amount at any time outstanding not in excess of $200,000,000, and (c) Bank of America agree to act as the Administrative Agent for the Lenders and as the Issuing Bank and, in its capacity as the Issuing Bank, agree to issue Letters of Credit, in an aggregate face amount at any time outstanding not in excess of $20,000,000. Each of the Term Lenders, the Revolving Credit Lenders and the Issuing Bank is willing to extend such credit to the Borrowers, and Bank of America is willing to act as the Administrative Agent, in each case on the terms and subject to the conditions set forth herein. Citizens Bank is willing to continue to act as the Collateral Agent and as the Swingline Lender and, in its capacity as the Swingline Lender, to continue to make Swingline Loans to the Borrowers at any time and from time to time prior to the Revolving Credit Maturity Date specified herein, in an aggregate principal amount at any time outstanding not in excess of $20,000,000. The proceeds of the Term Loans will be used by the Borrowers on the Restatement Date solely (a) to accept for payment the Existing Term Loans, together with accrued interest thereon, (b) to finance the Debt Tender Offer, (c) to pay fees and expenses incurred in connection with the Transactions and (d) for general corporate purposes. The proceeds of the Revolving Loans and the Swingline Loans will be used by the Borrowers solely for general corporate purposes, including Permitted Acquisitions. Letters of Credit will be used solely to support payment obligations, performance guarantees and bid bonds incurred by the Borrower and the Subsidiaries in the conduct of their business. The proceeds of any Incremental Term Loans will be used by the Borrowers solely to finance Permitted Acquisitions and to pay related fees and expenses. The Borrowers and the Restatement Required Lenders desire to amend and restate the Existing Credit Agreement in the form hereof to, among other things, set forth the terms and conditions under which the Lenders will make the Loans to the Borrowers and to make certain other amendments thereto. The amendment and restatement of the Existing Credit Agreement evidenced by this Agreement shall become effective as provided in the Amendment Agreement. 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. "Acquired Entity" shall have the meaning assigned to such term in Section 6.04(i). "Adjusted LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.05(b). "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A, or such other form as may be supplied from time to time by the Administrative Agent. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided, however, that for purposes of Section 6.07, the term "Affiliate" shall also include any person that directly or indirectly owns 10% or more of any class of Equity Interests of the person specified or that is an officer or director of the person specified. "Agents" shall mean the Administrative Agent and the Collateral Agent. "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. "Alternate Base Rate" shall mean, for any day, a fluctuating 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 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. "Amendment Agreement" shall mean the Amendment Agreement dated as of the date of this Agreement, among other things, effecting the amendment and restatement of 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 Term Loan, 2.00%, (b) with respect to any ABR Term Loan, 0.75%, and (c) with respect to any Eurodollar Revolving Loan or ABR Revolving Loan, the applicable percentage set forth below under the caption "Eurodollar Revolving Spread" or "ABR Revolving Spread", as the case may be, based upon the Leverage Ratio as set forth in the most recent Compliance Certificate delivered pursuant to Section 5.04(f) (provided that from the Restatement Date to the date of the delivery to the Administrative Agent of the financial statements and related Compliance Certificate required by Section 5.04(a) and Section 5.04(f), respectively, the Leverage Ratio shall be deemed to be in Category 3 for the purposes of determining the Applicable Percentage; and provided further that if financial statements and a Compliance Certificate with respect to the fourth fiscal quarter in any year satisfying the requirements of Sections 5.04(b) and (f), respectively, shall be delivered to the Administrative Agent within 60 days after the end of such fiscal quarter, then from the fifth Business Day following the date on which such financial statements and such Compliance Certificate is so delivered until the relevant date of determination following such fiscal quarter end the Applicable Percentage shall be based upon the Leverage Ratio as set forth in such Compliance Certificate): - -------------------------------------------------------------------------------- Eurodollar Revolving Leverage Ratio Spread ABR Revolving Spread - --------------------------------------- ---------------- ---------------------- Category 1 2.75% 1.50% - ---------- Greater than 3.50 to 1.00 - --------------------------------------- ---------------- ---------------------- Category 2 2.50% 1.25% - ---------- Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 - --------------------------------------- ---------------- ---------------------- Category 3 2.25% 1.00% - ---------- Greater than 1.75 to 1.00 but less than or equal to 3.00 to 1.00 - --------------------------------------- ---------------- ---------------------- Category 4 2.00% 0.75% - ---------- Less than or equal to 1.75 to 1.00 - --------------------------------------- ---------------- ---------------------- Except as set forth in the second 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 Revolving Loans and Letters of Credit outstanding five (5) Business Days immediately following the date of delivery to the Administrative Agent of the Compliance Certificate required by Section 5.04(f), indicating such change; provided, however, that (a) at any time during which the Borrower has failed to deliver when due the Compliance Certificate required by Section 5.04(f), 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 as of the date five (5) Business Days after the date on which such Compliance Certificate was required to be delivered for purposes of determining the Applicable Percentage. Notwithstanding the foregoing, the Applicable Percentage with respect to any Eurodollar Term Loan or ABR Term Loan shall automatically be increased by the Yield Differential, if any, upon the making of any Other Term Loans, as provided in Section 2.24(b). "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, 2004, 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(d) and (b) has not been utilized on or prior to the date of determination to repurchase Borrower Common Stock. "Borrowing" shall mean (a) a group of Loans of the same Class and Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (b) a Swingline Loan. "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 or Charlotte, North Carolina 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 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 30% 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 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 Restatement Date, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Restatement 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 such 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 Restatement 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, 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, a Term Loan Commitment, an Incremental Term Loan Commitment in respect of Other Term Loans or a 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 Fee Letter" shall mean the Fee Letter dated April 29, 1999, between the Borrower and the Collateral Agent. "Collateral Agent 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, Incremental Term Loan Commitment in respect of Other Term Loans and Swingline Commitment, as applicable. "Commitment Fee" shall have the meaning assigned to such term in Section 2.05(a). "Compliance Certificate" shall have the meaning assigned to such term in Section 5.04(f). "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrowers dated December 2003. "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. "Debt Tender Offer" shall mean the tender offer and consent solicitation made on November 20, 2003, in respect of all outstanding Senior Subordinated Notes. "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 six months in a twelve-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 of America, any State thereof, any municipality of any such State or the District of Columbia. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. "EBITDA" for any period shall mean Net Income for such period, to which shall be added back (a) the Interest Expense of the Borrower and its consolidated Subsidiaries for such period to the extent deducted in calculating Net Income for such period, (b) all charges against income calculated in accordance with GAAP for Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with respect to such amounts, of the Borrower and its consolidated Subsidiaries for such period, to the extent deducted in calculating Net Income for such period, (c) the aggregate depreciation expense of the Borrower and its consolidated Subsidiaries for such period, (d) the aggregate amortization expense of the Borrower and its consolidated Subsidiaries for such period, (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. "Eligible Accounts Receivables" at any time shall mean the sum of the Eligible Billed Receivables and the Eligible Unbilled Receivables at such time. The "Net Value" of Eligible Accounts Receivables at any time shall mean the aggregate face amount of all Eligible Billed Receivables and Eligible Unbilled Receivables at such time. "Eligible Billed Receivables" at any time 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 Receivables" at any time shall mean rights to payment due and to become due to the Borrower or any Subsidiary Guarantor (a) under Government Contracts or (b) under contracts with any other Account Debtor that are approved by the Agents from time to time (the "Approved Contracts"), that (i) constitute an "account" as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction, (ii) in the case of Government Contracts, are eligible to be billed to the Government in accordance with the applicable Government Contract or are eligible to be billed to a prime contractor pursuant to a subcontract under a contract between the prime contractor and the Government, and in the case of Approved Contracts, are eligible to be billed to the Account Debtor in accordance with the applicable Approved Contract, in any case within 30 days of the date of determination (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 date of determination, (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 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. "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 have the meaning assigned to such term in the preamble to this Agreement. "Existing Lenders" shall have the meaning assigned to such term in the preamble to this Agreement. "Existing Letters of Credit" shall mean each Letter of Credit issued for the account of the Borrowers under the Existing Credit Agreement and that is (a) outstanding on the Restatement Date and (b) listed on Schedule 1.01(a). "Existing Term Loans" shall have the meaning assigned to such term in the preamble to this Agreement. "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, provided that (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "Fee Letter" shall mean the Fee Letter dated November 24, 2003, among the Borrowers and the Administrative Agent. "Fees" shall mean the Commitment Fees, the Administrative Agent Fees, the Collateral Agent Fees, the L/C Participation Fees, the Issuing Bank Fees and the Incremental Revolving Credit Commitment Fees. "Financial Officer" of any person shall mean the chief financial officer, principal accounting officer, Treasurer or Controller of such person. "First Restatement Date" shall mean October 21, 2002. "First Restatement Date Perfection Certificate" shall mean the Perfection Certificate delivered on the First Restatement Date, a copy of which is attached as Exhibit M. "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 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 or the District of Columbia. "Foreign Pension Plan" shall mean any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Government" shall mean the United States government or any department or agency thereof. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Government Contracts" shall mean written contracts between the Borrower or any Subsidiary Guarantor and the Government. "Granting Lender" shall have the meaning assigned to such term 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 Borrowers, 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. "Incremental Revolving Credit Commitment Amount" shall mean, at any time, the lesser of (a) the excess, if any, of (i) $200,000,000 over (ii) the sum of (x) the aggregate amount of all Incremental Term Loan Commitments established prior to such time, (y) the aggregate amount of all Incremental Revolving Credit Commitments established prior to such time and (z) the aggregate principal amount of all New Notes issued prior to such time and (b) the excess, if any, of (i) $50,000,000 over (ii) the aggregate amount of all Incremental Revolving Credit Commitments established prior to such time. "Incremental Revolving Credit Commitment Fee" shall have the meaning assigned to such term in Section 2.05(d). "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 (a) $200,000,000 over (b) the sum of (i) the aggregate amount of all Incremental Term Loan Commitments established prior to such time, (ii) the aggregate amount of all Incremental Revolving Credit Commitments established prior to such time and (iii) the aggregate principal amount of all New Notes issued prior to such time. "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 clause (c) of Section 2.01. 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 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, dated as of October 21, 2002, as supplemented as of May 23, 2003, among the Borrower, the Subsidiary Guarantors and the Collateral Agent, a copy of which is attached as Exhibit D. "Ineligible Receivables" at any time 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. "Initial Yield" on any Other Term Loans shall mean the sum of (a) the Adjusted LIBOR margins on such Other Term Loans and (a) if such Other Term Loans are initially made at a discount or (b) if the lenders making the same receive a fee from the Borrower or any Subsidiary for doing so (the amount of such discount or fee, expressed as a percentage of such Other Term Loans, being referred to herein as "OID"), the amount of such OID divided by the lesser of (i) the average life to maturity of such Other Term Loans and (ii) four. The Initial Yield shall be determined by the Administrative Agent. "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, the last Business Day of each March, June, September and December and (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. "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 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) Bank of America, in its capacity as the issuer of Letters of Credit hereunder, (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 of 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 and (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 persons listed on Schedule 2.01 (other than any such person that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any person 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. "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 Amendment Agreement, the Subsidiary Guarantee Agreement, the Reaffirmation of Guarantee and Security Documents, the Security Documents, the Indemnity, Subrogation and Contribution Agreement, the promissory notes, if any, executed and delivered pursuant to Section 2.04(e), each Incremental Revolving Credit Assumption Agreement and each Incremental Term Loan 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 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 J or subordination provisions no less favorable to the Lenders than those contained in the Senior Subordinated Note Indenture. "New Notes" shall have the meaning assigned to such term in Section 6.01(h). "New Notes Amount" shall mean, at any time, the excess, if any, of (a) $200,000,000 over (b) the sum of (i) the aggregate amount of all Incremental Term Loan Commitments established prior to such time, (ii) the aggregate amount of all Incremental Revolving Credit Commitments established prior to such time and (iii) the aggregate principal amount of all New Notes issued prior to such time. "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 consolidated financial statements. "Obligations" shall mean all obligations defined as "Obligations" in the Subsidiary Guarantee Agreement and the Security Documents, in each case as such definitions have been amended pursuant to the Reaffirmation of Guarantee and Security Documents. "Other Taxes" shall mean any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document. "Other Term Borrowing" shall mean a Borrowing comprised of Other Term Loans. "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. "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. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership, Governmental Authority or other entity. "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 dated as of October 21, 2002, as supplemented as of May 23, 2003, among the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties, a copy of which is attached as Exhibit E. "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 Charlotte, North Carolina. The "prime rate" is a rate set by the Administrative Agent based upon various factors, including the Administrative Agent's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. "Properties" shall have the meaning assigned to such term 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. In the event the Revolving Credit Commitments shall have expired or been terminated, the Pro Rata Percentages shall be determined on the basis of the Revolving Credit Commitments most recently in effect. "Reaffirmation of Guarantee and Security Documents" shall mean the Reaffirmation of Guarantee and Security Documents substantially in the Form of Exhibit G-2, among the Loan Parties and the Collateral Agent, pursuant to which the Loan Parties shall reaffirm their obligations under the Subsidiary Guarantee Agreement and the Security Documents to which they are a party. "Register" shall have the meaning assigned to 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 Governmental Authority or voluntarily undertaken (i) to cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment, (ii) to 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) to perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii) above. "Repayment Date" shall have the meaning assigned to such term in Section 2.11(a). "Required Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit Commitments and Term Loan Commitments representing at least 51% of the sum of all outstanding Loans (excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused Revolving Credit Commitments 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 have the meaning assigned to such term in the Amendment Agreement. "Restatement Required Lenders" shall have the meaning assigned to such term in the Amendment Agreement. "Retiring Agent" shall mean Credit Suisse First Boston, a bank organized under the laws of Switzerland, acting through any of its branches or affiliates. "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 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 or outstanding Revolving Credit Exposure. "Revolving Credit Maturity Date" shall mean December 31, 2008. "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. "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. "Security Agreement" shall mean the Amended and Restated Security Agreement dated as of October 21, 2002, as supplemented as of May 23, 2003, among the Borrower, the Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties, a copy of which is attached as Exhibit F. "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 5.11. "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 The Bank of New York (formerly, IBJ Whitehall Bank & Trust Company), as trustee, as the same may be amended pursuant to the Debt Tender Offer. "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 assigned to such term 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. "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 dated as of October 21, 2002, as supplemented as of May 23, 2003, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties, a copy of which is attached as Exhibit G-1. "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. "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 Lender" shall mean Citizens Bank, in its capacity as lender of Swingline Loans hereunder. "Swingline Loan" shall mean any loan made by the Swingline Lender pursuant to Section 2.22. "Synthetic Lease" shall mean any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the transaction is considered indebtedness for borrowed money for Federal income tax purposes but is classified as an operating lease in accordance with GAAP for financial reporting purposes. "Taxes" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges, liabilities or withholdings imposed by any Governmental Authority. "Tax Payments" shall mean payments in cash in respect of Federal, state, local and foreign income taxes and assessments, including all interest, penalties and additions imposed with respect to such amounts, paid or payable by or on behalf of the Borrower and its consolidated Subsidiaries. "Term Borrowing" shall mean a Borrowing comprised of Term Loans. "Term Lender" shall mean a Lender with a Term Loan Commitment or an outstanding Term Loan. "Term Loan Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Term Loans hereunder as set forth on Schedule 2.01, or in the 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 Loan Repayment Dates" shall mean the Repayment Dates and the Incremental Term Loan Repayment Dates. "Term Loans" shall mean the term loans made by the Lenders to the Borrowers pursuant to clause (a) of Section 2.01. Unless the context shall otherwise require, the term "Term Loans" shall include any Incremental Term Loans. "Term Loan Maturity Date" shall mean December 31, 2010. "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. The Total Revolving Credit Commitment in effect on the Restatement Date is $200,000,000. "Transactions" shall mean, collectively, the transactions to occur on the Restatement Date, including (a) the execution and delivery of the Amendment Agreement and the Reaffirmation of Guarantee and Security Documents, (b) the borrowing of the Term Loans hereunder, (c) the acceptance for payment of the Existing Term Loans, (d) the closing of the Debt Tender Offer and the purchase by the Borrower of all Senior Subordinated Notes validly tendered and not withdrawn in connection therewith and (e) the payment of related fees and expenses. "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. "Yield Differential" shall have the meaning assigned to such term in Section 2.24(b). 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 Borrowers notify the Administrative Agent that the Borrowers wish 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 Borrowers that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrowers' compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrowers 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. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (a) if such Lender has a Term Loan Commitment, to make a Term Loan to the Borrowers on the Restatement Date in a principal amount not to exceed its Term Loan Commitment, (b) if such Lender has a Revolving Credit Commitment, to make Revolving Loans to the Borrowers, at any time and from time to time on or after the Closing 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 such Lender's Revolving Credit Commitment, and (c) if such Lender has an Incremental Term Loan Commitment, to make Incremental Term Loans to the Borrowers, in an aggregate principal amount not to exceed its Incremental Term Loan Commitment. Within the limits set forth in clause (b) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. The Borrowers and the Revolving Credit Lenders acknowledge the making of Revolving Loans prior to the Restatement Date under the Existing Credit Agreement and agree that, to the extent outstanding on the Restatement Date, such Revolving Loans shall continue to be outstanding pursuant to the terms and conditions of this Agreement and the other Loan Documents. 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 Charlotte, North Carolina 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 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 (f) 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 Term Borrowing, an Other Term Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.02. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the 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 3/8 of 1% per annum on the daily unused amount of the Revolving Credit Commitment of such Lender during the preceding quarter (or shorter period commencing on the Restatement Date or 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 Letter 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 Fee Letter at the times and in the amounts specified therein (the "Collateral Agent 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 commencing on the Restatement Date or ending with the Revolving Credit Maturity Date or the date on which all Letters of Credit have been canceled or have expired and the Revolving Credit Commitments of all Lenders shall have been terminated) at a rate equal to the Applicable Percentage from time to time used to determine the interest rate on Revolving Credit Borrowings comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing Bank with respect to each Letter of Credit the standard fronting, issuance and drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (d) 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. (e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that the Issuing Bank Fees shall be paid directly to the Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances. SECTION 2.06. Interest on Loans. (a) Subject to the provisions of Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline Loan, shall bear interest (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 Restatement Date. The Revolving Credit Commitments, the Swingline Commitment and the L/C Commitment shall automatically terminate on the Revolving Credit Maturity Date. (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 (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; (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 Repayment Date occurring on or after the first day of such Interest Period if, after giving effect to such selection, the aggregate outstanding amount of (A) the Eurodollar Term Borrowings comprised of Term Loans and Other Term Loans, as applicable, with Interest Periods ending on or prior to such Repayment Date and (B) the ABR Term Loan Borrowings comprised of Term Loans and Other Term Loans, as applicable, would not be at least equal to the principal amount of Term Borrowings to be paid on such Repayment Date; and (viii) upon notice to the 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 Term Borrowings (other than Term Borrowings comprised of Other Term Loans) shall be payable as to principal in 28 consecutive installments payable on the last Business Day of March, June, September and December of each year, commencing on the last Business Day in March 2004 and ending on the Term Loan Maturity Date (each such date being called a "Repayment Date"). Each of the first 27 installments shall be in an amount equal to 0.25% of the initial aggregate principal amount of the Term Borrowings (as adjusted from time to time pursuant to Sections 2.12, 2.13(f) and 2.24(d)), with the balance due and payable on the Term Loan Maturity Date. (b) 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, 2.13(f) and 2.24(d)) 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. (c) 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 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 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, then the Borrowers shall, on the date of such reduction, 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) 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(f). (c) 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(f). (d) 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, 2004, 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(f) 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. (e) In the event and on each occasion 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(f). (f) Mandatory prepayments of outstanding Term Loans under this Agreement shall be allocated pro rata between the then outstanding Term Loans and Other Term Loans, and applied pro rata against the remaining scheduled installments of principal due in respect of Term Loans and Other Term Loans under Sections 2.11(a) and (b), respectively. (g) The Borrowers shall deliver to the Administrative Agent, at the time of each prepayment required under this Section 2.13, (i) a certificate signed by a Financial Officer of the 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. 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 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 any Change in Law 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 clause (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. 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 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 agree 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 One Independence Center, 101 North Tryon Street, Charlotte, North Carolina. The Administrative Agent shall distribute any such payments received by it for the account of any other person to the appropriate recipient promptly following receipt thereof. (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, as applicable. (c) Unless the Administrative Agent shall have received notice from any of the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that such Borrower will not make such payment, the Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if such Borrower has not in fact made such payment when due, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. 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 2.20) 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) 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 2.20) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the 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 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 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 paragraph (e). Notwithstanding anything to the contrary contained in this 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 this Section 2.20 to make any additional payments to a Lender pursuant to paragraph (b) or (c) above, 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 paragraph (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 paragraphs (b) and (c) above (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (f) If the 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, representation or warranty, except as to warranty as to its ownership of the assigned obligations (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 and, with respect to clause (iv) above, shall consent to such requested amendment, waiver or other modification of any Loan Document (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 Sections 2.14 and 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. Each Lender hereby agrees to execute and deliver, promptly upon its receipt of notice from the Borrowers requiring the transfer and assignment of such Lender's interests hereunder pursuant to this Section 2.21(a), any Assignment and Acceptance necessary to effectuate such assignment; provided that, notwithstanding the foregoing, the Administrative Agent may effectuate such assignment, without any action by such Lender, by recording such assignment in the Register. (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 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 Total Revolving Credit Commitment. 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, and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, pay or prepay and reborrow Swingline Loans. (b) Swingline Loans. In order to request a Swingline Loan, the Borrowers shall notify the Swingline Lender by written or fax notice (or telephone notice promptly confirmed by written or fax notice), 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, with a copy of such notice 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). (e) Participations. The Swingline Lender may by written notice given to the Administrative Agent not later than 12:00 (noon), 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 (e) 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 (e) 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 Revolving Credit Lenders that shall have made their payments pursuant to this paragraph (e) and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph (e) 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 2.23 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 (in the form of a completed application and agreement for issuance of letter of credit used by the Issuing Bank from time to time) 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 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 $20,000,000 and (ii) the Aggregate Revolving Credit Exposure shall not exceed the Total Revolving Credit Commitment. Promptly after the issuance, amendment, renewal or extension of a Letter of Credit, the applicable Issuing Bank shall notify the Administrative Agent and the Borrowers, in writing, of such issuance, amendment, renewal or extension and such notice shall be accompanied by a copy of such issuance, amendment, renewal or extension. (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 (d) 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; (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 2.23, 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. The foregoing shall not, however, 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 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. No failure of any other Lender to accept appointment as successor Issuing Bank shall affect the resignation of the retiring Issuing Bank. 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 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 commitments to make 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, however, that, without the prior written consent of Lenders holding a majority in interest of the outstanding Loans and Commitments of each adversely affected Class of Term Loans, (i) the final maturity date of any Other Term Loans shall be no earlier than the final maturity date of any other Class of Term Loans; (ii) if the Initial Yield on any Other Term Loans exceeds the Applicable Percentage then in effect for Eurodollar Term Loans of any Class, the final maturity date of such Other Terms Loans shall be no earlier than the date falling six months after the final maturity date of each such adversely affected Class; (iii) the average life to maturity of any Other Term Loans shall be no shorter than the average life to maturity of any other Class of Term Loans; (iv) if the Initial Yield on any Other Term Loans exceeds the Applicable Percentage then in effect for Eurodollar Term Loans of any Class, the average life to maturity of such Other Term Loans shall be six months longer than the average life to maturity of each such adversely affected Class; and (v) if the Initial Yield on any Other Term Loans exceeds by more than 50 basis points (the amount of such excess above 50 basis points being referred to herein as the "Yield Differential") the Applicable Percentage then in effect for Eurodollar Term Loans of any Class, then each Applicable Percentage for each adversely affected Class of Term Loans shall automatically be increased by the Yield Differential, effective upon the making of the Other 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. Any such deemed amendment may be memorialized in writing by the Administrative Agent with the Borrowers' consent (not to be unreasonably withheld) and furnished to the other parties hereto. (c) Notwithstanding the foregoing, no Incremental Term Loan Commitment shall become effective under this Section 2.24 unless (i) on the date of such effectiveness, the conditions set forth in paragraphs (b) and (c) of Section 4.01 shall be satisfied and the Administrative Agent shall have received a certificate to that effect dated such date and executed by a Financial Officer of the 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 Term Loans on a pro rata basis. This may be accomplished at the discretion of the Administrative Agent by requiring each outstanding Eurodollar Term Borrowing to be converted into an ABR Term Borrowing on the date of each Incremental Term Loan, or by allocating a portion of each Incremental Term Loan to each outstanding Eurodollar Term Borrowing on a pro rata basis, even though as a result thereof such Incremental Term Loan may effectively have a shorter Interest Period than the Term Loans included in the Borrowing of which they are a part (and notwithstanding any other provision of this Agreement that would prohibit such an initial Interest Period). Any conversion of Eurodollar Term Loans to ABR Term Loans required by the preceding sentence shall be subject to Section 2.16. If any Incremental Term Loan is to be allocated to an existing Interest Period for a Eurodollar Term Borrowing then, subject to Section 2.07, the interest rate applicable to such Incremental Term Loan for the remainder of such Interest Period shall equal the Adjusted LIBO Rate for a period approximately equal to the remainder of such Interest Period (as determined by the Administrative Agent two Business Days before the date such Incremental Term Loan is made) plus the Applicable Percentage. In addition, to the extent any Incremental Term Loans are not Other Term Loans, the scheduled amortization payments under Section 2.11(a) required to be made after the making of such Incremental Term Loans shall be ratably increased to reflect the aggregate principal amount of such Incremental Term Loans. In such event, the Administrative Agent shall prepare and distribute to the 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 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. 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 each Loan Party of each Loan Document to which it is or will be a party and the consummation by the Loan Parties of the Transactions (including the borrowings hereunder) (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any material provision of law, statute, rule or regulation, or 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, (ii) 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 (iii) 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 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 and the other transactions contemplated hereby, except for such as have been made or obtained and are in full force and effect, and except where the failure to obtain such consent or approval, or to make such registration or filing or other action, could not reasonably be expected to result in a Material Adverse Effect. (b) No notice of suspension, debarment or 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(b), 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 requested by the Collateral Agent (as noted on Schedule 3.04(b)). 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, 2002, 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 September 30, 2003, certified by its chief financial officer. Such financial statements were prepared in accordance with GAAP and 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. (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 September 30, 2003, 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 twelve-month period ending on such date. Such pro forma financial statements have been prepared in good faith by the Borrower, based on the assumptions used to prepare the pro forma financial information contained in the Confidential Information Memorandum (which assumptions at the time made were believed 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, 2002. 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 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 Borrowers, threatened against or affecting the Borrower or any Subsidiary or any business, property or rights of any such person (a) that involve any Loan Document or the Transactions or (b) 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 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 Borrowers 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 Borrowers represent only that each of them acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule. SECTION 3.16. Employee Benefit Plans. (a) Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Borrower or any of its ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed by more than $3,000,000 the fair market value of the assets of all such underfunded Plans. (b) Each Foreign Pension Plan is in compliance in all material respects with all requirements of law applicable thereto and the respective requirements of the governing documents for such plan, except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Pension Plan, none of the Borrower, its Affiliates or any of its directors, officers, employees or agents has engaged in a transaction that subjects the Borrower or any of its Subsidiaries, directly or indirectly, to a material tax or civil penalty. With respect to each Foreign Pension Plan, reserves have been established in the financial statements furnished to the Lenders in respect of any unfunded liabilities in accordance with applicable law and prudent business practice 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 Borrowers 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 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, with respect to all Collateral previously delivered to and in the possession of the Collateral Agent, constitutes, or in the case of Collateral to be delivered in the future, will 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, together with the financing statements previously filed in the offices specified on Schedule 3.19(b), constitutes 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) The Security Agreement currently on file with the United States Patent and Trademark Office and the United States Copyright Office constitutes 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 and immediately following the making of each Loan and after giving effect to the application of the proceeds of such Loans, (a) the fair value of the assets of each Loan Party, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable value of the property of each Loan Party will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities 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. SECTION 3.24. Certain Treasury Regulation Matters. Neither the Borrower nor Anteon intends to treat the Loans and related transactions as being a "reportable" transaction (within the meaning of Treasury Regulation 1.6011-4). ARTICLE IV Conditions of Lending The obligations of the Lenders to make Loans and of the Issuing Bank to issue, amend, extend or renew any Letter 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 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 (d) of this Section 4.01. SECTION 4.02. Restatement Date. 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 LLP, 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, the Collateral 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 Lenders shall have received, to the extent requested, all documentation and other information required by bank regulatory authorities under applicable "know your customer" and anti-money laundering rules and regulations, including the U.S.A. Patriot Act. (d) The Administrative Agent shall have received (i) a certificate, dated the Restatement Date and signed by the Secretary or Assistant Secretary of the Borrower and Anteon, certifying (A) that except as set forth on any schedule attached thereto, the certificate or articles of incorporation of each Loan Party previously delivered on the First Restatement Date (or such later date on which such person became a Loan Party) have not been amended since the date of the last amendment thereto shown on the certificate of good standing so furnished, (B) that except as set forth on any schedule attached thereto, the by-laws of each Loan Party as in effect and delivered on the First Restatement Date (or such later date on which such person became a Loan Party) have not been amended, (C) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors or other equivalent body of each Loan Party authorizing the execution, delivery and performance of the Amendment Agreement (including Exhibit A thereto in the form of this Agreement), the Reaffirmation of Guarantee and Security Documents and the other Loan Documents to which such person is a party, as applicable, 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, and (D) as to the incumbency and specimen signature of each officer executing the Amendment Agreement, the Reaffirmation of Guarantee and Security Documents, or any other Loan Document or any other document delivered in connection therewith on behalf of such Loan Party; (ii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (i) above; and (ii) such other documents as the Lenders, the Issuing Bank or the Administrative Agent may reasonably request. (e) The Administrative Agent shall have received a certificate, dated the Restatement Date and signed by a Financial Officer of the Borrower and Anteon, confirming compliance with the conditions precedent set forth in paragraphs (b), (c) and (d) of Section 4.01. (f) The Administrative Agent shall have received, or shall receive substantially simultaneously with the initial Borrowing of the Term Loans, all Fees and other amounts due and payable on or prior to the Restatement Date, including the Amendment Fees (as defined in the Amendment Agreement) and, 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. (g) The Amendment Agreement shall have become effective in accordance with its terms. (h) The Reaffirmation of Guarantee and Security Documents shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect. (i) The Security Documents shall be in full force and effect and each document (including each Uniform Commercial Code financing statement and, subject to the proviso set forth in Section 5.11, each Assignment of Claims Act notice) required by law or reasonably requested by the Administrative Agent or the Collateral Agent to be filed, registered or recorded in order to create or continue in favor of the Collateral Agent for the benefit of the Secured Parties a valid, legal and perfected first-priority (except to the extent otherwise provided therein) security interest in and lien on the Collateral (subject to any Lien expressly permitted by Section 6.02) described in the Security Documents shall have been prepared and delivered to the Collateral Agent. (j) The Collateral Agent shall have received a certificate, dated the Restatement Date and signed by a Responsible Officer of the Borrower, certifying that, except as set forth on any schedule attached thereto the information set forth on the First Restatement Date Perfection Certificate, is complete, correct and accurate as of the Restatement Date. (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 Existing Term Loans, together with accrued interest thereon, shall have been repaid in full, or shall be repaid in full substantially simultaneously with the initial Borrowing of the Term Loans. (m) The Borrower shall have accepted for payment, or shall accept for payment substantially simultaneously with the initial Borrowing of the Term Loans, each of the issued and outstanding Senior Subordinated Notes validly tendered (and not withdrawn) pursuant to the Debt Tender Offer (and, if fewer than all the issued and outstanding Senior Subordinated Notes shall have been so purchased, the Senior Subordinated Note Indenture shall have been amended pursuant to the consent solicitation in connection with the Debt Tender Offer). (n) All letters of credit issued under the Existing Credit Agreement prior to the Restatement Date which have not expired as of such date shall have been canceled or shall have been backstopped as provided in the Amendment Agreement. (o) 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. (p) The Lenders shall have received a certificate substantially in the form of Exhibit K from the chief financial officer of the Borrower to the effect that, after giving effect to the Credit Events to occur on the date hereof and 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 their business or (iv) have incurred debts beyond their ability to pay such debts as they mature. 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 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) no later than the earlier of (i) 10 days after the date that the Borrower is required to file a report on Form 10-K with the Securities and Exchange Commission in compliance with the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) 90 days after the end of each fiscal year of the Borrower, 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 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; (b) no later than the earlier of (i) 10 days after the date that the Borrower is required to file a report on Form 10-Q with the Securities and Exchange Commission in compliance with the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and (ii) 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, 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) 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; (d) within 45 days after the end of each calendar 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 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; (e) within 90 days after the end of each calendar 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; (f) concurrently with any delivery of financial statements under paragraph (a) or (b) of this Section, a certificate in the form of Exhibit I (a "Compliance Certificate") of (i) the accounting firm (in the case of paragraph (a)) or Financial Officer (in the case of paragraph (b)) opining on or certifying such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (A) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (B) setting forth computations in detail reasonably satisfactory to the Agents demonstrating compliance with the covenants contained in Sections 6.08 (in the case of paragraph (a)), 6.09, 6.10, 6.11, 6.12 and 6.13 and (ii) the Financial Officer (in the case of paragraph (a) or (b)) setting forth compliance with the covenants contained in Sections 6.01(c), 6.01(f), 6.01(g), 6.01(h), 6.01(i), 6.01(j), 6.01(k), 6.01(l), 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 statements required by paragraph (a) above, setting forth the Borrower's calculation of Excess Cash Flow; (g) 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 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; (h) 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; (i) 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; (j) 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; (k) each year, at the time of delivery of annual financial statements with respect to the preceding fiscal year pursuant to paragraph (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 First Restatement Date Perfection Certificate or confirming that there has been no change in such information since the date of the First Restatement Date Perfection Certificate or the date of the most recent certificate delivered pursuant to this paragraph (k) and (ii) certifying that all Uniform Commercial Code financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Security Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); (l) 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 hereof which constitute Material Contracts; (m) promptly, following a request by any Lender, all documentation and other information that such Lender reasonably requests in order to comply with its ongoing obligations under applicable "know your customer" and anti-money laundering rules and regulations, including the U.S.A. Patriot Act; and (n) 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 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; provided, however, that any de minimus amount of the proceeds of any Incremental Term Loans remaining after the use of such proceeds as set forth in the preamble to this Agreement may be used for general corporate purposes. 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. 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; provided, however, that notwithstanding anything else to the contrary in the Loan Documents, none of the Loan Parties shall be required to make filings under the Assignment of Claims Act for the assignment of Governmental Contracts to the Collateral Agent unless (a) such Governmental Contract is a Material Contract and (b) the Collateral Agent shall have requested, in its reasonable discretion, that a filing under the Assignment of Claims Act be made with respect to such Governmental Contract. The Borrowers acknowledge that the Lenders shall be irrevocably harmed if the Borrowers fail or refuse to execute and deliver to the Lenders any Government Contract assignment under the Assignment of Claims Act as and when required pursuant to this Section 5.11, and that the Lenders have no adequate remedy as law. In such event, the Borrowers agree that the Lenders shall be entitled, in addition to all other rights and remedies available to the Lenders, to injunctive or other equitable relief to compel the Borrower's or Anteon's full compliance with the requirements of this Section 5.11. 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 the Subsidiary Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement, the Pledge Agreement, the 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 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 5.11. 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. SECTION 5.12. Certain Treasury Regulation Matters. In the event that the Borrower or Anteon determines to take any action inconsistent with its intention as set forth in Section 3.24, it will promptly notify the Administrative Agent thereof. 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 Restatement 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); (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; (h) senior subordinated notes or senior unsecured notes of the Borrower, which may be guaranteed by any Loan Party (the "New Notes"), issued from time to time (i) to finance the purchase price of a Permitted Acquisition (including the refinancing of outstanding Indebtedness of the Acquired Entity), (ii) to prepay Term Loans and (iii) to pay related fees and expenses; provided, however, that any de minimus amount of the proceeds of any New Notes issuance remaining after the use of such proceeds as set forth in clauses (i), (ii) and (iii) above may be used for general corporate purposes; provided, further, that (x) the New Notes constituting senior subordinated notes shall be subordinated to the Obligations on terms and conditions no less favorable to the Lenders than those contained in the Senior Subordinated Note Indenture, (y) no New Note may mature or require any scheduled payment of principal prior to the first anniversary of the later of the Term Loan Maturity Date and the Revolving Credit Maturity Date, and (z) the aggregate principal amount of all New Notes may not exceed the New Notes Amount; (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 a Lender in connection with purchase cards issued by such Lender in an aggregate amount for all Lenders not to exceed $5,000,000 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; and (l) 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 Restatement 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; (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 compensation, 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 (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) any 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 J; (g) the Borrower may establish Subsidiaries to the extent permitted by Section 6.15; (h) the Borrower and its Domestic wholly owned Subsidiaries may make loans and advances to, or other investments in, Foreign Subsidiaries of the Borrower so long as the aggregate amount of any loans, advances or other investments at any time outstanding (determined without regard to any write-downs or write-offs thereof) pursuant to this paragraph (h) shall not exceed $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 (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 paragraph (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 twelve-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 paragraph (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 L. All pro forma calculations required to be made pursuant to this paragraph (i) shall (i) include only those adjustments that (A) except with respect to the projections referred to in clause (C) of the preceding sentence, would be permitted or required by Regulation S-X, and (B) are based on reasonably detailed written assumptions reasonably acceptable to the Administrative Agent and (ii) be certified to by a Financial Officer as having been prepared in good faith based upon reasonable assumptions; (j) the Borrower may enter into Hedging Agreements to the extent permitted in Section 6.01(d); (k) the Borrower or any Subsidiary Guarantor may acquire Margin Stock of entities in a similar line of business as that of the Borrower and its Subsidiaries as conducted during the current and most recent calendar year; provided, however, that (i) the Borrower or any Subsidiary Guarantor must notify the Agents promptly after any such acquisition, (ii) after giving effect to such acquisition, there must be at least $10,000,000 of unused and available Revolving Credit Commitments and (iii) the Borrower and the Subsidiaries shall not hold Margin Stock with a cost basis in excess of $25,000,000 in the aggregate at any time (any Margin Stock acquired and held by the Borrower or any Subsidiary Guarantor in accordance with this paragraph (k) being referred to herein as "Approved Margin Stock"); (l) the Borrower and the Subsidiaries may consummate the Transactions; (m) investments existing on the Restatement 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, and (iii) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (x) any wholly owned Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation and (y) any wholly owned Subsidiary may merge into or consolidate with any other wholly owned Subsidiary (or, in order to consummate a Permitted Acquisition, any other person) in a transaction in which the surviving entity is a wholly owned Subsidiary and (except in the case of Permitted Acquisitions) no person other than the Borrower or a wholly owned Subsidiary receives any consideration, provided that if any such merger described in this clause (y) shall involve a Domestic Subsidiary, the surviving entity of such merger shall be a Domestic Subsidiary. (b) Engage in any Asset Sale otherwise permitted under paragraph (a) above unless (i) such Asset Sale is for consideration at least 75% of which is cash (provided that such 75% requirement shall not apply to any Asset Sale constituting the sale of a business unit if the cash portion of the consideration received therefor is no less than an amount equal to the product of (A) six and (B) the amount of EBITDA for the preceding fiscal year directly attributable to the assets included in such Asset Sale), (ii) such consideration is at least equal to the fair market value of the assets being sold, transferred, leased or disposed of and (iii) 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. (c) Wind up, liquidate or dissolve its affairs, except that any Inactive Subsidiary may be wound up, liquidated or dissolved. 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 by 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 documents governing any New Notes (so long as such documents and restrictions are no more restrictive than those contained in the Senior Subordinated Note Documents) or (D) with respect to Foreign Subsidiaries only, Indebtedness of such Foreign Subsidiaries permitted to be incurred hereunder, (w) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower, (x) customary provisions restricting assignment of any agreement entered into by the Borrower or a Subsidiary in the ordinary course of business, (y) any holder of a Lien permitted by Section 6.02 may restrict the transfer of the asset or assets subject thereto and (z) subordination provisions in favor of the Lenders and required by Section 6.04(f). SECTION 6.07. Transactions with Affiliates. Except for transactions by or among Loan Parties, sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that: (a) the Borrower or any Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; (b) dividends may be paid to the extent provided in Section 6.06; (c) loans may be made and other transactions may be entered into between and among the Borrower, 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 Permitted Acquisitions consummated in such preceding fiscal year as if such Permitted Acquisitions had occurred as of the first day of such fiscal year. SECTION 6.09. Interest Coverage Ratio. Permit the Interest Coverage Ratio for any period of four consecutive fiscal quarters, in each case taken as one accounting period, to be less than 3.00 to 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 4.00 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 -------------- ------- Restatement Date through June 30, 2005...............3.00:1.0 July 1, 2005 and thereafter..........................2.75:1.0 SECTION 6.13. Asset Coverage Ratio. Permit, as of the date of each Credit Event and as of the last day of each fiscal quarter of the Borrower, the ratio of (a) the Net Value of Eligible Accounts Receivables on such date to (b) the Revolving Credit Exposure on such date to be less than 1.10 to 1.0. 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 subordinated Indebtedness (other than pursuant to the Debt Tender Offer); provided that the Borrower may (i) optionally prepay, repurchase, redeem, defease or otherwise retire the Senior Subordinated Notes so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom and (ii) use 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(c) to optionally prepay, repurchase, redeem, defease or otherwise retire any other subordinated Indebtedness, so long as (x) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (y) the amount so expended shall not exceed $30,000,000 in the aggregate and (z) 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, 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 (c) or any such new agreements pursuant to this clause (c) which do not in any way materially adversely affect the interests of the Lenders (provided that nothing in this clause (c) 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 (d) 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 the 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 5.11 and the other Loan Documents (and if such new Domestic Subsidiary is not a wholly owned Subsidiary of Borrower, each owner of any minority Equity Interest in such new Domestic Subsidiary shall have consented to such new Domestic Subsidiary becoming party to the applicable Security Documents and other Loan Documents and executed an acknowledgment, waiver and consent substantially in the form of Exhibit L). 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 paragraph (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 paragraph (b), (c) or (d) above) and such default shall continue unremedied for a period of 20 days after notice thereof from the Administrative Agent or any Lender to the Borrower; (f) 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 paragraph (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 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, show cause notice 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 (a) In order to expedite the transactions contemplated by this Agreement, Bank of America 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, each assignee of any such Lender and the Issuing Bank hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee or the Issuing Bank and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. Notwithstanding anything to the contrary herein or in any other Loan Document, the Agents shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agents have or be deemed to have any fiduciary relationship with any Lender or Participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agents. Without limiting the generality of the foregoing sentence, the use of the term "agent" herein and in the other Loan Documents with reference to the Agents is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. The Administrative Agent is hereby expressly authorized by the Lenders and the Issuing Bank, without hereby limiting any implied authority, (i) 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; (ii) 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 (iii) 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. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of Lenders, unless the Administrative Agent shall have received written notice from a Lender or any of the Borrowers referring to this Agreement, describing such Default and stating that such notice is a "notice of default". 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. (b) 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 Agents shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons. (c) 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 Agreement unless it shall be requested in writing to do so by the Required Lenders. (d) 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 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 VIII 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. (e) 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. Lenders acknowledge that, pursuant to such activities, an Agent or its Affiliates may receive information regarding any of the Borrowers or their Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that the Agent shall be under no obligation to provide such information to them. (f) Each Lender agrees (i) 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 (ii) 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. (g) 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. (h) For purposes of determining compliance with the conditions specified in Section 4.02, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the Restatement Date specifying its objection thereto. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax, as follows: (a) if to the Borrower or Anteon, to it at 3211 Jermantown Road, Suite 700, Fairfax, Virginia 22030-2801, Attention of Curtis L. Schehr, Esq. (fax no. (703) 246-0577), with a copy to Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York 10019-6064, Attention of Eric Goodison, Esq. (fax no. (212) 757-3990); (b) if to the Administrative Agent, to Bank of America, N.A., Credit Services Group, One Independence Center, 101 North Tryon Street, Charlotte, North Carolina 28255, Attention of Remberto Marquez (fax no. (704) 409-0355); (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); (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; and (e) if to any Issuing Bank, to it at the address most recently specified by it in a notice delivered to the Administrative Agent and the Borrower. 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. Notwithstanding the foregoing, notices and other communications to the Administrative Agent pursuant to Article II shall not be effective until actually received by the Administrative Agent. 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 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 as provided in the Amendment Agreement, 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 paragraph (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) below, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Term Loan Commitment and Revolving Credit Commitment, and the outstanding balances of its Term Loans and Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in clause (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 Charlotte, North Carolina 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). (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 Subsidiary 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 Borrowers furnished to such Lender by or on behalf of the Borrowers; provided that, prior to any such disclosure of information designated by the Borrowers 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 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 Borrowers to use their 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. 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, the Swingline Lender and the Retiring Agent 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 LLP, 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 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 9.08, the definition of the term "Required Lenders" or release any Subsidiary 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 or (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, provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender hereunder or under any other Loan Document without the prior written consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline Lender, respectively. Notwithstanding the foregoing, if the Borrower shall request the release of any Collateral to be sold as part of any Asset Sale permitted under Section 6.05 and shall deliver to the Collateral Agent a certificate to the effect that such Asset Sale and the disposition of the proceeds thereof will comply with the terms of this Agreement, the Collateral Agent, if satisfied that the applicable certificate is correct, shall and is hereby authorized to, without the consent of any Lender, execute and deliver all such instruments as may be required to effect the release of such Collateral. SECTION 9.09. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or participation in any L/C Disbursement, together with all fees, charges and other amounts which are treated as interest on such Loan or participation in such L/C Disbursement under applicable law (collectively, the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or participation in accordance with applicable law, the rate of interest payable in respect of such Loan or participation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or participation but were not payable as a result of the operation of this Section 9.09 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or participations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter, the Collateral Agent Fee Letter and the other Loan Documents constitute the entire contract between the parties hereto relative to the subject matter hereof. Any other previous agreement among the parties hereto 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. SECTION 9.11. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN 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 unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 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 hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any such New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Confidentiality. (a) 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. (b) Notwithstanding anything herein to the contrary, any party subject to confidentiality obligations hereunder or otherwise (and any Affiliate thereof and any employee, representative or other agent of such party or such Affiliate) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and the U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. For this purpose, the tax treatment of the transactions contemplated hereby is the purported or claimed U.S. federal income tax treatment of such transactions and the tax structure of such transactions is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of such transactions. SECTION 9.17. Effect of Restatement. This Agreement shall supersede the Existing Credit Agreement from and after the Restatement Date with respect to the transactions hereunder and with respect to the Loans outstanding under the Existing Credit Agreement as of the Restatement Date. The parties hereto acknowledge and agree, however, that (a) this Agreement and all other Loan Documents executed and delivered herewith do not constitute a novation, payment and reborrowing or termination of the Obligations (except as expressly provided for herein with respect to the repayment of the Existing Term Loans) under the Existing Credit Agreement and the other Loan Documents as in effect prior to the Restatement Date, (b) such Obligations are in all respects continuing with only the terms being modified as provided in this Agreement and the other Loan Documents, (c) the liens and security interests in favor of the Collateral Agent for the benefit of the Secured Parties securing payment of such Obligations are in all respects continuing and in full force and effect with respect to all Obligations and (d) all references in the other Loan Documents to the Credit Agreement shall be deemed to refer without further amendment to this Agreement. SECTION 9.18. U.S.A. Patriot Act Notice. Each Lender and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the U.S.A. Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrowers in accordance with the Act. EX-99 4 auditorsreport.txt S-1 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, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2003. 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, 2003 and 2002 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Our audits were performed for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information included in Schedule II is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. As discussed in note 2(f) to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statements of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. As discussed in note 2(r) to the consolidated financial statements, effective January 1, 2003, the Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB Statement 13 and Technical Corrections. .. McLean, Virginia KPMG LLP February 17, 2004 EX-31 5 kampfcertificate.txt KAMPF 31.1 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, 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 report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting. Date: March 4, 2004 By: /s/ Joseph M. Kampf --------------------- -------------------------------- Joseph M. Kampf President and Chief Executive Officer EX-31 6 reamcertificate.txt REAM 31.2 Certifications I, Charles S. Ream, certify that: 1. I have reviewed this Annual Report on Form 10-K of Anteon International Corporation; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly 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-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused each disclosure controls and procedures to be designed under our supervision, 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 report is being prepared: b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting. Date: March 4, 2004 /s/ Charles S. Ream ------------- ----------------------------------- Charles S. Ream Executive Vice President and Chief Financial Officer EX-32 7 kampfsarbanes.txt KAMPF 32.1 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 Annual Report of Anteon International Corporation (the "Company") on Form 10-K for the period ended December 31, 2003, 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 4, 2004 By: /s/ Joseph M. Kampf Joseph M. Kampf President and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 8 reamsarbanes.txt REAM32.2 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 Annual Report of Anteon International Corporation (the "Company") on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles S. Ream, Executive 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 4, 2004 By::/s/ Charles S. Ream ----------------------------- ------------------------------ Charles S. Ream Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Anteon International Corporation and will be retained by Anteon International Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-21 9 subsidiaries.txt SUBSIDIARIES 21.1 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY SUBSIDIARY JURISDICTION OF ORGANIZATION Anteon Corporation............................... Virginia Information Spectrum, Inc........................ New Jersey EX-4 10 seventhsupplemental.txt EX 4.8 SEVENTH SUPPLEMENTAL INDENTURE THIS SEVENTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of May 23, 2003, among Anteon International Corporation (formerly known as Azimuth Technologies, Inc.), a Delaware corporation (the "Company"), and The Bank of New York (as successor to IBJ Whitehall Bank & Trust Company), a New York banking corporation as trustee (the "Trustee"). WHEREAS, the Company, Anteon Corporation (formerly known as Techmatics, Inc.), a Virginia corporation and a subsidiary guarantor, CITI-SIUSS LLC, a Delaware corporation and a subsidiary guarantor, South Texas Ship Repair, Inc., a Virginia corporation and a subsidiary guarantor, and the Trustee are parties to an Indenture, dated as of May 11, 1999, as supplemented, providing for the issuance of the Company's 12% Senior Subordinated Notes due 2009 (the "Indenture"); WHEREAS, on the date hereof, the Company has acquired all of the issued and outstanding common stock of Information Spectrum, Inc., a New Jersey corporation ("ISI"), and accordingly, ISI became a wholly-owned subsidiary of the Company; WHEREAS, pursuant to Section 4.10 of the Indenture, ISI, as a new Restricted Subsidiary, is required to enter into this Supplemental Indenture as a Subsidiary Guarantor; WHEREAS, the Company, ISI and the Trustee are authorized to enter into this Supplemental Indenture; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained in this Supplemental Indenture and for other good and valuable consideration, the receipt and sufficiency of which are herein acknowledged, the Company, ISI and the Trustee hereby agree for the equal and the ratable benefit of all Holders of the Securities as follows: ARTICLE ONE Definitions 1.1 Definitions. For purposes of this Supplemental Indenture, the terms defined in the recitals shall have the meanings therein specified; any terms defined in the Indenture and not defined herein shall have the same meanings herein as therein defined; and references to Articles or Sections shall, unless the context indicates otherwise, be references to Articles or Sections of the Indenture. ARTICLE TWO Guaranty Of Securities And Other Provisions 2.1 ISI Guarantee a) ISI hereby unconditionally and irrevocably guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (i) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Securities (all the foregoing being hereinafter collectively called the "Obligations"). ISI further agrees that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from ISI and that ISI will remain bound under this Section notwithstanding any extension or renewal of any Obligation. b) ISI, the Trustee and each Holder by its acceptance of a Security hereby agrees that the Subsidiary Guaranty of ISI provided hereunder shall be subject to all terms, provisions and conditions in the Indenture that relate to a Subsidiary Guaranty (including, without limitation, Articles 11 and 12 of the Indenture). ISI further agrees to be bound by, and to comply with, all provisions of the Indenture and Subsidiary Guarantee that are applicable to a Subsidiary Guarantor. 2.2 Execution and Delivery of Subsidiary Guaranties The delivery of any Security by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of the Subsidiary Guaranty on behalf of ISI. 2.3 No Personal Liability No stockholder, officer, director, employee or incorporator, past, present or future, of ISI, as such, shall have any personal liability under the Subsidiary Guaranty of ISI by reason of his, her or its status as such stockholder, officer, director, employee or incorporator. ARTICLE THREE Miscellaneous 3.1 Effect of the Supplemental Indenture This Supplemental Indenture supplements the Indenture and shall be a part and subject to all the terms thereof. Except as supplemented hereby, the Indenture and the Securities issued thereunder shall continue in full force and effect. 3.2 Counterparts This Supplemental Indenture may be executed in counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. The parties hereto confirm that any facsimile copy of another party's executed counterparts of this Supplemental Indenture (or its signature page hereof) will be deemed to be an executed original thereof. 3.3 GOVERNING LAW. ------------- THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed on the date first above written. ANTEON INTERNATIONAL CORPORATION By:_________________________________ Name: Joseph Kampf Title: President and Chief Executive Officer INFORMATION SPECTRUM, INC. By:_________________________________ Name: Curtis Schehr Title: Vice President THE BANK OF NEW YORK, as Trustee By:_________________________________ Name: Title: EX-4 11 eigthsupplemental.txt EX 4.9 EIGTH SUPPLEMENTAL INDENTURE EIGHTH SUPPLEMENTAL INDENTURE EIGHT SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"). Dated as of December 5, 2003, among Anteon International Corporation, a Delaware corporation (the "Company"), Anteon Corporation, a Virginia corporation ("AC"), Information Spectrum, Inc., a New Jersey corporation ("ISI," and together with AC, the "Guarantors"), and the Bank of New York, (as successor to IBJ Whitehall Bank & Trust Company), a New York backing corporation, as trustee (the "Trustee"). WHEREAS, the Company, the Guarantors and the Trustee are parties to that certain Indenture, dated as of May 11, 1999 (as supplemented, the "Indenture"), pursuant to which the Company's 12% Senior Subordinated Notes due 2009 (the "Notes") were issued. Capitalized terms used but not defined herein shall have the same meanings ascribed to such terms in the Indenture; WHEREAS, Section 9.02 of the Indenture provides that the Company, the Guarantors and the Trustee may make certain amendments to the Indenture with the written consent of the Holders of at least a majority of principal amount of the Notes then outstanding; WHEREAS, the Company distributed an offer to Purchase and Consent Solicitation Statement dated as of November 20, 2003 (the "Offer to Purchase") in order to, among other things, make an offer of purchase (the "Offer") all outstanding Notes upon terms and conditions described in the Offer to Purchase and to solicit consents (the "Consents") from the Holders to amendments to the Indenture (the "Amendments"); WEHREAS, Holders of at least a majority in aggregate principal amount of the Notes outstanding have given and, as of the date hereof, have not withdrawn their consent to the Amendments; and WEHREAS, the execution of this supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture, the Company has delivered to the Trustee and Officer's Certificate and an Opinion of Counsel with respect to such authorization, and all things necessary to make this Supplemental Indenture a valid agreement of the Company, the Guarantors and the Trustee in accordance with its terms have been done. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the Guarantors and the Trustee mutually covenant and agree as follows: 1. Effect. This Supplemental Indenture shall become effective upon its execution and delivery by the parties hereto. Not withstanding the foregoing, the amendments set forth in Section 2 below will only become operative when all validly tendered Notes are accepted for purchase pursuant to the Offer. If, after the date hereof, either the Offer is terminated or withdrawn or all payments in respect of the Notes accepted for payment pursuant to the Offer are not made after the Acceptance Date (as defined in the Offer to Purchase), the amendments set forth in Section 2 shall have no effect and the Indenture shall be deemed to be amended so that it reads the same as it did immediately prior to the date hereof. 2. Amendments. The Indenture is hereby amended as follows: a) Section 1.01 is hereby amended as follows: (i) the definitions of "Additional Assets," "Asset Disposition," "Attributable Debt," "Average Life," "Change of Control," "Consolidated Coverage Ration," "Consolidated Interest Expense," "Consolidated Leverage Ration," "Consolidated Net Income," "Currency Agreement," "EBITDA," "Hedging Obligations," "Interest Rate Agreement," "Investment," "Net Available Cash," "Net Cash Proceeds," "Permitted Holders," "Permitted Investments," "Refinancing Indebtedness," "Related Business," "Related Party," "Restricted payment," "Revolving Credit Facilities," "Subordinated Obligation," "Temporary Cash Investments," and "Term Loan Facilities" are hereby deleted in their entirety; (ii) the definition of "Additional Securities" is hereby revised to delete in its entirety the following text: "subject to the Company's compliance with Section 4.03," and to add the word "the" after the word "means"; (iii) the definition of "Affiliate" is hereby revised to delete in its entirety the last sentence thereof; (iv) the definition of "Disqualified Stock" is hereby amended by adding the words ", as in effect prior to December 5, 2003" after "under Sections 4.06 and 4.09"; (v) the definition of "Securities" is hereby deleted in its entirety and replaced with the following definition: "Securities" or "Security" means one or more, as applicable, of the Securities issued under the Indenture"; and (vi) the definition of "Unrestricted Subsidiary" is hereby amended by adding the words ", as in effect prior to December 5, 2003' in the second paragraph in subsection (B) after the phrase "under Section 4.04" and by adding the words ", as in effect prior to December 5, 2003," in the third paragraph in subsection (A) after the phrase "under Section 4.03 (a)". b) Section 1.02 is hereby amended by deleting the following terms in their entirety: "Affiliate Transaction," "Change of Control Offer," "Offer," "Offer Amount," "Offer Period," and "Purchase Date". c) Section 2.02 is hereby amended by deleting the words "Section 4.03" in the fifth paragraph and by replacing such text with the words "the Indenture". d) Section 2.13 is hereby amended by deleting the words "Section 4.03" in the first paragraph and by replacing such text with the words "the Indenture". e) The text of Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08 and 4.09 of the Indenture is hereby deleted in its entirety and these Sections shall be of no further force and effect and the words "[INTENTIONALLY DELETED]" shall be inserted, in each case, in place of the deleted text. f) Section 5.01 is hereby amended to read as follows: "WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. (a) The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any Person, unless the resulting, surviving or transferee Person (the "Successor Company") (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture. (b) The Company shall not permit any Subsidiary Guarantor to consolidate with or merge with or into, or convey, transfer or lease, in one transaction or series of transactions, all or substantially all of its assets to any Person unless the resulting, surviving or transferee Person (if not the Subsidiary) shall expressly assume, by an amendment to this Indenture, in a form reasonably acceptable to the Trustee, all the obligations of such Subsidiary, if any, under its Subsidiary Guaranty;PROVIDED HOWEVER, that the preceding restrictions will not be applicable if, in connection with such consolidation, merger, conveyance, transfer or lease, the Subsidiary Guarantor will be released from its obligations under Section 11.06"; g) Section 6.01 is hereby amended by deleting the text of clauses (6) and (9) and by replacing such text with the words "[INTENTIONALLY DELETED]", by adding the word "or" after "60 days;" in clause (8), and by amending the text of clause (4) to read as follows: "the Company fails to comply with Section 4.10 and such failure continues for 30 days after the notice specified below;" h) Section 8.01 is hereby amended by deleting the text of clause (b) (ii) and by replacing such text with the words "its obligations under Section 4.10 and the operations of Sections 6.01 (4), 6.01(7), and 6.01(8) (but in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option." Section 8.01 is further amended by deleting the second sentence of the second paragraph of subsection (b) and by replacing such text with the following sentence: "If the Company exercised its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(7) and 6.01(8) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries)." 3 Notice of Supplemental Indenture. The Company shall mail notice of this supplemental Indenture to the Holders as required by Sections 9.02 of the Indenture. 4 Governing Law. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. 5 Counterparts. This Supplemental Indenture may be executed in one or more counterparts, each of which shall be an original, but all of which together shall constitute one of the same documents. 6 Effect on Indenture. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby. Except as expressly set forth herein, the Indenture is in all respect ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect, including with respect to this Supplemental Indenture. 7 Conflict with Trust Indenture Act. If any provision of this Supplemental Indenture limits, qualifies or conflicts with any provision of the Trust Indenture Act that may not be so limited, qualifies or conflicted with, such provision of such Act shall control. If any provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Supplemental Indenture, as the case may be. 8 Separability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 9 Effect of Headings. The Article and Section heading herein are for convenience only and shall not affect the construction hereof. 10 Benefits of Supplemental Indenture, etc. Nothing in this supplemental Indenture, the Indenture or the Notes, express or implied, shall give to any person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of Notes, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Supplemental Indenture or the Notes. 11 Successors and Assigns. All agreements of the Company and the Guarantors in this Supplemental Indenture and the Notes shall bind their respective successors. 12 Trustee. The Trustee makes no representations as to the validity or sufficiency of this Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not of the Trustee.[Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties have executed this Supplemental Indenture as of the date first written above. ANTEON INTERNATIONAL CORPORATION By: ----------------------------------------- Name : Curtis L. Schehr Title: Senior Vice President, General Counsel and Secretary ANTEON CORPORATION By: ----------------------------------------- Name : Curtis L. Schehr Title: Senior Vice President, General Counsel and Secretary INFORMATION SPECTRUM, INC. By: Name : Curtis L. Schehr Title: Vice President / Assistant Secretary THE BANK OF NEW YORK as Trustee By: -------------------------------------- Name: Title: EX-99 12 valuation.txt VALUATIONS AND QUALIFYING ACCOUNTS S-2
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (in thousands) Additions --------- Balance at Charged to beginning costs and Charged to Balance at of period expenses other accounts Deductions end of period ------------- ----------- ---------------- ------------- ----------------- 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 Year ended December 31, 2003 Allowance for doubtful accounts............ $ 4,248 $ 409 $ 500* $ (1,035) $ 4,122 Deferred tax asset valuation allowance..... $ 295 $ -- $ -- $ -- $ 295
*Represents amounts recognized from acquired companies. EX-23 13 auditorsconsent.txt AUDITORS' CONSENT 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. 333-111249) on Form S-3 of Anteon International Corporation and subsidiaries of our report dated February 17, 2004, with respect to the consolidated balance sheets of Anteon International Corporation and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income (loss) and cash flows for each of the years in the three-year period ended December 31, 2003, and all related financial statement schedules, which report appears in the December 31, 2003, annual report on Form 10-K of Anteon International Corporation and subsidiaries. Our report dated February 17, 2004 contains an explanatory paragraph that stated that effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangibles. Our report dated February 17, 2004 also contains an explanatory paragraph that states that effective January 1, 2003 the Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment to FASB Statement 13 and Technical Corrections. KPMG LLP McLean, Virginia March 4, 2004 -----END PRIVACY-ENHANCED MESSAGE-----