FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT
Exhibit
10.32
FIRST
AMENDMENT
TO
FOURTH AMENDED AND RESTATED
LOAN AGREEMENT
This
First Amendment to Fourth Amended and Restated Loan Agreement (this “First Amendment”) is made as
of the 31 day of December, 2008, by and among
▇▇▇▇▇
Brothers ▇▇▇▇▇▇▇▇ & Co., as Administrative Agent (hereinafter, the “Administrative Agent”), a
general partnership organized under the laws of the State of New York with
offices at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; and
TD Bank,
N.A., as Documentation Agent (hereinafter, the “Documentation Agent”) a
national banking association with offices at 7 New England Executive Park,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; and
Bank of
America, N.A., as Syndication Agent (hereinafter, the “Syndication Agent”), and,
together with the Administrative Agent and the Documentation Agent, the “Agents”), a national banking
association with offices at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇,
as Agents
on behalf of ▇▇▇▇▇ Brothers ▇▇▇▇▇▇▇▇ & Co., TD Bank, N.A., Bank of America,
N.A., and the other financial institutions which may hereafter become lenders to
the Loan Agreement (as defined below) (each such party a “Lender” and collectively the
“Lenders”),
and
Dynamics
Research Corporation (hereinafter, the “Lead Borrower”), a
Massachusetts corporation, with its principal executive offices at ▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇, as agent for itself and each of
DRC
International Corporation (“International”), a
Massachusetts corporation with its principal executive offices at ▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇;
▇.▇. ▇▇▇▇
Associates, Inc. (“▇.▇.
▇▇▇▇”), a Delaware corporation with its principal executive offices at ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇; and
Kadix
Systems, LLC (“Kadix”),
a Virginia limited liability company with its principal executive offices at ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇.
(Each of
the Lead Borrower, International, ▇.▇. ▇▇▇▇, and Kadix being sometimes
hereinafter referred to individually as a “Borrower” and collectively as
the “Borrowers”).
Preliminary
Statements
WHEREAS,
the Borrowers, the Lenders and the Agents are parties to a certain Fourth
Amended and Restated Loan Agreement dated as of August 1, 2008 (as may be
amended and in effect from time to time, the “Loan Agreement”);
WHEREAS,
the Borrowers have requested that the parties hereto amend the Loan Agreement to
modify certain provisions of the Loan Agreement;
and
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WHEREAS,
the Agents and the Lenders each agree to modify and amend certain provisions of
the Loan Agreement, subject to the terms and conditions set forth
herein;
NOW
THEREFORE, as an additional inducement for the Lenders to maintain the credit
facilities on the terms and conditions set forth in the Loan Agreement as
amended hereby, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the Borrowers herby
covenant and agree with the Agents and the Lenders as follows:
1. Definitions. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Loan Agreement.
2. Amendments to Loan
Agreement.
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(a)
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Article
1 of the Loan Agreement is hereby amended by deleting the following
definitions of “2008 Reserve” and “EBITDA” contained
therein:
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““2008 Reserve”: is defined in
Section 8-10.
“EBITDA”: for any period, the
Consolidated Net Income of the Lead Borrower and its Subsidiaries for such
period adjusted by adding back thereto amounts deducted in computing such
Consolidated Net Income in respect of each of (a) Consolidated Interest Expense,
(b) provision for taxes in respect of income and profits of the Lead Borrower
and its Subsidiaries, (c) depreciation and amortization of the Lead Borrower and
its Subsidiaries, and (d) other non-cash expenses incurred pursuant to employee
equity compensation plans approved by Borrower’s board of directors, each as
determined in accordance with GAAP; provided, however, the
calculation of Consolidated Net Income for the periods ending September 30, 2008
and December 31, 2008 shall not include the 2008 Reserve.”
and
substituting the following text therefore:
““2008 Reserve”: is that certain
pre-tax charge incurred in connection with the resolution of certain litigation
involving the Lead Borrower, as more particularly described in EXHIBIT 6-17 hereof; provided, that solely
for purposes of calculating EBITDA when determining (i) the Fixed Charge
Coverage Ratio in Section 8-7 and (ii) the Leverage Ratio in Section 8-9, in
each case for the quarterly periods listed below, such 2008 Reserve shall not
exceed the following for the measurement periods indicated:
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Trailing Four Quarter
Period Ended
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Maximum 2008 Reserve
Amount
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September
30, 2008
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$14,819,000.00
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December
31, 2008
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$14,819,000.00
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March
31, 2009
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$6,000,000.00
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June
30, 2009
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$6,000,000.00
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“EBITDA”: for any period, the
Consolidated Net Income of the Lead Borrower and its Subsidiaries for such
period adjusted by adding back thereto amounts deducted in computing such
Consolidated Net Income in respect of each of (a) Consolidated Interest Expense,
(b) provision for taxes in respect of income and profits of the Lead Borrower
and its Subsidiaries, (c) depreciation and amortization of the Lead Borrower and
its Subsidiaries, (d) other non-cash expenses incurred pursuant to employee
equity compensation plans approved by Borrower’s board of directors, and (e) the
applicable 2008 Reserve, if any, actually incurred, each as determined in
accordance with GAAP.”
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(b)
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Section
6.27(b) of the Loan Agreement is hereby amended by deleting the following
text appearing therein in its
entirety:
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“(b) The
Borrowers do not have any contingent obligations or obligation under any Lease
or Capital Lease which is not noted in the Borrowers’ financial statements
furnished to the Lenders or has been otherwise disclosed in writing to the
Lenders prior to the execution of this Agreement.”
and
substituting the following text therefore:
“(b) The
Borrowers do not have any contingent obligations, other than the 2008 Reserve,
or obligation under any Lease or Capital Lease which is not noted in the
Borrowers’ financial statements furnished to the Lenders or has been otherwise
disclosed in writing to the Lenders prior to the execution of this
Agreement.”
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(c)
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Section
8.10 of the Loan Agreement is hereby amended by deleting the following
text appearing therein in its
entirety:
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“8-10
Net
Profit. The
Borrowers shall earn a minimum Consolidated Net Income, as determined in
accordance with GAAP, of at least $1.00, measured quarterly as of the end of
each fiscal quarter of each fiscal year on a cumulative basis as and for each
such fiscal year, commencing with the fiscal year ending December 31, 2008;
provided, however, the
calculation of Consolidated Net Income for the periods ending June 30, 2008,
September 30, 2008 and December 31, 2008 shall not include a reserve for a
one-time pre-tax charge in an amount up to $8,900,000 (the “2008 Reserve”) in connection
with the resolution of certain litigation involving the Lead Borrower, as more
particularly described in paragraph 2 of EXHIBIT 6-17.”
and
substituting the following text therefore:
“8-10
Net
Profit. The
Borrowers shall earn a minimum Consolidated Net Income, as
determined in accordance with GAAP, of at least $1.00, measured quarterly, as of
the end of each fiscal quarter.”
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(d)
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Exhibit
6-17 to the Loan Agreement is hereby deleted and replaced with the text
attached hereto as Exhibit
A.
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3. Amendment
Fee. In consideration of the Agents and the Lenders entering
into this First Amendment, the Borrowers shall pay to the Administrative Agent,
for the benefit of the Lenders, a fee (the “Amendment
Fee”) in the amount of Seventy Five Thousand Dollars ($75,000.00, to be
shared by the Lenders on a pro rata basis, as agreed among the Lenders) upon the
execution of this First
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Amendment,
which Amendment Fee shall be deemed fully earned as of the date hereof and shall
be distributed by the Administrative Agent to the Lenders.
4. Conditions to
Effectiveness. This First Amendment shall not be effective
until each of the following conditions precedent have been fulfilled to the
satisfaction of the Administrative Agent:
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(a)
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This
First Amendment shall have been duly executed and delivered by the
Borrowers, the Administrative Agent and the Lenders and the Administrative
Agent shall have received a fully executed copy
hereof.
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(b)
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The
Administrative Agent shall have received such other documents,
instruments, and certificates relating to the transactions contemplated by
this First Amendment as may be reasonably requested by the Administrative
Agent.
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(c)
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The
Administrative Agent shall have received the Amendment Fee from the
Borrowers.
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(d)
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No
default or Event of Default shall be continuing immediately after giving
effect to the execution of this First
Amendment.
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5. Ratification of Loan
Documents. Except as specifically amended or modified in this
First Amendment, all of the terms and conditions of the Loan Agreement and each
of the other Loan Documents shall remain in full force and
effect. Each of the Borrowers hereby ratifies, confirms, and
reaffirms all representations, warranties, and covenants contained
therein. Each of the Borrowers hereby represents and warrants that,
on the date hereof, no default or Event of Default exists. Each of
the Borrowers further acknowledges, confirms and agrees that the Borrowers do
not have any offsets, defenses, or counterclaims against the Agents or the
Lenders arising out of the Loan Agreement or the other Loan Documents, and to
the extent that any such offsets, defenses, or counterclaims may exist, each of
the Borrowers hereby WAIVES and RELEASES the Agents and the Lenders
therefrom.
6. Miscellaneous.
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(a)
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This
First Amendment may be executed in several counterparts and by each party
on a separate counterpart, each of which when so executed and delivered
shall be an original, and all of which together shall constitute one
instrument.
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(b)
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This
First Amendment expresses the entire understanding of the parties with
respect to the transactions contemplated hereby. No prior
negotiations or discussions shall limit, modify, or otherwise affect the
provisions hereof.
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(c)
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Any
determination that any provision of this First Amendment or any
application hereof is invalid, illegal or unenforceable in any respect and
in any instance shall not affect the validity, legality, or enforceability
of such provision in any other instance, or the validity, legality or
enforceability of any other provisions of this First
Amendment.
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(d)
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The
Borrowers each warrant and represent that each such Borrower has consulted
with independent legal counsel of such Borrower’s selection in connection
with this First Amendment and is not relying on any representations or
warranties of the Agents or the Lenders, or their respective counsels, in
entering into this First Amendment.
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(e)
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Except
as expressly provided herein, the amendments set forth herein shall be
effective as of the date of this First
Amendment.
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[Remainder
of this page left intentionally blank. Signature page
follows.]
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IN
WITNESS WHEREOF, the parties have duly executed this First Amendment as a sealed
instrument as of the date first set forth above.
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DYNAMICS
RESEARCH CORPORATON
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(“Lead
Borrower and Borrower”)
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By:
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
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Senior
Vice President - Finance,
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CFO
and Treasurer
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DRC
INTERNATIONAL CORPORATON
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(“Borrower”)
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By:
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
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Vice
President - Finance CFO
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▇.▇.
▇▇▇▇ ASSOCIATES, INC.
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(“Borrower”)
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By:
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
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Treasurer,
CFO and Assistant
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Secretary
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KADIX
SYSTEMS, LLC
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(“Borrower”)
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By:
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/s/
▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇
▇▇▇▇▇▇▇
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Title:
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Manager
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[Signature Page to First
Amendment to
Fourth Amended and Restated
Loan Agreement]
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▇▇▇▇▇
BROTHERS ▇▇▇▇▇▇▇▇ & CO.
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(“Administrative Agent and
Lender”)
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By:
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/s/
▇▇▇▇▇▇ ▇. Head, Jr.
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Name:
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▇▇▇▇▇▇
▇. Head, Jr.
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Title:
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S.V.P.
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TD
BANK, N.A.
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(“Documentation Agent and
Lender”)
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By:
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇
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Title:
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SVP
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BANK
OF AMERICA, N.A.
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(“Syndication Agent and
Lender”)
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By:
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/s/
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name:
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▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
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Title:
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SVP
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[Signature Page to First
Amendment to
Fourth Amended and Restated
Loan Agreement]
EXHIBIT
A
Exhibit
6-17
DYNAMICS RESEARCH
CORPORATION
Litigation
1. On
October 26, 2000, two former Company employees were indicted and charged with
conspiracy to defraud the U.S. Air Force and wire fraud, among other charges,
arising out of a scheme to defraud the federal government out of approximately
$10 million. Both men subsequently pled guilty to the principal charges against
them. On October 9, 2003, the U.S. Attorney filed a civil complaint in the U.S.
District Court for the District of Massachusetts against the Company based in
substantial part upon the actions and omissions of the former employees that
gave rise to the criminal cases against them. In the civil action, the U.S.
Attorney has asserted three claims against the Company. These claims,
which cannot lead to multiple awards, are based on the False Claims Act, the
Anti-Kickback Act, and breach of contract for which the government estimates
damages at approximately $24 million, $20 million and $10 million, respectively.
The U.S. Attorney is also seeking recovery on certain common law claims and
equitable claims as well as for recovery of costs, and interest on the breach of
contract damages. The maximum possible awardable amount of damages, based
on the governments’ claims, is estimated to be $26 million. On February
14, 2007, the U.S. Attorney filed a motion for summary judgment as to liability
and as to damages in this matter. On March 31, 2008, the Court issued a
Memorandum on Summary Judgment Motion granting summary judgment in favor of the
Government on the breach of contract, False Claims Act and Anti-Kickback Act
claims but, due to substantial disputed facts, denied summary judgment on
damages. Regarding the alleged actual damages, the Company believes that it has
substantive defenses and intends to vigorously defend itself. Upon
completion of the proceedings in District Court, the Company would consider
appealing the District Court’s decision granting summary judgment to the
Government depending on the outcome of the District Court proceedings, however,
the Company has reached a tentative agreement with the Government to settle the
case solely for the Breach of Contract claims for $15M, reduced by $5.8M for
estimated tax benefits, for an after-tax effect of $9.2M.
2. On
June 28, 2005, a suit, characterized as a class action employee suit, was filed
in the U.S. District Court for the District of Massachusetts alleging violations
of the Fair Labor Standards Act and certain provisions of Massachusetts General
Laws. The Company believes that its practices complied with the Fair Labor
Standards Act and Massachusetts General Laws. The Company intends to vigorously
defend itself and has sought to have the complaint dismissed from District Court
and addressed in accordance with the Company’s mandatory dispute resolution
program for the arbitration of workplace complaints. On April 10, 2006, the U.S.
District Court for the District of Massachusetts entered an order granting in
part the Company’s motion to dismiss the civil action filed against the Company,
and to compel compliance with its mandatory dispute resolution program,
directing that the parties arbitrate the aforementioned claims, and striking the
class action waiver which was part of the dispute resolution program. Following
the District Court’s decision, the plaintiffs commenced arbitration before the
American Arbitration Association, asserting the same claims as they asserted in
the District Court. On January 26, 2007 the Company filed an appeal with the
United States Court of Appeals for the Second Circuit appealing the portion of
the District Court’s decision that the class action waiver is not enforceable.
The U.S. Court of Appeals on November 19, 2007 concurred with the District
Court’s opinion that the matter should proceed in arbitration and remanded the
matter to the District Court. The parties have informed the District
Court that they will proceed in arbitration as a class action. In the
arbitration, the Company has filed a Motion to Dismiss and/or for Summary
Disposition, asserting that
the
Company is entitled to use the “window of correction” provided by the Fair Labor
Standards Act’s regulations and that the arbitration should be dismissed without
further action in the arbitration. The motion is was denied by the
arbitrator and the case will proceed to the discovery stage and assertions of
additional defense motions.