SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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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 000-23967
ZMAX CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 52-2040275
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20251 CENTURY BLVD. GERMANTOWN, MD 20874
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 353-9500
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of May 13,
1998, 11,729,714 shares of common stock, $.001 par value per share.
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ZMAX CORPORATION
<TABLE>
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
(unaudited) and December 31, 1997 1
Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 (unaudited) 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 (unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K 13
SIGNATURES 16
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZMAX CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,544,703 $ 6,405,084
Accounts receivable 1,407,311 1,067,258
Prepaid expenses and other assets 61,558 81,506
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Total current assets 7,013,572 7,553,848
Property and equipment, net 301,900 277,981
Intangible assets, net 3,742,085 4,033,265
Other assets 4,983 4,983
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Total assets $ 11,062,540 $ 11,870,077
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The accompanying notes are an integral part of these balance sheets.
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LIABILITIES & SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 983,936 $ 826,117
Customer deposits 907,549 926,039
Current portion of long-term debt 274,193 539,541
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Total current liabilities 2,165,678 2,291,697
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Total liabilities 2,165,678 2,291,697
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Commitments and contingencies (Notes 4 and 5)
Stockholders' equity:
Preferred stock, $0.001 par value,
10,000,000 shares authorized,
none issued and outstanding - -
Common stock, $0.001 par value,
50,000,000 shares authorized,
11,729,714 shares issued and
outstanding as of March 31, 1998
and December 31, 1997, 479,801
shares subject to Cancellation
Agreements as of March 31, 1998 and
December 31, 1997 (Note 3) 11,729 11,729
Additional paid-in capital 35,280,105 35,280,105
Accumulated deficit (26,394,972) (25,713,454)
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Total stockholders' equity 8,896,861 9,578,380
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Total liabilities and
stockholders' equity $ 11,062,540 $ 11,870,077
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
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ZMAX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1998 1997
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 1,524,324 $ -
Operating expenses:
Cost of revenues 466,808 -
Research and development 127,687 -
Sales and marketing 265,509 157,748
General and administrative 1,057,105 1,019,195
Amortization and depreciation 321,642 154,730
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Loss from operations (714,427) (1,331,673)
Other Income (expense):
Interest income 55,431 49,478
Interest expense (6,855) (889,446)
Other (15,880) 1,218
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Net loss before income taxes (681,731) (2,170,423)
(Provision) benefit for income taxes - 26,096
Net loss $ (681,731) $ (2,144,327)
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Basic and diluted net loss per share $ (0.08) $ (0.63)
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Basic and diluted weighted average shares
outstanding 8,449,913 3,424,271
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</TABLE>
The accompanying notes are an integral part of these statements.
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ZMAX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1998 1997
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (681,731) $ (2,144,327)
Adjustments to reconcile loss to net cash
Depreciation and amortization expense 321,642 154,730
Amortization of deferred financing costs - 148,967
Amortization of discount on Notes and Debentures - 591,408
Stock compensation expense - 300,000
Changes in assets and liabilities
Accounts receivable (340,052) -
Prepaid expenses and other assets 19,947 17,649
Accounts payable and accrued expenses 158,032 148,650
Deferred income tax - (26,096)
Customer deposits (18,490) -
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Net cash used in operating activities (540,652) (809,019)
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Net cash used in investing activities:
Purchases of property (54,381) (172,158)
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Net cash used in investing activities (54,381) (172,158)
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Net cash used in financing activities:
Payments on long-term obligations (265,348) (129,576)
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Net cash used in financing activities (265,348) (129,576)
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Net decrease in cash (860,381) (1,110,753)
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Cash, beginning of period 6,405,084 4,842,169
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Cash, end of period $ 5,544,703 $ 3,731,416
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
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ZMAX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, ORGANIZATION, AND NATURE OF OPERATIONS:
BASIS OF PRESENTATION
The unaudited financial statements as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997, presented herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. These financial statements
should be read in conjunction with the financial statements of ZMAX
Corporation, as of December 31, 1997, and notes there to included in the
Company's 1997 Annual Report on Form 10-K. The financial statements reflect
all adjustments (consisting of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial position,
results of operations and cash flows of the Company as of March 31, 1998 and
1997. The results of operations for the three ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
On November 6, 1996, ZMAX Corporation ("ZMAX"), a shell company listed
on the OTC Bulletin Board, acquired 100% of the outstanding common stock of
Century Services, Inc. ("CSI"), a Maryland corporation. CSI was a privately
held company formed on December 13, 1995 to perform computer re-engineering
with a focus on providing a solution to the Year 2000 problem.
NATURE OF OPERATIONS
Prior to the CSI transaction, ZMAX's activities consisted of efforts to
establish a new business and raise capital. The operations of CSI consisted of
activities to obtain financing, to acquire and develop its proprietary Year
2000 software re-engineering tools and methodologies, and to market its
services to potential customers. Since the acquisition of CSI, the Company has
been focused on the computer software re-engineering market. The Company
generated its first revenues during 1997. Substantial time may pass before
significant revenues and profitability may be realized and, during this
period, the Company may require additional funds that may not be available to
it.
The Company has limited experience in providing its Year 2000 or
"millennium" services. The Company has completed a limited number of pilots
and conversion projects. There can be no assurance that the Company will be
successful in completing large-scale conversions, that the Company will not
experience delays or failures in providing its millennium services, or that
its millennium services will be effective. The failure of the Company's Year
2000 methodology to function properly or the existence of significant errors
or bugs following completion of millennium conversions could necessitate
significant expenditures by the Company to remedy the problem.
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The consequences of failures, errors or bugs could materially and adversely
affect the Company's business, operating results and financial condition.
The Company's operations are subject to certain risks and uncertainties,
including among others, rapidly changing technology, uncertain and undeveloped
markets for millennium services, current and potential competitors with
greater financial, technological, production and marketing resources, the need
to develop additional products and services, limited protection of proprietary
information, the risk of third party claims of infringement, potential
contract liability related to the Company's access to key aspects of
customer's computer systems, dependence upon strategic alliances, the need for
additional technical personnel, dependence on key management personnel,
management of growth, uncertainty of future profitability and possible
fluctuations in financial results. In addition, there are risks associated
with the market activity in ZMAX stock.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
Investments with original maturities of three months or less are
considered cash equivalents for purpose of these financial statements.
REVENUE RECOGNITION
Revenues on time-and -materials contracts are recognized based upon
hours incurred at contract rates plus direct costs. Revenues on fixed-price
contracts are recognized on the percentage-of-completion method based on costs
incurred in relation to total estimated costs. Anticipated losses are
recognized as soon as they become known. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Unbilled accounts receivable on time and materials contracts represent
costs incurred and gross profit recognized near the period end but not billed
until the following period. Unbilled accounts receivable on fixed-price
contracts consists of amounts incurred which are not yet invoicable under
contract terms. At March 31, 1998, unbilled accounts receivable totaled
$521,224.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate. SFAS No. 109 requires that the net deferred tax asset be
reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
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NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standard No.
128, "Earnings Per Share" which requires dual presentation of basic and
diluted earnings per share on the face of the statement of operations for all
periods presented. Basic earnings per share excludes dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue Common Stock were exercised or converted into Common Stock
or resulted in the issuance of Common Stock that then shared in the earnings
of the Company. Options and warrants to purchase shares of Common Stock were
not included in the computation of loss per share as the effect would be
antidilutive. Outstanding shares subject to cancellation agreements and
restricted shares are also not included. As a result, the basic and diluted
earnings per share amounts are identical.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These statements become effective
for the Company's 1998 financial statements. The adoption of these new
pronouncements will not impact the Company's results of operations, financial
position or cash flows.
3. COMMON STOCK AND PREFERRED STOCK:
STOCK SUBJECT TO CANCELLATION
In September 1995, ZMAX entered into stock cancellation agreements with
certain stockholders that provided for the cancellation of 775,808 shares of
ZMAX common stock. In March 1997, 296,007 of these shares were returned to the
Company and canceled. An additional 479,801 shares are subject to cancellation
but had not been returned to the Company for cancellation as of March 31,
1998.
STOCK PURCHASE AGREEMENT
On November 6, 1996, a Stock Purchase Agreement between CSI and ZMAX was
executed and the transaction was consummated. In return for all of the
outstanding stock of CSI, ZMAX issued 3,200,000 shares of common stock to the
two stockholders of CSI. At the closing, the former stockholders of CSI
retained 400,000 shares of such ZMAX common stock and deposited their
remaining 2,800,000 shares of ZMAX common stock (the "Restricted Stock") into
an escrow subject to quarterly release of such shares back to the former CSI
stockholders based upon the cash flows (as defined) of CSI. Under the terms of
the Stock Purchase Agreement, one share of Restricted Stock will to be
released to such stockholders for every $1.25 of cash flow generated by CSI.
The former CSI stockholders are entitled to vote the shares of the Restricted
Stock as well as to receive their respective pro rata share of any
distributions or dividends declared thereon. The Restricted Stock is subject
to forfeiture under certain conditions. The transaction was accounted for as a
recapitalization of CSI with CSI as the acquirer (a reverse acquisition).
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In 1998, ZMAX and the former CSI stockholders reformed certain of the
agreements relating to ZMAX's acquisition of CSI to reflect the original
intent of the parties. As a result, the original escrow to hold the Restricted
Stock was replaced by the former CSI stockholders holding their shares of
Restricted Stock. The amended agreements, however, provide for the lapse of
such restrictions on transferability on November 6, 2001 if such restrictions
have not already been released as a result of the CSI cash flow.
4. COMMITMENTS AND CONTINGENCIES:
LITIGATION
On April 17, 1997, Alan L. Leaven and Canadian Petroleum Corporation
filed suit in the Third Judicial district Court of Salt Lake County, Utah
against the Company (f/k/a Mediterranean Oil Corp., f/k/a Pandora, Inc.) and
John Does. The complaint alleges various common law claims arising from the
alleged untimely failure to remove legends restricting the transferability of
shares of the Company's common stock that had been issued by the Company in
payment of legal fees incurred. The plaintiffs have computed damages in the
approximate amount of $87,000. The Company believes the complaint is without
legal merit and will vigorously defend itself. The Company accrued $40,000 for
legal expenses related to this issue in 1997. As of March 31, 1998, $9,744 had
been incurred for this matter.
The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial position or future
operating results of the Company, and adequate provision for any potential
losses has been made in the accompanying financial statements.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the company should be read in conjunction with the
financial statements and the notes thereto which appear elsewhere in this
quarterly report and its Annual Report on Form 10-K for the year ended
December 31, 1997.
The information set forth below includes forward-looking statements
relating to actual results that may differ from projected results. Some
factors that could cause results to differ materially from those projected in
the forward-looking statements are set forth below. Readers are cautioned not
to put undue reliance on forward-looking statements. The Company disclaims any
intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
OVERVIEW
On November 6, 1996, ZMAX, a shell company listed on the NASD OTC
Bulletin Board acquired all of the outstanding stock of CSI. Prior to this
transaction, ZMAX had no operations and its activities consisted of efforts to
establish or acquire a new business and to raise capital. CSI was a privately
held company formed on December 13, 1995. For financial reporting purposes,
the acquisition has been treated as a recapitalization of CSI with CSI as the
acquirer (a reverse acquisition). The historical financial statements prior to
November 6, 1996 are those of CSI.
CSI markets millennium services to a variety of commercial and
government organizations. In the next 12 months, the Company intends to make
additional investments in the further development and marketing of CSI's
millennium services and other software re-engineering services. In addition,
the Company currently intends to pursue acquisitions in the information
technology industry that will complement CSI.
In view of the development costs relating to CSI's millennium services,
the Company believes the period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication
of future performance. Specifically, as CSI increases its workforce in order
to meet the future demand for its millennium services, it will incur training,
salary and other costs prior to the recognition of related revenues. In
addition, most of CSI's revenues are expected to be derived from a relatively
small number of large-scale, comprehensive millennium conversion projects.
Consequently, CSI's revenues and operating results are expected to be subject
to substantial variations in any given year and from quarter to quarter.
The Company believes some demand for CSI's millennium services may
continue to exist for some time after the year 2000, although this demand will
diminish significantly over time and will eventually disappear. However, the
Company's proprietary computer software tools may be used in conversion
projects unrelated to Year 2000 compliance. The Company plans to pursue
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businesses and business opportunities unrelated to the millennium problem in
the information services market and to develop products and services to take
advantage of these opportunities, such as migrating a client's software
application from a mainframe to a client-server environment. However, there
can be no assurance that the Company will be able to successfully expand its
business beyond the millennium conversion market. The failure to diversify and
develop additional products and services could materially and adversely affect
the Company's business, operating results and financial condition.
Most of the Company's current cost structure is fixed. Expenses consist
primarily of the salaries and benefits paid to the Company's technical,
marketing and administrative personnel and benefits, travel, promotions and
trade show expenses, office expenses and other general overhead costs. The
Amortization and depreciation expenses relate to property and equipment and
intangible assets. As a result of its plan to expand its operations and to
offer a wider range of information services, the Company expects these costs
to increase.
Margins for the Company's millennium services business will depend upon
volume of service because a significant portion of the Company's cost
structure is fixed. Most of the Company's millennium conversion projects are
expected to be priced on a fixed fee basis. Therefore, the profitability of an
individual project will depend upon completing the project within the
estimated number of staff hours and within the agreed time frame.
RESULTS OF OPERATIONS
REVENUES. Net revenues for the quarter ended March 31, 1998, were
approximately $1.5 million. During the quarter ended March 31, 1997, the
Company had not yet commenced operations and therefore had not recognized any
revenues. The increase in revenues in 1998 was a result of the commencement of
operations during the second quarter of 1997 with several contracts commencing
during the fourth quarter of 1997 and continuing into the first quarter of
1998.
GROSS PROFIT. Gross profit for the quarter ended March 31, 1998, was
approximately 69.4% of revenues. The Company continues to face competition and
there can be no assurances that the current levels of gross margin can be
maintained.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
quarter ended March 31, 1998 were approximately $128,000. During the first
quarter of 1998, the company initiated efforts to refine its Year 2000 toolset
and to prepare the toolset for potential licensing to end-users.
SALES AND MARKETING. Sales and marketing expenses for the quarter ended
March 31, 1998 were approximately $266,000 as compared to $158,000 during the
quarter ended March 31, 1997. The increase related primarily to the increased
size of the sales and marketing infrastructure including additional personnel,
commissions and marketing expenses directly related to implemented the
Company's sales strategy.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
quarter ended March 31, 1998 were approximately $1.1 million as compared to
$1.0 million during the quarter ended March 31, 1997. The 1997 expenses
included $300,000 of stock compensation expense for services provided by a
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consultant. The remaining increase in expenses during the 1998 period is a
result of increased staffing levels and the development of infrastructure for
finance, administration, and general management activities to support the
growth of the business.
OTHER INCOME (EXPENSE). Other income for the quarter ended March 31,
1998 was approximately $33,000 as compared to other expenses of $839,000
during the quarter ended March 31, 1997. The decrease in expense in 1998
relates primarily to the elimination of &875,000 in interest expense related
to the amortization of the deferred financing costs and the amortization of a
discount on the convertible notes. The convertible notes were converted into
common stock in April 1997.
NET LOSS The net loss for the quarter ended March 31, 1998 was
approximately $682,000 as compared to $2,144,000 for the quarter ended March
31, 1997. This decrease is primarily a result of the revenues that generated
gross profit of approximately $1,058,000 and the reduction of interest expense
of $875,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since inception has financed its operations and capital
expenditures through the sale of stock, convertible notes, convertible
exchangeable debentures and the proceeds from the exchange and exercise of the
warrants related to the convertible exchangeable debentures. Cash used in
operations during the quarters ended March 31, 1998 and 1997 was $541,000 and
$809,000 respectively. The decrease in cash used in operations during 1998 was
primarily a result of the generation of gross profit which was offset by an
increase in accounts receivable. Capital expenditures were approximately
$54,000 and $172,000 for the quarters ended March 31, 1998 and 1997,
respectively, and related primarily to the computer equipment purchased to
support the increased number of employees.
As of March 31, 1998, the Company had working capital of $4.8 million.
The Company's primary source of liquidity consists of $5.5 million in cash and
cash equivalents.
The market for the Company's products is growing rapidly and the
Company's business environment is characterized by rapid technological
changes. The Company requires substantial working capital to fund its
business, particularly to finance accounts receivable, research and
development, and capital expenditures. The Company currently has no
commitments for capital expenditures. The Company's future capital
requirements will depend on many factors including the rate of revenue growth,
if any, the timing and extent of spending to support research and development,
technological changes and market acceptance of the Company's services. The
Company believes that its current cash position is sufficient to meet its
capital expenditure and working capital requirements for the near term;
however, the growth and technological change make it difficult for the Company
to predict future liquidity requirements with certainty. Over the longer term,
the Company must successfully execute its plans to generate significant
positive cash flows if it is to sustain adequate liquidity without impairing
growth or requiring the infusion of additional funds from external sources of
cash. Additionally, a major expansion, such as would occur with the
acquisition of a major new subsidiary, might also require external financing
that could include additional debt or equity capital. There can be no
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assurance that additional financing, if required, will be available on
acceptable terms, if at all.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The foregoing discussion contains forward-looking information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and is subject to the safe harbor created by
those sections. The Company assumes no obligations to update the information
contained in this press release. The Company's future results may be impacted
by various important factors including, but not limited to, its ability to
implement its provider deployment model, its lengthy sales cycle, dependence
on its major customers, risks associated with rapid technological change and
the emerging services market, potential fluctuations in quarterly results, its
dependence on sole and limited source suppliers and fluctuations in component
pricing and its dependence on key employees and other risk factors set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NO. DESCRIPTION
2.1 Stock Purchase Agreement among ZMAX Corporation, Michael C. Higgins and
Michael S. Cannon, dated November 6, 1996, for the acquisition of
Century Services, Inc. (Incorporated herein by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)
2.2 Agreement and Plan of Merger between ZMAX Corporation and New ZMAX
Corporation, dated June 10, 1997. (Incorporated herein by reference to
Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File
No. 333-29833).)
3.1 Amended and Restated Certificate of Incorporation of ZMAX Corporation.
(Incorporated herein by reference to Exhibit 3.5 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
3.2 Bylaws of ZMAX Corporation. (Incorporated herein by reference to Exhibit
3.6 to the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)
4.1 Form of Warrant to Purchase Common Stock of ZMAX Corporation.
(Incorporated herein by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
10.1 ZMAX Corporation 1997 Stock Incentive Plan. (Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-4 (File No. 333- 29833).)*
10.2 Form of ZMAX Corporation 1997 Non-qualified Stock Option Award (form of
grant and vesting schedule). (Incorporated herein by reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form S-4
(File No. 333-29833).)*
10.3 ZMAX Corporation 1997 Directors Formula Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-4 (File No. 333-29833).)*
10.4 Form of ZMAX Corporation Directors Formula Stock Option Award (form of
grant and vesting schedule). (Incorporated herein by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form S-4
(File No. 333-29833).)*
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10.5 Employment Agreement between Century Services, Inc. and Michael C.
Higgins, dated November 6, 1996. (Incorporated herein by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form S-4
(File No. 333-29833).)*
10.6 First Amendment to the Employment Agreement between Century Services,
Inc. and Michael C. Higgins, dated May 21, 1997. (Incorporated herein by
reference to Exhibit 10.6 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)*
10.7 Employment Agreement between Century Services, Inc. and Joseph Yeh,
dated June 18, 1997. (Incorporated herein by reference to Exhibit 10.7
to the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)*
10.8 Separation Agreement between Century Services, Inc. and Michael S.
Cannon, dated April 22, 1997. (Incorporated herein by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form S-4
(File No. 333-29833).)*
10.9 Consulting Agreement among ZMAX Corporation, MBY, Inc. and Michel Berty,
dated April 1, 1997. (Incorporated herein by reference to Exhibit 10.9
to the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)*
10.10 Consulting Agreement among ZMAX Corporation, Wareham Management Ltd. and
G.W. Norman Wareham, dated May 30, 1997. (Incorporated herein by
reference to Exhibit 10.10 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)*
10.11 Consulting Agreement between ZMAX Corporation and Shafiq Nazerali, dated
May 30, 1997. (Incorporated herein by reference to Exhibit 10.11 to the
Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*
10.12 Earn Out Stock Escrow Agreement among ZMAX Corporation, Michael C.
Higgins, Michael S. Cannon and Powell, Goldstein, Frazer & Murphy, dated
November 6, 1996. (Incorporated herein by reference to Exhibit 10.12 to
the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)
10.13 ZMAX Corporation Stockholders Agreement among Michael C. Higgins,
Michael S. Cannon and ZMAX Corporation, dated November 6, 1996.
(Incorporated herein by reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
10.14 Stock Pledge and Security Agreement from Michael C. Higgins in favor of
ZMAX Corporation, dated November 6, 1996. (Incorporated herein by
reference to Exhibit 10.14 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)
10.15 Letter Agreement among ZMAX Corporation, IMS International, Inc., Wan
Hsien Information International Corporation, Ltd., Multi-Dimension
International, and Institute for Information Industry Regarding the
Purchase by ZMAX Corporation of the "COCACT" Software Program, dated
14
<PAGE>
April 30, 1997. (Incorporated herein by reference to Exhibit 10.15 to
the Registrant's Registration Statement on Form S-4 (File No. 333-
29833).)
10.16 Letter Agreement between ZMAX Corporation and Institute for Information
Industry Regarding the Purchase by ZMAX Corporation of the "COCACT"
Software Program, dated April 30, 1997. (Incorporated herein by
reference to Exhibit 10.16 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)
10.17 Letter Agreement between ZMAX Corporation and Wan Hsien Information
International Corporation Ltd. Regarding the Purchase by ZMAX
Corporation of the "COCACT" Software Program, dated April 30, 1997, as
amended. (Incorporated herein by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-4 (File No. 333- 29833).)
10.18 Conversion Agreement between Fiserv Federal Systems, Inc. and ZMAX
Corporation, dated April 28, 1997. (Incorporated herein by reference to
Exhibit 10.18 to the Registrant's Registration Statement on Form S-4
(File No. 333-29833).)
10.19 Agreement between ZMAX Corporation and Investor Communications Company,
LLC, dated as of May 20, 1997. (Incorporated herein by reference to
Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File
No. 333-29833).)
10.20 Investor Relations Consulting Agreement between ZMAX Corporation and
Investor Communications Company, LLC, dated as of May 20, 1997.
(Incorporated herein by reference to Exhibit 10.20 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
10.21 Reformation Agreement between ZMAX Corporation and Michael C. Higgins
and Michael S. Cannon, dated as of March 31, 1998.
11.1 Statement regarding computation of earnings per share
21 Subsidiaries of ZMAX Corporation
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ZMAX Corporation
Date: May 13, 1998 /s/MICHAEL C. HIGGINS
---------------------
Michael C. Higgins
President
/s/G.W. NORMAN WAREHAM
----------------------
G.W. Norman Wareham
Vice President - Principal Financial Officer
/s/JAMES T. MCCUBBIN
--------------------
James T. McCubbin
Vice President - Principal Accounting Officer
EXHIBIT 10.21
AGREEMENT OF REFORMATION AND AMENDMENT
THIS AGREEMENT OF REFORMATION AND AMENDMENT (the "Agreement") is made as
of the 31st day of March, 1998 (the "Agreement Date"), by and among Michael C.
Higgins and Michael S. Cannon (collectively, the "Stockholders" and,
individually, a "Stockholder") and ZMAX Corporation, a Delaware corporation
("ZMAX").
RECITALS
A. The Stockholders formerly owned all the outstanding shares of
Century Services, Inc., a Maryland corporation ("CSI") having proprietary
rights in and ownership of specialized computer software and a workforce with
specialized skills relating to the correction of the Year 2000 problem. On
November 6, 1996 (the "Original Effective Date"), the Stockholders entered
into a Stock Purchase Agreement (the "Acquisition Agreement") with ZMAX, which
at that time was a public company with no operations, whereby ZMAX acquired
all of the issued and outstanding shares of CSI from the Stockholders in
exchange for the issuance by ZMAX to the Stockholders of 3,200,000 shares of
ZMAX common stock, par value $.001 per share ("ZMAX Stock"). On the Original
Effective Date, all of the 3,200,000 shares of ZMAX Stock were recorded in the
names of the Stockholders, with 1,600,000 shares of ZMAX Stock being recorded
in the name of each Stockholder, and with the Stockholders having all voting
rights and dividend and distribution rights (including the right to receive
liquidating distributions) with respect to all 3,200,000 shares of ZMAX Stock.
B. In order to incentivize the Stockholders, both of whom became
senior members of the management of ZMAX after the Original Effective Date and
one of whom became a member of the Board of Directors of ZMAX after the
Original Effective Date, to increase the cash flow of ZMAX, the parties agreed
that 2,800,000 shares (the "Restricted Stock") of ZMAX Stock issued to the
Stockholders under the Acquisition Agreement would be subject to restrictions
on transferability as contained in Section 1.5 of the Acquisition Agreement.
Under the terms of the Acquisition Agreement, the shares of Restricted Stock
were deposited into escrow with Powell, Goldstein, Frazer & Murphy (the
"Escrow Agent"), pursuant to an Earn Out Stock Escrow Agreement dated the
Original Effective Date (the "Escrow Agreement") among ZMAX, the Escrow Agent
and the Stockholders. The Acquisition Agreement provides that one (1) share of
Restricted Stock will be released from escrow and delivered to each
Stockholder for every $1.25 of Cash Flow (as defined in Section 1.5 of the
Acquisition Agreement) generated by CSI. The Acquisition Agreement and the
Escrow Agreement contain additional restrictions on the release of the
Restricted Shares from escrow; however, neither the Acquisition Agreement nor
the Escrow Agreement provides a definite term for which the release provisions
will apply to the Restricted Stock. Even after the Restricted Stock was placed
into escrow, the Stockholders continue to have all voting rights and dividend
and distribution rights (including the right to receive liquidating
distributions) on the Restricted Stock.
<PAGE>
C. In connection with the execution of the Acquisition Agreement, the
parties entered into the following additional agreements as of the Original
Effective Date: (1) the Stockholders Agreement (the "Stockholders Agreement"),
pursuant to which all 3,200,000 shares of the ZMAX Stock owned by the
Stockholders (including the Restricted Stock) remain subject to various rights
and restrictions (described in Recital D below); (2) a Compensation Escrow
Agreement with the Bank of Alexandria, which is no longer in effect as of the
date hereof; (3) an Employment Agreement between Michael Higgins and ZMAX,
which remains in effect as of the date hereof (the "Higgins Employment
Agreement"), and an Employment Agreement between Michael Cannon and ZMAX,
which is no longer in effect as of the date hereof (the "Cannon Employment
Agreement")(with the Higgins Employment Agreement and the Cannon Employment
Agreement being collectively referred to as the "Employment Agreements"); and
(4) Stock Pledge and Security Agreements, which are no longer in effect as of
the date hereof.
D. The Stockholders Agreement has a term of three years and provides
that neither Stockholder may sell, pledge, encumber, give, bequeath or
otherwise transfer or dispose of any shares of ZMAX Stock (including the
Restricted Stock) during such three-year term without first complying with the
terms and conditions of the Stockholders Agreement or receiving the advance
written consent of ZMAX. On June 17, 1997, the Stockholders Agreement was
amended by the parties to give ZMAX a right of repurchase (in lieu of a
mandatory obligation to purchase) a Stockholder's shares of ZMAX Stock at the
Current Value Price of such shares in the event of a Stockholder's death. The
Stockholders Agreement, as amended, provides that in the event a Stockholder
is terminated from employment (with or without cause), becomes permanently
disabled, breaches the non-competition or non-disclosure provisions of his
Employment Agreement or dies, ZMAX generally has the right (but not the
obligation) to purchase all or a portion of the Stockholder's shares of ZMAX
Stock at the Current Value Price (as defined in Section 8 of the Stockholders
Agreement). The restrictions on the transferability of the Restricted Stock
remain in effect after a Stockholder's termination from employment without
cause, or in the event of disability or death. If a Stockholder is terminated
with cause from employment with ZMAX, his rights in any remaining Restricted
Stock are forfeited and such shares are to be returned to ZMAX.
E. On April 22, 1997 (the "Separation Date"), Michael Cannon and ZMAX
entered into a Separation Agreement (the "Separation Agreement"), pursuant to
which Mr. Cannon was terminated from employment under his Employment Agreement
without cause. In consideration for the early termination of his Employment
Agreement, ZMAX agreed to pay severance payments to Mr. Cannon in the amount
of $100,000 per annum through November 6, 1999, being the date on which his
Employment Agreement was to expire. In addition, Mr. Cannon agreed to resign
as an officer of ZMAX and to have the transfer restrictions relating to the
Restricted Stock contained in the Acquisition Agreement and the Escrow
Agreement continue to apply, even though Mr. Cannon was no longer an officer
of ZMAX. Beginning on the Separation Date and continuing until November 6,
1999, Mr. Cannon was to serve as a consultant to ZMAX for no additional
compensation, pursuant to a Consulting Agreement dated as of the Separation
Date (the "Consulting Agreement"). Mr. Cannon also agreed to have the
non-competition, non- solicitation and non-disclosure covenants of his
Employment Agreement continue for the time periods set forth in the Employment
Agreement.
2
<PAGE>
F. In the acquisition by ZMAX of all the outstanding shares of CSI
from the Stockholders, the original intent of the parties was that ZMAX issued
3,200,000 shares of ZMAX Stock (including the Restricted Stock) to the
Stockholders in consideration for their shares of CSI stock. The parties
further intended that the Stockholders were to have all rights of ownership in
the 3,200,000 shares of ZMAX Stock (including the Restricted Stock), subject
only to restrictions on transferability of the Restricted Stock that were to
be tied to the cash flow performance requirements of ZMAX as contained in
Section 1.5 of the Acquisition Agreement. After further review, the parties
believe that the combination of such cash flow performance requirements and
the transfer restrictions imposed under the Escrow Agreement have the mistaken
and unintended effect of requiring the Stockholders to earn the Restricted
Shares twice, once upon the original issuance of the shares by ZMAX in its
acquisition of CSI from the Stockholders and a second time following the
satisfaction of the cash flow requirements. To correct this mutual mistake of
material fact, the parties now desire to cause the Escrow Agent to release the
Restricted Stock from escrow, subject to the continuation of the same
restrictions on transferability of the Restricted Stock which presently exist
under the various agreements between the parties. The parties therefore now
desire to reform the existing agreements between the parties in the manner
hereinafter provided to correct such mutual mistake of material fact.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties hereto intending to be legally bound and for
good and adequate consideration, the sufficiency of which is acknowledged,
agree to reform and amend the aforementioned agreements as follows:
1. INCORPORATION BY REFERENCE. The foregoing Recital paragraphs are
hereby incorporated in their entirety into this Agreement.
2. REFERENCES TO EARN OUT STOCK. All references to "Earn Out Stock"
contained in the Stockholders Agreement, the Acquisition Agreement and any
other agreement executed as of the Original Effective Date shall be changed to
"Restricted Stock," as that term is defined in the Recital paragraphs above.
3. REFORMATION AND AMENDMENT OF THE ACQUISITION AGREEMENT. The
parties hereby agree that the Acquisition Agreement is hereby reformed and
amended retroactive as of the Original Effective Date as provided below, so
that the Restricted Stock is no longer held in escrow under the Escrow
Agreement, but nevertheless the restrictions on transferability continue to be
in effect, subject only to the cash flow performance requirements contained in
Section 1.5 of the Acquisition Agreement. The parties further agree that the
Stockholders Agreement is reformed and amended as provided below to include in
the Stockholders Agreement the cash flow performance requirements presently
contained in the Acquisition Agreement, with such cash flow performance
requirements continuing to be a restriction on the transfer of the Restricted
Stock, as set forth below in Section 4 of this Agreement. Therefore, the
parties hereby reform and amend the Acquisition Agreement as follows:
3
<PAGE>
(A) Section 1.3 of the Acquisition Agreement is hereby reformed
and amended to require the release of the Restricted Stock from the escrow,
immediately following the execution of this Agreement. The parties agree to
terminate the escrow as set forth in Section 5 of this Agreement.
(B) Sections 1.5, 1.6, 1.7, 1.8 and 1.9 of the Acquisition
Agreement are hereby deleted in their entirety, and substantially similar
sections thereto are inserted into Section 1 of the Stockholders Agreement, as
set forth below in Section 4 of this Agreement.
4. REFORMATION AND AMENDMENT OF THE STOCKHOLDERS AGREEMENT. The
parties hereby agree that the Restricted Stock shall be subject to the terms
and conditions of the Stockholders Agreement retroactive to the Original
Effective Date, subject to the following restrictions, terms and conditions:
(A) Section 1 of the Stockholders Agreement is hereby reformed
and amended to reflect that the Restricted Stock is subject to cash flow
performance requirements and certain other provisions formerly contained in
the Acquisition Agreement. Accordingly, the first full paragraph of Section 1
of the Stockholders Agreement is renumbered as subparagraph (a) of Section 1
thereof, the last sentence of Section 1 of the Stockholders Agreement is
deleted in its entirety and, in lieu thereof, the following language is hereby
inserted as new subparagraph (b) of Section 1 of the Stockholders Agreement:
"(b) RESTRICTED STOCK. (1) Two Million Eight Hundred Thousand
(2,800,000) shares of the ZMAX Stock issued to the Stockholders
(the "Restricted Stock") shall not be subject to sale, pledge,
encumbrance, gift, bequest, or other transfer or disposal under
any circumstance whatsoever, unless and until such shares are
released from such restrictions under this Section 1(b). The
Restricted Stock will be released quarterly to the Stockholders on
a pro rata basis to each Stockholder. One share of Restricted
Stock will be released for each $1.25 of Cash Flow (as defined
below) generated by CSI. For purposes of this Section 1(b), the
term "Cash Flow" means, with respect to each CSI fiscal year
quarter or other period, all operating revenues from sales and
services and licensing and franchising income (but excluding
proceeds from loans or capital infusions and proceeds from sales,
exchanges and other dispositions of property or rights not in the
ordinary course of business), LESS direct operating expenses
including software licensing fees and a provision for CSI's income
taxes calculated based on the then-applicable statutory rates (but
excluding capital expenses, depreciation, amortization, debt
service, dividends and intercompany charges other than charges
that would be direct operating expenses if paid by CSI). Cash Flow
will be determined by Arthur Andersen (or such other independent
accounting firm then serving CSI) for the relevant period on a
cash basis. Upon the completion of the review and filing of the
required SEC financial reports for the applicable quarter, and in
no case later than ninety (90) days following the close of such
financial quarter, ZMAX will cause Arthur Andersen to prepare a
statement of Cash Flow ("Cash Flow Statement") for each fiscal
4
<PAGE>
year quarter which will set forth an itemized calculation of Cash
Flow and calculate the number of shares of Restricted Stock (to
the nearest whole number of shares) based on the Cash Flow for the
relevant period and to deliver the Cash Flow Statement to ZMAX.
Upon receipt of the Cash Flow Statement, ZMAX will fax the Cash
Flow Statement to each Stockholder. Upon approval of the Cash Flow
Statement as evidenced by the signing of the Cash Flow Statement
by both ZMAX and each Stockholder, such shares will no longer be
deemed Restricted Stock for purposes of this Agreement and shall
be subject to the remaining provisions of this Agreement.
(2) If ZMAX and the Stockholders cannot agree on the Cash
Flow Statement prepared by the independent accounting firm for any
quarter, the ZMAX Board of Directors will prepare and sign a Cash
Flow Statement and fax it to the Stockholders. If the ZMAX Board
of Directors' Cash Flow Statement is approved by the Stockholders,
as evidenced by the signatures of the Stockholders, such shares
will no longer be deemed Restricted Stock for purposes of this
Agreement and shall be subject to the remaining provisions of this
Agreement. If the Stockholders are not satisfied with the Cash
Flow Statement prepared by the ZMAX Board of Directors (the
"Dispute"), the Stockholders may submit the Dispute to binding
arbitration administered by the American Arbitration Association
("AAA") under its Commercial Arbitration Rules, except where those
rules are supplemented or modified by the express terms of this
section. The parties agree that binding arbitration is the
exclusive remedy for resolving any Dispute. The Stockholders may
initiate arbitration by sending notice of its intention to
arbitrate the Dispute to ZMAX, which notice must be accompanied by
a brief setting forth the nature of the Dispute and the remedy
sought, which brief may not exceed 25 typed pages (the
"Arbitration Notice"). The Stockholders must also file at the
regional office of the AAA three copies of the Arbitration Notice
and Brief and the arbitration provision of this Agreement together
with the required filing fee. ZMAX must file a responsive brief
within 15 business days of receipt of the Stockholders'
Arbitration Notice and Brief, which responsive brief may not
exceed 25 typed pages. Any arbitration proceedings will be in
Washington, D.C. If the parties are able to agree on one
arbitrator within 15 days of the date the Arbitration Notice is
filed with the AAA, the Dispute will be heard by that arbitrator.
If the parties are unable to agree on one arbitrator, then an
arbitrator will be selected from an impartial roster of
arbitrators provided by the AAA in accordance with the AAA rules.
There will be no discovery permitted by the parties in the
arbitration proceedings provided that each party will be permitted
to take one oral deposition of the other party or unless otherwise
mutually agreed to by the parties. ZMAX agrees to be bound by Rule
30(b)(6) of the Federal Rules of Civil Procedures "Deposition of
an Organization," as amended from time to time or any successor
rule. The arbitrator will issue a decision within 30 days of his
5
<PAGE>
or her appointment. The decision of the arbitrator must set forth
in reasonable detail the reasoning supporting the decision of the
arbitrator. The decision rendered by the arbitrator will be final
and binding on the parties and judgment on the decision rendered
by the arbitrator may be entered in any court having jurisdiction.
Each party will pay its own costs and expenses related to the
arbitration procedures. This agreement to arbitrate is
specifically enforceable under the prevailing arbitration law and
survives the termination of this Agreement.
(3) If any Stockholder is terminated by CSI for cause (as
defined in the Stockholder's employment agreement with CSI) or
violates the non-competition, non-solicitation or proprietary
information restrictions in his employment agreement with CSI, the
Restricted Stock issued in the name of the Stockholder shall be
delivered to the Transfer Agent of ZMAX for reissuance in the name
of ZMAX.
(4) The Stockholders will be entitled to vote the Restricted
Stock even though it is subject to the restrictions in Section
1(b)(1) hereof. If an annual or special meeting of the ZMAX
stockholders is called, the Stockholders will be entitled to
receive notice of such meeting and to attend such meeting and vote
all of the shares of Restricted Stock issued in their names, in
person or by proxy.
(5) The Stockholders are entitled to receive dividends or
other distributions made by ZMAX (including distributions in
liquidation) on the Restricted Stock."
(B) The restrictive legend set forth in Section 11 of the
Stockholders Agreement is hereby amended to delete the second paragraph of the
legend and the following language is hereby inserted in lieu thereof:
"Notice is hereby given that the sale, assignment, pledge,
hypothecation, transfer or other disposition of the shares of
Stock represented by this certificate is restricted under the
terms of a Stockholders Agreement dated as of November 6, 1996, as
amended (the "Stockholders Agreement"), a copy of which is on file
at the office of the Corporation, and all of the provisions of the
amended Stockholders Agreement are incorporated by reference in
this certificate."
(C) The notice provisions of Section 14 of the Stockholders
Agreement are hereby amended, by substituting the following names and
addresses in lieu of those shown in the original Stockholders Agreement:
6
<PAGE>
"If to the Corporation: ZMAX Corporation
20251 Century Boulevard, Suite 400
Germantown, Maryland 20874
Attention: James T. McCubbin
Telephone: 301-353-9500
Fax: 301-353-9501
If to the Stockholders: Michael C. Higgins
12408 Rivers Edge Drive
Potomac, Maryland 20854
Telephone: 301-926-6771
And/or (as applicable): Michael S. Cannon
142 Brightmoor Court
Henderson, Nevada 89014
Telephone: 702-270-4503"
(D) The termination provisions of Section 15 of the Stockholders
Agreement are hereby amended to reflect an extension of the term of the
Stockholders Agreement with respect to the Restricted Stock, as follows:
"15. TERMINATION OF AGREEMENT. With the exception of Section 1(b)
of this Agreement, this Agreement will be effective for a period
of three (3) years from the date of this Agreement [November 6,
1996]. The restrictions contained in Section 1(b) of this
Agreement shall be effective for a period of five (5) years from
the date of this Agreement."
5. REFORMATION AND AMENDMENT OF THE SEPARATION AGREEMENT. Section 5
of the Separation Agreement is hereby reformed and amended to reflect the
changes made by this Agreement, as follows:
"5. RESTRICTED STOCK. The holder hereof acknowledges that
1,400,000 shares of ZMAX Corporation ("ZMAX") common stock (the
"Restricted Stock") is subject to transfer restrictions imposed
under the Stockholders Agreement, dated as of November 6, 1996, as
amended from time to time (the "Stockholders Agreement"), among
ZMAX, Michael S. Cannon and Michael C. Higgins. The holder hereby
acknowledges and agrees that his Restricted Stock will be released
from the restrictions only if the cash flow performance
requirements of that section are met, and until released, shall
not be subject to sale, pledge, hypothecation, transfer or
disposal in any manner whatsoever."
6. TERMINATION OF THE ESCROW AGREEMENT. The parties agree that the
Escrow Agreement shall terminate immediately following execution of this
Agreement. To that end, the parties agree to notify the Escrow Agent in
writing of such termination of the Escrow Agreement, with such written notice
from the parties hereto to the Escrow Agent to be in the form of Exhibit A
7
<PAGE>
attached hereto and made part hereof. ZMAX shall use its best efforts to cause
the Escrow Agent to deliver to ZMAX the Escrow Shares (as defined in the
Escrow Agreement) in a timely manner. Upon receipt by ZMAX of such Escrow
Shares, ZMAX shall deliver the certificates evidencing such Escrow Shares to
its Transfer Agent with instructions for the Transfer Agent to reissue
replacement certificates therefor which contain the new restrictive legend set
forth above in Section 4(b) of this Agreement.
7. MISCELLANEOUS.
(a) NO OTHER AMENDMENTS. Except as reformed and modified by this
Agreement, the Stockholders Agreement, the Acquisition Agreement, the
Separation Agreement, and the Higgins Employment Agreement remain unchanged
and in full force and effect. The Escrow Agreement shall be deemed to be
terminated retroactive as of the Original Effective Date.
(b) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
(c) GOVERNING LAW; SEVERABILITY. This Agreement will be governed
by and construed in accordance with the laws of the State of Maryland,
excluding that body of law pertaining to conflict of laws. If any provision of
this Agreement is for any reason found to be unenforceable, the remainder of
this Agreement will continue in full force and effect.
(d) DUE AUTHORIZATION. The Agreement is has been duly authorized
by the parties, and duly executed on behalf of each party, including the duly
authorized officers of ZMAX in the manner required by all laws and regulations
applicable to ZMAX.
(e) ASSIGNMENT. This Agreement may be assigned only with the
advance written consent of the non-assigning party.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Agreement Date.
Attest/Witness: ZMAX Corporation, Inc., a
Delaware corporation
By: /s/JAMES T. MCCUBBIN By: /s/MICHAEL C. HIGGINS
-------------------- ---------------------
Name: James T. McCubbin Name: Michael C. Higgins
Its: Assistant Secretary Its: President
/s/JAMES T. MCCUBBIN /s/MICHAEL C. HIGGINS
-------------------- ---------------------
James T. McCubbin Michael C. Higgins
President
/s/JAMES T. MCCUBBIN /s/MICHAEL S. CANNON
-------------------- --------------------
James T. McCubbin Michael S. Cannon
Exhibit 11.1
ZMAX CORPORATION AND SUBSIDIARY
CALCULATION OF BASIC AND DILUTED NET LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1998 1997
------------------------------------
<S> <C> <C>
Net loss $ (681,731) $ (2,144,327)
============= =============
Weighted average share calculations
Basic and diluted weighted average shares outstanding:
Average number of shares of common stock
outstanding during the quarter 11,729,714 6,704,072
Less: Average number of restricted shares of
common stock outstanding during the quarter 2,800,000 2,800,000
Less: Average number of cancellable shares of
common stock outstanding during the quarter 479,801 479,801
------------- -------------
Basic and diluted weighted average shares outstanding: 8,449,913 3,424,271
============= =============
Basic and diluted net loss per share $ (0.08) $ (0.63)
============= =============
</TABLE>
EXHIBIT 21
Subsidiaries of ZMAX Corporation
Century Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,544,703
<SECURITIES> 0
<RECEIVABLES> 1,407,311
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,013,572
<PP&E> 401,163
<DEPRECIATION> 99,263
<TOTAL-ASSETS> 11,062,540
<CURRENT-LIABILITIES> 2,165,678
<BONDS> 0
0
0
<COMMON> 11,729
<OTHER-SE> 8,885,132
<TOTAL-LIABILITY-AND-EQUITY> 11,062,540
<SALES> 1,524,324
<TOTAL-REVENUES> 1,524,324
<CGS> 466,808
<TOTAL-COSTS> 466,808
<OTHER-EXPENSES> 1,771,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,855
<INCOME-PRETAX> (681,731)
<INCOME-TAX> 0
<INCOME-CONTINUING> (681,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (681,731)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
