<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarter Ended March 31, 2000
[_] 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 000-23585
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EMERGENT INFORMATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0080929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4695 MACARTHUR COURT, EIGHTH FLOOR, NEWPORT BEACH, CA 92660
(Address of principal executive offices)
(949) 975-1487
(Registrant's telephone number, including area code)
SM&A CORPORATION
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at March 31, 2000
----- -----------------------------
Common Stock 16,198,878
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<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
-----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.............................
Consolidated Balance Sheets as of March 31, 2000 and December
31, 1999...................................................... 3
Consolidated Statements of Earnings for the three months ended
March 31, 2000 and 1999....................................... 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999................................. 5
Notes to Consolidated Financial Statements.................... 6-9
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations..................................... 10-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 18
Item 2. Changes in Securities and Use of Proceeds..................... 18
Item 3. Defaults Upon Senior Securities............................... 18
Item 4. Submission of Matters to Vote of Security Holders............. 18
Item 5. Other Information............................................. 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
Signatures............................................................. 19
</TABLE>
2
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents........................... $ 1,376 $ 1,226
Accounts receivable, net of allowance for doubtful
accounts........................................... 26,132 22,676
Costs and estimated earnings in excess of billings
on contracts in progress, net of allowance......... 9,641 7,851
Prepaid income taxes................................ 4,272 4,665
Prepaid expenses and other assets................... 1,257 440
Deferred income taxes............................... 1,466 1,466
-------- -------
Total current assets.............................. 44,144 38,324
Property and equipment, net........................... 5,764 5,636
Notes receivable--affiliates.......................... 1,668 1,744
Other assets.......................................... 2,765 2,360
Goodwill, net......................................... 55,593 48,778
-------- -------
Total assets...................................... $109,934 $96,842
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Trade accounts payable.............................. $ 4,535 $ 3,475
Accrued compensation and payroll taxes.............. 8,432 6,093
Accrued earnout payable............................. 7,132 6,000
Other liabilities................................... 1,414 532
-------- -------
Total current liabilities......................... 21,513 16,100
Deferred income taxes................................. 399 399
Other liabilities..................................... 1,085 870
Long-term debt, excluding current portion............. 35,818 29,017
-------- -------
Total liabilities................................. 58,815 46,386
Shareholders' equity:
Common stock, no par value.......................... 161 161
Additional paid in capital.......................... 45,285 45,285
Retained earnings................................... 5,673 5,010
-------- -------
Total shareholders' equity........................ 51,119 50,456
-------- -------
Total liabilities and shareholders' equity........ $109,934 $96,842
======== =======
</TABLE>
The accompany notes are an integral part of the unaudited consolidated
financial statements.
3
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Net revenues.................................................. $31,587 $25,314
Cost of revenues.............................................. 18,830 14,430
------- -------
Gross margin................................................ 12,757 10,884
Selling, general and administrative expenses.................. 9,201 5,481
Software development expenses................................. 1,279 1,168
Amortization of goodwill and other intangibles................ 521 345
------- -------
Operating income............................................ 1,756 3,890
Other income (expense)........................................ (593) 39
------- -------
Income before income taxes.................................. 1,163 3,929
Income tax expense............................................ 500 1,599
------- -------
Net income.................................................... $ 663 $ 2,330
======= =======
Net income per share:
Basic....................................................... $ 0.04 $ 0.14
Diluted..................................................... $ 0.04 $ 0.14
======= =======
Weighted average common shares outstanding:
Basic....................................................... 16,181 16,515
Diluted..................................................... 16,231 16,927
======= =======
</TABLE>
The accompany notes are an integral part of the unaudited consolidated
financial statements.
4
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 663 $ 2,330
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for doubtful accounts.......................... (25) (30)
Depreciation and amortization............................ 859 345
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable, net............................... (2,281) (1,883)
Costs and estimated earnings in excess of billings..... (1,790) (4,073)
Prepaid expenses and other assets...................... (1,223) 379
Trade accounts payable................................. 535 401
Accrued compensation and payroll taxes................. 1,981 1,330
Income taxes........................................... 393 1,061
Other liabilities...................................... 120 (596)
------- -------
Net cash used in operating activities................ (768) (736)
Cash flows from investing activities:
Acquisition, principally goodwill, net of cash acquired.... (5,724) (3,278)
Additional expenditures related to acquisitions............ (4) (645)
Purchases of property and equipment........................ (231) (349)
Repayment from (advances to) shareholder................... 76 (22)
------- -------
Net cash used in investing activities................ (5,883) (4,294)
Cash flows from financing activities:
Proceeds from issuance of common stock..................... -- 60
Long-term borrowings....................................... 6,801 6,464
Common stock repurchase.................................... -- (1,113)
------- -------
Net cash provided by financing activities............ 6,801 5,411
Net increase in cash and cash equivalents.................. 150 381
Cash at beginning of period.................................. 1,226 454
------- -------
Cash at end of period........................................ $ 1,376 $ 835
======= =======
Supplemental information--Cash paid for:
Interest................................................... $ 391 $ 8
Income taxes............................................... -- 464
======= =======
Supplemental schedule of noncash investing activity:
Detail of business acquired and other purchase accounting adjustments as
follows
(in thousands):
Cash consideration paid for acquisition.................... $ 6,359 $ 3,263
Plus acquisition expenses.................................. 401 40
Less cash acquired in acquisition.......................... (1,036) (25)
------- -------
Cash paid for acquisition, net of cash acquired.......... $ 5,724 $ 3,278
======= =======
</TABLE>
The accompany notes are an integral part of the unaudited consolidated
financial statements.
5
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2000 and 1999
NOTE 1. GENERAL
Emergent Information Technologies, Inc. (formerly SM&A Corporation) and
Subsidiaries ("the Company") is a comprehensive provider of competitive-edge
information technology services, software products and business solutions,
high-end systems engineering services, and integrated proposal management
services. In January 1998, the Company completed an initial public offering
("IPO") of Common Stock. Subsequently, in May 1998, the Company acquired Space
Applications Corporation ("SAC"). SAC provides systems engineering, scientific
research, program management support and technical support to military and
civilian space programs, the intelligence community, and the armed services. In
August 1998, the Company acquired Decision-Science Applications, Inc. ("DSA").
DSA provides system engineering, information systems development, scientific
research and program management support to the U.S. Government, principally the
Department of Defense. In March 1999, the Company acquired Systems Integration
Software, Inc. ("SIS"). SIS provides systems engineering, information systems
development, scientific research and program management support to the U.S.
Government, principally the Department of Defense. In September 1999, the
Company acquired Kapos Associates Inc. ("KAI"). KAI provides operations
research, wargaming and systems analysis to the U.S Government. In February
2000, the Company acquired System Simulation Solutions, Inc. ("S3I"). S3I
specializes in the design, development and application of powerful simulation
software products for the United States Air Force assisting them on evaluating
large-scale campaign level operations. SAC, DSA, SIS, KAI and S3I are
collectively referred to as "the Acquisitions". These transactions were
accounted for as purchases and, accordingly, the consolidated financial
statements include the financial results of the Acquisitions from the effective
dates of the respective events.
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly Reports on Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. The information furnished herein includes all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of results for these interim
periods.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2000.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 30 years. The recoverability of goodwill is
determined by comparing the carrying value of intangible assets to the
estimated future operating income of the Company on an undiscounted cash-flow
basis. Should the carrying value of goodwill exceed the estimated operating
income for the expected period of benefit, an impairment for the excess would
be recorded at that time. As of March 31, 2000, no impairment has been
recognized.
These financial statements should be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended December 31,
1999. This supplementary information is included in Form 10-K/A filed by the
Company with the Securities and Exchange Commission on April 26, 2000.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
6
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Three Months Ended March 31, 2000 and 1999
NOTE 2. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the periods presented. Diluted net income per share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common equivalent shares outstanding during the periods
presented assuming the exercise of all in-the-money stock options. Common
equivalent shares have not been included where inclusion would be anti-
dilutive.
The following table illustrates the computation of basic and diluted
earnings per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
2000 1999
------- -------
<S> <C> <C>
Numerator for basic and diluted income per common share--
net earnings.............................................. $ 663 $ 2,330
------- -------
Denominator for basic income per share--weighted average
shares outstanding during the period...................... 16,181 16,515
Incremental common shares attributable to dilutive
outstanding stock options................................. 50 412
------- -------
Denominator for diluted income per common share............ 16,231 16,927
------- -------
Basic net income per common share.......................... $ .04 $ .14
======= =======
Diluted net income per common share........................ $ .04 $ .14
======= =======
</TABLE>
Anti-dilutive shares excluded from the reconciliation above were 1,568,000
and 173,000 for the three months ended March 31, 2000 and 1999, respectively.
NOTE 3. ACQUISITIONS
In February 2000, the Company acquired substantially all of the assets and
assumption of certain liabilities of System Simulation Solutions, Inc. ("S3I")
for approximately $6.3 million in cash. S3I has the right to receive up to
approximately $1.0 million in additional consideration contingent upon S3I's
achievement of certain operating results for the twelve month periods ending
February 28, 2001, and February 28, 2002. The earnouts are payable in cash and,
if earned, are due within 60 days after each of the first and second
anniversary of the closing date, and will be recorded as an addition to
goodwill. This transaction was accounted for as a purchase and, accordingly,
the consolidated financial statements will include the financial results of S3I
from February 1, 2000, the beginning of the accounting period in which the
purchase transaction was finalized. Results of operations for the three months
ended March 31, 2000 and 1999 would not have been materially impacted on a pro
forma basis if the acquisition of S3I had occurred as of the beginning of the
respective periods.
The Company acquired SIS in March 1999, and KAI in September 1999, for an
aggregate amount of $5.5 million in cash and additional consideration
contingent upon the achievement of certain operating results.
7
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Three Months Ended March 31, 2000 and 1999
The Company has accrued $7.1 million as the earnout payment due in April 2000,
under the SIS acquisition agreement. These transactions were accounted for as
purchases and, accordingly, the consolidated financial statements include the
financial results of SIS and KAI from the effective dates of each such
acquisition. Results of operations for the three months ended March 31, 2000
and 1999 would not have been materially impacted on a pro forma basis if the
acquisitions of SIS and KAI had occurred as of the beginning of the respective
periods.
The Company recorded goodwill of approximately $58.2 million as a result of
the Acquisitions. The Company incurred costs and expenses in connection with
the Acquisitions, including legal and accounting, and other various expenses.
Eligible costs will be capitalized as part of goodwill in accordance with
generally accepted accounting principles (GAAP). The allocation of the purchase
price for the Acquisitions and other purchase accounting adjustments is as
follows (in thousands):
<TABLE>
<S> <C>
Total purchase price, net......................................... $58,163
Net assets acquired............................................... (9,510)
Acquisition costs................................................. 9,171
-------
Goodwill.......................................................... 57,824
Less accumulated amortization..................................... (2,231)
-------
Goodwill, net..................................................... $55,593
=======
</TABLE>
NOTE 4. LONG-TERM DEBT
On April 10, 2000, the Company amended its five-year, $50.0 million
revolving line of credit (the "Amended Credit Facility") with its bank
syndicate. The Amended Credit Facility, which is secured by a first priority
interest in substantially all of the assets and a pledge of capital stock of
each subsidiary of the Company, matures in December 2001 and has two interest
rate options; the Bank's Prime rate plus 0% to 1.0%, or LIBOR plus 1.25% to
3.5%, based on the ratio of total indebtedness to earnings before interest and
taxes. The Amended Credit Facility requires payment of a fee of 0.2% to 0.4% of
the average unused portion of the facility, based on the ratio of total
indebtedness to earnings before interest and taxes, and contains certain
covenants. The most restrictive covenants require the Company to maintain
quarterly profitability, minimum consolidated net worth, maximum indebtedness
to EBITDA, maximum indebtedness to consolidated net worth, minimum fixed charge
coverage ratio, mandatory prepayments, and a commitment reduction schedule as
defined in the Amended Credit Facility. The Company is also restricted from
dividend and stock repurchases, limitations on capital expenditures, and no
further acquisitions without the consent of the lenders. As of March 31, 2000,
the Company was in compliance with all covenants. The Company had $35,818,000
outstanding under the Amended Credit Facility at March 31, 2000 at an effective
interest rate of 8.12%.
NOTE 5. SEGMENT REPORTING DATA
The Company classifies its operations into four lines of business, based on
geographical location and each offering a distinct set of services. These lines
of business are summarized as follows: Emergent West, which focuses on
implementing and integrating web-based selling systems; Emergent Central, which
focuses on supporting commercial telecommunications, B2B Internet commerce and
other related industries; Emergent East, which provides IT support, science,
and program management for both commercial and government clients; and Steven
Myers & Associates, which involves assisting clients with the procurement of
government and commercial programs. As of March 31, 2000, there has been no
activity in Emergent West.
8
<PAGE>
EMERGENT INFORMATION TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Three Months Ended March 31, 2000 and 1999
The Company evaluates performance based on several factors, of which a
primary financial measure is business segment revenue earned. The revenue
recognition policies of the business segments vary according to the type of
contract being worked.
Information as to the net revenues of the lines of business is set forth
below. The information presented for the three months ended March 31, 2000 and
1999 represents historical supplemental data as described in the statements of
income (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
2000 1999
------- -------
<S> <C> <C>
Net revenues:
Emergent Central........................................... $ 3,190 $ 4,926
Emergent East.............................................. 19,334 9,809
Steven Myers & Associates.................................. 9,063 10,579
------- -------
Total revenues........................................... $31,587 $25,314
======= =======
Depreciation and amortization expense:
Emergent Central........................................... $ 86 $ 35
Emergent East.............................................. 596 239
Steven Myers & Associates.................................. 37 15
Executive Group............................................ 140 56
------- -------
Total depreciation and amortization expense.............. $ 859 $ 345
======= =======
Operating income (loss):
Emergent Central........................................... $ (495) $ 375
Emergent East.............................................. 2,261 2,656
Steven Myers & Associates.................................. 2,677 4,012
Executive Group............................................ (2,687) (3,154)
------- -------
Total operating income................................... $ 1,756 $ 3,890
======= =======
Income (loss) from continuing operations:
Emergent Central........................................... $ (282) $ 233
Emergent East.............................................. 1,289 1,571
Steven Myers & Associates.................................. 1,526 2,367
Executive Group............................................ (1,870) (1,841)
------- -------
Total income from continuing operations.................. $ 663 $ 2,330
======= =======
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
From time to time, the Company through its management, may make forward-
looking public statements, such as statements concerning then expected future
revenues or earnings or concerning projected plans, performance, contract
procurement as well as other estimates relating to future operations. Forward-
looking statements may be in reports filed under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in press releases or informal statements
made with the approval of an authorized executive officer. The words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements" within the meaning of Section 21E of the Exchange
Act and Section 27A of the Securities Act of 1933, as amended, as enacted by
the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on these
forward-looking statements which speak only as of the date on which they are
made. In addition, the Company wishes to advise readers that the factors listed
below, as well as other factors not currently identified by management, could
affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in
any current statement.
The Company will not undertake and specifically declines any obligation to
publicly release any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by or on behalf of the Company.
10
<PAGE>
RISK FACTORS
We may fail to manage our future growth effectively
We are currently experiencing significant growth and we intend to pursue
further growth as part of our business strategy. Our ability to manage the
growth of our operations will require us to continue to improve our
operational, financial and other internal systems and to attract, develop,
motivate and retain our employees. Our rapid growth has presented and will
continue to present numerous operational challenges, such as the assimilation
of financial reporting systems and increased pressure on our senior management
and will increase the demands on our systems and internal controls. In
addition, our success depends in large part upon our ability to attract,
develop, motivate and retain highly-skilled professionals and administrative
employees. Our growth strategy will require an increase in our personnel,
particularly skilled systems engineers and program managers. Qualified
professionals are currently in great demand and there is significant
competition for employees with the requisite skills from other major and
boutique consulting firms, research firms, government contractors, proposal
management or business acquisition departments of major corporations and other
professional services firms. There can be no assurance that we will be able to
attract and retain the qualified personnel necessary to pursue our growth
strategy. There can be no assurance that we will be able to maintain or
increase our current rate of growth, effectively manage our expanding
operations or achieve planned growth on a timely or profitable basis. To the
extent that we are unable to manage our growth effectively and efficiently, our
business, financial condition and results of operations could be materially and
adversely affected.
Our business depends substantially on the defense industry
Approximately 54.5% of our revenues were derived from Steven Myers &
Associates, Inc. services related to government procurement contracts for the
fiscal year ended December 31, 1999. In addition, a significant portion of our
revenues are derived from contracts or subcontracts with the U.S. Government.
For the foreseeable future, we expect that the percentage of revenues
attributable to such contracts will continue to be substantial. U.S. Government
expenditures for defense products may decline in the future with such
reductions having an effect our clients, or, indirectly, on us. A number of
trends may contribute to such a decline, including:
. large weapon systems being replaced with smaller, more precise high
technology systems
. multiple procurements for similar weapons being consolidated into joint
service procurements, such as the Joint Strike Fighter
. threat scenarios evolving away from global conflicts to regional
conflicts
. the continuing draw down of U.S. military forces in response to the end
of the Cold War
In the event expenditures for products of the type manufactured by our
clients are reduced and not offset by other new programs or products, there
will be a reduction in the volume of contracts or subcontracts to be bid upon
by our clients and, as a result, a reduction in the volume of proposals managed
by us. Unless offset, such reductions could materially and adversely affect our
business, operating results and financial condition.
There are risks associated with government contracting
We are subject to risks associated with compliance with governmental
regulations, both directly and through government-contractor clients. The fines
and penalties which could result from noncompliance with appropriate standards
and regulations, or a client's suspension or debarment from the bidding process
for future government contracts could have a material adverse effect on our
business, operating results and financial condition. We rely for the
continuance and expansion of our business on a facility security clearance from
the U.S. Government, and individual security clearances, at various levels, for
nearly all members of our staff. There can be no assurance that necessary
security clearances will continue to be made available by the U.S. Government.
11
<PAGE>
In addition, a significant portion of our revenues are derived from
contracts or subcontracts with the U.S. Government. Our services are performed
pursuant to the following types of contracts:
. cost reimbursable
. time-and-materials
. fixed-price contracts and subcontracts
Under fixed-price contracts and time-and-materials contracts, we bear any
risk of increased or unexpected costs that may reduce our profits or cause us
to sustain a loss.
Our U.S. Government contracts and subcontracts are subject to termination,
reduction or modification as a result of changes in the U.S. Government's
requirements or budgetary restrictions, or at the convenience of the U.S.
Government. When we participate as a subcontractor, we are also subject to the
risk that the primary contractor may fail or become unable to perform its
duties and responsibilities as a prime contractor. If a contract were to be
terminated for convenience, we would be reimbursed for allowable costs incurred
up to the date of termination and would be paid a proportionate amount of the
stipulated profits or fees attributable to the work actually performed.
Contracts with the U.S. Government are generally complex in nature, and
require us to comply with numerous U.S. Government regulations regarding
discrimination in the hiring of personnel, fringe benefits for employees,
safety, safeguarding classified information, responsibility for U.S. Government
property, fire prevention, equipment maintenance, record keeping and
accounting, management qualifications, drug free work place and numerous other
matters.
Under certain circumstances the U.S. Government can suspend or bar
individuals or firms from obtaining future contracts with the U.S. Government
for specified periods of time. Any such suspension or disbarment of us or of
our major clients could have a material adverse effect upon us. Our books and
records are subject to annual audit by the Defense Contract Audit Agency, which
can result in adjustments to contract costs and fees. If any costs are
improperly allocated to a contract, such costs are not reimbursable and, if
already reimbursed, will require us to refund such amounts to the government.
If improper or illegal activities are discovered in the course of any audits or
investigations, the contractor may also be subject to various civil and
criminal penalties and administrative sanctions, including termination of
contracts, forfeitures of profits, suspension of payments, fines and suspension
or disqualification from doing business with the government. If we become
subject to penalties or sanctions, such penalties or sanctions could have a
material adverse effect on our business, financial condition and results of
operations.
There are risks associated with our acquisition strategy
An element of our growth strategy is to expand our operations through the
acquisition of complementary businesses. We cannot be sure that we will be able
to identify suitable acquisition candidates. If identified, we are not sure we
will be able to acquire such companies on suitable terms. Also, other companies
which may have greater resources than us may compete for acquisition
candidates. Such competition could result in an increase in the price of
acquisition targets and a decrease in the number of attractive companies
available for acquisition by us.
There can be no assurance that the anticipated economic, operational and
other benefits of our acquisition of SAC, DSA, SIS, KAI or S3I or any future
acquisitions will be realized. We cannot be sure that we will be able to
successfully integrate acquired businesses in a timely manner without
substantial costs, delays or other operational or financial problems. The
difficulties of such integration may initially be increased by our need to
integrate personnel with different business backgrounds and corporate cultures.
In addition, acquisitions may involve our spending significant funds. Our
failure to effectively integrate the acquired companies may adversely affect
our ability to bid successfully on certain engagements and otherwise grow our
business. Client
12
<PAGE>
dissatisfaction or performance problems at a single acquired company could have
an adverse effect on our reputation as a whole, and this could result in
increased difficulty in marketing services or acquiring companies in the
future. In addition, we cannot be certain that the acquired companies will
operate profitably or will not otherwise hurt operating results. There are
other risks with acquisitions. These include diversion of management attention,
potential loss of key clients or personnel, risks associated with unanticipated
problems, liabilities or contingencies and risks of entering markets in which
we have limited or no direct expertise. The occurrence of some or all of the
events described in these risks could have a material adverse effect on our
business, operating results and financial condition.
We rely on a relatively limited number of clients
We derive a significant portion of revenues from a relatively limited number
of clients. For example, our revenues from the ten most significant clients
accounted for approximately 80.0%, 76.0%, 90.3%, and 98.0% of our total
revenues for the years ended December 31, 1999, 1998, 1997, and 1996,
respectively. Three clients, the U.S. Government, Lockheed Martin Corporation,
and Raytheon Company accounted for approximately 64.1%, 57.2% and 33.3% of our
total revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Raytheon Corporation is our single largest commercial client,
accounting for approximately 20.5%, 15.8%, and 10.9% of our total revenues for
the years ended December 31, 1999, 1998, and 1997, respectively.
Clients typically retain us for major proposals as needed on an engagement
basis rather than pursuant to long-term contracts, and a client can usually
terminate our engagement at any time without a significant penalty. Moreover,
there can be no assurance that our existing clients will continue to engage us
for additional assignments or do so at the same revenue levels. The loss of any
significant client could materially and adversely affect our business,
financial condition and results of operations. In addition, the level of our
services required by an individual client may diminish over the life of our
relationship with us, and there can be no assurance that we will be successful
in establishing relationships with new clients as this occurs.
The markets in which we compete are highly competitive
The market for proposal management services in the procurement of government
and commercial contracts for aerospace and defense is a niche market with a
number of competitors. We are the largest provider of such services and
principally compete with numerous smaller proposal management companies in this
highly specialized industry. We also compete with some of our clients' internal
proposal development resources.
We recently entered and seek to achieve significant growth in the IT
services systems engineering and proprietary software products markets;
however, there can be no assurance that we will be successful in such efforts.
The market for services in the contract support industry is highly competitive,
highly fragmented and subject to rapid change. Such competition is likely to
increase in the future. Many of our competitors have greater personnel,
financial, technical and marketing resources than us. Such competitors include
many larger management consulting firms such as McKinsey & Company, Booz Allen
& Hamilton, and Science Applications International Corp., as well as the
consulting arms of major accounting firms, IT service and solutions firms such
as American Management Systems, Answer Think Consulting Group, Diamond
Technology Partners, Inc., and CACI International. We also compete with our
clients' in-house resources. This source of competition may increase as
consolidation of the aerospace and defense industry creates larger
organizations. In addition, there can be no assurance that we will be
successful in such efforts. In addition, significant further expense for sales
and marketing may require us to promote a major expansion of our services in
such area. If we are unsuccessful in our efforts to penetrate further the
market for such services, or our current 86.5% win rate in the proposal
management business drops significantly, our growth prospects could be
materially and adversely affected.
13
<PAGE>
Because we believe our proprietary rights are material to our success,
misappropriation of such rights or claims of infringement or legal actions
related to intellectual property could adversely impact our financial condition
We rely upon a combination of nondisclosure and other contractual
arrangements and trade secret, patent, copyright and trademark laws to protect
our proprietary rights. There can be no assurance that the steps taken by us to
protect our proprietary rights will be adequate to deter misappropriation of
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights.
Although we believe that our services do not infringe on the intellectual
property rights of others and that we have all rights necessary to utilize the
intellectual property employed in our business, we are subject to the risk of
claims alleging infringement of third-party intellectual property rights. Any
such claims could require us to spend significant sums in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to
the intellectual property which is the subject of asserted infringement.
We rely heavily upon our key employees
Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution of our executive officers, in
particular those of Steven S. Myers, our Chairman of the Board and Michael A.
Piraino, our Chief Executive Officer and President. The loss of the services of
either of these individuals for any reason could materially and adversely
affect our business, operating results and financial condition, including our
ability to secure and complete engagements. We currently maintain a key-man
life insurance policy in the amount of $2.0 million each, for Mr. Myers and Mr.
Piraino.
Our quarterly results may fluctuate significantly
We may experience significant fluctuations in future quarterly operating
results due to a number of factors, including the size, timing and duration of
client engagements and the timing of software products licensing revenues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our stock price is subject to significant volatility
Our common stock was first publicly traded on January 29, 1998 after our
initial public offering at $12.00 per share. Between January 29, 1998 and March
31, 2000 the closing sale price has ranged from a low of $4.88 per share to a
high of $31.13 per share. The market price of our common stock could continue
to fluctuate substantially due to a variety of factors, including:
. quarterly fluctuations in results of operations
. adverse circumstances affecting the introduction or market acceptance of
new services offered by us
. announcements of new services by our competitors
. our loss of key employees
. changes in the regulatory environment or market conditions affecting the
defense and aerospace industry
. changes in earnings estimates ratings by analysts
. lack of market liquidity resulting from a relatively small amount of
public stock float
. changes in generally accepted accounting principles
. sales of common stock by existing holders
. the announcement and market acceptance of proposed acquisitions
14
<PAGE>
Year 2000 issues could affect our business
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in major system failure or
miscalculations. Thus far, we have had no significant problems related to year
2000 issues associated with the computer systems, software, or any other
property and equipment currently in use. However, we cannot guarantee that the
year 2000 problem will not adversely affect our business, operating results, or
financial condition at some point in the future.
We cannot be sure that we will be completely successful in our efforts to
address the year 2000 issue or that problems arising from the year 2000 issue
will not cause a material adverse effect on our operating results or financial
condition. We are limited in our efforts to address the year 2000 issue as it
relates to third parties and rely solely on the assurances of these third
parties as to their year 2000 preparedness.
Our principal shareholder has significant control over Emergent Information
Technologies, Inc.
Steven S. Myers, our Chairman of the Board, beneficially owns approximately
44.1% of our outstanding common stock and will have the ability to control or
significantly influence the election of directors and the results of other
matters submitted to a vote of shareholders. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company and may adversely affect the voting or other rights of other holders of
common stock. Our board of directors is currently comprised entirely of
individuals supported by Mr. Myers.
We may fail to manage our cash flow and violate our debt covenants
We have recently expended and expect to continue to expend significant
amounts of cash in connection with our growth and the acquisition of other
companies. In addition, as a result of certain earnout obligations, we may be
required to make further expenditures of cash in connection with such
acquisitions. We also require certain levels of cash in the normal operation of
our business. We currently maintain credit facilities with our banks in the
amount of $50 million. At March 31, 2000, we have a balance outstanding
pursuant to such credit facilities of $35.8 million.
While we believe that our current financing needs will be adequately
addressed with our current credit facilities and profits from operations for
the foreseeable future, there can be no assurance that such credit facilities
will be sufficient for all our requirements in the future, that our banks will
increase our credit facilities as and when needed, that such banks will renew
our credit facilities at the expiration of their current term or that any such
modification or renewal will be on terms satisfactory to us. In such case, we
may be compelled to consider, among other things, raising additional cash
through the equity markets. If we are unable to obtain additional financing
when so required, there would be a material adverse effect on the Company's
business, financial condition and results of operations.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net Revenues. Net revenues increased $6.3 million, or 24.9%, to $31.6
million for the three months ended March 31, 2000 as compared to $25.3 million
for the three months ended March 31, 1999. The increase resulted primarily from
a combination of internal revenue growth and acquisitions (KAI and S3I
contributed 2000 revenue of $2.2 million). The internal revenue growth rate,
which excludes revenue from the first twelve months after the closing date for
each acquisition, was approximately 16%. Factors contributing to our internal
growth rate include: (i) increased demand in the information technology and
high-end contract support services market; (ii) increased billing rates
resulting from an increase in associates' wages; and (iii) sales of internally
developed software products and related maintenance services.
15
<PAGE>
Gross Margin. Gross margin increased $1.9 million, or 17.4%, to $12.8
million, for the three months ended March 31, 2000 as compared to $10.9 million
for the three months ended March 31, 1999. As a percentage of net revenues,
gross margin decreased to 40.4% compared to 43.0% for the same three months of
1999. The decrease in gross margin as a percentage of revenues was attributed
to an increase in compensation and benefits to direct employees and a reduction
in contribution from the Company's proposal management business as a percentage
of total revenues.
Selling, General & Administrative Expenses, Software Development Costs and
Amortization of Goodwill and Other Intangibles. Selling, general and
administrative expenses increased $3.7 million, or 67.9%, to $9.2 million for
the three months ended March 31, 2000 as compared to $5.5 million for the three
months ended March 31, 1999. As a percentage of revenues, selling, general and
administrative expenses increased to 29.1% for the three months ended March 31,
2000, as compared to 21.7% for the same three months of 1999. This increase was
the result of increases in administrative costs related to the increase in
number of personnel as well as facility expenses attributable to the Company's
new office facilities in Vienna, Virginia and Colorado Springs, Colorado. The
Company expensed $1.3 million of development costs for software products being
sold or to be sold to commercial customers for the three months ended March 31,
2000 as compared to $1.2 million in the prior year period. Amortization of
goodwill and other intangibles increased to $0.5 million for the three months
ended March 31, 2000, from $0.3 million for the same three months of 1999,
reflecting the acquisition of S3I in the current year.
Operating Income. Operating income was $1.8 million for the three months
ended March 31, 2000 as compared to $3.9 million in the prior year period. As a
percentage of revenues, operating income decreased to 5.6% for the three months
ended March 31, 2000 from 15.4% for the same three months of 1999, which is
attributed to the increase in selling, general and administrative expenses,
discussed above.
Other Income (Expense). Other expense, net was $593,000 for the three months
ended March 31, 2000 as compared to other income, net of $39,000 for the same
three months of 1999. The increase in net expenses is due to higher interest
expense of $606,000 based on increased bank borrowings.
Net Income. Net income was $0.7 million for the three months ended March 31,
2000 as compared to $2.3 million for the same three months in 1999, a decrease
of $1.6 million or 69.6%.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2000, the Company's net cash used in
operating activities was approximately $0.8 million, compared to cash flows
used in operating activities of $0.7 million in the same period of the prior
year. This increase was due to an increase in accounts receivables and software
development expenses.
Net cash used in investing activities was $5.9 million for the three months
ending March 31, 2000, compared to cash flows used in investing activities of
$4.3 million for the same period of the prior year. The Company's primary uses
of funds on investing activities during the three months ended March 31, 2000
were the acquisition of S3I in February 2000 and purchases of property and
equipment used in operations.
Net cash provided by financing activities was $6.8 million in the three
months ended March 31, 2000, compared to $5.4 million for the same period of
the prior year. The primary source of cash provided by financing activities for
the three months ended March 31, 2000, was net borrowings of $6.8 million to
fund the acquisition of S3I.
The Company previously completed the acquisition of all the outstanding
common shares of SIS in March, 1999. The definitive agreement obligates the
Company to make an earnout payment contingent upon the achievement of certain
operating results. The earnout paid in April 2000 was $7.1 million and was
recorded in
16
<PAGE>
goodwill and accrued earnout payable as of March 31, 2000. The Company paid
such earnout payment from existing cash and cash equivalents, cash flow from
operations and available borrowings under the Amended Credit Facility.
The definitive agreements with KAI and S3I obligate the Company to make
earnout payments contingent upon the achievement of certain operating results.
The earnouts are payable in cash and are due within the next eighteen months.
The Company believes that the final earnout payments, as adjusted, could range
between $3.0 and $4.0 million. The Company expects to pay such earnout payments
from existing cash and cash equivalents, cash flow from operations and
available borrowings under the Amended Credit Facility.
17
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
10.1* Amendment Number One to amended and restated credit and security
agreement dated August 20, 1999 among the Company and Mellon Bank.
10.2* Amendment Number One [Two] to amended and restated credit and
security agreement dated April 10, 2000 among the Company, Mellon
Bank, and Wells Fargo Bank.
10.3* Stock Pledge Agreement dated April 10, 2000 among the Company and
Mellon Bank.
27.1* Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
- --------
* filed herewith
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERGENT INFORMATION TECHNOLOGIES, INC.
Date: May 15, 2000 /s/ Michael A. Piraino
By: ______________________________________
Michael A. Piraino
President, Chief Executive Officer,
Acting Chief Financial Officer,
Secretary and Director
(Principal Financial Officer)
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.1 Amendment Number One to amended and restated credit and security
agreement dated August 20, 1999 among the Company and Mellon Bank.
10.2 Amendment Number One [Two] to amended and restated credit and security
agreement dated April 10, 2000 among the Company, Mellon Bank, and
Wells Fargo Bank.
10.3 Stock Pledge Agreement dated April 10, 2000 among the Company and
Mellon Bank.
27.1 Financial Data Schedule
</TABLE>
20
<PAGE>
EXHIBIT 10.1
AMENDMENT NUMBER ONE TO
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
(SM&A Corporation)
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "Amendment Number One"), dated as of August [20], 1999, is
entered into between SM&A CORPORATION, a California corporation (the
"Borrower"), the Lenders signatory hereto and MELLON BANK, N.A., as agent for
the Lenders, (in such capacity, the "Agent"), in light of the following:
WHEREAS, Borrower, Lenders and Agent are parties to that certain
Amended and Restated Credit and Security Agreement, dated as of June 7, 1999 (as
from time to time amended, modified, supplemented, renewed, extended, or
restated, including without limitation, by this Amendment Number One, the
"Agreement"); and
WHEREAS, Borrower has requested that Agent and the Lenders amend
Section 6.2(j) of the Agreement to increase the amount permitted for capital
stock repurchases during the period from June 1, 1999 through December 31, 1999,
from $5,000,000 to $5,700,000; and
WHEREAS, the Agent and the Lenders are in agreement to so amend the
Agreement as provided in this Amendment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Initially capitalized terms used herein have the meanings defined
in the Agreement unless otherwise defined herein.
2. Section 1.1 of the Agreement hereby is amended by adding the
-----------
following definition:
"Amendment Number One" means that certain Amendment Number One to
--------------------
Amended and Restated Credit and Security Agreement dated as of August [20],
1999, between the Borrower, the Lenders and the Agent, including any attachments
thereto.
3. Clause (ii) of Section 6.2(j) of the Agreement is amended to read
-----------------------------
in its entirety as follows:
or (ii) repurchase its capital stock in an aggregate amount not
to exceed $5,700,000 during the period from June 1, 1999 through
December 31, 1999, and $1,000,000 during each fiscal year thereafter
during the term of this Agreement.
4. The Agreement, and all rights and obligations of the parties
thereto with respect thereto, shall be governed by and construed and interpreted
in accordance with Section 10.8 of the Agreement. The jury trial waiver
------------
contained in the Agreement remains in full force and effect.
1.
<PAGE>
5. Borrower represents and warrants to the Lender Group as follows:
(a) The execution, delivery, and performance by Borrower of this Amendment
Number One has been duly authorized by all necessary corporate and other action
and do not and will not require by the Borrower any registration with, consent
or approval of, or notice to or action by, any Person in order to be effective
and enforceable, (b) the Agreement, as amended by this Amendment Number One,
constitutes the legal, valid, and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, without defense, counterclaim, or
offset, (c) the representations and warranties of the Borrower in this Amendment
Number One, the Agreement as amended by this Amendment Number One, and the other
Loan Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date), and (d) to the
Borrower's actual knowledge, no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against the Borrower or the Lender Group.
6. Except as herein expressly amended or modified by this Amendment
Number One, all terms, covenants and provisions of the Agreement are and shall
remain in full force and effect and all references therein to the Agreement
shall henceforth refer to the Agreement as amended by this Amendment Number One.
This Amendment Number One shall be deemed incorporated into, and a part of, the
Agreement.
7. This Amendment Number One, together with the Agreement and the
other Loan Documents, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This
Amendment Number One supersedes all prior drafts and communications with respect
thereto. This Amendment Number One may not be amended except in writing executed
by both of the parties hereto.
8. If any term or provision of this Amendment Number One shall be
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment
Number One or the Agreement, respectively.
9. This Amendment Number One shall not be effective until each party
named on the signature pages of this Amendment Number One has executed and
delivered a counterpart of this Amendment Number One.
10. This Amendment Number One may be executed in any number of
counterparts, each of which shall be deemed an original, and all such
counterparts together shall constitute but one and the same instrument. Delivery
of an executed counterpart of this Amendment Number One by telefacsimile shall
be equally as effective as delivery of an original executed counterpart of this
Amendment Number One. Any party delivering an executed counterpart of this
Amendment Number One by telefacsimile also shall deliver an original executed
counterpart of this Amendment Number One but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Amendment Number One.
2.
<PAGE>
IN WITNESS HEREOF, this Amendment Number One has been executed and delivered as
of the date first set forth of above.
AGENT: BORROWER:
- ------ ---------
MELLON BANK, N.A., as Agent SM&A CORPORATION
By: By:
------------------------------- ---------------------------------
Name: Richard M. McNiven, Name: Edward A. Beeman
Title: Assistant Vice President Title: Senior Vice President/
Chief Financial Officer
Address: Address:
Mellon Bank SM&A Corporation
Mellon Bank Center 4695 MacArthur Court
400 South Hope Street 8th Floor
5th Floor Newport Beach, California 92660
Los Angeles, California 90071 Attention: Edward A. Beeman,
Senior Vice President/
Chief Financial Officer
Attention: Richard M. McNiven,
Assistant Vice President
LENDERS:
--------
MELLON BANK, N.A.
By:
---------------------------------
Name: Richard M. McNiven
Title: Assistant Vice President
Address:
Mellon Bank
Mellon Bank Center
400 South Hope Street
5th Floor
Los Angeles, California 90071
Attention: Richard M. McNiven,
Assistant Vice President
3.
<PAGE>
WELLS FARGO BANK, N.A.
By:
-------------------------------
Name: Richard LaPoint
Title: Vice President
Address:
Wells Fargo Bank, N.A.
2030 Main Street
Suite 900
Irvine, California 92614
Attention: Richard LaPoint
Vice President
IMPERIAL BANK
By:
-------------------------------
Name: Jamie Harney
Title: Vice President
Address:
Imperial Bank
695 Town Center Drive
Costa Mesa, California 92626
Attention: Jamie Harney
Vice President
4.
<PAGE>
EXHIBIT 10.2
AMENDMENT NUMBER ONE TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "Amendment"), dated as of April 10, 2000, is entered into among
SM&A CORPORATION, a California corporation (the "Borrower"), the Lenders, and
MELLON BANK, N.A., as agent for the Lenders, (in such capacity, the "Agent"),
and WELLS FARGO BANK, N.A., as co-agent for the Lenders (in such capacity, "Co-
Agent") in light of the following:
WHEREAS, Borrower, Lenders, Agent, and Co-Agent are parties to that
certain Amended and Restated Credit and Security Agreement, dated as of June 7,
1999 (as from time to time amended, modified, supplemented, renewed, extended,
or restated, including without limitation, by this Amendment, the "Agreement");
and
WHEREAS, Borrower has requested that Agent, Co-Agent, and the Lenders
amend the Agreement as set forth herein; and
WHEREAS, Agent, Co-Agent, and the Lenders are willing to so amend the
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. Initially capitalized terms used herein have the
--------------
meanings defined in the Agreement unless otherwise defined herein.
2. Amendments to Agreement.
-----------------------
(a) Section 1.1 of the Agreement hereby is amended by adding or
-----------
modifying, as the case may be, the following definitions:
"Amendment Number One": That certain Amendment Number One to
--------------------
Amended and Restated Credit and Security Agreement dated as of April
10, 2000, between Borrower, Agent, and Co-Agent, including any
attachments thereto.
"EBITDA": For any period, Borrower's consolidated net earnings
------
(or loss) less the amount of any extraordinary gains, and before
interest expense, provision for income taxes, depreciation, and
amortization expense.
"Fixed Charge Coverage Ratio": For any date of determination, on
---------------------------
a consolidated basis, the ratio of: (a) the sum of (i) EBITDA, minus,
-----
1
<PAGE>
(ii) Capital Expenditures (net of the capitalized portion of leasehold
improvements to the extent reimbursed by Borrower's landlords under
any tenant improvement allowance), minus, (iii) provision for income
-----
taxes, in each case under this clause (a), for the 12 month period
ending on such date of determination in accordance with GAAP; to (b)
the sum of (i) Interest Expense, plus (ii) scheduled payments of
----
principal of long-term Indebtedness, plus (iii) scheduled payments in
----
respect of capitalized lease obligations, in each case under this
clause (b) with the exception of item (i), for the 12 month period
---------- --------
following such date of determination for said period in accordance
with GAAP, and, with respect to item (i), for the 12 month period
--------
ending on such date of determination for said period in accordance
with GAAP.
"Maturity Date": December 31, 2001.
-------------
"Net Profitability": As of any date of determination, the net
-----------------
income of the Borrower and its Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Permitted Acquisition": Any Acquisition that is approved by the
---------------------
Required Lenders.
"Stock Pledge Agreement": that certain Stock Pledge Agreement,
----------------------
dated as of the date of Amendment Number One, among Borrower, Agent,
and Co-Agent.
(b) The definition of "Applicable Margin" contained in
Section 1.1 of the Agreement is hereby amended (i) such that each reference to
- -----------
subsection 6.1(a)(ii) means and refers to subsection 6.1(a)(iii), (ii) such that
- --------------------- ----------------------
each reference to subsection 6.1(a)(iii) means and refers to subsection
---------------------- ----------
6.1(a)(iv), and (iii) by amending and restating the table set forth in such
- ----------
definition in its entirety to read as follows:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V Level VI
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Indebtedness/EBITDA less than greater than greater than greater than greater than greater than
or equal to 1.00:1.00 and 1.50:1.00 and 2.00:1.00 and 3.00:1.00 and 4.00:1.00
1.00:1.00 less than or less than or less than or less than or
equal to equal to equal to equal to
1.50:1.00 2.00:1.00 3.00:1.00 4.00:1.00
Libor Rate Portion 125 bps 150 bps 175 bps 200 bps 300 bps 350 bps
Prime Rate Portion 0 bps 0 bps 0 bps 0 bps 50 bps 100 bps
</TABLE>
2
<PAGE>
(c) The definition of "Applicable Unused Line Rate" contained
in Section 1.1 of the Agreement is hereby amended (i) such that each reference
-----------
to subsection 6.1(a)(ii) means and refers to subsection 6.1(a)(iii), (ii) such
--------------------- ---------------------
that each reference to subsection 6.1(a)(iii) means and refers to subsection
---------------------- ----------
6.1(a)(iv), and (iii) by amending and restating the table set forth in such
- ----------
definition in its entirety to read as follows:
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V Level VI
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Indebtedness/ less than greater than greater than greater than greater than greater than
EBITDA Ratio or equal to 1.00:1.00 and 1.50:1.00 and 2.00:1.00 and 3.00:1.00 and 4.00:1.00
1.00:1.00 less than or less than or less than or less than or
equal to equal to equal to equal to
1.50:1.00 2.00:1.00 3.00:1.00 4.00:1.00
Unused Line Rate 20 bps 25 bps 25 bps 30 bps 35 bps 40 bps
</TABLE>
(b) Section 2.1(b)(i) of the Agreement hereby is amended and
-----------------
restated in its entirety to read as follows:
(i) On September 30, 2000, the Revolving Commitment shall be
permanently reduced by $5,000,000, and on December 31, 2000, the
Revolving Commitment shall be permanently reduced by an additional
$5,000,000. Upon the effectiveness of each such reduction in the
Revolving Commitment, (A) to the extent that the aggregate outstanding
Obligations exceeds the Revolving Commitment, the amount of such excess
shall be immediately due and payable, without notice, in accordance
with Section 2.5(a), and (B) each Lender's Commitment shall be reduced
--------------
ratably.
(e) Section 2.5(a) of the Agreement is amended and restated in
--------------
its entirety to read as follows:
(a) Mandatory Repayments.
---------------------
(i) If, at any time and from time to time (in any such case in
accordance with the terms and conditions contained herein), (A)
Borrower shall issue and sell any Stock of Borrower, or (B) Borrower
shall sell or otherwise dispose of any of its assets, then Borrower
shall make a mandatory repayment of the Obligations, in any such case,
in an amount equal to the amount of proceeds (net of any reasonable and
customary fees, commissions, expenses, and other costs paid by Borrower
in connection therewith, other than those payable to any Affiliate of
Borrower) ("Net Issuance Proceeds") received by Borrower from such
issuance and sale of Stock or such sale of assets, as the case may be.
3
<PAGE>
(ii) If at any time the aggregate outstanding Obligations exceed
the Revolving Commitment then in effect, including, but not limited to,
as a result of a permanent reduction in the Revolving Commitment
required under Section 2.1(b) hereof, the Borrower shall immediately
--------------
repay the excess to the Agent for the ratable benefit of the Lender
Group.
(ii) The aggregate principal amount of the Revolving Loans
outstanding on the Maturity Date, together with accrued interest
thereon, shall be due and payable in full on the Maturity Date.
(f) Section 6.1(a)(ii) of the Agreement hereby is amended by (i)
------------------
deleting the first (and only) occurrence of "Borrower's unaudited consolidated
balance sheet" and inserting "Borrower's unaudited consolidated and
consolidating balance sheet" in lieu thereof, and (ii) deleting the first (and
only) occurrence of "related unaudited consolidated statement of income and
retained earnings" and inserting "related unaudited consolidated and
consolidating statement of income and retained earnings" in lieu thereof.
(g) Section 6.1(a) of the Agreement hereby is amended by re-
--------------
designating subdivision (iv) thereunder as subdivision (v), re-designating
---------------- ---------------
subdivision (iii) thereunder as subdivision (iv), amending such newly designated
- ----------------- ----------------
subdivision (iv) by replacing each occurrence of "subdivision (i) and (ii)
- ----------------
above" in such subdivision with "subdivision (i), (ii), and (iii) above", and by
adding the following to Section 6.1(a) as a new subdivision (iii):
-------------- -----------------
(iii) as soon as available, but in any event within 30 days after
the end of each month, the Borrower's unaudited consolidated and
consolidating balance sheet of itself and its consolidated Subsidiaries
as at the end of such period and the related unaudited consolidated and
consolidating statement of income and retained earnings (or comparable
statement) and changes in financial position and cash flow for such
period and year to date, setting forth in each case in comparative
form, if available, the figures as at the end of the previous fiscal
year as to the balance sheet and the figures for the previous
corresponding period as to the other statements, certified by the Chief
Financial Officer of the Borrower as being fairly stated in all
material respects subject to year end adjustments; all such financial
statements to be complete and correct in all material respects and to
be prepared in reasonable detail acceptable to the Agent and in
accordance with GAAP applied consistently throughout the periods
reflected therein (except as approved by such accountants and disclosed
therein);
(h) Section 6.1 of the Agreement hereby is amended by adding the
-----------
following thereto as a new subsection (l):
--------------
4
<PAGE>
(l) Interest Rate Protection. Borrower shall, at all times from
------------------------
and after the date that is 60 days after the First Amendment, have in
effect an interest rate protection policy satisfactory to Agent,
including, without limitation, maintaining a fixed interest rate
through the Maturity Date on not less than 50% of the Revolving
Commitments.
(i) Section 6.2(b) of the Agreement hereby is amended and
--------------
restated in its entirety to read as follows:
(b) Maximum Leverage. The Borrower will not permit the ratio of
----------------
Indebtedness, as of the last day of each fiscal quarter set forth
below, to EBITDA for the four consecutive fiscal quarters then ending,
to be greater than maximum ratio corresponding thereto:
Fiscal Quarter Ending Maximum Ratio
------------------------------------------------------------------
March 31, 2000 5.00:1.00
------------------------------------------------------------------
June 30, 2000 6.00:1.00
------------------------------------------------------------------
September 30, 2000 4.00:1.00
------------------------------------------------------------------
December 31, 2000, and the last day of each fiscal 3.00:1.00
quarter thereafter
------------------------------------------------------------------
(j) Section 6.2(c) of the Agreement hereby is amended and
--------------
restated in its entirety to read as follows:
(c) Minimum Fixed Charge Coverage Ratio. The Borrower will not
-----------------------------------
permit the Fixed Charge Coverage Ratio, as of the last day of each
fiscal quarter set forth below, for the period of four consecutive
fiscal quarters then ending to be less than minimum ratio
corresponding thereto:
Fiscal Quarter Ending Minimum Ratio
------------------------------------------------------------------
March 31, 2000 1.10:1.00
------------------------------------------------------------------
June 30, 2000, and the last day of each fiscal 1.25:1.00
quarter thereafter
------------------------------------------------------------------
5
<PAGE>
(k) Section 6.2(j) of the Agreement hereby is amended and
--------------
restated in its entirety to read as follows:
(j) Dividends. Authorize, declare or pay any dividends or other
---------
distributions on its capital stock or redeem, repurchase or acquire
any shares of its capital stock.
(l) Section 6.2 of the Agreement hereby is amended by adding the
-----------
following thereto as a new subsection (q):
--------------
(q) Capital Expenditures. Make or incur any Capital Expenditure
--------------------
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by the Borrower and its Subsidiaries, collectively, in
any fiscal year of the Borrower would exceed $1,500,000.
3. Representations and Warranties. Borrower represents and warrants
------------------------------
to the Lender Group as follows: (a) The execution, delivery, and performance by
Borrower of this Amendment has been duly authorized by all necessary corporate
and other action and do not and will not require by the Borrower any
registration with, consent or approval of, or notice to or action by, any Person
in order to be effective and enforceable, (b) the Agreement, as amended by this
Amendment, constitutes the legal, valid, and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, without defense,
counterclaim, or offset, (c) the representations and warranties of the Borrower
in this Amendment, the Agreement as amended by this Amendment, and the other
Loan Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date), and (d) to the
Borrower's actual knowledge, no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against the Borrower or the Lender Group.
4. Conditions Precedent. This Amendment shall not be effective
--------------------
until the following conditions precedent are satisfied (or waived by the Lender
Group in their sole and absolute discretion):
(a) Agent shall have received the following documents, duly
executed by the parties thereto, and the same shall be in full force and effect:
(i) this Amendment
6
<PAGE>
(ii) the Stock Pledge Agreement, together with the original
shares of Stock that are the subject of the Liens created thereunder and
stock powers, executed in blank, with respect thereto.
(b) Agent shall have received, for the ratable benefit of the Lenders,
an amendment fee in the amount of $250,000;
(c) the Stock Pledge Agreement, together with the original shares of
Stock that are the subject of the Liens created thereunder and stock powers,
executed in blank, with respect thereto;
5. Effect on Agreement. Except as herein expressly amended or modified by
-------------------
this Amendment, all terms, covenants and provisions of the Agreement are and
shall remain in full force and effect and all references therein to the
Agreement shall henceforth refer to the Agreement as amended by this Amendment.
This Amendment shall be deemed incorporated into, and a part of, the Agreement.
6. Entire Agreement. This Amendment, together with the Agreement and the
----------------
other Loan Documents, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This
Amendment supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in writing executed by both of the
parties hereto.
7. Severability. If any term or provision of this Amendment shall be
------------
deemed prohibited by or invalid under any applicable law, such provision shall
be invalidated without affecting the remaining provisions of this Amendment or
the Agreement, respectively.
8. Counterpart; Telefacsimile Execution. This Amendment may be executed
------------------------------------
in any number of counterparts and by separate parties on different counterparts,
each of which shall be deemed an original, and all such counterparts together
shall constitute but one and the same instrument. Delivery of an executed
counterpart of this Amendment by telefacsimile shall be equally as effective as
delivery of an original executed counterpart of this Amendment. Any party
delivering an executed counterpart of this Amendment by telefacsimile also shall
deliver an original executed counterpart of this Amendment but the failure to
deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
[Remainder of page left intentionally blank.]
7
<PAGE>
IN WITNESS HEREOF, this Amendment has been executed and delivered as
of the date first set forth of above.
BORROWER:
---------
SM&A CORPORATION
By: /s/ Michael Piraino
---------------------------
Name: Michael Piraino
Title: President
AGENT:
------
MELLON BANK, N.A., as Agent
By: /s/ Richard M. McNiven
---------------------------
Name: Richard M. McNiven
Title: Vice President
CO-AGENT:
---------
WELLS FARGO BANK, N.A., as Co-Agent
By: /s/ Richard LaPoint
---------------------------
Name: Richard LaPoint
Title: Vice President
8
<PAGE>
LENDERS:
--------
MELLON BANK, N.A.
By: /s/ Richard M. McNiven
---------------------------
Name: Richard M. McNiven
Title: Vice President
WELLS FARGO BANK, N.A.
By: /s/ Richard LaPoint
---------------------------
Name: Richard LaPoint
Title: Vice President
IMPERIAL BANK
By: /s/ Jamie Harney
---------------------------
Name: Jamie Harney
Title: Vice President
9
<PAGE>
EXHIBIT 10.3
STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of April 10,
2000, is entered into among SM&A Corporation, a California corporation
("Pledgor"), and Mellon Bank, N.A. as agent for the hereinafter defined Secured
Party (in such capacity, together with its successors, if any, in such capacity,
"Agent"), with reference to the following:
WHEREAS, Pledgor beneficially owns the specified number of shares
identified as Pledged Shares in the Persons identified as Issuers on Schedule A
----------
attached hereto (or any addendum thereto);
WHEREAS, Pledgor and Secured Party are parties to that certain Amended
and Restated Credit Agreement (as amended, supplemented, or otherwise modified
from time to time, the "Loan Agreement"), dated as of June 7, 1999, pursuant to
which Secured Party has agreed to make certain financial accommodations to
Pledgor;
WHEREAS, Pledgor and Secured Party are contemporaneously herewith
entering into that certain Amendment Number One to Amended and Restated Credit
Agreement, dated as of the date hereof;
WHEREAS, to induce Secured Party to make the financial accommodations
provided to Pledgor pursuant to the Loan Agreement, Pledgor desires to pledge,
grant, transfer, and assign to Secured Party a security interest in the
Collateral (as hereinafter defined) to secure the Secured Obligations (as
hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1. Definitions And Construction.
(a) Definitions.
All initially capitalized terms used herein and not otherwise defined
herein shall have the meaning ascribed thereto in the Loan Agreement. As used
in this Agreement:
"Agent" shall have the meaning ascribed thereto in the preamble to
-----
this Agreement.
"Agreement" shall mean this Stock Pledge Agreement.
---------
"Chief Executive Office" shall mean where Pledgor is deemed located
----------------------
pursuant to (S)9103(3)(d) of the Code.
"Co-Agent" shall mean Wells Fargo Bank, N.A.
--------
<PAGE>
"Collateral" shall mean the Pledged Shares, the Future Rights, and the
----------
Proceeds, collectively.
"Future Rights" shall mean: (a) all shares of stock (other than
-------------
Pledged Shares) of the Issuers, and all securities convertible or exchangeable
into, and all warrants, options, or other rights to purchase, shares of stock of
the Issuers; (b) to the extent of Pledgor's interest therein, all shares of, all
securities convertible or exchangeable into, and all warrants, options, or other
rights to purchase shares of stock of any Person in which Pledgor, after the
date of this Agreement, acquires a direct equity interest, irrespective of
whether such Person is or becomes a Subsidiary of Pledgor; and (c) the
certificates or instruments representing such additional shares, convertible or
exchangeable securities, warrants, and other rights and all dividends, cash,
options, warrants, rights, instruments, and other property or proceeds from time
to time received, receivable, or otherwise distributed in respect of or in
exchange for any or all of such shares.
"Holder" and "Holders" shall have the meanings ascribed thereto in
------ -------
Section 3 of this Agreement.
- ---------
"Issuers" shall mean each of the Persons identified as an Issuer on
-------
Schedule A attached hereto (or any addendum thereto), and any successors
- ----------
thereto, whether by merger or otherwise.
"Lenders" shall mean, individually and collectively, each of the
-------
financial institutions listed on the signature pages of the Loan Agreement,
together with their respective successors and assigns.
"Lien" shall mean any lien, mortgage, pledge, assignment (including
----
any assignment of rights to receive payments of money), security interest,
charge, or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, or any agreement to
give any security interest).
"Loan Agreement" shall have the meaning ascribed thereto in the
--------------
recitals to this Agreement.
"Pledged Shares" shall mean all of the shares identified as Pledged
--------------
Shares on Schedule A attached hereto (or any addendum thereto).
----------
"Pledgor" shall have the meaning ascribed thereto in the preamble to
-------
this Agreement.
"Proceeds" shall mean all proceeds (including proceeds of proceeds) of
--------
the Pledged Shares and Future Rights including all: (a) rights, benefits,
distributions, premiums, profits, dividends, interest, cash, instruments,
documents of title, accounts, contract rights, inventory, equipment, general
intangibles, deposit accounts, chattel paper, and other property from time to
time received, receivable, or otherwise distributed in respect of or in exchange
for, or as a replacement of or a substitution for, any of the Pledged Shares,
Future Rights, or
-2-
<PAGE>
proceeds thereof (including any cash, stock, or other securities or instruments
issued after any recapitalization, readjustment, reclassification, merger or
consolidation with respect to the Issuers and any security entitlements, as
defined in (S)8102(17) of the Code, with respect thereto); (b) "proceeds," as
such term is used in (S)9306 of the Code; (c) proceeds of any insurance,
indemnity, warranty, or guaranty (including guaranties of delivery) payable from
time to time with respect to any of the Pledged Shares, Future Rights, or
proceeds thereof; (d) payments (in any form whatsoever) made or due and payable
to Pledgor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Pledged Shares,
Future Rights, or proceeds thereof; and (e) other amounts from time to time paid
or payable under or in connection with any of the Pledged Shares, Future Rights,
or proceeds thereof.
"Secured Obligations" shall mean all loans, Revolving Loans, Swing
-------------------
Line Loans, debts, principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued), premiums, liabilities
(including all amounts charged to the Borrower's Loan Account pursuant hereto),
obligations, fees, charges, costs, or Lender Group Expenses (including any fees
or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by the
Borrower to the Lender Group or the Issuing Bank of any kind and description
(whether pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between the Lender Group or the Issuing Bank and the Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including any debt, liability, or obligation owing from the Borrower to
others that the Lender Group or the Issuing Bank may have obtained by assignment
or otherwise, and further including all interest not paid when due and all
Lender Group Expenses that the Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Secured Party" shall mean, individually and collectively, the
-------------
Lenders, Agent, and Co-Agent.
"Securities Act" shall have the meaning ascribed thereto in Section
-------------- -------
9(c) of this Agreement.
- ---
(b) Construction.
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and other similar terms in this Agreement refer
to this Agreement as a whole and not exclusively to any particular provision of
this Agreement. Article, section, subsection, exhibit, and schedule references
are to this Agreement unless otherwise specified. All of the exhibits or
schedules attached to this Agreement shall be deemed incorporated herein by
reference. Any reference to any of the
-3-
<PAGE>
following documents includes any and all alterations, amendments, restatements,
extensions, modifications, renewals, or supplements thereto or thereof, as
applicable: this Agreement, the Loan Agreement, or any of the other Loan
Documents.
(ii) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party or
Pledgor, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by both of the parties and their respective
counsel and shall be construed and interpreted according to the ordinary meaning
of the words used so as to fairly accomplish the purposes and intentions of the
parties hereto.
(iii) In the event of any direct conflict between the
express terms and provisions of this Agreement and of the Loan Agreement, the
terms and provisions of the Loan Agreement shall control.
2. Pledge. As security for the prompt payment and performance of the Secured
Obligations in full by Pledgor when due, whether at stated maturity, by
acceleration or otherwise (including amounts that would become due but for the
operation of the provisions of the Bankruptcy Code), Pledgor hereby pledges,
grants, transfers, and assigns to Agent, for the benefit of Secured Party, a
security interest in all of Pledgor's right, title, and interest in and to the
Collateral.
3. Delivery and Registration of Collateral.
(a) All certificates or instruments representing or evidencing the
Collateral shall be promptly delivered by Pledgor to Agent or Agent's designee
pursuant hereto at a location designated by Agent and shall be held by or on
behalf of Agent pursuant hereto, and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Agent.
(b) Upon the occurrence and during the continuance of an Event of
Default, Agent, on behalf of Secured Party, shall have the right, at any time in
its discretion and without notice to Pledgor, to transfer to or to register on
the books of the Issuers (or of any other Person maintaining records with
respect to the Collateral) in the name of Agent, for the benefit of Secured
Party, or any of Agent's nominees any or all of the Collateral. In addition,
Agent shall have the right at any time to exchange certificates or instruments
representing or evidencing Collateral for certificates or instruments of smaller
or larger denominations.
(c) If, at any time and from time to time, any Collateral (including
any certificate or instrument representing or evidencing any Collateral) is in
the possession of a Person other than Agent or Pledgor (a "Holder"), then
Pledgor shall immediately, at Agent's option, either cause such Collateral to be
delivered into Agent's possession, or execute and deliver to such Holder a
written notification/instruction, and take all other steps necessary to perfect
the security interest of Agent, for the benefit of Secured Party, in such
Collateral, including obtaining from such Holder a written acknowledgement that
such Holder holds
-4-
<PAGE>
such Collateral for Agent, all pursuant to (S)9115 of the Code or other
applicable law governing the perfection of the security interest of Agent, for
the benefit of Secured Party, in the Collateral in the possession of such
Holder. Each such notification/instruction and acknowledgement shall be in form
and substance satisfactory to Agent.
(d) Any and all Collateral (including dividends, interest, and other
cash distributions) at any time received or held by Pledgor shall be so received
or held in trust for Secured Party, shall be segregated from other funds and
property of Pledgor and shall be forthwith delivered to Agent, for the benefit
of Secured Party, in the same form as so received or held, with any necessary
endorsements; provided that cash dividends or distributions received by
--------
Pledgor, if and to the extent they are not prohibited by the Loan Agreement, may
be retained by Pledgor in accordance with Section 4 and used in the ordinary
---------
course of Pledgor's business.
(e) If at any time and from time to time any Collateral consists of
an uncertificated security or a security in book entry form, then Pledgor shall
immediately cause such Collateral to be registered or entered, as the case may
be, in the name of Agent, for the benefit of Secured Party, or otherwise cause
the security interest of Agent, for the benefit of Secured Party, thereon to be
perfected in accordance with applicable law.
4. Voting Rights and Dividends.
(a) So long as no Event of Default shall have occurred and be
continuing, Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of the Loan Documents and shall be
entitled to receive and retain any cash dividends or distributions paid in
respect of the Collateral.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of Pledgor to exercise the voting and other consensual
rights or receive and retain cash dividends or distributions that it would
otherwise be entitled to exercise or receive and retain, as applicable pursuant
to Section 4(a), shall cease, and all such rights shall thereupon become vested
-----------
in Agent, for the benefit of Secured Party, who shall thereupon have the sole
right to exercise such voting or other consensual rights and to receive and
retain such cash dividends and distributions for the benefit of Secured Party.
Pledgor shall execute and deliver (or cause to be executed and delivered) to
Agent all such proxies and other instruments as Agent may reasonably request for
the purpose of enabling Agent to exercise the voting and other rights which it
is entitled to exercise and to receive the dividends and distributions that it
is entitled to receive and retain pursuant to the preceding sentence.
5. Representations and Warranties. Pledgor represents, warrants, and covenants
as follows:
(a) Pledgor has taken all steps it deems necessary or appropriate to
be informed on a continuing basis of changes or potential changes affecting the
Collateral (including rights of conversion and exchange, rights to subscribe,
payment of dividends,
-5-
<PAGE>
reorganizations or recapitalization, tender offers and voting rights), and
Pledgor agrees that Secured Party shall have no responsibility or liability for
informing Pledgor of any such changes or potential changes or for taking any
action or omitting to take any action with respect thereto;
(b) All information herein or hereafter supplied to Secured Party by
or on behalf of Pledgor in writing with respect to the Collateral is, or in the
case of information hereafter supplied will be, accurate and complete in all
material respects;
(c) Pledgor is and will be the sole legal and beneficial owner of the
Collateral (including the Pledged Shares and all other Collateral acquired by
Pledgor after the date hereof) free and clear of any adverse claim, Lien, or
other right, title, or interest of any party, other than the Liens in favor of
Agent for the benefit of Secured Party;
(d) This Agreement, and the delivery to Agent of the Pledged Shares
representing Collateral (or the delivery to all Holders of the Pledged Shares
representing Collateral of the notification/instruction referred to in Section 3
---------
of this Agreement), creates a valid, perfected, and first priority security
interest in one hundred percent (100%) of the Pledged Shares in favor of Agent,
for the benefit of Secured Party, securing payment of the Secured Obligations,
and all actions necessary to achieve such perfection have been duly taken;
(e) Schedule A to this Agreement is true and correct and complete
----------
in all material respects; without limiting the generality of the foregoing: (i)
all the Pledged Shares are in certificated form, and, except to the extent
registered in the name of Agent, for the benefit of Secured Party, or Agent's
nominee pursuant to the provisions of this Agreement, are registered in the name
of Pledgor; and (ii) the Pledged Shares as to each of the Issuers constitute at
least the percentage of all the fully diluted issued and outstanding shares of
stock of such Issuer as set forth in Schedule A to this Agreement;
----------
(f) There are no presently existing Future Rights or Proceeds owned
by Pledgor;
(g) The Pledged Shares have been duly authorized and validly issued
and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this Agreement
nor the extensions of credit represented by the Secured Obligations violates
Regulation T, U or X of the Board of Governors of the Federal Reserve System.
6. Further Assurances.
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action that may be necessary or reasonably desirable, or
that Agent may request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to
-6-
<PAGE>
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral. Without limiting the generality of the
foregoing, Pledgor will: (i) at the request of Agent, mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to Agent, indicating that such Collateral is subject to
the security interest granted hereby; (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or reasonably desirable, or as Agent may request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby; (iii) allow inspection of the Collateral by Agent or Persons
designated by Agent; and (iv) appear in and defend any action or proceeding that
may affect Pledgor's title to or the security interest of Agent, for the benefit
of Secured Party, in the Collateral.
(b) Pledgor hereby authorizes Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of Pledgor where permitted by law. A
carbon, photographic, or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(c) Pledgor will furnish to Agent, for the benefit of Secured Party,
upon the request of Agent: (i) a certificate executed by an authorized officer
of Pledgor, and dated as of the date of delivery to Agent, itemizing in such
detail as Agent may request, the Collateral which, as of the date of such
certificate, has been delivered to Agent by Pledgor pursuant to the provisions
of this Agreement; and (ii) such statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as Agent may request.
7. Covenants of Pledgor. Pledgor shall:
(a) Perform each and every covenant in the Loan Documents applicable
to Pledgor;
(b) At all times keep at least one complete set of its records
concerning substantially all of the Collateral at its Chief Executive Office as
set forth in Schedule B hereto, and not change the location of its Chief
----------
Executive Office or such records without giving Secured Party at least thirty
(30) days prior written notice thereof;
(c) To the extent it may lawfully do so, use its best efforts to
prevent the Issuers from issuing Future Rights or Proceeds, except for cash
dividends and other distributions, if any, that are not prohibited by the terms
of the Loan Agreement to be paid by any Issuer to Pledgor; and
(d) Upon receipt by Pledgor of any material notice, report, or other
communication from any of the Issuers or any Holder relating to all or any part
of the Collateral, deliver such notice, report or other communication to Agent
as soon as possible, but in no event later than five (5) days following the
receipt thereof by Pledgor.
-7-
<PAGE>
8. Agent as Pledgor's Attorney-in-Fact.
(a) Pledgor hereby irrevocably appoints Agent as Pledgor's attorney-
in-fact, with full authority in the place and stead of Pledgor and in the name
of Pledgor, Agent, or otherwise, from time to time at Agent's discretion, to
take any action and to execute any instrument that Agent may reasonably deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(i) upon the occurrence and during the continuance of an Event of Default, to
receive, endorse, and collect all instruments made payable to Pledgor
representing any dividend, interest payment or other distribution in respect of
the Collateral or any part thereof to the extent permitted hereunder and to give
full discharge for the same and to execute and file governmental notifications
and reporting forms; (ii) to issue any notifications/instructions Agent deems
necessary pursuant to Section 3 of this Agreement; or (iii) to arrange for the
---------
transfer of the Collateral on the books of any of the Issuers or any other
Person to the name of Agent or to the name of Agent's nominee.
(b) In addition to the designation of Agent as Pledgor's attorney-in-
fact in subsection (a), Pledgor hereby irrevocably appoints Agent as Pledgor's
--------------
agent and attorney-in-fact to make, execute and deliver any and all documents
and writings which may be necessary or appropriate for approval of, or be
required by, any regulatory authority located in any city, county, state or
country where Pledgor or any of the Issuers engage in business, in order to
transfer or to more effectively transfer any of the Pledged Shares or otherwise
enforce Secured Party's rights hereunder.
9. Remedies upon Default. Upon the occurrence and during the continuance of an
Event of Default:
(a) Agent, on behalf of Secured Party, may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (irrespective of whether the Code applies to the affected
items of Collateral), and Agent, on behalf of Secured Party, may also without
notice (except as specified below) sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange, broker's board
or at any of Agent's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon such other
terms as Agent may deem commercially reasonable, irrespective of the impact of
any such sales on the market price of the Collateral. To the maximum extent
permitted by applicable law, any one or more members of Secured Party may be the
purchaser of any or all of the Collateral at any such sale and shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply all or any part of the Secured Obligations owing to such
members of Secured Party as a credit on account of the purchase price of any
Collateral payable at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by law) all rights of
redemption, stay, or appraisal that it now has or may at any time in the future
have under any rule of law or statute now existing or hereafter enacted. Pledgor
agrees that, to the extent
-8-
<PAGE>
notice of sale shall be required by law, at least ten (10) calendar days notice
to Pledgor of the time and place of any public sale or the time after which a
private sale is to be made shall constitute reasonable notification. Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. To the maximum extent permitted by law, Pledgor hereby waives any
claims against Secured Party arising because the price at which any Collateral
may have been sold at such a private sale was less than the price that might
have been obtained at a public sale, even if Agent accepts the first offer
received and does not offer such Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or other disposition of the
Collateral conducted in conformity with reasonable commercial practices of
banks, insurance companies, or other financial institutions in the City of Los
Angeles, California in disposing of property similar to the Collateral shall be
deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale by Agent of any
Collateral pursuant to the terms hereof in compliance with the Securities Act of
1933 as now in effect or as hereafter amended, or any similar statute hereafter
adopted with similar purpose or effect (the "Securities Act"), as well as
applicable "Blue Sky" or other state securities laws may require strict
limitations as to the manner in which Agent or any subsequent transferee of the
Collateral may dispose thereof. Pledgor acknowledges and agrees that in order to
protect Secured Party's interest it may be necessary to sell the Collateral at a
price less than the maximum price attainable if a sale were delayed or were made
in another manner, such as a public offering under the Securities Act. Pledgor
has no objection to sale in such a manner and agrees that Secured Party shall
have no obligation to obtain the maximum possible price for the Collateral.
Without limiting the generality of the foregoing, Pledgor agrees that, upon the
occurrence and during the continuation of an Event of Default, Agent, on behalf
of Secured Party, may, subject to applicable law, from time to time attempt to
sell all or any part of the Collateral by a private placement, restricting the
bidders and prospective purchasers to those who will represent and agree that
they are purchasing for investment only and not for distribution. In so doing,
Agent may solicit offers to buy the Collateral or any part thereof for cash,
from a limited number of investors deemed by Agent, in its reasonable judgment,
to be institutional investors or other responsible parties who might be
interested in purchasing the Collateral. If Agent shall solicit such offers,
then the acceptance by Agent of one of the offers shall be deemed to be a
commercially reasonable method of disposition of the Collateral.
(d) If Agent, on behalf of Secured Party, shall determine to exercise
its right to sell all or any portion of the Collateral pursuant to this Section,
Pledgor agrees that, upon request of Agent, Pledgor will, at its own expense:
(i) use its best efforts to execute and deliver, and
cause the Issuers and the directors and officers thereof to execute and deliver,
all such instruments and
-9-
<PAGE>
documents, and to do or cause to be done all such other acts and things, as may
be necessary or, in the opinion of Agent, advisable to register such Collateral
under the provisions of the Securities Act, and to cause the registration
statement relating thereto to become effective and to remain effective for such
period as prospectuses are required by law to be furnished, and to make all
amendments and supplements thereto and to the related prospectuses which, in the
opinion of Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(ii) use its best efforts to qualify the Collateral
under the state securities laws or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by Agent;
(iii) cause the Issuers to make available to their
respective security holders, as soon as practicable, an earnings statement which
will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the officers and
directors of the Issuers to execute and deliver, to any person, entity or
governmental authority as Agent may choose, any and all documents and writings
which, in Agent's reasonable judgment, may be necessary or appropriate for
approval, or be required by, any regulatory authority located in any city,
county, state or country where Pledgor or the Issuers engage in business, in
order to transfer or to more effectively transfer the Pledged Shares or
otherwise enforce Secured Party's rights hereunder; and
(v) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED BY LAW:
(i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE TIME
AGENT DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN THIS SECTION;
(ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT IT NOW HAS OR MAY AT ANY
TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW EXISTING OR
HEREAFTER ENACTED; AND (iii) EXCEPT AS SET FORTH IN SUBSECTION (a) OF THIS
--------------
SECTION, ANY REQUIREMENT OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.
10. Application of Proceeds. Upon the occurrence and during the continuance of
an Event of Default, any cash held by Secured Party as Collateral and all cash
proceeds received by
-10-
<PAGE>
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral pursuant to the exercise by Secured Party
of its remedies as a secured creditor as provided in Section 9 shall be applied
---------
from time to time by Secured Party as provided in the Loan Agreement.
11. Duties of Secured Party. The powers conferred on Secured Party hereunder
are solely to protect its interests in the Collateral and shall not impose on it
any duty to exercise such powers. Except as provided in Section 9207 of the
Code, Secured Party shall have no duty with respect to the Collateral or any
responsibility for taking any necessary steps to preserve rights against any
Persons with respect to any Collateral.
12. Choice of Law and Venue. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
AT THE SOLE OPTION OF SECURED PARTY, IN ANY OTHER COURT IN WHICH SECURED PARTY
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF PLEDGOR AND SECURED PARTY
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12.
----------
13. Amendments; Etc. No amendment or waiver of any provision of this Agreement
nor consent to any departure by Pledgor herefrom shall in any event be effective
unless the same shall be in writing and signed by Agent, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of Secured Party to exercise,
and no delay in exercising any right under this Agreement, any other Loan
Document, or otherwise with respect to any of the Secured Obligations, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under this Agreement, any other Loan Document, or otherwise with respect
to any of the Secured Obligations preclude any other or further exercise thereof
or the exercise of any other right. The remedies provided for in this Agreement
or otherwise with respect to any of the Secured Obligations are cumulative and
not exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided herein, any notice or
other communication herein required or permitted to be given shall be in writing
and shall be delivered in the manner set forth in the Loan Agreement.
-11-
<PAGE>
15. Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral and shall: (i) remain in full force and
effect until the indefeasible payment in full of the Secured Obligations,
including the cash collateralization, expiration, or cancellation of all Secured
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement; (ii) be binding upon Pledgor and its successors and assigns; and
(iii) inure to the benefit of Secured Party and its successors, transferees, and
assigns. Upon the indefeasible payment in full of the Secured Obligations,
including the cash collateralization, expiration, or cancellation of all Secured
Obligations, if any, consisting of letters of credit, and the full and final
termination of any commitment to extend any financial accommodations under the
Loan Agreement, the security interests granted herein shall automatically
terminate and all rights to the Collateral shall revert to Pledgor. Upon any
such termination, Agent will, at Pledgor's expense, execute and deliver to
Pledgor such documents as Pledgor shall reasonably request to evidence such
termination. Such documents shall be prepared by Pledgor and shall be in form
and substance reasonably satisfactory to Agent.
16. Security Interest Absolute. To the maximum extent permitted by law, all
rights of Secured Party, all security interests hereunder, and all obligations
of Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any of the Secured
Obligations or any other agreement or instrument relating thereto, including any
of the Loan Documents;
(b) any change in the time, manner, or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from any of the Loan Documents, or any
other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise constitute a defense
available to, or a discharge of, Pledgor.
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. Headings. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of
-12-
<PAGE>
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
19. Counterparts; Telefacsimile Execution. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed counterpart of this Agreement but the failure
to deliver an original executed counterpart shall not affect the validity,
enforceability, or binding effect hereof.
20. Waiver of Marshaling. Each of Pledgor and Agent acknowledges and agrees
that in exercising any rights under or with respect to the Collateral: (i)
Secured Party is under no obligation to marshal any Collateral; (ii) may, in its
absolute discretion, realize upon the Collateral in any order and in any manner
it so elects; and (iii) may, in its absolute discretion, apply the proceeds of
any or all of the Collateral to the Secured Obligations in any order and in any
manner it so elects. Pledgor and Agent waive any right to require the marshaling
of any of the Collateral.
21. Waiver of Jury Trial.
PLEDGOR AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
PLEDGOR AND AGENT REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
[Signature page to follow.]
-13-
<PAGE>
IN WITNESS WHEREOF, Pledgor and Agent have caused this Agreement to be
duly executed and delivered by their officers thereunto duly authorized as of
the date first written above.
MELLON BANK, N.A.,
as Agent
By
-------------------------------
Title:
---------------------------
SM&A CORPORATION,
a California corporation
By
-------------------------------
Title:
---------------------------
S-1
<PAGE>
SCHEDULE A
----------
TO
STOCK PLEDGE AGREEMENT
----------------------
Pledgor: SM&A Corporation
Pledged Shares
--------------
<TABLE>
<CAPTION>
Former Name, if Pledgor's Jurisdiction of
Issuer Number of Class Certificate any, in which Percentage Incorporation
- ----- Shares ----- Number(s) Certificate Issued Ownership ---------------
--------- ----------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Myers & Associates, Inc. 100 Common 1 n/a 100% California
Systems Integration Software, Inc. 1,000 Common 1 n/a 100% California
SM&A Corporation (East) 100 Common 1 n/a 100% California
</TABLE>
<PAGE>
SCHEDULE B
----------
TO
STOCK PLEDGE AGREEMENT
----------------------
Pledgor: SM&A Corporation, a California corporation
Address of Chief Executive Office:
4695 MacArthur Court
8th Floor
Newport Beach, California 92660
B-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-1-2000 JAN-1-1999
<PERIOD-END> MAR-31-2000 DEC-31-1999
<CASH> 1,376 1,226
<SECURITIES> 0 0
<RECEIVABLES> 36,708 31,462
<ALLOWANCES> (935) (935)
<INVENTORY> 0 0
<CURRENT-ASSETS> 44,144 38,324
<PP&E> 8,231 7,307
<DEPRECIATION> (2,467) (1,671)
<TOTAL-ASSETS> 109,934 96,842
<CURRENT-LIABILITIES> 21,513 16,100
<BONDS> 0 0
0 0
0 0
<COMMON> 161 161
<OTHER-SE> 50,958 50,295
<TOTAL-LIABILITY-AND-EQUITY> 109,934 96,842
<SALES> 31,587 106,743
<TOTAL-REVENUES> 31,587 106,743
<CGS> 18,830 65,087
<TOTAL-COSTS> 18,830 65,087
<OTHER-EXPENSES> 11,001 34,215
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 593 702
<INCOME-PRETAX> 1,163 6,739
<INCOME-TAX> 500 2,729
<INCOME-CONTINUING> 663 4,010
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 663 4,010
<EPS-BASIC> 0.04 0.25
<EPS-DILUTED> 0.04 0.24
</TABLE>
