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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the period ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission file number 0-14951
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BUTLER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Maryland 06-1154321
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 Summit Avenue, Montvale, New Jersey 07645
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Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (201) 573-8000
--------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X. No __.
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].
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The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $130,281,972. Such aggregate market value has been
computed by reference to the $21.38 per share closing sale price of such stock
as of March 16, 1998.
As of March 16, 1998, 6,399,209 shares of the registrant's single class of
common stock, par value $.001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1997 are incorporated by reference in Part II hereof.
A definitive proxy statement pursuant to Regulation 14A will be filed with the
Commission not later than April 30, 1998. Portions of the proxy statement for
the 1998 Annual Meeting of Stockholders are incorporated by reference in Part
III hereof.
PART I
ITEM 1. BUSINESS
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Butler International, Inc. ("the Company"), through its subsidiaries, is a
leading provider of technical and professional services to companies worldwide.
The Company provides services on a contractual basis to clients in a wide
variety of industries and service lines, including aerospace, aircraft,
automotive, banking, brokerage, cable TV, CAD design, computer software,
consumer products, courier, electronics, energy, entertainment, environmental,
financial services, fleet services, food processing, marine, petrochemical,
pharmaceutical, quality assurance, telecommunications, trucking and utilities.
Contract services are utilized by the Company's clients for staff augmentation,
project management, and strategic outsourcing of particular programs and
functions. As of March 16, 1998, the Company had more than 6,200 employees, of
which 5,700 billable employees provide services, generally at client facilities,
from a network of over 50 offices in the United States and abroad. Through its
international operations, the Company currently provides similar services from
offices in the United Kingdom. In 1997, the Company had net sales of $425
million from its domestic and foreign operations.
The Company was incorporated in Maryland on November 27, 1985. The principal
executive offices of the Company are located at 110 Summit Avenue, Montvale, New
Jersey 07645, and its telephone number is (201) 573-8000.
DESCRIPTION OF THE BUSINESS
Contract services are utilized by the Company's clients for: (i) staff
augmentation, (ii) project management and (iii) outsourcing services, as
follows:
Staff augmentation services are provided to supplement a client's existing
work force with technical professionals whose skills are tailored to the
particular needs of that business. Staff augmentation is currently the
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largest contributor of the Company's revenues. Staff can be added or removed as
needed, avoiding extra costs of employing specially-skilled people during slack
times. Contract technical personnel reduce a client's personnel costs and
administrative burdens.
Project management services involves projects wherein the Company assumes
responsibility for specifically defined projects. Depending upon the nature of
the assignment, the type of equipment required for the task and the particular
needs of the client, project management services may be provided either on-site
at the client's facilities or at a Company-owned facility designed for the
client's specific purpose. The Company frequently obtains the necessary
equipment for a project (if not available from the client) on a lease basis for
the expected term of the project.
Outsourcing services involves instances where the Company manages an entire
on-going operation on behalf of a client, thereby reducing the client's cost and
the burden of maintaining that operation. Outsourcing provides clients with an
efficient access to needed expertise. Such services are typically provided by
the Company at facilities established by the Company for that purpose.
Charges for the Company's services are billed to clients based on (i) an
hourly rate per contract employee, (ii) an hourly rate plus equipment charges
(and overhead charges, if applicable), or (iii) a fixed price or a fixed unit
price. Fixed price arrangements typically are subject to bid. Staff augmentation
typically is billed on an hourly rate per contract employee supplied, and upon
termination of the assignment there is no further cost to the Company or to the
client for the services of the contract employee. Outsourcing and project
management services may be billed on an hourly, per unit, or fixed price basis,
or a combination of such billing arrangements.
BUSINESS UNITS
The Company's staff augmentation, project management and outsourcing services
are provided through the following operations: (i) BUTLER CONTRACT TECHNICAL
SERVICES, (ii) BUTLER TELECOM (iii) BUTLER TECHNOLOGY SOLUTIONS, (iv) BUTLER
PROJECT ENGINEERING SERVICES, (v) BUTLER FLEET SERVICES and (vi) BUTLER SERVICE
GROUP, UK LTD.
BUTLER CONTRACT TECHNICAL SERVICES provides contract staffing functions
including skilled technical personnel, managed services and payroll services to
companies worldwide and to industries ranging from aerospace to pharmaceuticals
to energy and electronics.
BUTLER TELECOM provides a full range of human resource staffing and specialty
project services to the voice, data, and video communications industry through a
national network of branch offices. Butler Telecom contract personnel provide
applied engineering services, install, test and maintain central office and
customer premise equipment for voice and data
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applications, with both standard coaxial cable and fiber optic capabilities.
Such services are also provided for both campus and multi-story
telecommunications management. In 1997, Butler Design Services, which provides
drafting, design, printing and graphics services, was incorporated into Butler
Telecom.
BUTLER TECHNOLOGY SOLUTIONS provides staffing-based technical solutions to the
information technology industry, including project management, management
consulting, staff augmentation, strategic outsourcing and quality facilitation.
This group serves all sectors of the software and data processing industries,
from development through testing and final software quality assurance. Butler
employees provide a broad range of software, hardware and data processing
specialists with expertise in a wide variety of applications, operating systems
and platforms.
BUTLER PROJECT ENGINEERING SERVICES provides engineering support services
including strategic consulting, project management, drafting and design, and
total outsourcing, while specializing in establishing, managing, and staffing
dedicated engineering support centers carrying out both long-term and short-term
projects. Engineering support services include product and facilities design,
drafting, computer programming, technical writing and illustration.
BUTLER FLEET SERVICES provides customized fleet operation services to major
ground fleet-holders nationwide, ranging from vehicle maintenance and repair to
total fleet management solutions. Services include: preventative maintenance,
mobile maintenance repair and service, scheduling servicing and inspections,
computerized fleet tracking systems (including inventory control), training,
fluid level checks and total fleet management. Most of these services are
provided by A.S.E. (Automotive Service Excellence) certified mechanics.
Industries served through this division include telecommunications, utilities,
municipalities, and trucking.
BUTLER SERVICE GROUP, UK LTD. provides technical staffing principally in the UK
and throughout Europe.
INTERNATIONAL OPERATIONS
The Company's international operations ("International Operations") are
directed from offices in the United Kingdom. In late 1995, the Company
discontinued its marginal operations in Canada, and exited its Latin American
operations due to economic uncertainties in Mexico and Venezuela. During 1996,
the Company exited its United Kingdom Telecommunications and Utility businesses
as well as its Pacific and South African operations. Currently, approximately 3%
of the Company's personnel are employed in its International Operations.
International Operations accounted for approximately 2.8% of the Company's net
sales in 1997, principally from the United Kingdom. The Company will continue to
support its international clientele in its staffing business in the United
Kingdom.
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CURRENT MARKETS AND MARKETING PLANS
Management believes that in today's environment of ever increasing
competition, companies are searching for ways to differentiate themselves. This
has led to the evolution of customized product and service offerings. An
integral part of customization is having the capability to quickly respond
to individual opportunities and to quickly introduce products into the market.
Companies are analyzing the most cost-effective and efficient methods for
handling each function or activity within their businesses. Many have realized
the benefits of outsourcing with a dedicated provider, such as Butler.
The search for strategic business partners has created a transition in the
technical temporary services industry - from providing narrowly defined
temporary help to supplying technical and professional services and business
solutions. Butler has recognized this transformation and has proactively sought
to meet the needs of emerging markets with project management and human resource
based solutions.
From product development to process improvements, Butler is committed to
creating value for its client. By utilizing Butler's expertise, customers are
able to gain a strategic advantage in terms of knowledge, quality, cost, timing
and flexibility.
As the market continues to change, management believes the Company will remain
an industry leader by merging people and technology to deliver value. Through
learning policy and initiatives, Internet/intranet capabilities, and quality
programs (including customer satisfaction and value gap assessment programs)
Butler seeks to continually improve its services. Management believes that the
Company's recent marketing successes in the Technology Solutions and Telecom
Services are the result of: (i) its attention to client needs and devotion to
achieving client satisfaction, (ii) its commitment to quality, (iii) its ability
to quickly locate and assemble the right person/team through BRASS, its
proprietary computerized recruiting system and Internet capabilities (described
below, see "Employees"), and (iv) its ability to successfully bid on projects
and differentiate itself from the competition. In addition, management works
diligently with clients to define the job/project and to determine: the
client's needs and expectations, skill sets required, education and background
suited for the tasks or projects, proper work environment, location and duration
of the project, special training needs, equipment and tool requirements, and
proper scheduling of personnel and deployment of equipment and materials. A
personalized approach to understanding and meeting client needs enables the
Company to respond to clients' expectations, as well as to particular job
requirements.
As leading corporations around the world move toward doing business with a
reduced number of "preferred suppliers", they tend to form long-term supplier
partnerships with quality providers who are able to respond to a wide range of
needs in the most efficient manner. The Company received its first ISO 9000
certification in 1993 and to date, has received a total of nine (9) ISO 9000
certifications covering a number of different locations in the United States and
the United Kingdom. The Company has received at least one ISO 9000
certification in each of its major businesses, and continues to seek
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additional ISO 9000 certifications for several other of its facilities.
Management believes that its commitment to quality will enhance Butler's
standing as a provider of quality technical services throughout the world. In
1997, Butler International was appointed a finalist for Arthur Andersen's 1997
Enterprise Best Practices Award in Customer Satisfaction for the Metro New York
area.
BUSINESS EXPANSION AND ACQUISITIONS
In recent years, the Company completed several acquisitions in its Technology
Solutions business. The Company believes that acquisitions in the information
technology services market will increase its overall margins and add to the
Company's future growth in terms of sales and profits.
The Company is currently deploying a focused growth strategy. In 1997 an
agreement was reached with GE Capital Corporation to provide a new $15 million
credit facility dedicated to financing the Company's acquisition program. This
four year facility provides additional resources to selectively expand and
broaden the Company's higher margin Technology Solutions and Telecommunication
Services businesses.
The acquisition of Corporate Information Systems, Inc. (CIS), a Chicago based
Information Technology (IT) company, in August 1997, added to the Company's
resource and client base in the Chicago and Phoenix areas. CIS service
offerings in technology include staffing projects such as Year 2000 compliance
conversion and software programming, and management consulting.
During the first quarter of 1998, the Company acquired the operations of Argos
Adriatic Corporation, a Silicon Valley IT services company. With offshore
recruiting expertise and alliances established with technology leaders, this
acquisition is a key step in growing the Company's IT business.
On March 18, 1998, the Company announced that it has signed a definitive
purchase agreement to acquire the operations of Norwood Computer Services, Inc.
("Norwood"), an information technology services company, headquartered in
Hicksville, NY. Norwood has been serving a wide range of mid-sized and Fortune
500 companies in the New York metropolitan area since 1978 and currently
generates approximately $17 million in annual revenues through a staff of
approximately 120 consultants. The transaction is expected to close by the end
of March.
Clients
The Company provides its services to over 1,600 clients. Bell Atlantic and
Boeing each accounted for approximately 13% of its 1997 net sales. No other
clients individually represented 10% of the Company's net sales in 1997. A
substantial amount of the Company's 1997 net sales were derived from U.S.
companies included in the "Fortune 500" companies list.
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EMPLOYEES
The Company currently has over 6,200 employees in the United States and
abroad, and believes that its relationship with its employees is positive.
Approximately 10% of the Company's employees are covered by collective
bargaining agreements. Historically, the Company has been able to attract and
retain high caliber employees and utilize them effectively to serve client needs
quickly, efficiently and at competitive costs. The Company's number one priority
is to exceed its customers' expectations by providing superior customer value.
By empowering their employees through innovative training initiatives, the
Company continuously improves the services it provides to its customers.
Included in the Company's training initiatives are Butler On-Line Learning,
video and seminar training. Through such training opportunities employees are
able to update their skills as soon as new products reach the market, giving
both the employees and the Company an advantage over the competition.
Butler On-Line Learning offers over 150 training titles available via the
Company's Internet/intranet site and on CD ROM. Self-paced, interactive
training experiences from the desktop allow employees to develop the skills
necessary to work with today's most desired technologies. Videos and seminar
training opportunities enable employees to enhance their knowledge in many
technical and management topics. Guided by its Corporate Learning Policy, the
Company provides personal learning programs with measurable objectives for each
staff employee.
The Company's Internet strategy is an example of how the Company uses
technology to enhance communication and the sharing of knowledge. Staff
employees have Internet access at their desktops. Through Butler's web site,
technical/professional employees participate in chatrooms to discuss jobs,
training, compensation and other important topics with their peers.
The Company's services are provided by employees who are hired by the Company
and assigned to work on a full-time basis for a specific client project. The
duration of the assignment depends on the demand for the skills individual
employees possess, and averages approximately five to eight months. At the end
of an assignment, an individual's employment is terminated unless the Company is
able to reassign the employee to a different client. A number of employees have
worked for Butler intermittently over a period of years.
Management believes that technical personnel are attracted to this type of
project employment because it provides varied opportunities to work on high-end
technological advancements with industry leaders and offers diversity as to the
geographic location and type of industry assigned. Company employees are on the
Company's payroll, and are subject to its administrative control only during the
period that the employee provides services to the client. The client typically
retains technical and supervisory control over the performance of the employees.
Management expects that changing technologies will continue to create demands
for new skills faster than the permanent workforce can respond, resulting in a
shortage of specialized technical skills. At the same time,
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early retirees and increased labor force mobility provide a sizable labor pool
available to technical service companies like the Company. As a result, the
Company expects that an adequate supply of qualified people will continue to be
available to recruit and satisfy client needs. In addition, the Company will
proactively increase the pool of qualified people through training,
communication via the Internet, and aggressive recruiting efforts.
Company recruiters are trained to be skilled at providing a proper match
between the candidate and the client's requirements. Candidates are screened on
the basis of their overall career experience and technical competency. In 1996,
the Company's recruiting system was replaced with BRASS, a state-of-the-art
fulfillment system that allows for full text searches, on-line reporting,
systematic management of requirements, and shared databases across all
divisions. Identification of personnel to add to the Company's employee
candidate base comes from multiple sources, including national and international
advertising, the Internet, employee referrals and industry contacts, including
early retirees. The Company's strategic direction for the sales and recruiting
organization is (i) to significantly lower overhead costs by centralizing field
operations and upgrading technology; achieving process standardization and cost
management; and creating a platform for integration with future systems
(payroll/billing, finance, etc.); and (ii) to have a customer-driven strategy by
creating mobile sales and recruiting organizations that can move in and out of
markets. The new system is expected to result in lower costs and productivity
gains in the entire sales and recruiting process.
COMPETITION
The technical services industry in the United States is highly fragmented and
characterized by specialized regional and local firms serving specific
geographic territories and industries. The Company is one of only a few
international companies with the breadth of personnel and resources to respond
quickly to the large scale and rapidly changing personnel requirements of major
corporate clients worldwide. Based on this characteristic, management believes
the Company is a preferred provider of contract technical services and solutions
to major corporations with the ability to serve a broad range of client needs.
Some national and international companies are larger than the Company or are
associated with companies that have greater financial or other resources than
the Company. Management believes, however, that the Company's ability to
efficiently handle the broad spectrum of specialized client needs, its
commitment to quality, the extensive network of the Company's offices, the wide
array of technical skills available, and its unique computerized system of
identifying qualified personnel for specialized tasks enable it to compete
favorably with other providers in the industry. Rather than aspiring to be the
biggest, the Company is clearly focused on being the number one client-rated
company in the industry.
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ITEM 2. PROPERTIES
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The Company owns its corporate office facility located at 110 Summit Avenue,
Montvale, New Jersey, 07645.
At March 16, 1998, Butler maintained office space at the following locations
for predominantly sales, recruiting and administrative functions:
UNITED STATES
Albuquerque, NM Indianapolis, IN Rochester, NY
Aurora, IL Huntington Beach, CA Saginaw, MI
Austin, TX Irving, TX San Jose, CA
Baltimore, MD King of Prussia, PA Schaumburg, IL
Beaverton, OR Lake St. Louis, MO Selma, CA
Bronx, NY Maryland Heights, MO Shelton, CT
Burlington, MA McLean, VA Springfield, MA
Center Line, MI Montvale, NJ Syracuse, NY
Chillicothe, IL Norcross, GA Tempe, AZ
Cincinnati, OH Ontario, CA Tifton, GA
Dublin, CA Park Ridge, IL Twinsburg, OH
Encino, CA Pleasanton, CA West Bridgewater, MA
Euclid, OH Portsmouth, NH Windsor, CA
Fairport, NY Raleigh, NC Woodside, NY
Fort Wayne, IN Redmond, WA
Gaylord, MI Riverside, CA
INTERNATIONAL
York, England
London, England
Redhill, Surrey, England
Except for its corporate headquarters facility in Montvale, New Jersey, the
Company does not own any real estate and generally leases office space. The
Company makes modest investments in leasehold improvements, equipment and other
tangible property, principally computer equipment, as required.
ITEM 3. LEGAL PROCEEDINGS
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In 1995, the Company filed a complaint against CIGNA Property and Casualty
Insurance Company alleging negligence, breach of contract, breach of fiduciary
duty, and negligent misrepresentation arising out of CIGNA's and other
defendants' acts and omissions in the processing, handling and investigation of
claims against the Company under general liability and workmen's compensation
insurance contracts. The defendants filed an answer, new matter and
counterclaim denying the Company's allegations, asserting certain affirmative
defenses, and alleging that the Company has failed to pay retrospective premiums
amounting to approximately $7.6 million. In April 1997, CIGNA drew down on
three letters of credit, posted by the Company, in the aggregate amount of
approximately $2.9 million. There was no impact on current year operating
results. These letters of credit had been posted as collateral for estimated
retrospective premiums. In July 1997, the Company entered into an agreement
with CIGNA which, in the absence of a settlement,
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will result in the respective parties undertaking binding arbitration in late
1998. In accordance with the terms of the agreement the Company paid $2.1
million to CIGNA. The parties further agreed to grant the Company an option to
settle the remaining disputed amounts for $1.5 million in lieu of arbitration.
Management believes that the ultimate resolution of this matter will not have an
adverse impact on the Company's financial position or results of operations.
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to its normal business operations for which no material
liability is expected beyond which is recorded. While the ultimate resolution
of the above matters is not known, management does not expect that the
resolution of such matters will have a material adverse effect on the Company's
financial statements and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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Information regarding the market for the Company's common stock and related
stockholder matters is on page 34 of the Company's 1997 Annual Report, which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
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Selected financial data is included on page 33 of the Company's 1997 Annual
Report, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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Management's discussion and analysis of results of operations and financial
condition is included on pages 15-17 of the Company's 1997 Annual Report, which
discussion and analysis are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The following financial statements and supplementary data are herein
incorporated by reference to the Company's 1997 Annual Report:
Consolidated Balance Sheets at December 31, 1997 and
December 31, 1996 PAGE 18
Consolidated Statements of Operations for the years
ended December 31, 1997, December 31, 1996, and
December 31, 1995 PAGE 19
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Consolidated Statements of Cash Flows for the years
ended December 31, 1997, December 31, 1996, and
December 31, 1995 PAGE 20
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997, December 31, 1996,
and December 31, 1995 PAGE 21
Notes to Consolidated Financial Statements PAGES 22-31
Independent Auditors' Report PAGE 32
Other supporting schedules are submitted in a separate section of this report
following Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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FINANCIAL DISCLOSURE
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Not Applicable.
PART III
A definitive proxy statement pursuant to Regulation 14A will be filed with the
Commission not later than April 30, 1998, which is 120 days after the close of
the Registrant's fiscal year. The proxy statement will be incorporated in Part
III (Items 10 through 13) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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(a)(1) The following consolidated financial statement schedules of Butler
International, Inc. and subsidiaries are included following Item 14:
Schedule I - Condensed financial information of Registrant
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits: The exhibit listing and exhibits follow the schedules.
(b) No reports on Form 8-K were filed by the Company during the fiscal
quarter ended December 31, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 26, 1998 BUTLER INTERNATIONAL, INC.
(Registrant)
By: /s/Edward M. Kopko
------------------
Edward M. Kopko, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/Edward M. Kopko Chairman of the Board of March 26, 1998
- ------------------
Edward M. Kopko Directors and CEO
(Principal Executive Officer)
/s/John F. Hegarty Director March 26, 1998
- ------------------
John F. Hegarty
/s/Frederick H. Kopko, Jr. Director March 26, 1998
- --------------------------
Frederick H. Kopko, Jr.
/s/Hugh G. McBreen Director March 26, 1998
- ------------------
Hugh G. McBreen
/s/Nikhil S. Nagaswami Director March 26, 1998
- ----------------------
Nikhil S. Nagaswami
/s/Michael C. Hellriegel Senior Vice President March 26, 1998
- ------------------------
Michael C. Hellriegel and Chief Financial Officer
/s/Warren F. Brecht Senior Vice President March 26, 1998
- -------------------
Warren F. Brecht and Secretary
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Butler International, Inc.:
We have audited the consolidated financial statements of Butler International,
Inc. as of December 31, 1997 and December 31, 1996, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated March , 1998; such financial statements and report are included in your
1997 Annual Report to Stockholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of Butler
International, Inc. listed in Item 14. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/Deloitte & Touche LLP
- ------------------------
Parsippany, New Jersey
March 6, 1998
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SCHEDULE I
- ----------
BUTLER INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(in thousands)
December 31,
--------------------
1997 1996
-------- --------
ASSETS
- ------
Total current assets $ 3,937 $ 78
Investment in and receivable from subsidiaries 43,832 36,333
Other assets 112 67
-------- --------
Total assets $ 47,881 $ 36,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 632 $ 639
Current portion of long-term debt 127 127
-------- --------
Total current liabilities 759 766
-------- --------
Long-term liabilities 2,033 133
-------- --------
Stockholders' equity:
Preferred stock 3 3
Common stock 6 6
Foreign exchange translation (64) 9
Additional paid-in capital 94,710 93,673
Accumulated deficit (49,566) (58,112)
-------- --------
Total stockholders' equity 45,089 35,579
-------- --------
Total liabilities and
stockholders' equity $ 47,881 $ 36,478
======== ========
The accompanying notes are an integral part of these financial statements.
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SCHEDULE I (CONTINUED)
- -----------------------
BUTLER INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Year ended December 31,
---------------------------
1997 1996 1995
------- ------ -------
Revenues
Interest income (includes intercompany
interest of $118, $1,181 and $2,349) $ 167 $1,200 $ 2,363
------- ------ -------
Expenses
Administrative and operating expenses 721 630 687
Interest expense 11 12 24
------- ------ -------
732 642 711
------- ------ -------
Equity in income (loss) of subsidiaries 7,573 4,363 (9,534)
------- ------ -------
Income from operations before income taxes 7,008 4,921 (7.882)
Income taxes (benefit) (1,725) 130 32
------- ------ -------
Net income (loss) $ 8,733 $4,791 $(7,914)
======= ====== =======
The accompanying notes are an integral part of these financial statements.
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SCHEDULE I (CONTINUED)
- ----------------------
BUTLER INTERNATIONAL, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
----------------------------
1997 1996 1995
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,733 $ 4,791 $(7,914)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 2 9 23
(Gains) losses of subsidiaries (7,573) (4,363) 9,534
(Increase) decrease in assets, increase
(decrease) in liabilities:
Other current assets (3,859) 41 223
Accounts payable and accrued liabilities (7) 107 316
Long-term liabilities 1,900 - -
------- ------- -------
Net cash (used in) provided by
operating activities (804) 585 2,182
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in note receivable from Butler
Service Group, Inc. - (1,181) (2,349)
Capital expenditures - net (4) - -
Other (42) - 53
------- ------- -------
Net cash used in investing activities (46) (1,181) (2,296)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of common
stock options and warrants 831 547 84
Net payments of note payable 19 47 (72)
------- ------- -------
Net cash provided by financing activities 850 594 12
------- ------- -------
Net decrease in cash - (2) (102)
Cash at beginning of year - 2 104
------- ------- -------
Cash at end of year $ - $ - $ 2
======= ======= =======
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
SCHEDULE I (CONTINUED)
- ----------------------
BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT AT DECEMBER 31, 1997
NOTE 1 - ACCOUNTING POLICIES:
The investments in the Company's subsidiaries are carried at the Company's
equity of the subsidiary which represents amounts invested less the Company's
equity in the losses to date. Significant intercompany balances and activities
have not been eliminated in this unconsolidated financial information.
No cash dividends were received from subsidiaries during the past three years.
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting principles
have been condensed or omitted. Accordingly, these financial statements should
be read in conjunction with the Company's consolidated financial statements in
its 1997 Annual Report to Stockholders.
NOTE 2 - CONTINGENT LIABILITIES:
The Company has guaranteed the Butler Service Group, Inc. ("BSG") revolving
credit loan. Under the terms of the agreement, transfer of funds to the Company
by BSG is restricted (see Note 4 of the Company's consolidated financial
statements in its 1997 Annual Report).
17
<PAGE>
SCHEDULE II
- -----------
BUTLER INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts Deductions period
- ----------- --------------------------------------------------------
1995
- ---------------
Allowance for
uncollectible
accounts
receivable $ 873,000 $ 783,000 - $ 82,000 $1,574,000
Reserve for
discontinued
operations $ 372,000 - - $ 118,000 $ 254,000
1996
- --------------
Allowance for
uncollectible
accounts
receivable $1,574,000 $ 453,000 - $ 572,000 $1,455,000
Reserve for
discontinued
operations $ 254,000 - - $ 118,000 $ 136,000
1997
- --------------
Allowance for
uncollectible
accounts
receivable $1,455,000 $1,004,000 - $ 994,000 $1,465,000
Reserve for
discontinued
operations $ 136,000 - - $ 89,000 $ 47,000
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Registrant, as amended, filed as
Exhibit No. 3(a) to the Registrant's Registration Statement on
Form S-4, Registration No. 33-10881 (the "S-4"), and hereby
incorporated by reference.
3.2 By-laws of the Registrant, as amended, filed as Exhibit 3.2 to
the 1996 10-K, and hereby incorporated by reference.
4.1 Specimen Stock Certificate for the Registrant's common stock, par
value $.001 per share, filed as Exhibit No. 4.1 to the
Registrant's Registration Statement on Form S-1, Registration No.
33-2479 (the "S-1"), and hereby incorporated by reference.
4.2 Articles Supplementary to the Articles of Incorporation of the
Registrant's 7 1/2% Senior Cumulative Convertible Preferred
Stock, filed as Exhibit No. 4.1 to Form 10-Q for the period ended
September 27, 1992, and hereby incorporated by reference.
4.3 Specimen Stock Certificate representing the Registrant's Series B
7% Cumulative Convertible Preferred Stock, par value $.001 per
share, filed as Exhibit No. 4.5 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992 (the "1992 10-
K"), and hereby incorporated by reference.
10.1* Incentive Stock Option Plan of the Registrant, as amended, filed
as Exhibit No. 10.1 to the 1990 10-K, and hereby incorporated by
reference.
10.2* Stock Option Plan of the Registrant, as amended, filed as Exhibit
No. 10.2 to the 1990 10-K, and hereby incorporated by reference.
10.3* 1989 Directors Stock Option Plan of the Registrant, dated
November 1, 1988, as amended, filed as Exhibit 10.18 to the 1990
10-K, and hereby incorporated by reference.
10.4* Stock Purchase Agreement, dated September 19, 1990, between North
American Ventures, Inc. and Edward M. Kopko, filed as Exhibit
10.31 to the 1990 10-K, and hereby incorporated by reference.
10.5* Plan Pledge Agreement, dated September 19, 1990, between North
American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No.
10.32 to the 1990 10-K, and hereby incorporated by reference.
10.6* Plan Promissory Note, dated January 16, 1991, executed by Edward
M. Kopko, and made payable to the order of North American
Ventures, Inc. in the amount of $445,000, filed as Exhibit No.
10.33 to the 1990 10-K, and hereby incorporated by reference.
10.7* Pledge Agreement, dated January 16, 1991, between North American
Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.34 to
the 1990 10-K, and hereby incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management
contract.
E-1
<PAGE>
Exhibit No. Description
- ----------- -----------
10.8* Promissory Note, dated January 16, 1991, executed by Edward M.
Kopko and made payable to the order of North American Ventures,
Inc. in the amount of $154,999.40, filed as Exhibit No. 10.35 to
the 1990 10-K, and hereby incorporated by reference.
10.9* Form of Plan Pledge Agreement, dated September 19, 1990, between
North American Ventures, Inc. and each of John F. Hegarty, Hugh
G. McBreen, and Frederick H. Kopko, Jr. ("Outside Directors"),
filed as Exhibit No. 10.36 to the 1990 10-K, and hereby
incorporated by reference.
10.10* Form of Plan Promissory Note, dated September 19, 1990, each
executed by an Outside Director and each made payable to the
order of North American Ventures, Inc. in the amount of $185,000,
filed as Exhibit No. 10.37 to the 1990 10-K, and hereby
incorporated by reference.
10.11* Form of Stock Purchase Agreement, dated November 4, 1988, between
North American Ventures, Inc. and each of the Outside Directors,
filed as Exhibit No. 10.38 to the 1990 10-K, and hereby
incorporated by reference.
10.12* Form of Pledge Agreement, dated January 16, 1991, between North
American Ventures, Inc. and each of the Outside Directors, filed
as Exhibit No. 10.39 to the 1990 10-K, and hereby incorporated by
reference.
10.13* Form of Promissory Note, dated January 16, 1991, executed by each
of the Outside Directors and each payable to the order of North
American Ventures, Inc., in the amount of $63,000, filed as
Exhibit 10.40 to the 1990 10-K, and hereby incorporated by
reference.
10.14* Form of Pledge Agreement, dated January 16, 1991, between North
American Ventures, Inc. and each of the Outside Directors, filed
as Exhibit No. 10.41 to the 1990 10-K, and hereby incorporated by
reference.
10.15* Form of Promissory Note, dated January 16, 1991, executed by each
of the Outside Directors and each made payable to the order of
North American Ventures, Inc. in the amount of $54,000, filed as
Exhibit No. 10.42 to the 1990 10-K, and hereby incorporated by
reference.
10.16* Form of Promissory Note, dated January 16, 1991, executed by each
of the Outside Directors and each payable to the order of North
American Ventures, Inc., in the amount of $225,450, filed as
Exhibit No. 10.43 to the 1990 10-K, and hereby incorporated by
reference.
10.17* Form of Pledge Agreement, dated January 16, 1991, between North
American Ventures, Inc. and each of the Outside Directors, filed
as Exhibit No. 10.44 to the 1990 10-K, and hereby incorporated by
reference.
10.18* Form of Security Agreement, dated January 16, 1991, between North
American Ventures, Inc. and each of the Outside Directors, filed
as Exhibit No. 10.45 to the 1990 10-K, and hereby incorporated by
reference.
10.19* 1990 Employee Stock Purchase Plan of the Registrant, as amended,
filed as Exhibit No. 10.46 to the 1990 10-K, and hereby
incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management
contract.
E-2
<PAGE>
Exhibit No. Description
- ----------- -----------
10.20* Employment Agreement, dated December 17, 1991, among North
American Ventures, Inc., Butler Service Group, Inc., and Edward
M. Kopko, filed as Exhibit 10.33 to the Registrant's Annual
Report on Form 10-K for the year ended December 29, 1991 (the
"1991 10-K"), and hereby incorporated by reference.
10.21* Stock Purchase Agreement, dated December 17, 1991, between North
American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No.
10.34 to the 1991 10-K, and hereby incorporated by reference.
10.22* Plan Pledge Agreement, dated December 17, 1991, between North
American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No.
10.35 to the 1991 10-K and hereby incorporated by reference.
10.23* Plan Promissory Note, dated December 17, 1991, executed by Edward
M. Kopko, and made payable to the order of North American
Ventures, Inc. in the amount of $84,000, filed as Exhibit No.
10.36 to the 1991 10-K, and hereby incorporated by reference.
10.24* Form of Stock Purchase Agreement, dated December 17, 1991,
between North American Ventures, Inc. and each of the Outside
Directors, filed as Exhibit 10.37 to the 1991 10-K, and hereby
incorporated by reference.
10.25* Form of Plan Pledge Agreement, dated December 17, 1991, between
North American Ventures, Inc. and each of the Outside Directors,
filed as Exhibit 10.38 to the 1991 10-K, and hereby incorporated
by reference.
10.26* Form of Plan Promissory Note, dated December 17, 1991, each
executed by an Outside Director, and each made payable to the
order of North American Ventures, Inc., in the amount of $42,000,
filed as Exhibit No. 10.39 to the 1991 10-K, and hereby
incorporated by reference.
10.27* 1992 Stock Option Plan, filed as Exhibit 10.40 to the 1992 10-K,
and hereby incorporated by reference.
10.28* 1992 Incentive Stock Option Plan, filed as Exhibit 10.41 to the
1992 10-K, and hereby incorporated by reference.
10.29* 1992 Stock Bonus Plan, filed as Exhibit No. 10.42 to the 1992 10-
K, and hereby incorporated by reference.
10.30* 1992 Stock Option Plan for Non-Employee Directors, filed as
Exhibit 10.43 to the 1992 10-K, and hereby incorporated by
reference.
10.31* Butler Service Group, Inc. Employee Stock Ownership Plan and
Trust Agreement, filed as Exhibit No. 19.2 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1987
(the "1987 10-K"), and hereby incorporated by reference.
10.32 Credit Agreement dated as of May 31, 1994 between Butler Service
Group, Inc. and General Electric Credit Corporation, filed as
Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 (the "1994 10-K"), and hereby
incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management
contract.
E-3
<PAGE>
Exhibit No. Description
- ----------- -----------
10.33(a) First Amendment Agreement, dated December 14, 1994 among Butler
Service Group, Inc., the Company, Butler Service Group Canada,
Ltd., and General Electric Capital Corporation, filed as Exhibit
10.42(a) to the 1994 10-K, and hereby incorporated by reference.
10.33(b) Second Amendment Agreement, dated March 21, 1995 and effective as
of December 14, 1994, among Butler Service Group, Inc., the
Company, Butler Service Group Canada, Ltd., and General Electric
Capital Corporation, filed as Exhibit 10.42(b) to the 1994 10-K,
and hereby incorporated by reference.
10.33(c) Third Amendment Agreement, dated May 15, 1995 and effective as of
March 31, 1995, among Butler Service Group, Inc., the Company,
Butler Service Group Canada, Ltd., and General Electric Capital
Corporation, filed as Exhibit 10.42(c) to Form 10-Q for the
period ended September 30, 1995, and hereby incorporated by
reference.
10.33(d) Fourth Amendment Agreement, dated August 3, 1995 and effective as
of June 1, 1995, among Butler Service Group, Inc., the Company,
Butler Service Group Canada, Ltd., and General Electric Capital
Corporation, filed as Exhibit 10.42(d) to Form 10-Q for the
period ended September 30, 1995, and hereby incorporated by
reference.
10.33(e) Fifth Amendment Agreement, dated October 4, 1995 and effective as
of September 30, 1995, among Butler Service Group, Inc., the
Company, Butler Service Group Canada, Ltd., and General Electric
Capital Corporation, filed as Exhibit 10.42(e) to Form 10-Q for
the period ended September 30, 1995, and hereby incorporated by
reference.
10.33(f) Sixth Amendment Agreement, dated November 3, 1995 and effective
as of September 30, 1995, among Butler Service Group, Inc., the
Company, Butler Service Group Canada, Ltd., and General Electric
Capital Corporation, filed as Exhibit 10.39(f) to the 1995 10-K,
and hereby incorporated by reference.
10.33(g) Seventh Amendment Agreement, dated December 6, 1995 and effective
as of November 30, 1995, among Butler Service Group, Inc., the
Company, Butler Service Group Canada, Ltd., and General Electric
Capital Corporation, filed as Exhibit 10.39(g) to the 1995 10-K,
and hereby incorporated by reference.
10.33(h) Eighth Amendment Agreement, dated March 26, 1996 and effective as
of December 31, 1995, among Butler Service Group, Inc., the
Company, Butler Service Group Canada, Ltd., and General Electric
Capital Corporation, filed as Exhibit 10.39(h) to the 1995 10-K,
and hereby incorporated by reference.
10.33(i) Ninth Amendment Agreement, dated May 1, 1996, among Butler
Service Group, Inc., the Company, Butler Service Group Canada,
Ltd., and General Electric Capital Corporation, filed as Exhibit
10.38(i) to the 1996 10-K, and hereby incorporated by reference.
10.33(j) Tenth Amendment Agreement, dated June 1, 1996, among Butler
Service Group, Inc., the Company, Butler Service Group Canada,
Ltd., and General Electric Capital Corporation, filed as Exhibit
10.38(j) to the 1996 10-K, and hereby incorporated by reference.
* Denotes compensatory plan, compensation arrangement, or management
contract.
E-4
<PAGE>
Exhibit No. Description
- ----------- -----------
10.33(k) Eleventh Amendment Agreement, dated October 31, 1996 and
effective as of September 30, 1996, among Butler Service Group,
Inc., the Company, Butler Service Group Canada, Ltd., and General
Electric Capital Corporation, filed as Exhibit 10.38(k) to the
1996 10-K, and hereby incorporated by reference.
10.34* Employment Agreement dated May 15, 1994 between Butler Fleet
Services, a division of Butler Services, Inc., and James
VonBampus, filed as Exhibit 10.44 to the 1994 10-K, and hereby
incorporated by reference.
10.35* Employment Agreement dated April 18, 1995 between Butler
International, Inc., and Harley R. Ferguson, filed as Exhibit
10.42 to the 1995 10-K, and hereby incorporated by reference.
10.36* Form of Promissory Note dated May 3, 1995 in the original
principal amount of $142,500 executed by Frederick H. Kopko, Jr.
and Hugh G. McBreen, and made payable to the order of Butler
International, Inc., filed as Exhibit 10.43 to the 1995 10-K, and
hereby incorporated by reference.
10.37* Form Pledge Agreement dated May 3, 1995 between Butler
International, Inc. and each of Frederick H. Kopko, Jr. and Hugh
G. McBreen, filed as Exhibit 10.44 to the 1995 10-K, and hereby
incorporated by reference.
10.38 Amended and Restated Credit Agreement, dated November 7, 1997,
between Butler Service Group, Inc. and General Electric Capital
Corporation, filed herewith as Exhibit 10.38.
10.39 Credit Agreement, dated November 12, 1997, between Butler of New
Jersey Realty Corp. and Fleet Bank, National Association, filed
herewith as Exhibit 10.39.
10.40 Asset Purchase Agreement, dated August 11, 1997, between Butler
Telecom, Inc. and Jack W. Shoemaker, filed herewith as Exhibit
10.40.
10.41 Asset Purchase Agreement, dated February 28, 1998 by and between
Butler Telcom, Inc., Argos Adriatic Corporation, Shashi Mahendru
and Vinod Wadhawan, filed herewith as Exhibit 10.41.
10.42 Asset Purchase Agreement, dated March 17, 1998, by and between
Butler Telecom, Inc., Norwood Computer Services Inc., Vassilis
Chaimanis and Henry Piscitelli, filed herewith as Exhibit 10.42.
13.1 1997 Annual Report to Stockholders, Financial Section (Pages 15-
34), filed herewith as Exhibit 13.1.
22.1 List of Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Denotes compensatory plan, compensation arrangement, or management
contract.
E-5
<PAGE>
EXHIBIT 10.38
AMENDED AND RESTATED
CREDIT AGREEMENT
BETWEEN
BUTLER SERVICE GROUP, INC.,
as Borrower
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
as Lender
As of November 7, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
- --------- ----
<S> <C>
1. Definitions.................................................. 2
2. Credit Facilities............................................ 3
2.1 Working Capital Revolving Loan and Acquisition Loan... 3
2.2 Absence of Demand, Termination or Default............. 5
2.3 Discretion of Lender.................................. 6
2.4 Use of Proceeds....................................... 6
2.5 Single Loan........................................... 6
2.6 Letters of Credit..................................... 6
2.7 Reliance on Notices................................... 6
3. Interest, Terms, Payments, Prepayments and Fees.............. 7
3.1 Interest............................................. 7
3.2 Term/Survival of Obligations/Termination/Prepayment.. 8
3.3 Payments............................................. 9
3.4 Application and Allocation of Payments............... 10
3.5 Accounting........................................... 11
3.6 Indemnity............................................ 11
3.7 Taxes................................................ 12
3.8 Eligible Accounts and Eligible Inventory............. 13
3.9 Fees................................................. 14
3.10 Collection of Accounts............................... 15
3.11 Additional Payments.................................. 15
3.12 Payment of Fees...................................... 15
3.13 Returned Merchandise................................. 16
3.14 Change in Circumstances.............................. 16
3.15 Capital Adequacy..................................... 17
4. Representations and Warranties............................... 18
4.1 Organization and Qualification....................... 18
4.2 Corporate Authority.................................. 18
4.3 Binding Agreements................................... 19
4.4 Governmental Approvals............................... 19
4.5 Litigation........................................... 19
4.6 Brokers.............................................. 19
4.7 No Material Adverse Change........................... 19
4.8 No Conflicting Law or Agreements..................... 20
4.9 Taxes................................................ 20
4.10 Financial Statements.......................... ...... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.11 Existence of Assets and Title Thereto............... 21
4.12 Regulations G, T, U and X........................... 21
4.13 Compliance.......................................... 21
4.14 Leases.............................................. 21
4.15 Employee Benefit Plans.............................. 22
4.16 Solvency............................................ 23
4.17 Executive Offices; FEIN............................. 23
4.18 Places of Business.................................. 23
4.19 Guaranty Obligations................................ 23
4.20 Agreements and Other Documents...................... 23
4.21 Labor Matters....................................... 24
4.22 Stock Matters....................................... 24
4.23 Licenses............................................ 25
4.24 Acknowledgment of Debt.............................. 25
4.25 Governmental Regulation............................. 25
4.26 Insurance........................................... 25
4.27 Accounts............................................ 26
4.28 Employment Matters.................................. 26
4.29 Financial Information............................... 26
4.30 Environmental Matters............................... 26
4.31 Parent, Affiliate or Subsidiary Corporations........ 27
4.32 Intellectual Property............................... 27
4.33 Officers and Directors.............................. 27
4.34 Senior Debt......................................... 27
4.35 Bank Accounts....................................... 27
4.36 No Material Misrepresentations and Omissions........ 28
4.37 Government Contracts................................ 28
4.38 Customer and Trade Relations........................ 28
5. Conditions of Lending....................................... 28
5.1 Initial Advance...................................... 28
5.2 Subsequent Advances.................................. 29
6. Covenants................................................... 30
6.1 Affirmative Covenants................................ 30
6.2 Negative Covenants................................... 39
7. Default..................................................... 47
7.1 Events of Default.................................... 48
7.2 Remedies............................................. 50
7.3 Cumulative Remedies.................................. 50
8. Miscellaneous............................................... 51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.1 Expenses............................................. 51
8.2 Indemnity............................................ 52
8.3 Set-off.............................................. 53
8.4 Binding Effect....................................... 53
8.5 Covenants to Survive, Binding Agreement.............. 53
8.6 Amendments and Waivers; Remedies..................... 54
8.7 Notices.............................................. 55
8.8 Transfer of Lender's Interest........................ 56
8.9 Section Headings..................................... 57
8.10 Severability........................................ 57
8.11 Entire Agreement; Conflict of Terms................. 57
8.12 Counterparts........................................ 57
8.13 Governing Law: Consent to Jurisdiction.............. 58
8.14 Uniform Commercial Code............................. 59
8.15 Successor and Assigns............................... 59
8.16 Further Assurances.................................. 59
8.17 Acknowledgments..................................... 59
8.18 Change in Accounting Principles..................... 59
8.19 Prejudgment Remedy Waiver: Waivers.................. 60
8.20 Jury Trial Waiver................................... 60
8.21 Press Releases...................................... 61
8.22 Reinstatement....................................... 61
8.23 No Strict Construction.............................. 61
8.24 Confidentiality..................................... 62
</TABLE>
<PAGE>
INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
----------------------------------------
Exhibit
- -------
A Accountant's Letter
B Blocked Account Agreement
C Borrowing Base Certificate
D-1 Acquisition Loan Borrowing Request
D-2 Working Capital Loan Borrowing Request
E Certificate of Borrower
F-1 Amended and Restated Parent Guaranty
F-2 Subsidiaries Guaranty
G-1 Acquisition Loan Note
G-2 Working Capital Loan Revolving Note
H-1 Amended and Restated Borrower Security Agreement
H-2 Amended and Restated Subsidiaries Security Agreement
I Solvency Certificate
J Form of U.S. Opinion of Counsel
K Environmental Representation and Indemnity
L Authorization For Payment
Schedule
- --------
2.1 Responsible Individual
2.4 Use of Proceeds
4.5 Litigation
4.6 Brokers
4.9 Taxes
4.10 Financial Statements
4.11 Title To Assets; Liens
4.14 Leases
4.15 Employee Benefit Plans
4.17 Chief Executive Office; FEIN
4.l8 Places of Business
4.20 Material Agreements
4.21 Labor Matters
4.22 Stock Matters
4.24 Indebtedness
4.26 Insurance
4.28 Employment Matters
4.30 Environmental Matters
4.31 Parents, Affiliates and Subsidiaries
4.33 Officers and Directors
<PAGE>
4.35 Bank Accounts
4.37 Government Contracts
6.1(b) Financial Statements and Projections
6.2(r) Financial Covenants
Annex
- -----
A Definitions
B Letters of Credit
C Schedule of Documents
D Cash Management Systems
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
AGREEMENT, made as of November 7, 1997, between BUTLER SERVICE GROUP, INC.,
a New Jersey corporation with its chief executive office located at 110 Summit
Avenue, Montvale, New Jersey, and GENERAL ELECTRIC CAPITAL CORPORATION, a
corporation organized under the banking laws of the state of New York with an
office located at 201 High Ridge Road, Stamford, Connecticut.
BACKGROUND
----------
A. The Borrower and the Lender entered into the Credit Agreement
dated as of May 31, 1994 (as previously amended, modified or supplemented, the
"Existing Credit Agreement") pursuant to which the Lender established in favor
- --------------------------
of the Borrower a $50,000,000 revolving credit facility ( which provided for the
issuance of letters of credit in an aggregate amount up to $9,000,000).
B. The Borrower has requested that the Lender, and the Lender has
agreed, subject to the terms and conditions contained herein, to, enter into
this Amended and Restated Credit Agreement to (i) modify the credit facilities
provided for in the Existing Credit Agreement and (ii) extend to the Borrower a
$15,000,000 acquisition loan facility to enable the Borrower to make certain
acquisitions.
C. The Borrower has requested that the Lender, and the Lender has
agreed, subject to the terms and conditions contained herein, to, enter into
this Amended and Restated Credit Agreement to (i) modify the credit facilities
provided for in the Existing Credit Agreement and (ii) extend to the Borrower a
$15,000,000 acquisition loan facility to enable the Borrower to make certain
acquisitions.
AMENDMENT AND RESTATEMENT
-------------------------
The Borrower and the Lender hereby agree that upon the effectiveness
of this Agreement, the terms and provisions of the Existing Credit Agreement
shall be and hereby are amended and restated in their entirety by the terms and
conditions of this Agreement and the terms and provisions of the Existing Credit
Agreement shall be superseded by this Agreement.
Notwithstanding the amendment and restatement of the Existing Credit
Agreement by this Agreement, the Borrower shall continue to be liable to the
Lender with respect to agreements and obligations on the part of the Borrower
under the Existing Credit Agreement to indemnify and hold harmless the Lender
from and against all claims, demands, liabilities, damages, losses, costs,
charges and expenses to which the Lender may be subject arising in connection
with the Existing Credit Agreement.
<PAGE>
Notwithstanding the amendment and restatement of the Existing Credit
Agreement by this Agreement, all of the indebtedness, liabilities and
obligations owing by the Borrower under the Existing Credit Agreement shall
continue to be secured by the "Collateral" (as defined in the Existing Credit
Agreement) and the Borrower acknowledges and agrees that such "Collateral"
remains subject to a security interest in favor of the Lender and to secure the
obligations of the Borrower re-evidenced by this Agreement.
This Agreement is given as a substitution, and not as payment, of the
obligations of the Borrower under the Existing Credit Agreement and is not
intended to constitute a novation of the Existing Credit Agreement. All
"Revolving Loans" (as defined in the Existing Credit Agreement) which are
outstanding and owing by the Borrower under the Existing Credit Agreement as of
the Closing Date, as determined by the Lender, shall constitute Working Capital
Revolving Loans hereunder and all "Letter of Credit Obligations" (as defined in
the Existing Credit Agreement) which are outstanding and owing by the Borrower
under the Existing Credit Agreement as of the Closing Date, as determined by the
Lender, shall constitute Letter of Credit Obligations hereunder.
AGREEMENT
---------
In consideration of the Background, which is incorporated by reference and
the mutual covenants contained in this Agreement, the Borrower and the Lender,
for good and valid consideration, the receipt and sufficiency of which is hereby
acknowledged, intending to be bound legally, agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. Unless otherwise defined, all accounting terms set forth in
this Agreement shall be construed, and all computations or classifications of
assets and liabilities and of income and expenses shall be made or determined in
accordance with GAAP. All Schedules, Exhibits and Annexes hereto, or expressly
identified to this Agreement, are incorporated by reference, and taken together,
shall constitute but a single agreement. Unless otherwise expressly set forth
herein, or in a written amendment referring to such Schedule, all Schedules
referred to herein shall mean the Schedules as in effect on the Closing Date.
As used herein, the plural shall include the singular, the singular includes the
plural, and pronouns in any gender (masculine, feminine or neuter) all apply to
all genders. As used herein, or in any certificate, document or report
delivered pursuant to this Agreement or any of the other Loan Documents,
capitalized terms shall have the meanings set forth on the attached Annex A
-------
<PAGE>
ARTICLE 2.
CREDIT FACILITIES
Section 2.1. Working Capital Revolving Loan and Acquisition Loan.
---------------------------------------------------
(a) Working Capital Revolving Loan.
------------------------------
(i) Upon and subject to the terms and conditions set forth in this
Agreement, and relying on the representations, warranties and covenants of the
Borrower set forth in this Agreement, until the Working Capital Loan Commitment
Termination Date, the Lender agrees to make the Working Capital Advances to the
Borrower against the Eligible Accounts and the Eligible Pending Accounts
Receivable and the Fixed Contract Accounts Receivable, for the Borrower's use
and upon the request of the Borrower, from time-to-time in the aggregate
principal amount which shall not exceed the lesser at such time of (X) the
Working Capital Loan Commitment less the aggregate outstanding amount of the
Letter of Credit Obligations and (Y) the Borrowing Base less the sum of the
aggregate outstanding amount of the Letter of Credit Obligations and the
aggregate amount of the Reserves (the "Borrowing Availability").
----------------------
(ii) Ability to Borrow and Reborrow. Until the Working Capital Loan
------------------------------
Commitment Termination Date and within the limits of the Borrowing Base, so long
as the Borrower is in compliance with all the terms and conditions of this
Agreement, and no Default or Event of Default exists, the Borrower may borrow,
repay, and reborrow Working Capital Revolving Loan funds.
(iii) Request for Borrowing. The Borrower shall give the
---------------------
Lender (to the representative of the Lender as identified on Schedule "2.1"
-------------
hereto) written facsimile notice (or telephone notice confirmed promptly in
writing by facsimile) not later than 11:00 a.m., New York City time, on the day
of a requested Working Capital Loan Advance in the form of a Working Capital
Loan Borrowing Request.
(iv) Working Capital Revolving Note. The Working Capital Revolving
------------------------------
Loans made by the Lender shall be evidenced by the Working Capital Loan
Revolving Note. The Working Capital Loan Revolving Note shall represent the
obligation of the Borrower to pay the amount of the Working Capital Revolving
Loan or, if less, the aggregate unpaid principal amounts of Working Capital Loan
Advances made by the Lender to the Borrower with interest thereon as prescribed
in Section 3.1 hereof. The entire unpaid balance of the Working Capital
-----------
Revolving Loan shall be due and payable on the sooner to occur of (x) the
Working Capital Loan Commitment Termination Date and (y) the occurrence of an
Event of Default.
<PAGE>
(v) Working Capital Loan Advances/Working Capital Loan Account.
----------------------------------------------------------
Insofar as the Borrower may request, and the Lender shall make Working Capital
Loan Advances hereunder, the Lender shall enter the Working Capital Loan
Advances as debits on the Working Capital Loan Account and shall transfer such
funds by wire transfer to the Disbursement Account, or such other account as the
Borrower may designate in writing from time-to-time, maintained with a financial
institution acceptable to the Lender and which does not have a right of setoff
with respect to funds of the Borrower in its possession. The date and amount of
each Working Capital Loan Advance and each payment of principal with respect
thereto shall be recorded on the books and records of the Lender with respect to
the Working Capital Loan Account which books and records shall constitute prima
-----
facie evidence of the accuracy of the information recorded therein. The Lender
- -----
shall also record on its books and records with respect to the Working Capital
Loan Account, in accordance with customary accounting procedures, (i) all other
charges, expenses and other liens properly chargeable to the Borrower, (ii) all
proceeds of Collateral which are finally paid to the Lender in its own office in
cash or solvent credits, and (iii) other appropriate debits and credits;
provided that any failure to so record or any error in so recording shall not
- --------
limit or otherwise affect the Borrower's duty to pay the Obligations. The
Lender's books and records with respect to the Working Capital Loan Account
shall reflect the amount of the Borrower's indebtedness to the Lender from time-
to-time by reason of the Working Capital Revolving Loan and other appropriate
charges hereunder, including debits for any interest and principal not paid to
the Lender when due and owing pursuant to the terms of the Working Capital
Revolving Note.
(b) Acquisition Loan.
----------------
(i) Upon and subject to the terms and conditions set forth in this
Agreement, until the Acquisition Loan Commitment Termination Date, the Lender
agrees to make the Acquisition Loan Advances to the Borrower up to the amount of
the Required Acquisition Cash Proceeds for the Borrower's use and upon the
request of the Borrower, from time to time in the aggregate principal amount
which shall not exceed the Acquisition Loan Commitment.
(ii) Ability to Borrow and Reborrow. Until the Acquisition Loan
------------------------------
Commitment Termination Date, so long as the Borrower is in compliance with all
the terms and conditions of this Agreement, and no Default or Event of Default
exists, the Borrower may borrow and repay Acquisition Loan funds. Once
borrowed, Acquisition Loan funds may not be reborrowed.
(iii) Request for Borrowing. The Borrower shall give the
---------------------
Lender (to the representative of the Lender as identified on Schedule "2.1"
-------------
hereto) written facsimile notice (or telephone notice confirmed promptly in
writing by facsimile) not later than 11:00 a.m., New York City time, on the
Business Day prior to the date of a requested Acquisition Loan Advance in the
form of an Acquisition Loan Borrowing Request.
<PAGE>
(iv) Acquisition Loan Note. The Acquisition Loans made by the Lender
---------------------
shall be evidenced by the Acquisition Loan Note. The Acquisition Loan Note
shall represent the obligation of the Borrower to pay the amount of the
Acquisition Loan or, if less, the aggregate unpaid amount of Acquisition Loan
Advances made by the Lender to the Borrower with interest thereon as prescribed
in Section 3.1 hereof. The Borrower shall repay the principal amount of each
-----------
Acquisition Loan Advance in equal quarterly installments in the amount of such
Acquisition Loan Advance multiplied by a fraction, the numerator of which shall
be one (1) and the denominator of which shall be twenty (20), rounded upward to
the nearest whole Dollar and such payments shall commence on the first Business
Day of the first Fiscal Quarter after the date of such Acquisition Loan Advance
and shall continue on the first Business Day of each succeeding Fiscal Quarter;
notwithstanding the foregoing, all amounts outstanding under each Acquisition
- --------------- --- ---------
Loan Advance shall be due and payable in full, without notice or demand on the
sooner to occur of (x) the Acquisition Loan Commitment Termination Date and (y)
the occurrence of an Event of Default.
(v) Acquisition Loan Advances/Acquisition Loan Account. Insofar as
--------------------------------------------------
the Borrower may request, and the Lender shall make Acquisition Loan Advances
hereunder, the Lender shall enter the Acquisition Loan Advances as debits on the
Acquisition Loan Account and shall transfer such funds by wire transfer to the
Disbursement Account, or such other account as the Borrower may designate in
writing from time-to-time, maintained with a financial institution acceptable to
the Lender and which does not have a right of setoff with respect to funds of
the Borrower in its possession. The date and amount of each Acquisition Loan
Advance and each payment of principal with respect thereto shall be recorded on
the books and records of the Lender with respect to the Acquisition Loan Account
which books and records shall constitute prima facie evidence of the accuracy of
----- -----
the information recorded therein. The Lender shall also record on its books and
records with respect to the Acquisition Loan Account, in accordance with
customary accounting procedures, (i) all other charges, expenses and other liens
properly chargeable to the Borrower, (ii) all proceeds of Collateral which are
finally paid to the Lender in its own office in cash or solvent credits, and
(iii) other appropriate debits and credits; provided that any failure to so
--------
record or any error in so recording shall not limit or otherwise affect the
Borrower's duty to pay the Obligations. The Lender's books and records with
respect to the Acquisition Loan Account shall reflect the amount of the
Borrower's indebtedness to the Lender from time-to-time by reason of the
Acquisition Loan and other appropriate charges hereunder, including debits for
any interest and principal paid to the Lender when due and owing pursuant to the
terms of the Acquisition Loan Note.
Section 2.2. Absence of Demand, Termination or Default. Upon the
-----------------------------------------
occurrence and continuance of a Default or an Event of Default, the making of a
Working Capital Loan Advance or an Acquisition Loan Advance shall be in the
Lender's sole and absolute discretion. The Lender shall not
<PAGE>
be obligated to make (a) any Working Capital Loan Advance on or after the
Working Capital Commitment Termination Date or (b) any Acquisition Loan Advance
on or after the Acquisition Loan Commitment Termination Date.
Section 2.3. Discretion of Lender. Notwithstanding any other terms of
--------------------
this Agreement, Eligible Accounts, Eligible Pending Accounts Receivable, Fixed
Contract Accounts Receivable and Borrowing Base, and appropriate reserve levels
from the availability under the Borrowing Base, shall be determined by the
Lender from time-to-time in its sole discretion.
Section 2.4. Use of Proceeds.
---------------
(a) The Borrower represents that it shall use the proceeds of the Loans
for the purposes set forth on the attached Schedule "2.4".
--------------
(b) Except in connection with the Receivables Purchase Agreement, the
Borrower shall not apply any funds advanced under the Loans to, or for the
benefit of, any Affiliate or Subsidiary.
Section 2.5. Single Loan. The Working Capital Loan, the Acquisition Loan,
-----------
the Working Capital Loan Advances, the Acquisition Loan Advances, and all other
Obligations of the Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of the Borrower secured by all
of the Collateral.
Section 2.6. Letters of Credit. Subject to and in accordance with the
-----------------
terms and conditions contained herein and in Annex B, the Borrower shall have
-------
the right to request and the Lender agrees to incur, Letter of Credit
Obligations in respect of the Borrower.
Section 2.7. Reliance on Notices. The Lender shall be entitled to rely
-------------------
upon, and shall be fully protected in relying upon, any Working Capital Loan
Borrowing Request, Acquisition Loan Borrowing Request, request for the issuance
of a Letter of Credit or similar notice believed by the Lender to be genuine.
The Lender may assume that each Person executing and delivering such a request
or notice was duly authorized, unless the responsible individual acting thereon
for the Lender has actual knowledge to the contrary.
<PAGE>
ARTICLE 3.
INTEREST, TERMS, PAYMENTS, PREPAYMENTS AND FEES
Section 3.1. Interest.
--------
(a) Payment of Interest. The Borrower shall pay interest to the Lender
-------------------
on the Notes in arrears (i) for the preceding calendar month, on the first day
of each calendar month, commencing on December 1, 1997, (ii) on the Commitment
Termination Date, and (iii) if any interest accrues or remains payable after the
Commitment Termination Date, upon demand by the Lender.
(b) Interest Rate The Borrower shall be obligated to pay interest to
-------------
the Lender on the outstanding balance of the Revolving Loan at an annual
floating rate equal to (i) with respect to the Working Capital Revolving Loan,
the Index Rate plus the Applicable Margin, and (ii) with respect to the
Acquisition Loan, three hundred basis points (3.00%) above the Index Rate
(c) Calculation of Interest. All computations of interest shall be made
-----------------------
by the Lender on the basis of a three hundred and sixty (360) day year, in each
case for the actual number of days occurring in the period for which such
interest is payable. The Index Rate shall be determined (X) on the first
Business Day immediately prior to the Closing Date and (Y) thereafter, on the
first Business Day of each calendar month, commencing December 1, 1997. Each
determination by the Lender of an interest rate hereunder shall be conclusive
and binding for all purposes, absent manifest error or bad faith.
(d) Default Rate. So long as any Default shall have occurred and be
------------
continuing, the interest rate applicable to the Obligations shall be increased
to the Default Rate.
(e) Lawful Interest. It is the intent of the parties that the rate of
---------------
interest and all other charges to the Borrower be lawful. Nothing contained in
this Agreement or the Notes shall be deemed to establish or require the payment
of a rate of interest in excess of the highest rate of interest permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto (the "Maximum Rate"). If the amount of
------------
interest payable for any interest payment period ending on any interest payment
date calculated in accordance with the provisions of this Agreement or the Notes
(the "Calculated Interest") exceeds the amount of interest that would be payable
-------------------
for such interest payment period had interest for such interest payment period
been calculated at the Maximum Rate, there shall be paid on such interest
payment date an amount of interest calculated on the basis of the Maximum Rate
for such interest payment period. If on any subsequent interest payment date,
(i) the Calculated Interest for
<PAGE>
the interest payment period ending on such subsequent interest payment date (the
"Current Interest Period") is less than the amount of interest that would be
-----------------------
payable for such Current Interest Period had interest for such Current Interest
Period been calculated on the basis of the Maximum Rate and (ii) any portion of
the excess (if any) of Calculated Interest for any prior interest payment period
over interest calculated at the Maximum Rate for such prior interest payment
period (the "Outstanding Interest Amount") remains unpaid, then on such
---------------------------
subsequent interest payment date there shall be paid, as provided herein,
additional interest for such Current Interest Period in an amount equal to the
lesser of (A) the theretofore unpaid Outstanding Interest Amounts for all prior
interest payment periods and (B) an amount that, when added to the amount of
Calculated Interest payable for such Current Interest Period, results in the
payment of interest for such Current Interest Period at the Maximum Rate.
Section 3.2. Term/Survival of Obligations/Termination/Prepayment.
---------------------------------------------------
(a) Term. Unless this Agreement is extended by the mutual written
----
agreement of the parties hereto or sooner terminated by the Borrower, the
obligation of the Lender to make Advances shall cease, and the Loans and all
other Obligations shall be due and payable, on the Commitment Termination Date.
(b) Survival of Obligations. Except as otherwise expressly provided for
-----------------------
in the Loan Documents, no termination or cancellation (regardless of cause or
procedure) of any financing arrangement under this Agreement shall in any way
affect or impair the obligations, duties and liabilities of the Borrower or the
rights of the Lender relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Borrower, and all rights of the Lender,
all as contained in the Loan Documents, shall not terminate or expire, but
rather shall survive any such termination or cancellation and shall continue in
full force and effect until the Termination Date; provided, however that in all
--------
events the provisions of Article 8, the payment obligations under Sections 3.7,
--------- ------------
3.14 and 3.15, and the indemnities contained in the Loan Documents shall survive
- ---- ----
the Termination Date.
(c) Termination. The Borrower may, at any time on 90 days' prior
-----------
written notice to the Lender, terminate the Commitments, provided that upon such
--------
termination, (i) the Borrower simultaneously pays to the Lender the Early
Termination Fee and (ii) all Loans and other Obligations shall be immediately
due and payable in full.
(d) Prepayment.
----------
<PAGE>
(i) Voluntary.
---------
(A) Subject to the provisions of subsection (c) above, the Borrower
shall have the right at any time and from time-to-time to prepay any Working
Capital Revolving Loan subject to the rights of the Borrower to reborrow as set
forth in this Agreement.
(B) Subject to the provisions of subsection (c) above, the Borrower
shall have the right at any time and from time to time to prepay any Acquisition
Loan provided that any such prepayment shall be applied to prepay the scheduled
installments of the Acquisition Loan pursuant to Section 2.1(b)(iv) in inverse
------------------
order of maturity. Once borrowed, the Borrower shall not have the right to
reborrow any Acquisition Loans.
(ii) Mandatory.
---------
(A) If the outstanding balance of the Working Capital Revolving Loan
shall, at any time, exceed the Borrowing Availability, the Borrower shall
immediately repay the Working Capital Revolving Loan in the amount of such
excess.
(B) If the Parent or the Borrower issues Capital Stock or debt
securities, no later than the Business Day following the receipt of the proceeds
thereof, the Borrower shall cause to be prepaid the Working Capital Revolving
Loans in an amount equal to the lesser of (x) all such proceeds net of
underwriting discounts and commissions and other reasonable costs paid to non-
Affiliates in connection therewith, and (y) the then outstanding balance of the
Working Capital Revolving Loan. Any such prepayment shall be applied in
accordance with Section 3.4 hereof. Upon such mandatory repayment, the Lender
-----------
shall establish a Reserve in an amount equal to such repayment except that upon
notice (in accordance with Section 6.2(d) hereof) by the Borrower to the Lender
--------------
that it intends to effect a Permitted Acquisition, notwithstanding the
provisions of Section 6.2(d), the Borrower shall have the right to effect a
--------------
Permitted Acquisition without obtaining the prior written consent of the Lender
in an amount up to such Reserve and, subsequent to such Permitted Acquisition,
the amount of such Reserve shall be reduced by an amount equal to the amount of
such Permitted Acquisition.
Section 3.3. Payments. The Borrower shall make each payment under this
--------
Agreement (including principal of or interest on any Loan or any accrued Fees or
other amounts) not later than 1:00 p.m. (New York City time) on the day when due
in lawful money of the United States of America in immediately available funds
to the Collection Account; notwithstanding the foregoing, the Lender shall have
the right to charge the Working Capital Loan Account for the Fees and all
amounts due and payable under the Notes. Whenever any payment (including
principal of or interest on any Loan or any Fees or other amounts) hereunder or
under any of the other Loan Documents shall
<PAGE>
become due, or otherwise would accrue, on a day that is not a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of interest or Fees, if
applicable. Payments received after 1:00 p.m. (New York City time) on any
Business Day shall be deemed to have been received on the following Business
Day. For purposes of computing interest, all payments (including cash sweeps)
consisting of cash, wire or electronic transfers in immediately available funds,
shall be deemed received by the Lender one Business Day after deposit in the
Collection Account and notice to the Lender of such deposit. For purposes of
determining the amount of funds available for borrowing under Section 2.1
hereof, such payment shall be applied by the Lender against the amount of the
Loan at the time it is credited to the Collection Account .
Section 3.4. Application and Allocation of Payments. (a) So long as no
--------------------------------------
Default or Event of Default shall have occurred and be continuing, (i) payments
consisting of proceeds of Accounts received in the ordinary course of business
shall be applied to the Working Capital Revolving Loan, (ii) payments matching
specific scheduled payments then due shall be applied to those scheduled
payments, (iii) voluntary payments shall be applied as determined by the
Borrower, subject to the provisions of Section 3.2, and (iv) mandatory
-----------
prepayments shall be applied as set forth in Section 3.2. As to each other
-----------
payment, and as to all payments made when a Default or Event of Default shall
have occurred and be continuing or following the Commitment Termination Date,
the Borrower irrevocably waives the right to direct the application of any and
all payments at any time or times hereafter received from or on behalf of the
Borrower, and the Borrower irrevocably agrees that the Lender shall have the
continuing exclusive right to apply any and all such payments against the then
due and payable Obligations of the Borrower and in repayment of the Loans as the
Lender may deem advisable notwithstanding any previous entry by the Lender in
the Loan Account or any other books or records. In the absence of a specific
determination by the Lender with respect thereto, the same shall be applied in
the following order: (i) then due and payable Fees and Lender's expenses
reimbursable hereunder; (ii) then due and payable interest payments under the
Loans, ratably in proportion to the interest accrued as to each Loan; (iii) then
due and payable principal payments on the Loans and to provide cash collateral
for Letter of Credit Obligations in the manner described in Annex B, ratably to
-------
the aggregate, combined principal balance of the Loans and outstanding Letter of
Credit Obligations; and (iv) Obligations other than Fees, expenses and interest
and principal payments. The Lender is authorized to, and at its option may,
make or cause to be made Advances on behalf of the Borrower for payment of all
Fees, expenses, Charges, costs, principal, interest, Transaction Expenses or
other Obligations owing by the Borrower under this Agreement or any of the Loan
Documents even if, as a result thereof, such Advance would result in aggregate
outstanding Advances exceeding the Borrowing Availability, and the Borrower
agrees that, should such excess not be repaid to the Lender immediately, a
Default shall be deemed to have occurred on the making of such Advance, and any
Advances so made shall be deemed Advances constituting part of the Loans
hereunder. If
<PAGE>
the amounts received by the Lender in the Collection Account are in excess of
the amount then outstanding under the Working Capital Revolving Loan and amounts
currently owing under the Acquisition Loan, then the Lender agrees to return
such excess amount to the Borrower on the day of receipt by the Lender.
Section 3.5. Accounting. The Lender will provide a monthly accounting of
----------
transactions under the Loans to the Borrower. Each and every such accounting
shall (absent manifest error) be deemed final, binding and conclusive upon the
Borrower in all respects as to all matters reflected therein, unless the
Borrower, within 30 days after the date any such accounting is rendered, shall
notify the Lender in writing of any objection which the Borrower may have to any
such accounting, describing the basis for such objection with specificity. In
that event, only those items expressly objected to in such notice shall be
deemed to be disputed by the Borrower. The Lender's determination, based upon
the facts available, of any item objected to by the Borrower in such notice
shall (absent manifest error) be final, binding and conclusive on the Borrower,
unless the Borrower shall commence a judicial proceeding to resolve such
objection within 30 days following the Lender's notifying the Borrower of such
determination.
Section 3.6. Indemnity.
---------
(a) The Borrower shall indemnify and hold the Lender and the Lender's
Affiliates, and each such Person's respective officers, directors, employees,
attorneys and agents (each, an "Indemnified Person"), harmless from and against
------------------
any and all suits, actions, proceedings, claims, damages, losses, liabilities
and expenses (including reasonable attorneys' fees and disbursements and other
costs of investigations or defense, including those incurred upon any appeal)
which may be instituted or asserted against or incurred by such Indemnified
Person as the result of credit having been extended under this Agreement and the
other Loan Documents or in connection with or arising out of the transactions
contemplated hereunder and thereunder, including any claim, action, suit,
proceeding, loss, cost, damage, liability, deficiency fine, penalty, punitive,
exemplary or consequential damage or expense (including reasonable attorneys'
and consultants' fees, investigation and laboratory fees, court costs and
litigation expenses), directly or indirectly resulting from, arising out of, or
based upon (i) the presence, Release, use, manufacture, installation,
generation, discharge, storage or disposal, at any time, of any Hazardous
Materials on, under, in or about, or the transportation of any such materials to
or from, the Subject Property, or (ii) the violation or alleged violation by the
Borrower or any Affiliate of the Borrower of any law, statute, ordinance, order,
rule, regulation, permit, judgment or license relating to the use, generation,
manufacture, installation, Release, discharge, storage or disposal of Hazardous
Materials to or from any real property owned or used by the Borrower (a "Subject
-------
Property"); which indemnity shall include, without limitation, (A) any damage,
- --------
liability, fine, penalty, punitive, exemplary or consequential damage, cost or
expense arising from or out of any claim, action, suit or proceeding for
personal injury (including sickness, disease, death, pain or suffering),
tangible or intangible property
<PAGE>
damage, compensation for lost wages, business income, profits or other economic
loss, damage to the natural resources or the environment, nuisance, pollution,
contamination, leak, Release or other adverse effect on the environment, and (B)
the cost of any required or necessary repair, cleanup, treatment, remediation or
detoxification of the Subject Property and the preparation and implementation of
any closure, disposal, remedial or other required actions in connection with the
Subject Property; provided, that the Borrower shall not be liable for any
--------
indemnification to such Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results solely
from such Indemnified Person's gross negligence or willful misconduct. NEITHER
THE LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO
ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR OTHER THIRD PARTY BENEFICIARY
OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
(b) The Borrower hereby acknowledges and agrees that the Lender (i) is
not now, and has not ever been, in control of a Subject Property or the
Borrower's affairs, and (ii) does not have the capacity through the provisions
of the Loan Documents to influence the Borrower's conduct with respect to the
ownership, operation or management of a Subject Property.
Section 3.7. Taxes.
-----
(a) Any and all payments by the Borrower hereunder shall be made in
accordance with the foregoing Section 3.3, free and clear of, and without
-----------
deduction for, any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding
---------
taxes imposed on the Lender's net income and franchise taxes imposed on the
Lender by the United States or any jurisdiction under the laws of which the
Lender is organized or any political subdivision thereof with respect to the
transactions contemplated by the Loan Documents (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
-----
Taxes from or in respect of any sum payable hereunder to the Lender (X) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this subsection), the Lender shall receive an amount equal to the sum it
would have received had no such deductions been made, (Y) the Borrower shall
make such deductions, and (Z) the Borrower shall pay the full amount deducted to
the relevant taxing authority or other Governmental Authority in accordance with
applicable law.
<PAGE>
(b) In addition to the foregoing, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower agrees to indemnify the Lender for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction or amounts payable under this subsection) paid by
the Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Such indemnification shall be made
within 30 days after the date the Lender makes written demand therefor. If the
Lender shall become aware that it is entitled to receive a refund in respect of
Taxes or Other Taxes, it shall promptly notify the Borrower of the availability
of such refund and shall within 30 days after receipt of a request by the
Borrower, apply for such refund at the Borrower's expense. If the Lender
receives a refund in respect of any Taxes or Other Taxes for which the Lender
has received payment from the Borrower hereunder, it shall promptly notify the
Borrower of such refund and shall if no Default or Event of Default shall have
occurred and be continuing, within 10 days after receipt of a request by the
Borrower or credit the same against the outstanding balance of the Revolving
Loan (or promptly upon receipt, if the Borrower has requested application for
such refund pursuant hereto), repay such refund to the Borrower (plus penalties,
interest and other charges, if any, paid to the Lender by the relevant taxing
authority or Governmental Authority); provided that the Borrower, upon the
request of the Lender, agrees to return such refund (plus penalties, interest or
other charges) to the Lender in the event the Lender is required to repay such
refund, such undertaking to return to be an Obligation within the meaning of
this Agreement.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by the Borrower in respect of any payment to the Lender, the Borrower
will furnish to the Lender the original or a certified copy of a receipt
evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this subsection shall
survive the payment in full of the Obligations.
Section 3.8. Eligible Accounts and Eligible Inventory.
----------------------------------------
(a) Based on the most recent Roll Forward Borrowing Base Certificate or
Borrowing Base Certificate delivered by the Borrower to the Lender and on other
information available to the Lender, the Lender shall determine in its
reasonable
<PAGE>
credit judgment which Accounts shall be deemed to be "Eligible Accounts" for
purposes of determining the amounts, if any, to be advanced to the Borrower. In
determining whether a particular account constitutes an Eligible Account, the
Lender does not intend to include any such Account which does not meet the
criteria set forth under the definition of Eligible Accounts on Annex "A".
----- ---
The Lender reserves the right, at any time and from time to time after the
Closing Date, to adjust any such criteria, to establish new criteria, and to
adjust advance rates with respect to Eligible Accounts, in its reasonable credit
judgment.
(b) Based on the most recent Roll Forward Borrowing Base Certificate or
Borrowing Base Certificate delivered by the Borrower to the Lender and other
information available to the Lender, the Lender shall determine in its
reasonable credit judgment which Inventory shall be deemed to be "Eligible
Inventory" for purposes of determining the amount, if any, to be advanced to the
Borrower. In determining whether any particular Inventory constitutes Eligible
Inventory, the Lender does not intend to include Inventory which does not meet
the criteria set forth under the definition of Eligible Inventory on Annex "A"
---------
hereof. The Lender reserves the right, at any time and from time to time after
the Closing Date, to adjust any such criteria, to establish new criteria, and to
adjust advance rates with respect to Eligible Inventory, in its reasonable
credit judgment.
Section 3.9. Fees.
----
(a) Closing Fee. As additional compensation for the Lender's costs and
-----------
risks in amending and restating the Existing Credit Agreement with respect,
among other things, to the Working Capital Loans and in making the Acquisition
Loan available to the Borrower, the Borrower is simultaneously paying the
Closing Fee to the Lender, which Closing Fee shall be nonrefundable and be
deemed fully earned on the Closing Date.
(b) Collateral Monitoring Fee. The Borrower shall pay to the Lender the
-------------------------
Collateral Monitoring Fee on the dates when the same is due and payable
hereunder.
(c) Letter of Credit Fees. The Borrower agrees to pay to the Lender
---------------------
monthly in arrears on the first business day of each month an amount equal to
one and one-half percent (1.5%) per annum (calculated on the basis of a 360-day
year and actual days elapsed) on the average outstanding face amount of Letters
of Credit which amount shall increase to the Default Rate upon the occurrence
and continuance of a Default or an Event of Default, and which amount shall be
payable on demand. The Borrower will also reimburse the Lender for any fees,
charges or other costs assessed by the issuer(s) of the Letters of Credit.
(d) Unused Facility Fee. The Borrower agrees to pay to the Lender
-------------------
monthly in arrears on the last Business Day of each calendar month the Unused
<PAGE>
Facility Fee. The Unused Facility Fee shall be computed on the basis of the
actual number of days elapsed in a year of 360 days.
(e) Drawdown Fee. The Borrower agrees to pay to the Lender the Drawdown
------------
Fee simultaneously with the Lender's extension of an Acquisition Loan Advance.
(f) Early Termination Fee. The Borrower agrees to pay to the Lender the
---------------------
Early Termination Fee as more fully set forth in Sections 3.2(c) and 7.2(b).
--------------- ------
Section 3.10. Collection of Accounts.
----------------------
(a) If the Borrower shall receive any monies, checks, notes, drafts or
any other items of payment relating to or which constitute proceeds of the
Collateral, notwithstanding the establishment of the Blocked Account, the
Borrower agrees with the Lender that the Borrower shall (i) hold all such items
of payment in trust for the Lender and keep all such collections separate and
apart from all of its other funds and property, (ii) identify such collections
and proceeds as the property of Lender, and (iii) deposit immediately such
collections in the Blocked Account in the identical form received.
(b) Upon request of the Lender, the Borrower shall forward to the
Lender, on a daily basis, evidence of the deposit of all such items of payment
received by the Borrower into the Blocked Account and copies of such checks and
other items, together with a statement showing the application of that portion
of such items of payment on Accounts to outstanding Accounts and a collection
report with regard thereto in form and substance reasonably satisfactory to the
Lender.
(c) All such items of payment shall be the sole and exclusive property
of the Lender immediately upon the earlier of receipt of such items by the
Lender or the receipt of such items by the Borrower.
Section 3.11. Additional Payments. If the items of payment so deposited
-------------------
in the Collection Account are at any time insufficient to satisfy the
Obligations then due and payable under this Agreement or the Notes, the Borrower
shall nevertheless be obligated to make payment therefor in Dollars from other
sources not later than 1:00 p.m. (New York time) on the day when due in lawful
money of the United States of America in immediately available funds to the
Collection Account.
Section 3.12. Payment of Fees. The Borrower agrees to pay to the Lender
---------------
any and all fees, costs and expenses which the Lender incurs in connection with
the opening of and maintaining the Blocked Account and depositing for collection
by the Lender any check or other item of payment and such fees, costs and
expenses shall be deemed Transaction Expenses. Absent gross negligence or
willful
<PAGE>
misconduct by the Lender, or by any Person acting on behalf of the Lender, the
Borrower agrees to indemnify the Lender and to hold the Lender harmless from and
against any loss, cost or expense sustained or incurred by the Lender on account
of any claims arising in connection with the Lender's operation of the Blocked
Account.
Section 3.13. Returned Merchandise. The Lender agrees that the Borrower
--------------------
may continue its present policies for returned merchandise and adjustments, but
shall promptly notify the Lender of any credits, adjustments or disputes arising
about the goods or services represented by the Accounts. In any event, the
Borrower will immediately pay the Lender from its own funds, and not from the
proceeds of Accounts, for application to the Working Capital Revolving Loan, an
amount equal to any credit or adjustment made to any Eligible Accounts,
provided, however, that so long as the Borrower is not in default hereunder,
such payment need not be made if the Borrower shall have, after making such
credit or adjustment, sufficient Eligible Accounts to maintain the aggregate
outstanding balance of the Working Capital Revolving Loan under the Borrowing
Base.
Section 3.14. Change in Circumstances.
-----------------------
(a) Notwithstanding any other provision of this Agreement, if, after the
original date of this Agreement (prior to restatement), any change in applicable
law or regulation or in the interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of law) shall change the basis of taxation of
payments to the Lender of the principal of or interest on the Loans or the Fees
or other amounts payable hereunder (other than taxes imposed on the overall net
income of the Lender by the jurisdiction in which the Lender has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by, the Lender or shall impose on the Lender any other condition
affecting this Agreement, the Notes or the Loans, and the result of any of the
foregoing shall be to increase the cost to the Lender of making or maintaining
any Loan or to reduce the amount of any sum received or receivable by the Lender
(whether of principal, interest or otherwise) or under the Notes by an amount
deemed by the Lender to be material, then the Borrower shall pay to the Lender
upon demand, such additional amount or amounts as will compensate the Lender for
such additional costs incurred or reduction suffered.
(b) A certificate of the Lender setting forth such amount or amounts as
shall be necessary to compensate the Lender as specified in subsection (a) above
shall be delivered to the Borrower and shall be conclusive absent manifest
error. In determining such amount, the Lender may use any reasonable averaging
and attribution methods. The Lender shall charge the Working Capital Loan
Account 10 days after its forwarding of such certificate and such amount shall
be deemed an Obligation.
<PAGE>
(c) The failure on the part of the Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
the Lender's right to demand compensation with respect to such period or any
other period. The protection of this Section shall be available to the Lender
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition which shall
have occurred or been imposed.
(d) If any change in any law or regulation or in the interpretation
thereof by any governmental authority charged with the administration or
interpretation thereof shall make it unlawful for the Lender to maintain the
Loans based on the interest rate under the Notes, then by written notice to the
Borrower, the Lender may require that the interest rate under the Notes shall be
deemed to be modified to a rate which the Lender, in its sole discretion,
determines, effective upon receipt of a notice by the Lender to the Borrower.
(e) The obligations of the Borrower under this Section shall survive
termination of this Agreement and the other Loan Documents and payment in full
of the Obligations for a period of three (3) years following such termination
and payment in full.
Section 3.15. Capital Adequacy.
----------------
(a) In the event that the Lender shall have determined that any
applicable law, rule, regulation or guideline regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender (for
purposes of this Section 3.15, the term "Lender" shall include the Lender and
------------
any corporation or bank controlling the Lender or any participant in the
Advances) with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Lender's capital as a consequence of its obligations hereunder to a level below
that which the Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Lender's policies with respect to
capital adequacy) by an amount deemed by the Lender to be material, then, from
time to time, the Borrower shall pay upon demand to the Lender or any
participant such additional amount or amounts as will compensate the Lender for
such reduction. In determining such amount or amounts, the Lender in good faith
shall apply any reasonable and equitable averaging or attribution methods. The
protection of this Section 3.15 shall be available to the Lender regardless of
------------
any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition. In the event the Borrower has made any
payment to the Lender pursuant to this Section 3.15 and the law, rule,
------------
regulation or guideline giving rise to such payment is subsequently
<PAGE>
repealed and such repeal is retroactive so as to result in no reduction in the
Lender's rate of return for any prior period, then the Lender shall credit the
Borrower's account with the amount of the payment made by the Borrower.
(b) A certificate of the Lender setting forth such amount or amounts as
shall be necessary to compensate the Lender with respect to Section 3.16(a)
---------------
hereof when delivered to the Borrower shall be conclusive absent manifest error.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Loans and to incur Letter of Credit
Obligations, the Borrower makes the following representations and warranties to
the Lender, each and all of which shall be true and correct as of the date of
execution and delivery of this Agreement, and shall survive the execution and
delivery of this Agreement:
Section 4.1. Organization and Qualification. The Borrower (i) is a
------------------------------
corporation duly organized and validly existing under the laws of the State of
New Jersey and duly qualified to do business and in good standing under the laws
of each other jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, (ii) has all requisite
corporate power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties, to lease the property it operates
under lease and to carry on its business as presently conducted and as proposed
to be conducted, (iii) is qualified to do business in every jurisdiction where
such qualification is required, except where the failure to so qualify would not
result in a Material Adverse Effect, (iv) has all licenses, permits, consents or
approvals from or by, and has made all filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct, (v) is in compliance with its certificate
or articles of incorporation or bylaws, (vi) has the power to execute, deliver
and perform its obligations under each of the Loan Documents and each other
agreement or instrument contemplated thereby to which it is or will be a party
and to borrow hereunder, and (vii) subject to specific representations set forth
herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance
with all applicable provisions of law, except where the failure to comply,
individually or in the aggregate, could not be reasonably expected to have a
Material Adverse Effect.
Section 4.2. Corporate Authority. The Borrower has full corporate power
-------------------
and authority to enter into and perform the Obligations under this Agreement, to
make the borrowings contemplated herein, to execute and deliver this Agreement,
the Notes and the other Loan Documents, to create the Liens provided for therein
and to incur the Obligations provided for herein and therein. The execution,
delivery and performance by the Borrower of each of the Loan Documents and the
<PAGE>
borrowings hereunder have been duly authorized by all necessary and proper
corporate and, if required, stockholder action . No other consent or approval
or the taking of any other action in respect of shareholders or of any public
authority is required as a condition to the validity, legality or enforceability
of this Agreement, the Notes or any of the other Loan Documents. The execution
and delivery of this Agreement and the other Loan Documents are for valid
corporate purposes.
Section 4.3. Binding Agreements. This Agreement constitutes, and the Note
------------------
and the other Loan Documents delivered in connection herewith shall constitute,
legal, valid and legally binding obligations of the Borrower, enforceable in
accordance with their respective terms.
Section 4.4. Governmental Approvals. No action, consent or approval of,
----------------------
registration or filing with or any other action by any Governmental Authority is
or will be required in connection with the transactions contemplated by this
Agreement, the Notes and the other Loan Documents, except such as have been made
or obtained and are in full force and effect.
Section 4.5. Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the knowledge of the Borrower, threatened against
or affecting the Borrower or the Subsidiaries, which the Borrower believes is
likely to be asserted or any business, property or rights of any such person,
before any court or administrative agency, which either in any case or in the
aggregate, if adversely determined, would either question the validity of this
Agreement, the Notes, or any other Loan Documents, or any action to be taken in
connection with the transactions contemplated hereby or result in a Material
Adverse Effect and all such actions, suits, proceedings and investigations are
disclosed on Schedule "4 .5" .
---------------
Section 4.6. Brokers. Except as set forth on Schedule "4.6", no broker or
------- -------------
finder acting on behalf of the Borrower brought about the obtaining, making or
closing of the loans made pursuant to this Agreement or the transactions
contemplated by the Loan Documents and the Borrower has no obligation to any
Person in respect of any finder's or brokerage fees in connection therewith.
Section 4.7. No Material Adverse Change. There has been no Material
--------------------------
Adverse Change since June 30, 1997. The Borrower, as of June 30, 1997, had no
obligations, contingent liabilities, or liabilities for Charges, long-term
leases or unusual forward or long-term commitments which are not reflected in
the pro forma balance sheet of the Borrower and which could, alone or in the
--- -----
aggregate, have or result in a Material Adverse Effect. There has been no
material adverse change in the business, assets, operations, prospects or
financial or other condition of the Borrower taken as a whole since June 30,
1997. Except as otherwise permitted hereunder, no dividends, advances or other
distributions have been declared, paid or made upon any
<PAGE>
Capital Stock of the Borrower and, since June 30, 1997, no shares of Capital
Stock of the Borrower have been, or are now required to be, redeemed, retired,
purchased or otherwise acquired for value by the Borrower.
Section 4.8. No Conflicting Law or Agreements. The execution, delivery
--------------------------------
and performance by the Borrower and the Subsidiaries of this Agreement, the Note
and the other Loan Documents (i) do not violate any provision of the certificate
of incorporation or bylaws of the Borrower, (ii) do not violate any order,
decree or judgment, or any provision of any statute, rule or regulation, (iii)
do not require the consent or approval of any Governmental Authority or any
other Person, (iv) do not violate or conflict with, result in a breach of or
constitute (with notice or lapse of time, or both) a default under any
shareholder agreement, stock preference agreement, mortgage, indenture, contract
or other interest to which the Borrower is a party, or by which any of its
properties are bound, or (iv) do not result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any property or assets
of the Borrower except as contemplated herein.
Section 4.9. Taxes. With respect to all taxable periods of the Borrower,
-----
the Borrower has properly prepared, executed and filed all federal, state, local
and foreign tax returns, reports and statements, including, but not limited to,
information returns (Form 1120-S) required to be filed by it and has paid all
federal, state, municipal, franchise and other taxes shown on such filed
returns. The Reserves and provisions for taxes on the books of the Borrower and
each Subsidiary are adequate for all open years and for its current fiscal
period. Neither the Borrower nor any Subsidiary knows of any proposed
additional assessment or bases for any material assessment for additional taxes
(whether or not reserved against) except taxes that are being contested in
accordance with Section 6.1(e) hereof. Schedule "4.9" sets forth those taxable
-------------- -------------
years for which the Borrower's tax returns are currently being audited by the
IRS or any other applicable Governmental Authority or which are the subject of
any extension; and any assessments or assessments which are likely to be
asserted in connection with such audit, or which are otherwise currently
outstanding. Except as described on Schedule "4.9", the Borrower has not
-------------
executed or filed with the IRS or any other Governmental Authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. The Borrower has not filed a consent
pursuant to Section 341(f) of the Code or agreed to have IRC Section 341(f)(2)
apply to any dispositions of subsection (f) assets (as such term is defined in
Section 341(f) (4) of the Code). None of the property owned by the Borrower is
property which the Borrower is required to treat as being owned by any other
Person pursuant to the provisions of Section 168(f)(8) of the Code, and in
effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of Section 168(h) of the Code. The
Borrower has not agreed or been requested to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or written tax
sharing agreement.
<PAGE>
Section 4.10. Financial Statements. The Borrower has previously delivered
--------------------
to the Lender the financial statements and projections set forth on the attached
Schedule "4.10" and such statements and projections present fairly the
- --------------
consolidated financial condition of the Borrower as of the dates and for the
periods referred to therein and have been prepared in accordance with GAAP and
disclose all material liabilities, direct or indirect, fixed or contingent of a
nature required by GAAP to be disclosed in a balance sheet or the notes thereto,
of the Borrower and the Subsidiaries as of the date thereof. There are no
liabilities, direct or indirect, fixed or contingent, of the Borrower as of the
date of the balance sheet which are not reflected therein or in the notes
thereto, other than liabilities or obligations not material in amount which are
not required to be reflected in corporate balance sheets prepared in accordance
with GAAP. There has been no Material Adverse Change in the financial
condition, business, operations, affairs or prospects of the Borrower, or the
industry in which the Borrower operates, since the date of such financial
statements.
Section 4.11. Existence of Assets and Title Thereto. The Borrower has good
-------------------------------------
and marketable title to, or valid leasehold interests in, all its properties and
assets, including the properties and assets reflected in the financial
statements referred to above. All such properties and assets are not subject to
any mortgage, pledge, lien, lease, encumbrance, restriction or charge except
those permitted under the terms of this Agreement or as set forth in Schedule
--------
"4.11", and none of the foregoing prohibit or interfere with ownership of the
- -----
Borrower's assets or the operation of its business presently conducted thereon.
Section 4.12. Regulations G, T, U and X. The proceeds of the borrowings
-------------------------
hereunder will not be used, directly or indirectly, for any consumer purpose or
purchases, or for the purposes of purchasing or carrying any margin stock within
the meaning of or in contravention of Regulations G, T, U or X promulgated by
the Board of Governors of the Federal Reserve System.
Section 4.13. Compliance. The Borrower is not in default with respect to,
----------
or in violation of, any order, writ, injunction or decree of any court or of any
federal, state, municipal or other governmental department, commission, board,
bureau, agency, authority or official, or in violation of any law, statute, rule
or regulation to which it or its properties is or are subject, where such
default or violation would materially and adversely affect the financial
condition of the Borrower. The Borrower represents that it has not received
notice of any such default from any party. The Borrower is not in default in
the payment or performance of any of its obligations to any third parties or in
the performance of any mortgage, indenture, lease, contract or other agreement
to which it is a party or by which any of its assets or properties are bound.
Section 4.14. Leases. The Borrower enjoys quiet and undisturbed
------
possession under all material leases under which it is operating, and all such
<PAGE>
material leases are valid and subsisting and the Borrower is not in default
under any of its leases. The material leases to which the Borrower is currently
a party are set forth on the attached Schedule "4.14".
--------------
Section 4.15. Employee Benefit Plans.
----------------------
(a) Schedule "4.15" lists all Plans maintained or contributed to by the
--------------
Borrower and all Qualified Plans maintained or contributed to by any ERISA
Affiliate, and separately identifies the Title IV Plans, Multiemployer Plans,
any multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. Each Qualified Plan has been
determined by the IRS to qualify under Section 401 of the Code, and the trusts
created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and nothing has occurred which would
cause the loss of such qualification of tax-exempt status. Each Plan is in
compliance with the applicable provisions of ERISA and the Code, including the
filing of reports required under the Code or ERISA which are true and correct as
of the date filed, and with respect to each Plan, other than a Qualified Plan,
all required contributions and benefits have been paid in accordance with the
provisions of each such Plan. Neither the Borrower nor any ERISA Affiliate, with
respect to any Qualified Plan, has failed to make any contribution or pay any
amount due as required by Section 412 of the Code or Section 302 of ERISA or the
terms of any such Plan. With respect to all Retiree Welfare Plans, the present
value of future anticipated expenses pursuant to the latest actuarial
projections of liabilities does not exceed $50,000, and copies of such latest
projections have been provided to the Lender; with respect to Pension Plans,
other than Qualified Plans, the present value of the liabilities for current
participants thereunder using PBGC interest assumptions does not exceed $50,000.
The Borrower has not engaged in a prohibited transaction, as defined in Section
4975 of the Code or Section 406 of ERISA, in connection with any Plan, which
would subject the Borrower (after giving effect to any exemption) to a material
tax on prohibited transactions imposed by Section 4975 of the Code or any other
material liability.
(b) Except as set forth on Schedule "4.15": (i) no Title IV Plan has any
--------------
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section
4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably
expected to occur; (iii) no reportable event under Section 4043 of ERISA has
occurred or is reasonably expected to occur with respect to any Plan; (iv) no
fact exists, or is reasonably expected to occur with respect to any Plan that
might constitute grounds for termination of such plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any such plan; (v) there are no
pending, or to the knowledge of the Borrower, threatened claims, actions or
lawsuits (other than claims for benefits in the normal course), asserted or
instituted against (x) any Plan or its assets, (y) any fiduciary with respect to
any Plan or (z) the Borrower or any ERISA Affiliate with respect to any Plan;
(vi) neither the Borrower nor any ERISA
<PAGE>
Affiliate has incurred or reasonably expects to incur any Withdrawal Liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 of ERISA as a
result of a complete or partial withdrawal from a Multiemployer Plan; (vii)
within the last five years neither the Borrower nor any ERISA Affiliate has
engaged in a transaction which resulted in a Title IV Plan with Unfunded
Liabilities being transferred outside of the "controlled group" (within the
meaning of Section 4001(a)(14) of ERISA) of any such entity; (viii) no plan
which is a Retiree Welfare Plan provides for continuing benefits or coverage for
any participant or any beneficiary of a participant after such participant's
termination of employment (except as may be the participant or the beneficiary
of the participant); the Borrower and each ERISA Affiliate have complied with
the notice and continuation coverage requirements of Section 4980B of the Code
and the regulations thereunder except where the failure to comply could not have
or result in any Material Adverse Effect; and (ix) no liability under any Plan
has been funded, nor has such obligation been satisfied, with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation and the equivalent by each other nationally recognized rating
agency.
Section 4.16. Solvency. Both before and after giving effect to (a) the
--------
Loans and the Letters of Credit Obligations to be made or extended on the
Closing Date or such other date as Loans or Letter of Credit Obligations
requested hereunder are made or extended, (b) the disbursement of the Loans
pursuant to the instructions of the Borrower, and (c) the payment and accrual of
all Fees and Transaction Expenses in connection with the foregoing, the
Borrower, on a consolidated basis, is Solvent.
Section 4.17. Executive Offices; FEIN. The chief executive office and
-----------------------
principal place of business of the Borrower and each other party to the
Receivables Purchase Agreement, and the office where the records concerning
Collateral are and have, for the past 12 months, been kept, is set forth on the
attached Schedule "4.17" and none of such locations has changed within the 12
---------------
months preceding the Closing Date. Schedule 4.17 lists the federal employer
-------------
identification number of each such Person.
Section 4.18. Places of Business. The Borrower and each other party to
------------------
the Receivables Purchase Agreement has no and, for the past 12 months has not
had any, other places of business and locates and, for the past 12 months has
located, no Collateral (other than Inventory), specifically including books and
records, at any location other than those set forth on the attached Schedule
--------
"4.18".
- -----
Section 4.19. Guaranty Obligations. The Borrower is not a party to, and
--------------------
has not created, any Guaranty Obligations.
<PAGE>
Section 4.20. Agreements and Other Documents. As of the Closing Date, the
------------------------------
Borrower has provided to Lender or its counsel accurate and complete copies (or
summaries) of all of the following agreements or documents to which it is
subject and each of which is listed on Schedule "4.20": (a) supply agreements
---------------
and purchase agreements not terminable by the Borrower within sixty (60) days
following written notice issued by the Borrower and involving transactions in
excess of $150,000 per annum; (b) any lease of Equipment having a remaining term
of one year or longer and requiring aggregate rental and other payments in
excess of $250,000 per annum; (c) licenses and permits held by the Borrower, the
absence of which could be reasonably likely to have a Material Adverse Effect;
(d) instruments or documents evidencing Indebtedness of the Borrower and any
security interest granted by the Borrower with respect thereto; and (e)
instruments and agreements evidencing the issuance of any equity securities,
warrants, rights or options to purchase equity securities of the Borrower.
Neither the Borrower nor any of its Subsidiaries is in default of any of the
foregoing. The Borrower is not in default of any of the foregoing agreements or
documents.
Section 4.21. Labor Matters. There are no strikes or other material labor
-------------
disputes against the Borrower or any Subsidiary pending or, to the Borrower's
knowledge, threatened such as would reasonably be expected to result in a
Material Adverse Effect. Except as set forth on the attached Schedule "4.21",
--------------
as of the Closing Date, the hours worked and payments made to employees of the
Borrower have not been in violation in any material respect of the Fair Labor
Standards Act or any other applicable law dealing with such matters. As of the
Closing Date, all payments due from the Borrower for which any claim has been
made against the Borrower on account of wages and employee health and welfare
insurance and other benefits have been paid or accrued as a liability on the
books of the Borrower. Upon request, the Company will furnish or make available
to the Lender copies of all collective bargaining agreements to which the
Borrower or any of the Subsidiaries are a party. The consummation of the
transactions contemplated by this Agreement and the Transactions will not give
rise to a right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which the Borrower or any of
the Subsidiaries is a party or by which the Borrower or any of the Subsidiaries
is bound. Except as set forth on Schedule "4.21" hereto, the Borrower does not
--------------
have any obligation under any collective bargaining agreement. There is no
ongoing activity involving the Borrower pending or threatened by any labor union
or group of employees. Except as set forth on Schedule "4.21", there are no
--------------
representation proceedings pending or threatened with the National Labor
Relations Board, and no labor organization or group of employees of the Borrower
have made a pending demand for recognition. There are no complaints or charges
against the Borrower pending or threatened to be filed with any federal, state,
local or foreign court, governmental agency or arbitrator based on, arising out
of, in connection with, or otherwise relating to the employment or termination
of employment of the Borrower of any individual.
<PAGE>
Section 4.22. Stock Matters. There are no options or rights outstanding
-------------
to purchase any of the Borrower's Capital Stock except as set forth on the
attached Schedule "4.22". The authorized Capital Stock of the Borrower and its
--------------
Subsidiaries and the record and beneficial ownership of such Capital Stock is
set forth on Schedule "4.22". All of such shares are duly authorized, validly
--------------
issued, fully paid and nonassessable, and are owned free and clear of any Liens,
are not, and will not have been, issued in violation of any federal or state law
pertaining to the issuance of any securities or any preemptive rights. No
issued, no authorized but unissued and no treasury shares of Capital Stock of
the Borrower or its Subsidiaries are subject to any preemptive rights,
irrevocable proxy, shareholder or voting agreement, option, warrant, right of
conversion or purchase or any similar right except as set forth on Schedule
--------
"4.22".
- -----
Section 4.23. Licenses. The Borrower and each Subsidiary has all
--------
licenses, permits, approvals and other authorization required by any government,
agency or subdivision thereof, or from any licensing entity necessary for the
conduct of its business, all of which the Borrower represents to be current,
valid and in full force and effect.
Section 4.24. Acknowledgment of Debt. The indebtedness set forth on
----------------------
Schedule "4.24" is due and payable in accordance with the terms of all
- --------------
agreements or instruments evidencing such indebtedness, without, to the best
knowledge of Borrower, defense, offset or counterclaim, and Schedule "4.24"
--------------
represents all indebtedness of the Parent, the Borrower and their respective
Subsidiaries.
Section 4.25. Governmental Regulation. Neither Borrower nor any
-----------------------
Subsidiary is an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940 as amended. Neither the
Borrower nor any Subsidiary is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or any other federal or state statute that restricts or limits its ability to
incur Indebtedness or to perform its obligations hereunder, and the making of
the Loans and the Advances, in each case by the Lender, the application of the
proceeds and repayment thereof by the Borrower and the consummation of the
transactions contemplated by this Agreement and the other Loan Documents will
not violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
Section 4.26. Insurance. All policies of insurance in effect of any kind
---------
or nature owned by or issued to the Borrower and the Subsidiaries, including
policies of life, fire, theft, product liability, public liability, property
damage, other casualty, malpractice, business interruption, employee fidelity,
workers' compensation, property and liability insurance are (a) listed on the
attached Schedule "4.26" Part II, (b) together with all policies of employee
-----------------------
health and welfare and title
<PAGE>
insurance, in full force and effect, and (c) of nature and provide such coverage
as is customarily carried by companies engaged in similar businesses and owning
or operating similar properties in the same general areas in which the Borrower
and the Subsidiaries operate. Neither the Borrower nor the Subsidiaries provides
any of its insurance through self-insurance (excluding any deductible for which
the Borrower or any of its Subsidiaries may be liable). The Borrower covenants
that such insurance complies with and shall at all times comply with the
standards set forth on the attached Schedule "4.26" Part I.
----------------------
Section 4.27. Accounts. (a) Each Account is, or at the time it comes into
--------
existence, will be, a true and correct statement of (i) the bona fide
---- ----
indebtedness of each Account Debtor and (ii) the amount of the account for
merchandise sold and delivered, or services rendered, to such Account Debtor,
net of any charges, adjustments, discounts or other reductions whatsoever; (b)
at the time of each borrowing hereunder, there are, and to the best of the
Borrower's knowledge after due investigation will be, no defenses,
counterclaims, discounts or setoffs that may be asserted against Eligible
Accounts; and (c) the Borrower shall be deemed to have warranted as to each
Eligible Account that (i) each Account and all papers relating thereto are
genuine and in all respects are what they purport to be, (ii) each Account is
valid and existing and arises out of a bona fide sale of goods sold and
delivered, or services rendered, by the Borrower to, or in the process of being
delivered to the Account Debtor named in the Account, (iii) the amount of the
Account represented as owing is the correct amount actually and unconditionally
owing except for normal cash discounts and is not disputed, and except for such
normal cash discounts is not subject to any setoffs, credits, deductions or
counter changes, (iv) the Borrower is the owner of each Account free and clear
of all liens, encumbrances, right of setoff and security interests of any nature
whatsoever, except for the Security Interests, and (v) no surety bond was
required or given in connection with any Account or the contract or purchase
orders out of which the same arose.
Section 4.28. Employment Matters. Except as set forth on Schedule "4.28",
---------- ------- --------------
there are no (a) employment, consulting or management agreements concerning the
executive management of the Borrower or any Subsidiary, or (b) collective
bargaining agreements or other labor agreements concerning any employees of the
Borrower or any Subsidiary. A true and complete copy of each such agreement has
been furnished to the Lender.
Section 4.29. Financial Information. All financial information including,
---------------------
but not limited to, information relating to the Accounts submitted by the
Borrower to the Lender, whether previously or in the future, is and will be true
and correct in all material respects, has been and will be prepared in
accordance with GAAP, and is and will be complete insofar as may be necessary to
give the Lender a true and accurate knowledge of the subject matter.
<PAGE>
Section 4.30. Environmental Matters. Except as disclosed in Schedule
--------------------- --------
"4.30", the Borrower and all Subsidiaries have, and the plants and sites of each
- -----
have, complied in all respects with all federal, state, local and regional
statutes, ordinances, orders, judgments, rulings and regulations relating to any
matters of pollution or of environmental regulation or control except where such
failure to comply would not result in a Material Adverse Effect. Except as
disclosed on Schedule "4.30", neither the Borrower nor any Subsidiary has
--------------
received notice of or has any knowledge of any actual or claimed or asserted
failure so to comply which alone, or together with any other such failure is
material and would result in a Material Adverse Effect. Except as disclosed on
Schedule 4.30", neither the Borrower nor any of its Subsidiaries or their
- -------------
plants, or other sites manage, generate or dispose of or during their respective
periods of ownership, use, occupancy or operation have managed, generated or
disposed of any hazardous wastes, hazardous substances, hazardous materials,
toxic substances or toxic pollutants, as those terms are used in the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, in material violation of or in a manner which
would result in liability under such statutes or any regulations promulgated
pursuant thereto or any other applicable law except where such noncompliance
would not result in a Material Adverse Effect.
Section 4.31. Parent, Affiliate or Subsidiary Corporations. Except as set
--------------------------------------------
forth on Schedule "4.31", the Borrower has no parent corporation and has no
--------------
Affiliates or Subsidiaries and is not engaged in any joint venture or
partnership with any other Person, or is an Affiliate of any other Person.
Section 4.32. Intellectual Property. The Borrower and each Subsidiary
---------------------
owns, or is licensed to use, all trademarks, trade names, copyrights,
technology, know-how and processes believed to be necessary for the conduct of
its business as currently conducted except for those the failure to own or
license which could not reasonably be expected to have a Material Adverse
Effect. No claim has been asserted or is pending by any Person challenging or
questioning the use of any of the foregoing or the validity or effectiveness of
any of the foregoing, nor does the Borrower know of any valid basis for any such
claim. To the best of its knowledge, the use of the foregoing by the Borrower
and its Subsidiaries does not infringe on the valid intellectual property rights
of any Person, except for such claims and infringements that, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
Section 4.33. Officers and Directors. The officers and directors of the
----------------------
Borrower on the date of this Agreement are as set forth on the attached Schedule
--------
"4.33".
- -----
Section 4.34. Senior Debt. Except for indebtedness secured by liens
-----------
permitted under clause (i) of the definition of "Permitted Liens", there is
<PAGE>
no indebtedness of the Borrower or its Subsidiaries or Affiliates, either direct
or indirect, which is senior in right or priority or payment to the indebtedness
of the Loan.
Section 4.35. Bank Accounts. Schedule "4.35" hereto sets forth each bank
------------- --------------
account held or maintained by the Borrower, the name of the financial
institution holding such account, the address of such financial institution
where such account is located, the account number and the purpose for which such
account is being used.
Section 4.36. No Material Misrepresentations and Omissions. No
--------------------------------------------
information, report, financial statement, exhibit or schedule furnished by or on
behalf of the Borrower to the Lender in connection with the negotiation of any
of the Loan Documents or included therein or delivered pursuant thereto
contained, contains or will contain any material misstatement of fact or
omitted, omits or will omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were, are or
will be made, not misleading.
Section 4.37. Government Contracts. Except as set forth in Schedule 4.37,
-------------------- -------------
neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement with any Governmental Authority and none of the Accounts of the
Borrower are subject to the Federal Assignment of Claims Act, as amended (31
U.S.C. Section 3727), or any similar state or local law.
Section 4.38. Customer and Trade Relations. As of the Closing Date, other
----------------------------
than the Borrower's agreement with NYNEX, there exists no actual or, to the
Borrower's knowledge, threatened termination or cancellation of, or any material
adverse modification or change in: (a) the business relationship of the Borrower
or any of its Subsidiaries with any customer whose purchases during the
preceding twelve (12) months caused it to be ranked among the 10 largest
customers of such Person; or (b) the business relationship of the Borrower or
any of its Subscribers with any supplier material to its operations.
ARTICLE 5.
CONDITIONS OF LENDING
Section 5.1. Initial Advance. Notwithstanding any other provisions of
---------------
this Agreement and without affecting in any manner the rights of the Lender
hereunder, the Borrower shall have no rights under this Agreement (but shall
have all applicable obligations hereunder), and the Lender shall not be
obligated to make any Advances or incur Letter of Credit Obligations, or to
take, fulfill, or perform any other action hereunder, until the following
conditions have been satisfied, in the Lender's sole discretion, or waived in
writing by the Lender:
(a) This Agreement or counterparts thereof shall have been duly executed
by, and delivered to, the Lender and the Borrower.
(b) The Lender shall have received such documents, instruments and
agreements as the Lender shall request in connection with the transactions
contemplated by this Agreement, including all documents, instruments, agreements
listed in the Schedule of Documents, each in form and substance satisfactory to
the Lender.
<PAGE>
(c) Evidence, satisfactory to the Lender, that the Borrower and each of
its Subsidiaries has obtained consents and acknowledgments of all Persons whose
consents and acknowledgments may be required, including, but not limited to, all
requisite Governmental Authorities, to the terms, and to the execution and
delivery, of this Agreement, the Loan Documents and the consummation of the
transactions contemplated hereby and thereby.
(d) Evidence satisfactory to the Lender that the insurance policies
provided for in Section 4.26 and Schedule "4.26" are in full force and effect,
------------ ---------------
together with appropriate evidence showing loss payable and/or additional
insured clauses or endorsements, as appropriate, in favor of the Lender and in
form and substance satisfactory to the Lender.
(e) Payment by the Borrower of the Closing Fee and all Transaction
Expenses.
Section 5.2. Subsequent Advances.
-------------------
(a) The Lender shall not be obligated to fund any Loan or incur any
Letter of Credit Obligations if any of the following statements shall fail to be
true on the date of each such funding, advance or incurrence, as the case may
be:
(i) All of the Borrower's representations and warranties contained
herein or in any of the Loan Documents shall be true and correct on and as of
the Closing Date and the date on which each such Advance is made (or each such
Letter of Credit Obligation is incurred), as though made or incurred on and as
of such date, except to the extent that any such representation or warranty
expressly relates to an earlier date and except for changes therein expressly
permitted or expressly contemplated by this Agreement.
(ii) Any event or circumstance having a Material Adverse
Effect shall have occurred since June 30, 1997.
(iii) No event shall have occurred and be continuing, or
would result from the making of any Advance (or the incurrence of any Letter of
Credit Obligation) which constitutes or would constitute a Default or an Event
of Default.
<PAGE>
(iv) After giving effect to such Working Capital Loan Advance
(or the incurrence of any Letter of Credit Obligation), the aggregate principal
amount of the Working Capital Revolving Loans shall not exceed the maximum
amount permitted by Section 2.1 without requiring that a payment be made to the
-----------
Lender.
(v) Each of the conditions set forth in Section 5.1(a) through (f)
--------------
shall continue to be satisfied by the Borrower as of such date.
The request and acceptance by the Borrower of the proceeds of any Advance shall
be deemed to constitute, as of the date of such request or acceptance, (i) a
representation and warranty by the Borrower that the conditions in this Section
have been satisfied, and (ii) a confirmation by the Borrower of the granting and
continuance of the Lender's Liens pursuant to the Collateral Documents.
(b) The Borrower agrees that upon the occurrence of a Default, the
making of an Advance shall be in the Lender's sole and absolute discretion and
the Lender shall not be required to declare a default and accelerate the
Obligations.
ARTICLE 6.
COVENANTS
Section 6.1. Affirmative Covenants. The Borrower covenants and agrees
---------------------
that from the date hereof until payment and performance in full of all
Obligations and the termination of this Agreement, the Borrower shall, and shall
cause its Subsidiaries and Affiliates to:
(a) Existence: Business and Properties. (i) Do or cause to be done all
----------------------------------
things necessary to preserve, renew and keep in full force and effect its
corporate existence and its rights, licenses, permits, franchises and
authorizations, (ii) continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder, (iii) at all times maintain,
preserve and protect all of its trademarks, trade names, patents, copyrights and
all other intellectual property and rights as licensee or licensor thereof, (iv)
maintain and preserve all of its properties, in use or useful in the conduct of
its business, and keep the same in good repair, working order and condition
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices, so that the business
carried or in connection therewith may be properly and advantageously conducted
at all times, and (v) comply in all material respects with all applicable laws,
rules, regulations and orders of any Governmental Authority, whether now in
effect or hereinafter enacted.
<PAGE>
(b) Financial Statements/Other Reports. Deliver or cause to be
----------------------------------
delivered to the Lender the Financial Statements, Notices and Projections at the
times and in the manner set forth on the attached Schedule "6.1(b)".
----------------
(c) Communication with Accountants. The Borrower shall cause the Parent
------------------------------
to authorize the Lender to communicate directly with the Accountants and
authorizes the Accountants to disclose to the Lender any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of the Parent and its Subsidiaries. At or before
the Closing Date, the Borrower shall cause the Parent to deliver a letter
addressed to the Accountants instructing them to comply with the provisions of
this Section 6.1(c) and authorizing the Lender to rely on the certified
--------------
financial statements prepared by the Accountants.
(d) Insurance and Endorsement.
-------------------------
(i) Keep its properties and business adequately insured against fire
and other hazards (so called "All Risk" coverage) in amounts, on terms and
--------
limits, and with companies reasonably satisfactory to the Lender covering such
risks as are herein set forth; maintain public liability coverage, including
without limitation, products liability coverage, against claims for personal
injuries or death; and maintain all worker's compensation, employment or similar
insurance as may be required by applicable law.
(ii) All insurance shall be in amounts reasonably satisfactory to the
Lender and shall contain such terms, be in such form, be for such periods, and
be written by carriers reasonably satisfactory to the Lender. Without limiting
the generality of the foregoing, such insurance must provide that it may not be
canceled without 30 days prior written notice to the Lender. With respect to
the Collateral, and on the All Risk coverage and business interruption
insurance, the Borrower shall cause the Lender to be endorsed as a loss payee as
its interest may appear (with the exception of real property owned by the
Borrower and which is mortgaged to a third party), with a long form Lender's
Loss Payable Clause, in form and substance reasonably acceptable to the Lender
and to all general liability and other liability policies naming the Lender as
an additional insured. In the event of failure to provide and maintain
insurance as provided herein, the Lender is authorized to, and at its option
may, make or cause to be made Advances on behalf of the Borrower for the payment
thereof. The Borrower shall furnish to the Lender certificates or other
satisfactory evidence of compliance with the-foregoing insurance provisions.
With respect to the insurance of the Borrower and its Subsidiaries and
Affiliates in which the Lender has an interest, the Borrower irrevocably
appoints the Lender as its attorney-in fact, coupled with an interest, to make
proofs of loss and claims for insurance, and to receive payments of the
insurance and execute all documents, checks and drafts in connection with
payment of the insurance. Lender shall have no duty to exercise any rights or
powers granted to it pursuant to the foregoing power of attorney.
<PAGE>
The Borrower shall promptly notify the Lender of any loss, damage, or
destruction to the Collateral in the amount of 250,000 or more, whether or not
covered by insurance. After deducting from such proceeds the expenses, if any,
incurred by the Lender in the collection or handling thereof, the Lender may, at
its option, apply such proceeds to the reduction of the Obligations in
accordance with Section 3.4, or permit or require the Borrower to use such
-----------
money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the loss, damage or
destruction.
(iii) The Lender reserves the right at any time upon any
change in the Borrower's risk profile, determined on a consolidated basis
(including any change in the product mix maintained by the Borrower or any of
its Subsidiaries or any laws affecting the potential liability of any such
Person) to require additional forms and limits of insurance, in the Lender's
reasonable opinion, to adequately protect both the Lender's interests in all or
any portion of the Collateral and to ensure that the Borrower and each of its
Subsidiaries is protected by insurance in amounts and with coverage customary
for its industry. If requested by the Lender, the Borrower shall deliver to the
Lender from time to time a report of a reputable insurance broker, satisfactory
to the Lender, with respect to the insurance policies of it and its
Subsidiaries.
(e) Taxes and Other Liens. Comply with all statutes and government
---------------------
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against it or its
property which, if unpaid, might become a lien or charge against the Borrower or
its properties, except liabilities being contested in good faith and by
appropriate proceedings diligently conducted and against which, if requested by
the Lender, the Borrower shall set up reserves in amounts and in form required
by the Lender in accordance with GAAP, and provided that, in connection with
such contest, no lien is imposed or filed against any asset of the Borrower (or
any Subsidiary).
(f) Place of Business. Maintain its chief place of business and its
-----------------
chief executive office at the addresses set forth in the beginning of this
Agreement, unless, the Borrower shall have given the Lender 30 days prior
written notice of any change in such places of business and shall have filed any
and all financing statements or other instruments necessary to continue the
perfection of the Lender's liens in the jurisdiction of the new location.
(g) Inspections.
-----------
(i) Allow the Lender by or through any of its officers, attorneys,
accountants or other agents designated by the Lender, for the purpose of
ascertaining whether or not each and every provision hereof and of the other
Loan Documents, is being performed, to enter the offices and plants of the
Borrower to examine
<PAGE>
or inspect any of the Inventory and the Borrower's financial records (in which
proper entries, reflecting all financial transactions shall be made in
accordance with GAAP and on a basis consistent with the financial statements
described in Section "4.10") properties, books and records or extracts
--------------
therefrom, to make copies of such books and records or extracts therefrom, and
to discuss the affairs, finances and accounts thereof with the Borrower all at
such times and as often as the Lender or any representative of the Lender may
reasonably request. The Borrower shall immediately notify the Lender of any
event causing material loss or depreciation in value of Inventory and the amount
of such loss or depreciation. The Borrower also agrees to notify the Lender at
least 30 days prior to any proposed modification to, or replacement of, its
inventory control system, and to make any such modification or replacement
subject to the Lender's prior approval. Without limiting the generality of the
foregoing, the Lender may, at its option, retain an independent accounting firm
to perform a review of the Borrower's financial systems, practices and
procedures (and the fees of the expenses of such firm will be paid by the
Borrower).
(ii) Without limiting the generality of the foregoing, the Lender
shall be allowed to: verify the Accounts and Inventory of the Borrower and to
confirm with Account Debtors the validity and amount of Accounts; conduct field
examinations; perform analyses of the Collateral; and, such other activities as
the Lender deems necessary. The Borrower shall promptly pay the Lender audit
fees of $500 per day for each of its employees utilized by the Lender in
connection with any of the foregoing, and any reasonable out-of-pocket expenses
incurred in connection with any such audit. The Lender shall charge any such
audit fees and out-of-pocket expenses to the Working Capital Revolving Loan
Account.
(h) Supplemental Disclosure. On the request of the Lender (in the event
-----------------------
that such information is not otherwise delivered by the Borrower to the Lender
pursuant to this Agreement), so long as there are Obligations outstanding
hereunder, but not more frequently than every three (3) months, the Borrower
will supplement each schedule or representation herein with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement would have been required to be set forth or described in such schedule
or as an exception to such representation or which is necessary to correct any
information in such schedule or representation which has been rendered
inaccurate thereby; provided, however, that such supplement to such schedule or
-------- -------
representation shall not be deemed an amendment thereof unless expressly
consented to in writing by the Lender, and no such amendments, except as the
same may be consented to in a writing which expressly includes a waiver, shall
be or be deemed a waiver by the Lender of any Default disclosed therein.
(i) Litigation. Advise the Lender of the commencement or threat of
----------
litigation (including litigation which the Borrower believes is likely to be
commenced against it), including arbitration proceedings and any proceedings
before any governmental agency, which is instituted against the Borrower or the
Guarantor and is
<PAGE>
reasonably likely to have a Material Adverse Effect upon the condition,
financial, operating or otherwise, of the Borrower or any Guarantor or where the
litigation seeks any injunctive or other equitable or extraordinary relief or
seeks damage in an amount of Fifty Thousand Dollars ($50,000), or more.
(j) Foreign Qualification. Do and will cause each Subsidiary to cause
---------------------
to be done at all times all things necessary to be duly qualified to do business
and be in good standing as a foreign corporation in each jurisdiction where the
failure to so qualify would result in a Material Adverse Change.
(k) Payment of Obligations.
----------------------
(i) The Borrower shall: (A) pay and discharge or cause to be paid and
discharged all of its Obligations and (B) prior to an Event of Default, pay and
discharge, or cause to be paid and discharged, its Indebtedness other than the
Obligations; and, subject to Section 6.1(k)(ii), pay and discharge or cause to
------------------
be paid and discharged promptly all (x) Charges imposed upon it, its income and
profits, or any of its property (real, personal or mixed), and (y) lawful claims
for labor, materials, supplies and services or otherwise, before any thereof
shall become in default.
(ii) The Borrower may in good faith contest, by proper legal actions
or proceedings, the validity or amount of any Charges or claims arising under
Section 6.1(k)(i)(B); provided, that at the time of commencement of any such
- --------------------
action or proceeding, and during the pendency thereof (1) no Default or Event of
Default shall have occurred, (2) adequate reserves with respect thereto are
maintained on the books of the Borrower, in accordance with GAAP, (3) such
contest operates to suspend collection of the contested Charges or claims and
such contest is maintained and prosecuted continuously and with diligence, (4)
none of the Collateral would be subject to forfeiture or loss or any Lien by
reason of the institution or prosecution of such contest, (5) no Lien shall
exist, be imposed or be attempted to be imposed for such Charges or claims
during such action or proceeding, (6) the Borrower shall promptly pay or
discharge such contested Charges and all additional charges, interest, penalties
and expenses, if any, and shall deliver to the Lender evidence acceptable to the
Lender of such compliance, payment or discharge, if such contest is terminated
or discontinued adversely to the Borrower, and (7) the Lender has not advised
the Borrower in writing that the Lender reasonably believes that non-payment or
non-discharge thereof could have or result in a Material Adverse Effect.
(l) Changes to Advance Rates: Standards of Eligibility and Reserves.
-------------------------------------------------- ------------
The Borrower agrees that the Lender shall be entitled to reduce the advance
rates under the Borrowing Base, increase the standards of eligibility and
establish or increase any Reserves under this Agreement.
(m) ERISA. (i) Comply in all material respects with the applicable
-----
provisions of ERISA and (ii) furnish to the Lender (A) as soon as possible, and
<PAGE>
in any event within 30 days after any Responsible Officer of the Borrower either
knows or has reason to know that any Reportable Event with respect to any Plan
has occurred that alone or together with any other Reportable Event with respect
to the same or another Plan could reasonably be expected to result in liability
of the Borrower to the PBGC in an aggregate amount exceeding $500,000, a
statement of the Responsible Officer setting forth details as to such Reportable
Event and the action proposed to be taken with respect thereto, together with a
copy of the notice, if any, of such Reportable Event given to the PBGC, (B) as
soon as possible, notice of the institution of proceedings or the taking of any
other action by the PBGC or the Borrower or any Commonly Controlled Entity or
any Multiemployer Plan with respect to the withdrawal from, or the termination,
reorganization, or insolvency of, any Single Employer Plan or Multiemployer
Plan, or the receipt of notice by the Borrower or any Commonly Controlled Entity
that the institution of any such proceedings or the taking of any such action is
under consideration or anticipated, (C) promptly after receipt thereof, a copy
of any notice that the Borrower may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Plans or to appoint a trustee to
administer any Plan or Plans, (D) within 7 days after the due date for a filing
with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to
make a required installment or other payment with respect to a Plan, a statement
of the Responsible Officer setting forth details as to such failure and the
action proposed to be taken with respect thereto, together with a copy of such
notice given to the PBCG, (E) promptly and in any event within 30 days after
receipt thereof by the Borrower concerning (a) the imposition of Withdrawal
Liability by a Multiemployer Plan in an amount exceeding $10,000, or (b) a
determination that a Multiemployer Plan is, or is expected to be, terminated or
in reorganization, in each case within the meaning of result in an increase in
annual contributions of the Borrower to such Multiemployer Plan in an amount
exceeding $10,000, (F) the institution of any proceedings or other action by the
IRS or the Department of Labor with respect to the minimum funding requirements
of any Pension Plan, or the receipt of notice by the Borrower or any Commonly
Controlled Entity that the institution of any such proceedings or the taking of
any such action is under consideration or anticipated, (G) the occurrence or
expected occurrence of any event which could reasonably result in the incurrence
of a material unpredictable contingent event amount under Section 302 of ERISA
or Section 412 of the Code with respect to any Pension Plan or other
unpredictable contingent event benefits under such Pension Plan, or (H) the
occurrence of any other event with respect to any Plan or any other event known
to the Borrower or any Commonly Controlled Entity with respect to any
Multiemployer Plan, and in each case in clauses (A) through (H) above, such
event or condition, together with all other events or conditions, if any, could
subject the Borrower or any Subsidiary to any tax, fine, penalty, or other
liabilities or could increase the contingent liability of the Borrower or any
Subsidiary with respect to any post-retirement Plan benefit, in amounts which in
the aggregate would have a Material Adverse Effect. The Borrower will deliver
to the Lender a complete copy of each annual report (Form 5500) of each Plan
required to be filed with the IRS, promptly after the filing thereof.
<PAGE>
(n) Notice of Certain Events. Give prompt written notice to the Lender
------------------------
of:
(i) any Default or Event of Default, specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with respect
thereto, and the steps, if any, being taken to cure the Default or the Event of
Default;
(ii) any material dispute that arises between the Borrower and any
governmental regulatory body or law enforcement agency, the resolution of which
would result in a Material Adverse Effect or a Material Adverse Change;
(iii) promptly notify the Lender in writing upon any changes
or additions to the Borrower's officers or directors;
(iv) any material development which shall occur in any litigation,
arbitration or governmental investigation or proceeding previously disclosed by
the Borrower to the Lender pursuant to Section 4.5 hereof;
-----------
(v) (A) the receipt of written notice or claim to the effect that the
Borrower or any Subsidiary is or is reasonably likely to be liable to any Person
as a result of a Release or a condition which is reasonably likely to result in
a Release which could reasonably be expected to subject the Borrower or any
Subsidiary to Environmental Liabilities and Costs of $500,000 or more, or (B)
the discovery of any Contaminant on, in or under any currently or previously
owned or leased properties of the Borrower or any Subsidiary, Remedial Action
for which could reasonably be expected to cost $500,000 or more;
(vi) (A) the violation of, or any condition which might reasonably
result in a violation of, any Environmental Law, or (B) any change in any
Environmental Law or in the administration or interpretation thereof, which in
either case could reasonably be expected to subject the Borrower or any
Subsidiary to Environmental Liabilities and Costs of $500,000 or more;
(vii) the occurrence of any other circumstance which has a
reasonable likelihood of resulting in a Material Adverse Change;
(viii) the occurrence of any Loss in excess of $500,000;
(ix) any labor controversy resulting or likely to result in a
strike or work stoppage against the Borrower;
(x) any proposal by any public authority to acquire the
assets or business of the Borrower;
<PAGE>
(xi) the location of any Collateral other than at the
Borrower's places of business disclosed in this Agreement other than Collateral
in transit in the ordinary course of the Borrower's business;
(xii) any proposed or actual change of the name, identity or
corporate structure of the Borrower.
(xiii) any other matter which has resulted or is likely to
result in a Material Adverse Change; and
(xiv) any information received by the Borrower with respect
to the Collateral that may materially affect the value thereof or the rights and
remedies of the Lender with respect thereto.
(o) Use of Proceeds. Use the proceeds of the Loan only for the purpose
---------------
set forth in Section 2.4 hereof.
-----------
(p) Account Duties. Comply with any and all federal, state and local
--------------
laws affecting its business, including, but not limited to, payment of all
federal and state taxes with respect to sales to Account Debtors by the Borrower
and disclosures in connection therewith. The Borrower agrees to indemnify
Lender against and hold Lender harmless from all claims, actions and losses,
including reasonable attorneys' fees and costs actually incurred by Lender
arising from any contention, that there has been a failure to comply with such
laws.
(q) Collateral Duties. Do whatever the Lender may reasonably request
-----------------
from time-to-time by way of obtaining, executing, delivering and filing
financing statements, assignments, landlord's waiver or agreement, mortgagee's
agreement or bailee letter, as applicable, from the lessor of each leased
property or mortgagee of owned property or with respect to any warehouse,
processor or converter facility or other location where Collateral is located,
which agreement or letter shall contain a waiver or subordination of all Liens
or claims that the landlord, mortgagee or bailee may assert against the
Inventory or other Collateral at that location, and shall otherwise be
satisfactory in form and substance to the Lender. The Borrower shall, and shall
cause its Subsidiaries to, fully pay and perform, on a timely basis, its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located, and the
Borrower will take any and all steps and observe such procedures, requirements,
formalities as the Lender may reasonably request in order to create and maintain
the Security Interests. The Collateral in which the Lender does not have a
first priority lien and security interest (excluding Permitted Liens), is set
forth on Schedule "6.1(q)", and with regard to such Collateral, the Borrower
----------------
shall maintain the Lender's current priority. If the Borrower fails to timely
provide financing statements, the Lender is authorized to file financing
statements without the signature of the Borrower and to execute and file such
financing statements on behalf of the Borrower as specified by the
<PAGE>
UCC to perfect or maintain its security interest in all of the Collateral. All
charges, expenses and fees which the Lender incurs in filing any of the
foregoing, together with costs and expenses of any lien search required by the
Lender, and any taxes relating thereto, shall be charged to the balance of the
Working Capital Revolving Loan and added to the Obligations.
(r) Subordination. The Borrower agrees that it shall cause all
-------------
shareholders, Subsidiaries and Affiliates owed moneys by the Borrower to agree
that the repayment of all such indebtedness shall be subordinate in right and
payment to the payment of the indebtedness of the Debt.
(s) Transaction Expenses. Upon demand, the Borrower agrees to pay all
--------------------
Transaction Expenses to the Lender, and the Borrower agrees that the Lender
shall have the right to charge the Transaction Expenses to the Working Capital
Loan Account.
(t) Access. The Borrower agrees (i) to provide access during normal
------
business hours to the Lender and any of its officers, employees and agents, as
frequently as the Lender determines to be appropriate, upon advance notice
(unless a Default shall have occurred and be continuing, in which event no
notice shall be required and the Lender shall have access at any and all times),
to the properties and facilities of the Borrower; (ii) to permit the Lender and
any of its officers, employees and agents to inspect, audit and make extracts
from all of the Borrower's records, files and books of account, and (iii) to
permit the Lender to inspect, review and evaluate the Borrower's Inventory, and
the Borrower's Accounts and other records, at the Borrower's locations and at
premises not owned by or leased to the Borrower, no less frequently than two (2)
times per year (unless a Default shall have occurred and be continuing, in which
event such inspection, review and evaluation shall be unlimited). The Borrower
shall make available to the Lender and its counsel, as quickly as practicable
under the circumstances, originals or copies of all books, records, board
minutes, contracts, insurance policies, environmental audits, business plans,
files, financial statements (actual and pro forma), filings with federal, state
and local regulatory agencies, and other instruments and documents which the
Lender may request. The Borrower shall deliver any document or instrument
reasonably necessary for the Lender, as it may from time-to-time request, to
obtain records from any service bureau or other Person which maintains records
for the Borrower, and shall maintain duplicate records or supporting
documentation on media, including, without limitation, computer tapes and discs
owned by the Borrower.
(u) Intellectual Property. The Borrower will, and will cause its
---------------------
Subsidiaries to, conduct its business and affairs without infringement of or
interference with any Intellectual Property of any other Person.
<PAGE>
(v) Further Assurances. The Borrower agrees that it shall and shall
------------------
cause each of its Subsidiaries, at such Person's expense and upon the request of
the Lender, to duly execute and deliver, or cause to be duly executed and
delivered, to the Lender such further instruments and do and cause to be done
such further acts as may be necessary or proper in the reasonable opinion of the
Lender to carry out more effectually the provisions and purposes of this
Agreement or any other Loan Document.
Section 6.2. Negative Covenants. The Borrower covenants and agrees that
------------------
from the date hereof until payment in full of the Loans and full and final
payment and performance of all Obligations, and the Borrower's right to receive
Advances under this Agreement shall terminate, the Borrower shall not and shall
not allow any of its Subsidiaries or Affiliates to:
(a) Liens. (i) Create, incur, assume or permit to exist any Lien on, or
-----
with respect to, its Accounts or any of its other properties or assets
(including Capital Stock or other securities of Subsidiaries) now owned or
hereafter acquired by it or any income or rights in respect of any thereof,
except for (A) liens on property or assets of the Borrower and the Subsidiaries
existing on the date of this Agreement and as set forth in Schedule "4.11" ,
---------------
(B) Permitted Liens, and (C) Liens created after the date hereof by conditional
sale or other title retention agreements (including Capital Leases) or in
connection with purchase money Indebtedness with respect to Equipment and
Fixtures acquired by the Borrower or any of its Subsidiaries in the ordinary
course of business, including the incurrence of an aggregate amount of purchase
money Indebtedness and Capital Lease Obligations of not more than $1,000,000
outstanding at any one time for all such Liens (provided that such Liens attach
only to the assets subject to such purchase money debt and such Indebtedness is
issued within twenty (20) days following such purchase and does not exceed 100%
of the purchase price of the subject assets or (ii) grant a Lien on any property
or assets (including Capital Stock or other securities of Subsidiaries) now
owned or hereafter acquired by it or any income or rights in respect of any
thereof, to any Person other than the Lender, or become a party to any
agreement, note, indenture or instrument, or take any other action, which would
prohibit the creation of a Lien on any of its properties or other assets in
favor of the Lender as additional collateral for the Obligations, except
operating leases, Capital Leases or Licenses which prohibit Liens upon the
assets that are subject thereto.
(b) Limitation on Indebtedness. Create, incur, assume or permit to
--------------------------
exist, any Indebtedness except (without duplication):
(i) Indebtedness for borrowed money existing on the date of
this Agreement as set forth in Schedule "4.24" ;
---------------
(ii) Indebtedness represented by the Notes and other
Obligations;
<PAGE>
(iii) Indebtedness secured by purchase money security
interests permitted under Section 6.2(a)(i)(C);
--------------------
(iv) deferred taxes;
(v) unfunded pension fund and other employee benefit plan
obligations and liabilities to the extent they are permitted to remain unfunded
under applicable law;
(vi) Indebtedness specifically permitted under Section
-------
6.2(d);
(vii) Indebtedness specifically permitted under Section
-------
6.2(e); and
- ------
(viii) Insurance Bond Obligations.
(c) Certificate of Incorporation. Amend or otherwise modify any
----------------------------
material term or provision of its certificate of incorporation or by-laws, or
change its fiscal year for financial reporting purposes, or permit any
Subsidiary to do any of the foregoing.
(d) Consolidation or Merger. Directly or indirectly by operation of law
-----------------------
or otherwise, (i) merge with, consolidate with, acquire all or substantially all
of the assets or capital stock of, or otherwise combine with, any Person, or
(ii) form or acquire any Subsidiary. Notwithstanding the foregoing, the
Borrower may acquire all or substantially all of the assets or Capital Stock
with respect to, or enter into a joint venture (a "Joint Venure") with a third
person (a "Joint Venturer"), with respect to any Person (the "Target") (in each
-------------- ------
case, a "Permitted Acquisition"), subject to the satisfaction of each of the
---------------------
following conditions:
(i) all Permitted Acquisitions must be consummated on or
before June 30, 2000;
(ii) the Lender shall receive at least thirty (30) Business
Days' prior written notice of such proposed Permitted Acquisition, which notice
shall include a reasonably detailed description of such proposed Permitted
Acquisition;
(iii) such Permitted Acquisition shall only involve assets
located in the United States and/or Canada and comprising a business, or those
assets of a business, of the type generally related to the type of business
engaged in by the Borrower as of the Closing Date, and which business would not
subject the Lender to regulatory or third party approvals in connection with the
exercise of its rights and remedies under this
<PAGE>
Agreement or any other Loan Documents other than approvals applicable to the
exercise of such rights and remedies with respect to the Borrower prior to such
Permitted Acquisition;
(iv) such Permitted Acquisition shall be consensual and shall have
been approved by the Borrower's and the of the Target or the Joint Venture, as
the case may be, board of directors;
(v) except as contemplated under subsection (vi) below, no additional
---------------
Indebtedness, Guaranteed Indebtedness, contingent obligations or other
liabilities shall be incurred, assumed or otherwise be reflected on a
consolidated balance sheet of the Borrower and the Target after giving effect to
such Permitted Acquisition, except (A) Acquisition Loans made hereunder and (B)
ordinary course trade payables, accrued expenses and unsecured Indebtedness of
the Target to the extent no Default or Event of Default shall have occurred and
be continuing or would result after giving effect to such Permitted Acquisition;
(vi) in connection with the payment of the purchase price for the
Permitted Acquisition, the Borrower shall utilize proceeds of the Acquisition
Loan up to an amount equal to the Required Acquisition Cash Proceeds;
(vii) the Borrower shall have received the prior written
consent of the Lender, which consent may be withheld in its sole discretion, for
each Permitted Acquisition which has an aggregate purchase price (including,
without limitation, fees and expenses related thereto and the reasonably
anticipated amount of any contingent payout based on projections) in excess of
$4,000,000;
(viii) the business and assets acquired in such Permitted
acquisition shall be free and clear of all Liens (other than Permitted Liens);
(ix) at or prior to the closing of any Permitted Acquisition, Lender
will be granted a first priority perfected Lien (subject to Permitted Liens) in
all assets acquired pursuant thereto or in the assets and Capital Stock of the
Target or in all of the Borrower's right, title and interest in and to the Joint
Venture, and the Borrower and the Target shall have executed such documents in
form and substance acceptable to the Lender, and taken such actions as may be
required by the Lender in connection therewith;
(x) concurrently with delivery of the notice referred to in clause (i)
above, the Borrower shall have delivered to the Lender, in form and substance
satisfactory to the Lender:
(A) a pro forma consolidated balance sheet of the Borrower and the
--- -----
Target or of the Joint Venture (the "Acquisition Pro Forma"), based on recent
---------------------
financial data, which shall be complete
<PAGE>
and shall accurately and fairly represent the assets, liabilities, financial
condition and results of operations of the Borrower and the Target, or of the
Joint Venture (if any) in accordance with GAAP consistently applied, but
taking into account such Permitted Acquisition and the funding of all Loans
in connection therewith, and such Acquisition Pro Forma shall reflect that,
(y) the Acquisition Projections (as hereinafter defined) shall reflect that
Borrowing Availability of not less than $5,000,000 shall continue for at
least 30 days after the consummation of such Permitted Acquisition, and (z)
on a pro forma basis, no Event of Default shall have occurred and be
--- -----
continuing or would result after giving effect to such Permitted Acquisition
and the Borrower would have been in compliance with the financial covenants
set forth in Section 6.2(r) for the four quarter period reflected in the
--------------
Compliance Certificate most recently delivered to the Lender pursuant to
Section 6.1(b) prior to the consummation of such Permitted Acquisition
--------------
(giving effect to such Permitted Acquisition and all Loans funded in
connection therewith as if made on the first day of such period);
(B) updated versions of a projected pro forma balance sheet and income
--- -----
statement of the Borrower, on a consolidated basis, as at the end of the
succeeding Fiscal Year after taking into account such Permitted Acquisition
(the "Acquisition Projections"); and
-----------------------
(C) a certificate of the chief financial officer of the Borrower to the
effect that: (w) the Borrower (on a consolidated basis) will be Solvent upon
the consummation of the Permitted Acquisition; (x) the Acquisition Pro Forma
fairly presents the financial condition of the Borrower (on a consolidated
basis) as of the date thereof after giving effect to the Permitted
Acquisition; (y) the Acquisition Projections are reasonable estimates of the
future financial performance of the Borrower subsequent to the date thereof
based upon the historical performance of the Borrower and show that the
Borrower shall continue to be in compliance with the financial covenants set
forth in Section 6.2(r) for the three (3) year period thereafter; and (z) the
--------------
Borrower has completed its due diligence investigation with respect to the
Target and such Permitted Acquisition, which investigation was conducted in a
manner similar to that which would have been conducted by a prudent
purchaser of a comparable business and the results of which investigation
were delivered to the Lender;
<PAGE>
(xi) on or prior to the date of such Permitted Acquisition, the Lender
shall have received, in form and substance satisfactory to the Lender, all
opinions, certificates, lien search results and other documents reasonably
requested by the Lender; and
(xii) at the time of such Permitted Acquisition and after
giving effect thereto, no Default or Event of Default shall have occurred and be
continuing.
The Accounts and the Inventory of the Target shall be included in Eligible
Accounts and Eligible Inventory provided that such Accounts and Inventory meet
the requirements of, respectively, Eligible Accounts and Eligible Inventory, and
the Borrower complies with all the conditions set forth in this subsection (d).
(e) Loan, Advances, Investments.
---------------------------
(i) Except for Permitted Investments, make advances, loans or
extensions of credit to any Person, including without limitation, the Parent or
any Subsidiary or Affiliate.
(ii) Purchase or acquire obligations or Capital Stock of, or any other
interest in, any Person, except subject to Control Letters in favor of the
Lender or otherwise subject to a security interest in favor of the Lender, (a)
obligations issued or guaranteed by the United States of America or any agency
thereof, (b) commercial paper with maturities of not more than 180 days and a
published rating of not less than A-1 or P-1 (or the equivalent rating), (c)
certificates of time deposit and bankers' acceptances having maturities of not
more than 180 days and repurchase agreements backed by United States government
securities of a commercial bank if (1) such bank has a combined capital and
surplus of at least $500,000,000, or (2) its debt obligations, or those of a
holding company of which it is a Subsidiary, are rated not less than A (or the
equivalent rating) by a nationally recognized investment rating agency, and (d)
U.S. money market funds that invest solely in obligations issued or guaranteed
by the United States of America or an agency thereof.
(f) Acquisition of Capital Stock of the Borrower. Purchase, acquire,
--------------------------------------------
redeem or retire, or make any commitment to purchase, acquire, redeem or retire
any of the Capital Stock of the Borrower, whether now or hereafter outstanding,
except that the Borrower may expend up to the aggregate amount of $3,000,000 in
connection with the repurchase of publicly traded Stock of the Parent, provided
that at the time of, and immediately after giving effect to such repurchase, (i)
no Default or Event of Default then exists or will result therefrom, and (ii)
the Borrower shall have Borrowing Availability of not less than $6,500,000.
(g) Inconsistent Agreements. Enter into, and not permit any Subsidiary
-----------------------
to enter into, any agreement containing any provision which would be violated
<PAGE>
or breached by any Advance or by the performance of the Borrower or any
Subsidiary of its obligations under this Agreement or the other Loan Documents.
(h) Sale or Lease of Assets. Sell, transfer, convey, assign, lease or
-----------------------
otherwise dispose of any of its properties or assets, including its Capital
Stock and the Capital Stock of its Subsidiaries (whether in a public or a
private offering or otherwise) or any of the Accounts, except for (i) sales in
any one instance in the amount of up to $500,000 in the aggregate and up to
$1,000,000 in the aggregate in a Fiscal Year, or (ii) sales of Inventory in the
ordinary course of business. With respect to any disposition of assets or other
properties permitted pursuant to clause (i) above, the Lender agrees on
----------
reasonable prior written notice to release its Lien or such assets or other
properties to permit the Borrower to effect such disposition and shall execute
and deliver to the Borrower, at the Borrower's expense, appropriate Termination
Statements on Form UCC-3 and other releases as reasonably requested by the
Borrower.
(i) Change In Accounting Method. Make any change, or permit any
---------------------------
Subsidiary to make a change, in accounting treatment and reporting practices,
except as required by GAAP.
(j) Name Changes. Change its corporate name or change its chief
------------
executive office, principal place of business, corporate offices or warehouses
or locations at which Collateral is held or stored, or the location of its
records covering the Collateral, or conduct its business under any trade name or
style other than as set forth in this Agreement unless it gives the Lender not
less than forty-five (45) days prior written notice and after the Lender's
written acknowledgment that any reasonable action requested by the Lender in
connection therewith, including to continue the perfection of any Liens in favor
of the Lender in any Collateral, has been completed or taken, and provided
--------
further that any such new location shall be in the continental United States,
and provided further that any of the foregoing would not result in a Material
-------- -------
Adverse Change or a Material Adverse Effect. Without limiting the foregoing,
the Borrower shall not, and shall not permit any of its Subsidiaries to, change
its name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the UCC or any other then
applicable provision of the UCC except upon prior written notice to the Lender
and after the Lender's written acknowledgment that any reasonable action
requested by the Lender in connection therewith, including to continue the
perfection of any Liens in favor of the Lender in any Collateral, has been
completed or taken. The Borrower shall not change its Fiscal Year.
(k) Transactions With Affiliates. (i) Sell or transfer any property or
----------------------------
assets to, or purchase or acquire any property or assets to, or purchase or
acquire any property or assets of, or otherwise engage in any other agreements,
undertakings or transactions with, any of its Affiliates or Subsidiaries, except
(A) transactions disclosed in
<PAGE>
the ordinary course of business, on an arm's-length basis on terms no less
favorable than terms which would have been obtainable from a Person other than a
Subsidiary or Affiliate and (B) that so long as (X) no notice of termination of
this Agreement is outstanding, (Y) no Event of Default or Default shall have
occurred and (Z) after giving effect to such transaction there shall exist no
Event of Default or Default, the Borrower may pay (a) all ordinary course out-
of-pocket operating expenses incurred by the Parent in its capacity as parent
corporation relating substantially to the operations of its Subsidiaries [and
interest and principal payments on the Subordinated Note provided that the
aggregate amount of such payments does not exceed $1,500,000 for any Fiscal
Year] and (b) expenses incurred by the Parent with respect to ECRA Facilities
not exceeding $1,250,000 in the aggregate, (ii) modify, extend or amend any
lease with respect to the Premises which would have the effect of increasing the
rent due thereunder, or (iii) enter into any lending or borrowing transaction
with any of its employees or employees of its Subsidiaries or Affiliates, except
loans to such employees on an arm's length basis in the ordinary course of
business consistent with past practices for travel expenses, relocation costs
and similar purposes up to a maximum of $250,000 to any employee and up to a
maximum of $500,000 in the aggregate at any one time outstanding.
(l) Leasebacks. Enter into any arrangement, directly or indirectly,
----------
with any person whereby it shall engage in any sale-leaseback, synthetic lease
or similar transaction involving any of its assets.
(m) Business Operations. Engage at any time in any business or business
-------------------
activity other than the business in which it is currently engaged or a business
reasonably related thereto including, without limitation, the direct or indirect
purchase or investment in any additional real property or any interest therein.
(n) Capital Structure. (i) Make any changes in any of its business
-----------------
objectives, purposes, or operations which could in any way adversely affect the
repayment of the Obligations or have or result in a Material Adverse Effect, or
(ii) make any change in its capital structure as described on Schedule "4.22"
--------------
(including, without limitation, the issuance of any shares of Capital Stock,
warrants, or other securities convertible into Capital Stock or any revision of
the terms of its outstanding Capital Stock).
(o) Guaranty Obligations. Incur any Guaranty Obligations except (i) the
--------------------
guaranty of the Montvale Mortgage, which guaranty shall be unsecured, (ii) by
endorsement of instruments or items of payment for deposit to the general
account of the Borrower and (iii) for Guaranty Obligations incurred for the
benefit of the Parent or any of its Subsidiaries if the primary obligation is
expressly permitted by this Agreement other than Indebtedness, if any, of a
Target existing at the time such Target is acquired, except that in connection
with a Permitted Acquisition having a purchase price of less than or
<PAGE>
equal to $4,000,000, the Borrower shall be permitted to incur Guaranty
Obligations in connection therewith.
(p) Events of Default. Take any action or omit to take any action,
-----------------
which act or omission would constitute (i) a Default or an Event of Default
pursuant to, or noncompliance with any of, the terms of any of the Loan
Documents or (ii) a material Default or an Event of Default pursuant to, or non-
compliance with, any other contract, lease, mortgage deed of trust or instrument
to which it is a party or by which it or any of its property is bound, or any
document creating a Lien.
(q) ERISA. Cause or permit any ERISA Affiliate to cause or permit to
-----
occur an event which could result in an imposition of a Lien under Section 412
of the Code or Section 302 or 4068 of ERISA, or become obligated to contribute
to a Pension Plan that has either an "accumulated funding deficiency", as
defined in Section 302 of ERISA, or any "unfunded vested benefits", as defined
in Section 4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a
Multiemployer Plan, and in Section 4211 of ERISA in the case of a Multiemployer
Plan; terminate any Pension Plan that is subject to Title IV of ERISA where such
termination could reasonably be anticipated to result in liability to the
Borrower; permit any accumulated funding deficiency, as defined in Section
302(a)(2) of ERISA, to be incurred with respect to any Pension Plan; fail to
make any contributions or fail to pay any amounts due or owing as required by
the terms of any Plan before such contributions or amounts become delinquent;
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; or at any time fail to provide the Lender
with copies of any Plan documents or governmental reports or filings, if
reasonably requested by the Lender.
(r) Financial Covenants. Breach or fail to comply with any of the
-------------------
financial covenants set forth on Schedule "6.2(r)" hereto.
-----------------
(s) Hazardous Materials. Cause or permit, or permit any other Person
-------------------
within the control of the Borrower to cause or permit a Release or the presence,
use, generation, manufacture, installation, Release, discharge, storage or
disposal of any Hazardous Materials on, under, in, above, or about any of its
real estate or the transportation of any Hazardous Materials to or from any real
estate where such Release or presence, use, generation, manufacture,
installation, Release, discharge, storage or disposal would violate any
Environmental Laws.
(t) Cancellation of Indebtedness. Cancel any claim or debt owing to it,
----------------------------
except for reasonable consideration and in the ordinary course of its business
consistent with past practices.
(u) Sale or Discount of Accounts. Sell, or allow any of the
----------------------------
Subsidiaries to sell or discount or otherwise dispose of any of its Accounts
other than in
<PAGE>
connection with (i) the Receivables Purchase Agreement and (ii) the pledge and
assignment to the Lender under the Security Agreement.
(v) Assignment of Claims Act. Take any action or fail to take any
------------------------
action, either directly or indirectly, or cooperate in any way, so as to allow
any party, other than the Lender, to comply with the Federal Assignment of
Claims Act of 1940.
(w) Subordination. Allow any indebtedness of the Borrower to a
-------------
shareholder, a Subsidiary or an Affiliate to become pari passu or prior in right
---- -----
or payment to the payment of the Obligations.
(x) Dividends and Distributions. The Borrower shall not make, and shall
---------------------------
not allow any Subsidiary to make, any Restricted Payment, except (i)
intercompany loans and advances between the Borrower and its Subsidiaries to the
extent permitted by Section 6.2(e), (ii) dividends and distributions by
--------------
Subsidiaries of the Borrower paid to the Borrower, (iii) dividends or
distributions in the aggregate of up to $180,000 in any Fiscal Year in cash or
kind payable or distributable to the Parent by the Borrower, (iv) employee Loans
permitted under Section 6.2(k)[, and (v) scheduled payments of principal and
--------------
interest with respect to the Subordinated Note, provided that (x) no Default or
--------
Event of Default shall have occurred and be continuing or would result after
giving effect to any payment pursuant to clause (v) above, and (y) the timing of
----------
the payments referred to in clause (v) above shall be set at dates which permit
----------
the delivery of financial statements necessary to determine current financial
covenant compliance prior to each payment].
(y) Bank Accounts. Open any additional, or close any, bank account
-------------
unless the Borrower gives the Lender not less than forty-five (45) days prior
written notice and, with respect to the opening of an account, the Borrower
shall deliver to the Lender a fully executed tri-party blocked account agreement
in a form satisfactory to the Lender.
(z) No Impairment of Intercompany Transfers. Directly or indirectly
---------------------------------------
enter into or become bound by any agreement, instrument, indenture or other
obligation (other than this Agreement and the other Loan Documents) which could
directly or indirectly restrict, prohibit or require the consent of any Person
with respect to the payment of dividends or distributions or the making or
repayment of intercompany loans by a Subsidiary of the Borrower to the Borrower.
(aa) No Speculative Transactions. Engage in any transaction involving
---------------------------
commodity options, futures contracts or similar transactions, except solely to
hedge against fluctuations in the prices of commodities owned or purchased by it
and the values of foreign currencies receivable or payable by it and interest
swaps, caps or collars.
ARTICLE 7.
<PAGE>
DEFAULT
Section 7.1. Events of Default. With the exception of subsections (e)
----------------- ---------------
and (f) below, the occurrence of which is a Default which shall immediately
---
constitute an Event of Default without notice or action by the Lender, and with
the further exception of the failure to comply with subsection (b) below in
--------------
respect of Section 6.1(a) or (j), which shall constitute a Default fifteen (15)
-------------- ---
days after the failure to comply with either subsection, any of the following
occurrences shall constitute a Default hereunder (and the Notes shall bear
interest at the Default Rate without notice thereof), and, upon notice and
declaration by the Lender to the Borrower of such Default, shall be and
constitute an Event of Default:
(a) failure, when and as the same shall become due and payable, whether
at the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise, of the Borrower to make any payment of
principal or interest or any other Obligations arising under this Agreement or
the Notes or the other Loan Documents or such failure by any Guarantor or surety
for any of the Obligations;
(b) breach of, or failure timely to perform, any of the Obligations by
the Borrower or any Guarantor including, without limitation, any promise,
agreement, covenant, representation or warranty contained herein, or the
Borrower's failure to perform any act, duty or obligation as required by this
Agreement or any of the other Loan Documents;
(c) any representation or warranty made, or deemed made, in or in
connection with any of the Loan Documents or the Advances, or any
representation, warranty, statement or information contained in any report,
certificate, financial statement or other instrument furnished in connection
with or pursuant to any of the Loan Documents, shall prove to have been false or
misleading when so made, deemed made or furnished (including by omission of
material information);
(d) the failure, at any time, whether prior or subsequent to the date of
this Agreement, of any condition precedent or condition subsequent contained in
this Agreement;
(e) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Borrower or any Subsidiary under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Subsidiary, or (iii) the winding-up or liquidation of the
Borrower or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered;
<PAGE>
(f) the Borrower, the Parent or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (ii)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in (e) above,
(iii) apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Borrower or any Subsidiary
or for a substantial part of the property or assets of the Borrower or such
Subsidiary, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing its inability, or
fail generally to pay its debts as they become due, or (vii) take any action for
the purpose of effecting any of the foregoing;
(g) one or more judgments (including judgments against unrelated parties
for which judgments the Borrower, any Subsidiary or any combination thereof is
liable under any agreements, including indemnification agreements) for the
payment of money in an aggregate amount in excess of $250,000 (except for the
matters described on the attached Schedule "4.5" for which such aggregate amount
-------------
shall be $250,000) shall be rendered against the Borrower, any Subsidiary or any
combination thereof and the same shall remain undischarged or unstayed for a
period of 45 consecutive days, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of the Borrower or any
Subsidiary to enforce any such judgment;
(h) the loss, revocation or failure to renew any license or permit now
held or hereafter acquired by the Borrower or any Subsidiary which materially
affects the ability of the Borrower or any Subsidiary to continue its operations
as presently conducted;
(i) one or more of the Security Interests shall cease to exist at any
time after the Closing Date, or any Guaranty shall cease to be in full force and
effect or any Guarantor shall contest or repudiate its obligations under the
Guaranty to which it is a party;
(j) dissolution of the Borrower;
(k) the breach of any term or condition of the Receivables Purchase
Agreement;
(l) there shall occur an enactment or change in federal, state or local
legislation or administrative action which in the judgment of the Lender makes
it reasonably unlikely that the Borrower will be able to pay its Indebtedness as
it matures or comply with its payment of obligations under this Agreement and
under the Notes;
(m) any Change in Control shall occur;
<PAGE>
(n) other than the Borrower's current contractual agreement with NYNEX,
any event shall occur, whether or not insured or uninsurable, as a result of
which revenue-producing activities cease or are substantially curtailed at any
facility of the Borrower (or any of its Subsidiaries) generating more than 10%
of the Borrower's revenues (on a consolidated basis) for the Fiscal Year
preceding such event and such cessation or curtailment continues for more than
90 days; or
(o) the occurrence of a Material Adverse Change in the condition of the
Borrower, financial or otherwise, as determined by the Lender in its sole
discretion.
Section 7.2. Remedies.
--------
(a) Upon the happening of any one or more Events of Default and at any
time thereafter during the continuance of such Event of Default, the Lender may
(i) without notice, suspend the Commitments with respect to further Advances
and/or the incurrence of further Letter of Credit Obligations whereupon any
further Advances and Letter of Credit Obligations shall be made or extended in
the Lender's sole discretion so long as such Default or Event of Default is
continuing, and (ii) without notice, except as expressly provided herein,
increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing, the
Lender may, without notice, (i) terminate the Commitments with respect to
further Advances or the incurrence of further Letter of Credit Obligations, (ii)
declare all or any portion of the Obligations, including all or any portion of
any Loan to be due and payable, and require that the Letter of Credit
Obligations be cash collateralized as provided in Annex B, all without
-------
presentment, demand, protest, notice of protest or other notice of any kind, all
of which are waived by the Borrower, and upon such declaration, the Borrower
shall be obligated to pay to the Lender the Early Termination Fee (to the extent
applicable), and (iii) exercise any rights and remedies provided to the Lender
under the Loan Documents and/or at law or equity, including all remedies
provided under the UCC; provided, however, that upon the occurrence of an Event
-------- -------
of Default specified in Section 7.1 (e) or (f), all of the Obligations,
--------------- ---
including the Loans, shall become immediately due and payable without,
declaration, notice or demand by any Person.
Section 7.3. Cumulative Remedies. The enumeration of the Lender's rights
-------------------
and remedies set forth in this Article 7 is not intended to be exhaustive, and
the exercise by the Lender of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative and
shall be in addition to any other right or remedy given hereunder or under any
other agreement between the parties or which may now or hereafter exist in law
or at equity or by suit or otherwise. No delay or failure to take action on the
part of the Lender in exercising any
<PAGE>
right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege preclude other
or further exercise thereof or the exercise of any other right, power or
privilege or shall be construed to be a waiver of any event of default. No
course of dealing between the Borrower and the Lender or their employees shall
be effective to change, modify or discharge any provision of this Agreement or
to constitute a waiver of any default.
ARTICLE 8.
MISCELLANEOUS
Section 8.1. Expenses. In addition to Fees, the Borrower agrees to pay
--------
(without duplication) all out-of-pocket expenses incurred by the Lender in
connection with the preparation of this Agreement and the other Loan Documents
or in connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby contemplated shall be
consummated) or incurred by the Lender in connection with the enforcement or
protection of its rights in connection with this Agreement and the other Loan
Documents or in connection with the Loans made or the Notes issued hereunder,
including the fees and disbursements of its advisors, consultants, auditors and
special loan counsel, Cummings & Lockwood, in connection with the Loan Documents
and advice in connection therewith. The Borrower shall reimburse the Lender for
all fees, costs and expenses, including the fees, costs and expenses of counsel
or other advisors (including environmental and management consultants and
appraisers) for advice, assistance, or other representation in connection with:
(a) the forwarding to the Borrower or any other Person on behalf of the
Borrower by the Lender of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with respect
to, any of the Loan Documents or advice in connection with the administration of
the Loans made pursuant hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by the Lender, the Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreement to
be executed or delivered in connection therewith or herewith, whether as party,
witness, or otherwise, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection with a
case commenced by or against the Borrower or any other Person that may be
obligated to the Lender by virtue of the Loan Documents; including any such
litigation, contest, dispute, suit, proceeding or action arising in connection
with any work-out or restructuring of the Loans during the pendency of one or
more Events of Default;
<PAGE>
(d) any attempt to enforce any remedies of the Lender against any or all
of the Credit Parties or any other Person that may be obligated to the Lender by
virtue of any of the Loan Documents; including any such attempt to enforce any
such remedies in the course of any workout or restructuring of the Loans during
the pendency of one or more Events of Default;
(e) any workout or restructuring of the Loans during the pendency of one
or more Events of Default;
(f) efforts to (i) monitor the Loans or any of the other Obligations,
(ii) evaluate, observe or assess the Borrower or any Guarantor or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including, without limitation, all reasonable attorneys' and other professional
and service providers' fees arising from such services, including those in
connection with any appellate proceedings; and all expenses, costs, charges and
other fees incurred by such counsel and others in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 8.1 shall be payable, on demand, by the Borrower to the Lender. Without
- -----------
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplication expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram or telecopy charges; secretarial overtime charges; and expenses for
travel lodging and food paid or incurred in connection with the performance of
such legal or other advisory services.
Section 8.2. Indemnity.
---------
(a) The Borrower agrees that it shall indemnify the Lender from and hold
it harmless against any documentary taxes, assessment or charges made by any
Governmental Authority by reason of the execution and delivery of this Agreement
or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Lender and its directors,
officers, employees and agents (each such person being called an "Indemnitee")
----------
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
performance by the parties thereto of their respective obligations under the
Loan Documents or the consummation of the transactions contemplated thereby,
(ii) the use of the proceeds of the Loan, (iii) the liquidation of any of the
Collateral, including the settlement, collection or payment of any of the
Accounts or any instrument received in payment thereof, or any damage resulting
<PAGE>
therefrom, or (iv) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available to
- --------
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) The provisions of this Section 8.2 shall remain operative and in
-----------
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loan, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document or any investigation made
by or on behalf of the Lender. All amounts due under this Section 8.2 shall be
-----------
payable on written demand therefor.
(d) Under no circumstances shall the Borrower seek, or the Lender be
liable for any, consequential, punitive, exemplary or indirect damages arising
out of this Agreement or any matter, event, transaction or conduct relating to
this Agreement or its performance, non-performance or enforcement, and the
Borrower waives any such claims to the full extent permitted by law. The
Borrower agrees to indemnify Lender against and hold Lender harmless from all
claims, actions and losses, including reasonable attorney's fees and costs
actually incurred by the Lender arising from any contention, that there has been
a failure to comply with such laws.
Section 8.3. Set-off. The Borrower gives the Lender a lien and right of
-------
setoff for all the Obligations upon and against all its deposits, credits,
collateral and property now or hereafter in the possession or control of the
Lender or in transit to it. The Lender may, upon the occurrence of a Default,
apply or set off the same, or any part thereof, to any Obligations of the
Borrower to the Lender. The rights of the Lender under this Section are in
addition to other rights and remedies (including other rights of setoff) which
the Lender may have).
Section 8.4. Binding Effect. This Agreement shall become effective when
--------------
it shall have been executed by the Borrower and the Lender and thereafter shall
be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lender.
Section 8.5. Covenants to Survive, Binding Agreement. All covenants,
---------------------------------------
agreements, warranties and representations made or deemed made by the Borrower
herein and in the other Loan Documents, and in all certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Documents shall be considered to
<PAGE>
have been relied upon by the Lender and shall survive the Advances by the
Lender, and the execution and delivery to the Lender of the Notes, regardless of
any investigation made by the Lender or on its behalf, and shall continue in
full force and effect as long as (i) the Borrower has the right to request and
receive Advances, or (ii) the principal of or any accrued interest on the Loan
or any Fee or any other amount payable under this Agreement or any other Loan
Documents is outstanding and unpaid and so long as the Commitments have not been
terminated. All such covenants, agreements, warranties and representations shall
be binding upon and inure to the benefit of the Lender and its successors and
assigns, whether or not so expressed. In the event that the Lender is forced to
disgorge any monies which the Lender receives, directly or indirectly, in
payment of the Debt, all of the Obligations and the Loan Documents shall be
deemed reinstated to the extent of any such disgorged .amount and the Lender
shall be entitled to all rights and remedies at law, in equity or under this
Agreement.
Section 8.6. Amendments and Waivers; Remedies.
--------------------------------
(a) This Agreement, the Notes, the other Loan Documents, and any term,
covenant or condition hereof or thereof may not be changed, waived, discharged,
modified or terminated except by a writing executed by the parties hereto or
thereto. The failure on the part of the Lender at any time to exercise, or the
Lender's delay in exercising, any right, remedy or power hereunder or under the
Notes or the other Loan Documents shall not waive, affect or diminish any right
of the Lender thereafter to demand strict compliance and performance therewith.
Any suspension or waiver of a Default or an Event of Default shall not suspend,
waive or effect any other Default or Event of Default whether the same is prior
or subsequent thereto and whether the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of the
Borrower contained in this Agreement or any of the other Loan Documents and no
Default or Event of Default by the Borrower shall be deemed to have been
suspended or waived by the Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer or other authorized employee of the
Lender and delivered to the Borrower specifying such suspension or waiver.
(b) The rights and remedies of the Lender hereunder and under the Loan
Documents are cumulative and not exclusive of any rights or remedies which it
would otherwise have under any other agreement, including the other Loan
Documents, by operation of law or otherwise. No wavier of any provision of this
Agreement or any other Loan Documents or consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be
permitted by subsection (a) above, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Borrower in any case shall entitle the Borrower to any
other or further notice or demand in similar or other circumstances. Recourse
to the Collateral shall not be required.
<PAGE>
(c) Upon indefeasible payment in full in cash and performance of all of
the Obligations (other than the indemnity Obligations under this Agreement),
termination of the Commitment and a release of all claims against the Lender,
and so long as no suits, actions, proceedings or claims and pending or levied
against any Indemnified Person asserting any damages, losses or liabilities that
are Indemnified Liabilities the Lender shall deliver to the Borrower termination
statements, mortgage releases and other documents necessary or appropriate to
evidence the termination of the Liens securing payment of the Obligations.
Section 8.7. Notices. All notices, requests, consents, demands and other
-------
communications hereunder shall be in writing and shall be delivered by hand or
overnight courier service, mailed or sent by telex, graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
If to the Borrower: 110 Summit Avenue
Montvale, NJ 07645
Attention: Mr. Michael C. Hellriegel
Telephone: 201.573.8000
Facsimile: 201.573.9723
With a copy to: McBreen, McBreen & Kopko
20 North Wacker Drive
Suite 1370
Chicago, IL 60606
Attention: Frederick H. Kopko, Esq.
Telephone: 312.332.6405
Facsimile: 312.332.2657
If to the Lender: General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Attention: Account Manager- Butler
Telephone: 203.316.7500
Facsimile: 203.316.7823
With a copy to: Cummings & Lockwood
Four Stamford Plaza
Stamford, CT 06904
Attention: Gregory E. Harmer, Esq.
-and-
General Electric Capital Corporation
<PAGE>
201 High Ridge Road
Stamford, CT 06927-5100
Attention: Corporate Counsel- Commercial Finance
Telephone: 203.316.7552
Facsimile: 203.316.7889
All notices and communications given to any party in accordance with the
provisions of this Agreement shall be deemed to have been given on the date of
receipt if delivered by hand or overnight courier service or sent by telex,
graphic scanning or other telegraphic communications equipment of the sender, or
on the date two (2) Business Days after dispatch by certified or registered mail
if mailed, in each case delivered, sent or mailed (properly addressed) to such
party as provided in this Section or in accordance with the latest unrevoked
direction from such party given in accordance with this Section. The giving of
any notice required hereunder may be waived in writing by the party entitled to
receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than the Borrower or the Lender) designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
Section 8.8. Transfer of Lender's Interest. The Borrower agrees that the
-----------------------------
Lender, in its sole discretion, may freely sell, assign or otherwise transfer
participations, portions, co-lender interests or other interests in all or any
portion of the Debt, the Commitments, the liabilities or the Obligations
arising in connection with or in any way related to the financing transactions
of which this Agreement is a part and the Lender agrees to obtain the consent of
the Borrower to such sale, assignment or transfer, which consent shall not be
unreasonably withheld except that the Lender shall not be required to obtain
consent if, at the time of the proposed sale, assignment or transfer, an Event
or Event of Default has occurred and is then continuing. In the event of any
such transfer, the transferee may, in the Lender's sole discretion, have and
enforce all the rights, remedies and privileges of the Lender. The Borrower
consents to the release by the Lender to any potential transferee, so long as
such transferee is a financial institution, of any and all information
including, without limitation, financial information pertaining to the Borrower
as the Lender, in its sole discretion, may deem appropriate and the Lender shall
use reasonable efforts to obtain from participants confidentiality covenants
substantially equivalent to those contained in Section 8.24 hereof and the
------------
Borrower agrees to cooperate in preparing information, materials and
certifications as to accuracy in connection with any such transfer and agrees
further to confirm that any of its agreements to indemnify contained in any of
the Loan Documents shall extend to any transferee as a third party beneficiary.
If such transferee so participates with the Lender in making loans or advances
hereunder or under any other agreement between the Lender and the Borrower, the
Borrower grants to such transferee and such transferee shall have and is hereby
given a continuing lien and security interest in any money, securities or other
<PAGE>
property of the Borrower in the custody or possession of such transferee,
including the right of set off, to the extent of such transferee's participation
in the Obligations.
Section 8.9. Section Headings. Section and subsection headings and the
----------------
Table of Contents contained in this Agreement have been inserted herein for
convenience of the Lender only and are and shall be without substantial meaning
on content of any kind whatsoever and are not a part of the agreement between
the parties hereto.
Section 8.10. Severability. Wherever possible, each provision of this
------------
Agreement, the Notes and the other Loan Documents is intended to be severable;
if any term or provision of this Agreement, the Notes, the other Loan Documents,
or any other document delivered in connection herewith shall be invalid, illegal
or unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not in any
way be affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
Section 8.11. Entire Agreement; Conflict of Terms.
-----------------------------------
(a) All Exhibits and Schedules to this Agreement shall be deemed to be
part of this Agreement. This Agreement, the other Loan Documents, and the
Exhibits and Schedules attached hereto and thereto embody the entire agreement
and understanding between the Borrower and the Lender and supersede all prior
agreements and understandings relating to the subject matter hereof evidencing,
without limitation any letter of interest or commitment letter between the
Lender and the Borrower, or any of their respective Affiliates relating to this
Agreement and relating to a financing of substantially similar form unless
otherwise specifically reaffirmed or restated herein.
(b) Except as otherwise provided in this Agreement or any of the other
Loan Documents by specific reference to the applicable provisions of this
Agreement, if any provision contained in this Agreement is in conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provisions contained in this Agreement shall govern and control.
Section 8.12. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which, when so executed and delivered shall constitute an
original but all of which when taken together shall constitute but one
agreement, and it shall not be necessary when making proof of this Agreement to
produce on account for more than one counterpart.
<PAGE>
Section 8.13. Governing Law; Consent to Jurisdiction.
--------------------------------------
(a) Except as otherwise expressly provided in any of the Loan Documents,
in all respects, including all matters of construction, validity and
performance, this Agreement, the other Loan Documents, the Obligations and all
transactions, assignments and transfers hereunder and thereunder, and all the
rights of the parties, shall be governed by, construed and enforced as to
validity, construction, enforcement and in all other respects in accordance with
the laws of the State of New York without reference to New York's conflict of
law provisions and any applicable laws of the United States of America.
(b) The Lender and the Borrower each irrevocably and unconditionally
submits, for itself and its property to the exclusive jurisdiction of any New
York State Court or Federal Court of the United States of America sitting in New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and the Lender and the Borrower each
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
Court or, to the extent permitted by law, in such Federal Court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that the Lender may otherwise have to bring any action or
proceeding relating to this Agreement or the other Loan Documents against the
Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense or an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) The Borrower hereby waives personal service of the summons,
complaint and other process issues in any such action or suit and agrees that
service of such summons, complaint and other process may be made by registered
or certified mail in the manner provided for notices in Section 8.7 hereof and
that service so made shall be delivered completed upon the Borrower's actual
receipt thereof or three (3) days after the deposit in the U.S. mails, proper
postage prepaid. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
<PAGE>
Section 8.14. Uniform Commercial Code. The Borrower shall comply with,
-----------------------
and Lender shall have all the rights and remedies of a secured party under the
UCC, as amended, in addition to all other remedies at law or in equity. The
Lender agrees to act in good faith and in a commercially reasonable manner in
the exercise of its rights hereunder.
Section 8.15. Successor and Assigns. This Agreement and the other Loan
---------------------
Documents shall be binding on and shall inure to the benefit of the Borrower,
the Lender, and their respective successors and assigns (including, in the case
of the Borrower, a debtor-in-possession of the Borrower), except as otherwise
provided herein or therein. The Borrower may not assign, transfer, hypothecate
or otherwise convey its rights, benefits, obligations or duties hereunder or
under any of the other Loan Documents without the prior express written consent
of the Lender. Any such purported assignment, transfer, hypothecation or other
conveyance by the Borrower without the prior express written consent of the
Lender shall be void. The terms and provisions of this Agreement are for the
purpose of defining the relative rights and obligations of the Borrower and the
Lender with respect to the transactions contemplated hereby and there shall be
no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
Section 8.16. Further Assurances. At the request of the Lender, the
------------------
Borrower agrees that at its expense, it shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Lender may request, in order to perfect and
protect any security granted or purported to be granted hereby including, but
not limited to UCC-1 financing statements, or to enable the Lender to exercise
and enforce its rights and remedies hereunder.
Section 8.17. Acknowledgments. The Borrower hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement (and, specifically, Sections 8.19 and 8.20 hereof),
------------- ----
the Notes and the other Loan Documents;
(b) the Lender does not have any fiduciary relationship to the Borrower,
and the relationship between the Lender and the Borrower is solely that of
debtor and creditor; and
(c) no joint venture exists between the Lender and the Borrower.
Section 8.18. Change in Accounting Principles. If any changes in
-------------------------------
accounting principles from those used in the preparation of the financial
statements referred to in Sections 4.9 and 6.1(b) hereof hereafter occur as a
------------ ------
<PAGE>
result of the promulgation of rules, regulations, pronouncements or opinions by
the Financing Accounting Standards Board or the American Institute of Certified
Public Accountants (or successors thereto or agencies with similar functions)
result in a change in the method of calculation of financing covenants,
standards or terms found in this Agreement, the parties hereto agree to enter
into negotiations to amend such financial covenants, standards or terms so as to
equitably reflect such changes with the desired result that the evaluations of
the Borrower's financial condition shall be the same after such changes as if
such changes had not been made; provided, however, that, until the parties
-------- -------
hereto have reached a definitive agreement on such amendments, the Borrower's
financial condition and operations shall continue to be evaluated on the same
principles as those used in the preparation of the financial statements referred
to in Sections 4.9 and 6.1(b) hereof.
------------ ------
Section 8.19. Prejudgment Remedy Waiver; Waivers.
----------------------------------
THE BORROWER (a) ACKNOWLEDGES THAT THE LOANS EVIDENCED BY THIS
AGREEMENT ARE COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE AND HEARING
UNDER ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE
LENDER MAY DESIRE TO USE, AND (b) FURTHER WAIVES (i) DILIGENCE, DEMAND AND
PROTEST, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST, NOTICE OF
PRESENTMENT, DISHONOR, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION,
PROTEST, DEFAULT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR
RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH THE BORROWER MAY, IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD, (ii) ALL RIGHTS TO NOTICE AND A
HEARING PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF OR TO THE LENDER'S
REPLEVY, ATTACHMENT OR LEVY, UPON, THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY OF
ITS REMEDIES, AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION
LAWS. THE BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS KNOWINGLY,
WILLINGLY AND VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THE WAIVERS WITH ITS ATTORNEYS.
Section 8.20. Jury Trial Waiver. BECAUSE DISPUTES ARISING IN CONNECTION
-----------------
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY
<PAGE>
AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY COURT
IN ANY SUIT, ACTION OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN THE LENDER AND THE BORROWER
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. THE BORROWER ACKNOWLEDGES
THAT IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY AND WITHOUT
DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER WITH ITS ATTORNEYS.
Section 8.21. Press Releases.
--------------
Borrower agrees that neither it nor any of its Subsidiaries or
Affiliates will in the future issue any press releases or other public
disclosure using the name of Lender or its affiliates or referring to this
Agreement or the other Loan Documents without at least two Business Days' prior
notice to Lender and without the prior written consent of Lender unless (and
only to the extent that) such Transaction Party or Affiliate is required to do
so under law and then, in any event, such Transaction Party or Affiliate will
consult with Lender before issuing such press release or other public
disclosure. Each Transaction Party consents to the publication by Lender of a
tombstone or similar advertising material relating to the financing transactions
contemplated by this Agreement.
Section 8.22. Reinstatement. This Agreement shall remain in full force
-------------
and effect and continue to be effective should any petition be filed by or
against Borrower for liquidation or reorganization, should Borrower become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Borrower's assets, and shall continue to be effective or to be reinstated, as
the case may be, if at any time payment and performance of the Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
<PAGE>
Section 8.23. No Strict Construction. The parties hereto have
----------------------
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
Section 8.24. Confidentiality. The Lender agrees to use commercially
---------------
reasonable efforts (equivalent to the efforts the Lender applies to maintain as
confidential its own confidential information) to maintain as confidential all
confidential information provided to it by the Borrower and designated as
confidential for a period of two (2) years following receipt thereof, except
that the Lender may disclose such information: (a) to Persons employed or
engaged by the Lender in evaluating, approving, structuring or administering the
Loans and the Commitments; (b) to any bona fide participant or potential
---- ----
participant in the Loans that has agreed to comply with the covenant contained
in this Section 8.24 (and any such bona fide participant or potential
------------ ---------
participant may disclose such information to Persons employed or engaged by them
as described in clause (a) above); (c) as required or requested by any
----------
Governmental Authority or reasonably believed by the Lender to be compelled by
any court decree, subpoena or legal or administrative order or process; (d) as,
in the opinion of the Lender's counsel, required by law; (e) in connection with
the exercise of any right or remedy under the Loan Documents or in connection
with any Litigation to which the Lender is a party; or (f) which ceases to be
confidential through no fault of the Lender.
<PAGE>
The parties have executed this Agreement as of the date first written
above.
BUTLER SERVICE GROUP, INC.
By /s/ Michael C. Hellriegel
-------------------------
Michael C. Hellriegel
Its Senior Vice President and
Chief Financial Officer
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Martin S. Greenberg
-----------------------
Martin S. Greenberg
A Duly Authorized Signatory
<PAGE>
Annex A
to
Credit Agreement
DEFINITIONS
-----------
"Accountants" means Deloitte & Touche, or a firm of certified public
-----------
accountants selected by the Borrower and acceptable to the Lender.
"Accountant's Letter" means the letter in the form of the attached Exhibit
------------------- -------
"A".
- ---
"Account Debtor" and "Account Debtors" means the person or entity or
-------------- ---------------
persons or entities obligated to the Borrower upon the Accounts.
"Accounts" shall have the meaning set forth in the Security Agreement.
--------
"Acquisition Loan Account" means the loan account maintained by the Lender
------------------------
for the benefit of the Borrower, as more fully described in Section 2.1(b)(v)
-----------------
hereof.
"Acquisition Loan Advances" means loans made by the Lender to the Borrower
-------------------------
in respect of the Acquisition Loan.
"Acquisition Loan Borrowing Request" means a loan request and certificate
----------------------------------
duly executed by the chief executive, accounting or financial Authorized Officer
of the Borrower substantially in the form of the attached Exhibit D-1.
-----------
"Acquisition Loan Commitment" means the commitment of the Lender to make
---------------------------
Acquisition Loan Advances, which commitment shall be $15,000,000 on the Closing
Date, as such amount may be adjusted, if at all, from time to time in accordance
with the Agreement.
"Acquisition Loan Commitment Termination Date" means the earlier to occur
--------------------------------------------
of (i) July 1, 2001 and (ii) the date on which the Lender's obligation to make,
and the Borrower's right to receive, Acquisition Loan Advances or permit
existing Acquisition Loan to remain outstanding shall terminate under Section
-------
7.2 hereof.
- ---
"Acquisition Loan Note" means the Promissory Note in the original principal
---------------------
amount of up to $15,000,000 substantially in the form of Exhibit G-1, as
-----------
renewed, reissued, exchanged, consolidated, amended, modified, replaced or
supplemented from time to time.
"Acquisition Loan" means, at any time, the aggregate amount of Acquisition
----------------
Loan Advances outstanding to the Borrower.
"Advances" means the Acquisition Loan Advances and the Working Capital Loan
--------
Advances.
A-1
<PAGE>
"Affiliate" means as to any Person, (i) any other Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person, or (ii) any Person who is a
director, officer, shareholder or partner (A) of such Person, (B) of any
Subsidiary of such Person, or (C) of any Person described in the preceding
clause (i). For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (X) to vote 10% or more of the securities issued and
outstanding on any date of determination having ordinary voting power for the
election of directors of such Person, or (Y) to direct or cause direction of the
management and policies of such Person whether by contract or otherwise. Under
no circumstances shall the Lender be or be deemed an Affiliate.
"Agreement" means this Amended and Restated Credit Agreement as the same
---------
may be amended, supplemented or otherwise modified from time to time.
"Applicable Margin" means the rate per annum set forth under the relevant
-----------------
column heading below corresponding to the Borrower's attainment of the
following:
<TABLE>
<CAPTION>
FIXED CHARGE INTEREST APPLICABLE
TANGIBLE NET WORTH COVERAGE RATIO COVERAGE RATIO MARGIN
------------------ -------------- -------------- -----------
<S> <C> <C> <C>
(i) Greater than or equal to Greater than or Greater than or equal 2.40%
$11,500,000 equal to 1.3 to 1.0 to 1.5 to 1.0
(ii) Greater than or equal to Greater than or Greater than or equal 2.30%
$13,500,000 equal to 1.3 to 1.0 to 1.5 to 1.0
(iii) Greater than or equal to Greater than or Greater than or equal 2.15%
$15,000,000 equal to 1.3 to 1.0 to 1.5 to 1.0
(iv) Greater than or equal to Greater than or Greater than or equal 2.00%
$17,000,000 equal to 1.3 to 1.0 to 1.5 to 1.0
(v) Greater than or equal to Greater than or Greater than or equal 1.85%
$20,000,000 equal to 1.3 to 1.0 to 1.5 to 1.0
(vi) Greater than or equal to Greater than or Greater than or equal 1.75%
$22,500,000 equal to 1.3 to 1.0 to 1.5 to 1.0
</TABLE>
Notwithstanding the foregoing, if, as at a Determination Date, the Fixed Charge
Coverage Ratio is less than 1.3 to 1.0 or the Interest Coverage Ratio is less
than 1.5 to 1.0, the Applicable Margin shall be 2.50%. For purposes of the
foregoing, any change in the Applicable Margin based on the Borrower's
attainment of all of the financial tests listed
A-2
<PAGE>
across from (i), (ii), (iii), (iv), (v) or (vi) above shall be effective for all
purposes on and after the first day of the first month after the Determination
Date and such Applicable Margin may change based on the results of the Borrower
as at each succeeding Determination Date. (For purposes of illustration only,
if, as at a Determination Date, the Borrower attained Tangible Net Worth of
$13,750,000, a Fixed Charge Coverage Ratio of 1.35 to 1.0 and an Interest
Coverage Ratio of 1.75 to 1.0, the Applicable Margin would be 2.30%).
"Approvals" means each and every approval, consent, release, waiver, filing
---------
and registration by or with any federal, state or other regulatory authority
(domestic or foreign) necessary to authorize or permit the execution, delivery
or performance of this Agreement, the Note or any other Loan Document, for the
granting of any security contemplated hereby or thereby, or for the validity or
enforceability hereof or thereof.
"Authorized Officer" means an officer of the Borrower authorized to act on
------------------
behalf of the Borrower as set forth in corporate resolutions of the Borrower
presented to the Lender.
"Blocked Account" means, collectively, (i) the Borrower's Account No. 840
---------------
0000337 held at The Bank of New York, and subject to a security interest in
favor of the Lender, pursuant to the respective Blocked Account Agreement, (ii)
the Borrower's Account No. 630 0450502 held at The Bank of New York, and subject
to the respective Blocked Account Agreement, and (iii) any other special
depository account established by the Borrower, in the Borrower's name at one or
more financial institutions which have been unconditionally assigned to the
Lender and over which the Lender or its agents shall have sole and exclusive
control for withdrawal purposes in accordance with such respective Blocked
Account Agreement.
"Blocked Account Agreement" means separate Blocked Account Agreements
-------------------------
dated on or about the date of the Existing Credit Agreement among the Borrower,
the Lender and The Bank of New York, each in substantially the form of Exhibit
-------
"B" to the Agreement.
- ---
"Borrower" means Butler Service Group, Inc., a New Jersey corporation, and
--------
its successors and assigns.
"Borrower Accounts" has the meaning set forth in Annex D.
----------------- -------
"Borrowing Availability" has the meaning set forth in Section 2.1(a).
---------------------- --------------
"Borrowing Base" means on any date of determination thereof, an amount
--------------
equal to the sum of (A) eighty-five percent (85%) of Eligible Accounts, (B)
seventy-five percent (75%) of Eligible Pending Accounts Receivable and Fixed
Contract Accounts Receivable (up to the maximum amount of $10,000,000 in the
aggregate), and (C) forty
A-3
<PAGE>
percent (40%) of Eligible Inventory (valued on a first in, first out basis) (up
to the maximum amount of $2,000,000 in the aggregate).
"Borrowing Base Certificate" means a certificate duly executed by the chief
--------------------------
accounting or financial Authorized Officer of the Borrower substantially in the
form of the attached Exhibit "C" .
------------
"Business Day" means any day other than a day on which commercial banks in
------------
New York are required or permitted by law to close.
"Capital Expenditures" means any payment made directly or indirectly by the
--------------------
Parent or any of its Subsidiaries (except for Butler UK) for the purpose of
acquiring or constructing fixed assets, real property or equipment (other than
in connection with Butler UK or Permitted Acquisitions) which, in accordance
with GAAP, would be added as a net debit (after giving effect to any credits) to
the fixed asset account of the Person making such expenditure.
"Capital Lease" means, with respect to any Person, any lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise be
disclosed as such in a note to such balance sheet.
"Capital Lease Obligations" means the amount of the obligations of a lessee
-------------------------
under a Capital Lease that, in accordance with GAAP, would appear on the balance
sheet of such lessee in respect of such Capital Lease or otherwise be disclosed
in a note to such balance sheet.
"Capital Stock" means any and all shares, interests, participation or other
-------------
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"Certificate of Borrower" means the Certificate in the form of the attached
-----------------------
Exhibit "E".
- -----------
"Change in Control" means one or more of the following events:
-----------------
(a) Edward M. Kopko shall cease to be responsible for the day to day
management of the Borrower;
(b) the stockholders of the Borrower shall approve any plan or proposal
for the acquisition of, merger, liquidation or dissolution of the Borrower, or a
sale of more than 25% of its assets in one or a series of related transactions;
or
A-4
<PAGE>
(c) a Person or group of Persons acting in concert (other than the
direct or indirect beneficial owners of the Capital Stock of the Borrower as of
the date of this Agreement) shall, as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, have become
the direct or indirect beneficial owner (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended from time-to-time) of securities
of the Borrower representing 15% or more of the combined voting power of the
outstanding voting securities for the election of directors or shall have the
right to elect a majority of the board of directors of the Borrower.
"Charges" means all federal, state, county, city, municipal, local, foreign
-------
or other governmental taxes (including, without limitation, taxes owed to PBGC
at the time due and payable), levees, assessments, charges, liens, claims or
encumbrances upon or relating to (i) the Collateral, (ii) the Obligations, (iii)
the employee, payroll, invoice or gross receipts of the Borrower, (iv) the
Borrower's ownership or use of any of its assets, or (v) any other aspect of the
Borrower's business.
"Chattel Paper" means any "chattel paper", as such term is defined in the
-------------
UCC, now owned or hereafter acquired by the Borrower, wherever located.
"Closing Date" means the date of the execution and delivery of the
------------
Agreement.
"Closing Fee" means the amount of $75,000 in consideration of the Lender's
-----------
amendment and restatement of the Existing Credit Agreement and its extension of
the Acquisition Loan.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----
otherwise modified from time-to-time.
"Collateral" shall have the meaning set forth in the Security Agreement.
----------
"Collateral Monitoring Fee" means the amount of $24,000 per year payable on
-------------------------
the Closing Date and on each anniversary thereof, which shall be deemed earned
in full on the date when the same is due and payable and shall not be subject to
rebate or proration upon termination of this Agreement for any reason.
"Collateral Reports" has the meaning set forth in Paragraph A(vi) of
------------------
Schedule "6.01(b)".
- ------------------
"Collection Account" means the account of the Lender under the name of
------------------
GECC/CAF Disbursement Account No. 50232854 at Bankers Trust Company, 1 Bankers
Trust Plaza, 17 Wall Street, New York, New York (ABA No. 021 001 033).
A-5
<PAGE>
"Collateral Documents" means the Security Agreements and all Annexes
--------------------
thereto and the Guaranties and all similar agreements entered into guarantying
payment of, or granting a Lien upon property as security for payment of, the
Obligations.
"Commitment Termination Date" means (i) with respect to the Working Capital
---------------------------
Revolving Loan, the Working Capital Loan Commitment Termination Date and (ii)
with respect to the Acquisition Loan, the Acquisition Loan Commitment
Termination Date.
"Commitments" means the aggregate of the Acquisition Loan Commitment and
-----------
the Working Capital Loan Commitment, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.
"Commonly Controlled Entity" means an entity, whether or not incorporated,
--------------------------
which is under common control with any Borrower within the meaning of Section
4001 of ERISA, or is part of a group which includes any Borrower and which is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate" has the meaning set forth in Schedule "6.2(r)".
---------------------- -----------------
"Concentration Account" has the meaning set forth in Annex D.
--------------------- -------
"Consolidated Interest Expense" means, for any period, the sum of the
-----------------------------
amount which would, in conformity with GAAP, be set forth opposite the captions
"interest expense" or "real estate owned" or any like caption (expressed as a
negative number) in each case on a consolidated income statement of the Borrower
and its Subsidiaries (except for Butler UK); provided, however, that all
interest expense associated with the Borrower's real estate holdings shall be
included within such amount.
"Consolidated Net Income" means, for any fiscal period, the consolidated
-----------------------
net income (or loss) of the Parent and its Subsidiaries (except for Butler UK)
for such period, determined on a consolidated basis in accordance with GAAP.
"Contaminants" means any waste, pollutant, hazardous waste, special waste,
------------
petroleum or petroleum-derived substance or waste, or any constituent of any
such pollutant, material, substance or waste, including, without limitation, any
such pollutant, material, substance or waste regulated under any Environmental
Law.
"Contingent Liability" means any agreement, undertaking or arrangement by
--------------------
which any Person guarantees, endorses or otherwise becomes, or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss), the debt, obligation or
other liability of any other Person (other than by endorsements of negotiable
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The
A-6
<PAGE>
amount of the obligor's obligation under any Contingent Liability shall be
deemed to be the outstanding principal amount (or maximum permitted principal
amount, if larger) of the debt, obligation or other liability guaranteed thereby
(subject to any limitation set forth therein).
"Control Letter" means a letter agreement between the Lender and (i) the
--------------
issuer of uncertificated securities with respect to uncertificated securities in
the name of the Borrower, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of the Borrower,
or (iii) a futures commission merchant or clearing house with respect to
commodity accounts and commodity contracts held by the Borrower, whereby, among
other things, the issuer, securities intermediary or futures commission merchant
disclaims any security interest in the applicable financial assets, acknowledges
the Lien of the Lender on such financial assets, and agrees to follow the
instructions or entitlement orders of the Lender without further consent by the
Borrower.
"Copyright" means all of the following now owned or hereafter acquired by
---------
the Borrower: (a) all copyrights and general intangibles of like nature (whether
registered or unregistered), now owned or existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including all registrations, recordings and applications
in the United States Copyright Office, or in any similar office or agency of
the United States, any state or territory thereof, or any other country or any
political subdivision thereof; and (b) all reissues, extensions or renewals
thereof.
"Customs" means the United States of America Customs Department.
-------
"Debt" means all indebtedness, liabilities and obligations arising under
----
and in any way related to the financing accommodations set forth in the
Agreement, including, without limitation, the indebtedness of the Note.
"Default" means any events specified in Section 7.1(a) hereof, whether or
-------
not any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Default Rate" means with respect to the Loans, two hundred basis points
------------
(2.0%) above (i) the annual interest rate in effect immediately prior to the
imposition of the Default Rate and (ii) the Letter of Credit Fees.
"Determination Date" means the date of delivery by the Borrower to the
------------------
Lender a copy of the report of the Borrower on Form 10-Q or 10-K, as the case
may be, as required under Paragraph A(iv) of Schedule "6.1(b)" of the Credit
-----------------
Agreement.
A-7
<PAGE>
"Disbursement Account" means the account number 8900166428 (or its
--------------------
successor account number 8400000329) maintained by the Borrower at The Bank of
New York, and any replacement or substitution account.
"Dollar" and the sign "$" means lawful money of the United States of
------ ---
America.
"Drawdown Fee" means the amount equal to one-half of one percent (0.50%) of
------------
each Acquisition Loan Advance.
"EBIT" means, for any period, Consolidated Net Income for such period, plus
---- ----
(i) Consolidated Interest Expense in such period, plus (ii) all charges in such
----
period for federal, state and local income taxes excluding (iii) all
---------
extraordinary nonrecurring items of income or loss.
"EBITDA" means, for any period, EBIT for such period, plus all charges in
------ ----
such period for amortization of intangibles, depletion and depreciation.
"ECRA Facilities" means the facilities sold to Butler Aviation located at
---------------
Newark International Airport, Atlantic City Airport and Bader Field for which
the Borrower maintains a contingent liability.
"Early Termination Fee" means an amount equal to (i) one percent
---------------------
(1.0%) of the aggregate of the Commitments if the Borrower terminates the
Commitments on or prior to the first anniversary of the Closing Date and (ii)
one-half of one percent (0.50%) of the aggregate of the Commitments if the
Borrower terminates the Commitments after the first anniversary of the Closing
Date but on or prior to the second anniversary of the Closing Date;
notwithstanding the foregoing, the Borrower will not be obligated to pay the
Early Termination Fee if the Lender exercises its right to terminate the
Commitment subsequent to the first anniversary of the Closing Date.
"Eligible Accounts" means an Account or Accounts due not more than ninety
-----------------
(90) days from the date set forth on the original invoice evidencing such
Account (except for the Extended Accounts for which such time period shall be
one hundred (120) days from the date set forth on the original invoice) (less
all finance charges, late fees and other fees which are unearned), arising from
the sale of goods or rendering services by the Borrower (or one of its
Subsidiaries or Affiliates and purchased by the Borrower pursuant to the
Receivables Purchase Agreement) in the ordinary course of its business, which
conforms to the representations and warranties set forth in this Agreement and
the Security Agreement, and which the Lender, in its sole and absolute
discretion, shall deem appropriate. Without in any way limiting the discretion
of the Lender to deem an Account eligible or ineligible, the Lender does not
currently intend to treat an Account as an Eligible Account if:
A-8
<PAGE>
(i) it does not reflect all credits for the particular Account Debtor
as shown on the schedule setting forth the aging submitted by the Borrower as
required in the Agreement;
(ii) it is not an Account upon which the Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever (e.g., delivery, acceptance, consignment, bill and hold, or
guaranteed sale or the Borrower is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process);
(iii) it is an Account which is denominated and payable in a currency
other than Dollars;
(iv) it arises from a sale or sales to an Affiliate, the Parent, or
Subsidiary of the Borrower or any director, officer or employee of any of them,
or to any other entity which has any common officer or director with the
Borrower;
(v) it arises from the exchange or barter of any goods or services;
(vi) it is not a true and correct statement of bona fide indebtedness
---- ----
incurred in the amount of the Account for merchandise sold to or services
rendered and accepted by the applicable Account Debtor;
(vii) an invoice, acceptable to the Lender in form and substance, has
not been sent to the applicable Account Debtor;
(viii) it arises with respect to goods which are delivered on
a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed
sale or other term by reason of which the payment by the Account Debtor is or
may be conditional;
(ix) it is the obligation of an Account Debtor located in a foreign
country other than obligations of an Account Debtor to Butler Service Group
Canada, Ltd.;
(x) it is not owned by the Borrower and is not free and clear of any
claim, setoff or lien, other than the Security Interests;
(xi) to the extent any defense, counterclaim, setoff or dispute is
asserted as to such Account or if the Account represents a progress billing
consisting of an invoice for goods sold or used or service rendered pursuant to
a contract under which the Account Debtor's obligation to pay that invoice is
subject to the Borrower's completion of further performance under such contract;
A-9
<PAGE>
(xii) it arises from a contract containing a prohibition
against assigning or granting a security interest therein;
(xiii) the Lender's Lien thereon is not a first priority
perfected security interest;
(xiv) if such Account is evidenced by a judgment, Instrument
or Chattel Paper;
(xv) if such Account exceeds any credit limit established by
the Lender, in its reasonable credit judgment;
(xvi) it is an Account of any Governmental Authority unless
the Lender, in its sold discretion, has agreed to the contrary in writing and
the Borrower, if necessary or desirable, has complied with the Federal
Assignment of Claims Act of 1940, and any amendments thereto, or any applicable
state statute or municipal ordinance of similar purpose and effect, with respect
to such obligation;
(xvii) it is an Account arising from a sale to an Account
Debtor which is an inventory or trade supplier of the Borrower;
(xviii) it is an Account of an Account Debtor which has
suspended business, made a general assignment for the benefit of creditors,
committed any act of insolvency, filed or have had filed against it any petition
under any bankruptcy law or any other laws for the relief of debtors;
(xix) it is an Account to which an Account Debtor has
objected to the quality or quantity of goods or services of the Borrower sold,
or shall have rejected, returned, or refused to accept such goods or services;
(xx) it is an Account which is, in the Lender's sole and
absolute discretion, an Account of an Account Debtor which is an undue credit
risk or otherwise unacceptable to the Lender in its sole and absolute
discretion;
(xxi) it is an Account of an Account Debtor where fifty
percent (50%) or more of the total balances outstanding have become, or been
determined by the Lender to be, ineligible (except, for purposes hereof, an
Account Debtor and all its Affiliates and Subsidiaries shall be construed as one
Account Debtor); or
(xxii) it is an Account which contravenes, or arises from a
sale which contravenes, any Requirement of Law applicable thereto.
"Eligible Inventory" means the finished goods Inventory of the
------------------
Borrower, as recorded at the lower of standard cost or market in the accounting
records of the
A-10
<PAGE>
Borrower, located at the Premises which (i) for each of the Premises, has a
value in excess of the aggregate of $50,000, (ii) for each of the Premises
described in the preceding clause (i), the Lender shall have received a Lessor's
Agreement, duly executed and notarized by the parties thereto, in form and
content acceptable to the Lender, (iii) is in conformity in all respect with the
representations and warranties contained in the Security Agreement, (iii) is in
first class condition and saleable throughout normal trade channels, (iv) is
owned by the Borrower and subject to no lien, security interest, charge or other
encumbrance whatsoever, except those in favor of the allocable to a contract
with a Governmental Authority, (v) is not produced or processed in violation of
or otherwise subject to the Fair Labor Standards Act or any similar federal or
state law, (vi) is not subject to an adjustment, positive or negative,
attributable to material price differences that result when standard costs and
actual costs differ, (vii) is not subject to consignment or in possession under
a similar arrangement, (viii) is located on premises owned or operated by the
Borrower or is stored with a bailee, warehouseman or similar Person, unless the
Lender has given its prior consent thereto and unless (A) a satisfactory bailee
letter or landlord waiver has been delivered to the Lender, or (B) reserves
satisfactory to the Lender have been established with respect thereto, (ix) is
not covered by a negotiable document of title unless such document and evidence
of acceptable insurance covering such inventory has been delivered to the
Lender, (x) does not consist of display items, packing and shipping materials or
goods which have been returned by the buyer, (xi) is of a type held for sale in
the ordinary course of the borrower's business, (xii) is not of a class or
condition which the Lender, in its sole and absolute discretion, has deemed
ineligible for advance and has notified the Borrower for such ineligibility, and
(xiii) is not manufactured for a specific customer (i.e., private label or
otherwise).
"Eligible Pending Accounts Receivable and Fixed Contract Accounts
----------------------------------------------------------------
Receivable" means earned revenue for which the unit of work has been completed
- ----------
by the Borrower and not yet invoiced to the Account Debtor not more than thirty
(30) days past the date of the performance of such work (less all finance
charges, late fees and other fees which are unearned), arising from the sale of
goods or rendering of services by the Borrower (or one of its Subsidiaries or
Affiliates and purchased by the Borrower pursuant to the Receivables Purchase
Agreement) in the ordinary course of its business, which conforms to the
.representations and warranties set forth in this Agreement and the Security
Agreement, and which the Lender, in its sole and absolute discretion, shall deem
appropriate. Without in any way limiting the discretion of the Lender to deem
an Account eligible or ineligible, the Lender does not currently intend to treat
any of the foregoing Accounts as an Eligible Pending Account Receivable and
Fixed Contract Account Receivable if it meets any of the criteria set forth in
clauses (i) through (xxii) under the definition of "Eligible Accounts". The
Borrower has represented to the Lender that invoicing to the customer is
normally pending the receipt and processing of supporting documentation (e.g.,
time tickets, repair orders, etc.).
A-11
<PAGE>
"Environmental Indemnity" means the Environmental Indemnity in the form of
-----------------------
the attached Exhibit "K".
-----------
"Environmental Laws" means any and all foreign, federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or requirements of law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"Environmental Liabilities and Costs" means, as to the Borrower or any
-----------------------------------
Subsidiary, all liabilities, obligations, responsibilities, remedial actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all reasonable fees, disbursements and expenses of
counsel, expert and consulting fees and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim or demand, by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order, approval, authorization, license, variance or
agreement with a Governmental Authority or other Person, arising from
environmental, health or safety conditions or a Release or threatened Release
resulting from the past, present or future operations of the Borrower or its
Subsidiaries (or any of their predecessors in interest) or any Release for which
the Borrower or any of its Subsidiaries is otherwise responsible under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974 and all
-----
rules and regulations promulgated pursuant thereto, as the same may be
supplemented or amended from time-to-time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
that is a member of a group of which the Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Event of Default" means any of the events specified in Section 7.1 hereof,
---------------- -----------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, or any other condition, has been satisfied.
"Existing Credit Agreement" has the meaning set forth in paragraph A of the
-------------------------
"Background" section to the Agreement.
"Extended Accounts" means those Accounts owed by the following Account
-----------------
Debtors: MCI, Inc.; Boeing Corporation; Sikorsky Corporation; Northern Telecom,
Inc.; Day & Zimmerman, Inc.; New York Telephone; and GTE, Inc. The Borrower
shall be entitled to change the composition of Extended Account up to two (2)
times in any Fiscal Year provided it gives the Lender not less than thirty (30)
days prior
A-12
<PAGE>
written notice of such change except that any Account of General Electric
Company or its Subsidiaries or Affiliates shall not be deemed an Extended
Account.
"Fees" means the Closing Fee, the Letter of Credit Fees, the Early
----
Termination Fee, the Collateral Monitoring Fee, the Unused Facility Fee, and the
Transaction Expenses; all Fees shall be computed on the actual number of days
elapsed in a year of 360 days, where applicable and the Borrower acknowledges
and agrees that the Lender shall have the right to charge the Fees to the
Working Capital Revolving Loan Account.
"Financing Lease" means any lease of property, real or personal, the
---------------
obligations of the leases in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Fiscal Quarter" means any of the quarterly accounting periods of the
--------------
Borrower.
"Fiscal Year" means any period of twelve consecutive calendar months ending
-----------
on the last day of December; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1996 Fiscal Year") refer to the
---
Fiscal Year ending on the last day of December in such calendar year.
"Fixed Charge Coverage Ratio" means the ratio of the positive difference
---------------------------
between EBITDA and Capital Expenditures to the sum of Consolidated Interest
Expense, all scheduled principal payments under Indebtedness (except that the
amount of scheduled principal payments actually made in any Fiscal Year should
be excluded from the determination of this Ratio for purposes of determining the
Applicable Margin) and amounts actually paid by the Parent and its Subsidiaries
(except for Butler UK) for federal, state and local income tax obligations.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, which are applicable to the
circumstances as of the date of determination, consistently applied for such
period and the prior equivalent period.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any court or arbitrator.
"Guarantors" means the Parent and certain of the Subsidiaries.
----------
A-13
<PAGE>
"Guaranties" means the Amended and Restated Parent Guaranty of the Parent
----------
in the form of the attached Exhibit "F-1" and the Subsidiaries Guaranty in the
-------------
form of the attached Exhibit "F-2".
-------------
"Guaranty Obligation" means, as to any Person (the "guarantying person"),
-------------------
any obligation of (i) the guarantying person, or (ii) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which obligation the guarantying person has issued an assumption,
reimbursement, counter indemnity or similar obligation, in either case
guarantying or in effect guarantying any Indebtedness, leases, dividends or
other obligations (the "primary obligations") of any other third Person (the
------- -----------
"primary obligor") in any manner, whether directly or indirectly, including,
- ----------------
without limitation, any obligation of the guarantying person, whether or not
contingent, (A) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (B) to advance or supply
funds (1) for the purchase or payment of any such primary obligation, or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
maintain the net worth or solvency of the primary obligor, (C) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation against loss in respect thereof; provided,
--------
however, that the term Guaranty Obligation shall not include endorsements of
- -------
instruments for deposit or collection in the ordinary course of business. The
amount of any Guaranty Obligation of any guarantying person shall be deemed to
be the lower of (X) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guaranty Obligation is made, and (Y)
the maximum amount for which such guarantying person may be liable pursuant to
the terms of the instrument embodying such Guaranty Obligation, unless such
primary obligation and the maximum amount for which such guarantying person may
be liable are not stated or determinable, in which case the amount of such
Guaranty Obligation shall be such guarantying person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"Hazardous Materials" means any substance (i) the presence of which
-------------------
requires or may hereafter require notification, investigation or remediation
under any Environmental Laws; (ii) which is or becomes defined as a "hazardous
waste", "hazardous material" or "hazardous substance" or "controlled industrial
waste" or "pollutant" or "contaminant" under any present or future Environmental
Laws or amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
- -- ----
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Borrower; or (iv) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's").
A-14
<PAGE>
"IRC" means the Internal Revenue Code of 1986, as amended and any successor
---
thereto, and any regulations issued in connection therewith.
"IRS" means the Internal Revenue Service.
---
"Indebtedness" means, of any Person at any date, (i) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices) or which is
evidenced by a note, bond (other than a performance bond issued in the ordinary
course of business), debenture or similar instrument, (ii) all obligations of
such Person under Financing Leases, (iii) all obligations of such Person in
respect of letters of credit and acceptances (other than letters of credit and
acceptances in respect of current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices) issued or
created for the account of such Person, (iv) all liabilities secured by any Lien
on any property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof, (v) obligations of such Person
under Guaranty Obligations, and (vi) Insurance Bond Obligations.
"Index Rate" means the latest annualized yield on commercial paper having a
----------
maturity of 30 days, as most recently quoted for high grade unsecured notes sold
through dealers by major corporations in multiples of $1,000, as indicated in
the "Money Rates" column of the eastern edition of The Wall Street Journal on
--------------- -------
the last Business Day of each calendar month or, in the event that The Wall
--------
Street Journal ceases publication of such rate, in such other publication of
- --------------
general circulation as the Lender may from time to time designate in writing.
"Insolvency" or "Insolvent" means, at any particular time, a Multiemployer
---------- ---------
Pension Plan is insolvent within the meaning of Section 4245 of ERISA.
"Instruments" means any "instrument", as such term is defined in the UCC,
-----------
now owned or hereafter acquired by the Borrower, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all notes and other, without limitation, evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Insurance Bond Obligations" means the direct or contingent obligations of
--------------------------
the Borrower (which obligations shall be unsecured) or one of its Subsidiaries
under certain insurance bonds issued by third parties for the account of the
Borrower or one of its Subsidiaries.
"Interest Coverage Ratio" means, at a particular date, the ratio of EBIT to
-----------------------
Consolidated Interest Expense.
A-15
<PAGE>
"Intellectual Property" means any and all Licenses, Patents, Copyrights,
---------------------
Trademarks, trade secrets and customer lists.
"Inventory" shall have the meaning set forth in the Security Agreement.
---------
"Investment" means, relative to any Person:
----------
(i) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business); and
(ii) any ownership or similar interest held by such Person in
any other Person.
The amount of any Investment of the nature referred to in clause (i) or
------ ---
(ii) above shall be the original principal or capital amount thereof less all
- ----
returns of principal or equity thereon (and without adjustment by reason of the
financial condition of such other Person) and shall, if made by the transfer or
exchange of property other than cash, be deemed to have been made in an original
principal or capital amount equal to the fair market value of such property.
"Investment Property" has the meaning set forth in Section 9-115 of the UCC
------------------- -------------
in those jurisdictions in which such definition has been adopted and shall
include: (i) all securities, whether certificated or uncertificated, including
stocks, bonds, interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of any Person, including the rights of any Person to any securities
account and the financial assets held by a securities intermediary in such
securities account and any free credit balance or other money owing by any
securities intermediary with respect to that account; (iii) all securities
accounts held by any Person; (iv) all commodity contracts held by any Person;
and (v) all commodity accounts held by any Person.
"L/C Issuer" has the meaning assigned to such term in Annex B.
---------- -------
"Lender" means General Electric Capital Corporation, a New York corporation
------
organized under the banking laws of the state of New York.
"Lender's Insurance Consultant" means Stacie Perkins or such other Person,
-----------------------------
of favorable reputation, qualified to survey risks and recommend insurance
coverage for facilities and services of the type involved selected by the
Lender.
A-16
<PAGE>
"Lessor's Agreement" means the Amended and Restated Lessor's Agreement with
------------------
respect to the Premises.
"Letter of Credit Application" means the standard form of application of a
----------------------------
bank which proposes to issue a Letter of Credit for the account of the Borrower.
"Letter of Credit Fees" shall have the meaning set forth in Section 3.9(c)
--------------------- --------------
of the Agreement.
"Letter of Credit Obligations" means all outstanding obligations incurred
----------------------------
by the Lender at the request of the Borrower, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance of a
reimbursement agreement or guaranty by the Lender with respect to any Letter of
Credit the Borrower's inventory purchase obligations, insurance premiums, and
utility and other operating expenses and obligations.
"Letters of Credit" means the commercial or standby letters of credit
-----------------
issued for the account of the Borrower by any L/C Issuer on terms acceptable to
the Lender.
"Licenses" means any Copyright License, Patent License, Trademark License
--------
or other license of rights or interests now held or acquired by the Borrower.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any Financing Lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the UCC or comparable law of any jurisdiction in respect of any of the
foregoing).
"Litigation" means any action, lawsuit, demand, investigation or proceeding
----------
pending, or to the knowledge of the Borrower, threatened against the Borrower,
before any Governmental Authority or before any arbitrator or panel of
arbitrators.
"Loans" means the Working Capital Revolving Loan and the Acquisition Loan.
-----
"Loan Account" means the Acquisition Loan Account or the Working Capital
------------
Loan Account, as the case may be.
"Loan Documents" means this Agreement, the Notes, the Security Agreement,
--------------
the Guaranties and all other agreements or documents executed in connection
herewith, together with any amendments, supplements or modifications hereto or
thereto.
A-17
<PAGE>
"Loss" means any loss, damage, destruction, theft, or seizure of, or any
----
other casualty with respect to, or any condemnation of, any property or asset of
any Person; and the "amount" of any Loss means the greater of (A) the cost to
------
repair or replace the property or asset that was the subject of such Loss and
(B) the amount of insurance proceeds or condemnation awards payable as a result
of such Loss.
"Material Adverse Change" means a material adverse change in (i) the
-----------------------
condition (financial or otherwise), operations, performance, business,
properties or prospects of the Borrower, or of the industry in which the
Borrower operates, or of the Borrower and its Subsidiaries taken as a whole, or
(ii) the aggregate rights and remedies of the Lender under the Loan Documents,
or (iii) the ability of the Borrower to perform its obligations under the Loan
Documents, or (iv) the legality, validity or enforceability in any material
respect of any Loan Documents, or (v) the Liens of the Lender pursuant to the
Security Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
business, operations, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole, (ii) the industry in which the
Borrower operates, (iii) the ability of any Borrower to perform its obligations
under this Agreement or any of the other Loan Documents, or (iv) the validity of
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Lender hereunder or thereunder.
"Multiemployer Plan" means a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Montvale Mortgage" means the mortgage in favor of Fleet Bank, National
-----------------
Association encumbering the real property owned by Butler of New Jersey Realaty
Corp. and located in Montvale, New Jersey, securing indebtedness in an amount
not greater than $6,800,000.
"Notes" means the Working Capital Loan Revolving Note and the Acquisition
-----
Loan Note.
"Obligations" means and includes all loans, advances, interest,
-----------
indebtedness, liabilities, obligations, guaranties, covenants and duties at any
time owing by the Borrower to the Lender of every kind and description, whether
or not evidenced by any note or other instrument, whether or not for the payment
of money or performance of tasks or duties, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising,
including but not limited to the indebtedness, liabilities and obligations
arising under this Agreement, the Notes and the other Loan
A-18
<PAGE>
Documents, and all costs, expenses, fees, charges, expenses and attorneys',
witness, expert, appraisal, collateral validation, paralegals' and
professionals' fees incurred in connection with any of the foregoing, or in any
way connected with, involving or related to the preservation, enforcement,
protection and defense of this Agreement, the Notes, the other Loan Documents,
any related agreement, document or instrument, the Collateral and the rights and
remedies hereunder or thereunder, including, without limitation, the Fees.
"Organic Documents" means, relative to any Person, (i) its certificate or
-----------------
article of incorporation, including all amendments thereto, certified as of a
recent date by the Secretary of State of the state of its incorporation, and a
certificate as to its good standing as of a recent date, from such Secretary of
State, (ii) its Bylaws or other organizational documents, and (iii) all
shareholder agreements, voting trusts and similar arrangements applicable to any
of its Capital Stock.
"Parent" means Butler International, Inc., a Maryland corporation, the
------
owner of all of the issued and outstanding Capital Stock of the Borrower.
"Patent License" means rights under any written agreement now owned or
--------------
hereafter acquired by the Borrower granting any right with respect to any
invention on which a Patent is in existence.
"Patents" means all of the following in which the Borrower now holds or
-------
hereafter acquires any interest: (i) all letters patent of the United States or
any other country, all registrations and recording thereof, and all applications
for letters patent of the United States or any other country, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Pension Plan" means any Plan which is subject to the provisions of Title
------------
IV of ERISA, or to the provisions of Section 301 of ERISA or Section 412 of the
Code.
"Perfection Certificate" means the Perfection Certificate attached to the
----------------------
Security Agreement as Exhibit "A".
"Permitted Acquisition" shall have the meaning set forth in Section 6.2(d)
--------------------- --------------
of the Agreement.
"Permitted Investments" means investments, loans and advances made by the
---------------------
Borrower in and to Subsidiaries and Affiliates provided that (i) no Default or
Event of Default shall have occurred, (ii) after giving effect to such
investments, loans and advances there shall not exist any Default or Event of
Default, (iii) the aggregate amount of such investments, loans and advances does
not exceed $500,000 and (iv) all of the Capital Stock of such Subsidiary has
been pledged to the Lender pursuant to agreements in form and substance
satisfactory to the Lender.
A-19
<PAGE>
"Permitted Liens" means:
---------------
(e) DO NOT REMOVE
(i) purchase money security interests in real property, improvements
thereto, personal property, equipment or vehicles now owned or hereafter
acquired (or, in the case of improvements, constructed) by the Borrower or any
Subsidiary; provided that (A) such security interests are incurred, and the
--------
Indebtedness secured thereby is created, within 90 days after such acquisition
(or construction), and (B) such security interests do not apply to any other
property or assets of the Borrower or any Subsidiary;
(ii) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; provided that (A) such
--------
Lien is not created in contemplation of or in connection with such acquisition,
and (B) such lien does not apply to any other property or assets of the Borrower
or any Subsidiary.
(iii) Liens for taxes not yet due or which are being
contested in compliance with Section 6.1(e) of the Agreement;
--------------
(iv) carriers', warehousemen's, mechanic's, materialmen's, repairmen's
or other like Liens arising in the ordinary course of business and securing
obligations which are not due or which are being contested in compliance with
Section 6.1(e) of the Agreement;
- --------------
(v) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other social
security laws or regulations;
(vi) deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than Capital Lease Obligations),
statutory obligations, surety and appeal bonds, security interests granted under
leases for retail establishments, performance bonds and other obligations of a
like nature incurred in the ordinary course of business; and
(vii) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances incurred in
the ordinary course of business which, in the aggregate, are not substantial in
amount and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the Borrower
or any of its Subsidiaries.
"Person" means an individual, a partnership, a corporation, a business
------
trust, a joint stock company, a trust, an unincorporated association, a joint
venture, a Governmental Authority or any other entity of whatever nature.
A-20
<PAGE>
"Plan" means any employee benefit plan (within the meaning of Section 3(3)
----
of ERISA), other than a Multiemployer Plan, which is covered by ERISA and in
respect of which the Borrower or a Commonly Controlled Entity is (or, if such
plan were terminated at such time, would under Section 4069 of ERISA be deemed
to be) an "employer" as defined in Section 3(5) of ERISA.
"Premises" means the Borrower's (or certain of the Subsidiaries' or
--------
Affiliates') facilities located at (i) 110 Summit Avenue, Montvale, New Jersey,
or (ii) any other facility from which the Borrower (or certain of its
Subsidiaries or Affiliates) conducts business or locates assets.
"Prohibited Transaction" shall have the meaning set forth in ERISA.
----------------------
"Receivables Purchase Agreement" means the Amended and Restated Receivables
------------------------------
Purchase and Sale Agreement dated as of the Closing Date between the Borrower
and certain of its Subsidiaries and Affiliates.
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System.
"Release" means, as to the Borrower or any Subsidiary, any release, spill,
-------
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
pouring, emptying, escaping, dumping, discharging, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any
property owned, leased or controlled by the Borrower or any Subsidiary,
including the movement of Contaminants through, on or in the air, soil, surface
water, ground water or property, including the abandonment or discarding of
barrels, containers and other closed receptacles containing any Contaminant.
"Remedial Action" means all actions necessary to (i) clean up, remove,
---------------
treat or in any other way address Contaminants in the indoor or outdoor
environment, (ii) prevent a Release or condition that is reasonably likely to
result in a Release or minimize further release of Contaminants so they do not
migrate or endanger or threaten to endanger present or future public health or
welfare of the indoor or outdoor environment, or (iii) perform pre-remedial
studies and investigations and post-remedial monitoring and care.
"Reorganization" means, with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event" shall have the meaning set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the 30-day notice period is waived
under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)2615 .
A-21
<PAGE>
"Required Acquisition Cash Proceeds" means the amount of up to eighty
----------------------------------
percent (80%) of the cash purchase price (including all costs, fees and
commissions associated therewith) of a Permitted Acquisition.
"Requirement of Law" means, as to any Person, the Organic Documents of such
------------------
Person, and all federal, state and local laws, rules, regulations, orders,
decrees or other determinations of an arbitrator, court or other Governmental
Authority, including all disclosure and other requirements of ERISA and the
requirements of the Environmental Laws, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"Reserves" means such reserves as Lender may reasonably deem necessary and
--------
proper.
"Responsible Officer" means the senior vice president or the controller of
-------------------
the Borrower.
"Restricted Payment" means (a) the declaration or payment of any dividend
------------------
or the incurrence of any liability to make any other payment or distribution of
cash or other property or assets in respect of a Person's Capital Stock, (b) any
payment on account of the purchase, redemption, defeasance, sinking fund or
other retirement of a Person's Capital Stock or any other payment or
distribution made in respect thereof, either directly or indirectly, (c) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim of rescission with
respect to any subordinated debt, (d) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of any outstanding warrants,
options or other rights to acquire Capital Stock of such Person now or hereafter
outstanding, (e) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Person's Capital Stock or of a claim of reimbursement,
indemnification or contribution arising out of or related to any such claim for
damages or rescission, (f) any payment, loan, contribution, or other transfer of
funds or other property to any Stockholder of such Person, and (g) any payment
of management fees (or other fees of a similar nature) by such Person to any
Stockholder of such Person or their Affiliates; notwithstanding the foregoing,
Restricted Payment shall not include the repurchase from any employee of Stock
owned in respect of an employee stock ownership plan provided that such
repurchases shall not exceed $100,000 in the aggregate in any Fiscal Year.
"Retiree Welfare Plan" means to any Welfare Plan providing for continuing
--------------------
coverage or benefits for any participant or any beneficiary of a participant
after such participant's termination of employment, other than continuation
coverage provided pursuant to Section 4980B of the Code and at the sole expense
of the participant or the beneficiary of the participant.
A-22
<PAGE>
"Schedule of Accounts" means a schedule of all Accounts to be delivered by
--------------------
the Borrower to Lender pursuant to Section 3.8 of the Agreement.
-----------
"Schedule of Documents" means the schedule, involving all appendices,
---------------------
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Loan Documents and the transactions
contemplated thereunder, substantially in the form of the attached Annex "C".
---------
"Security Agreement" means the Amended and Restated Security Agreement
------------------
between (i) the Borrower and the Lender in the form of Exhibit "H-1", and (ii)
-------------
each of the parties to the Receivables Purchase Agreement (other than the
Borrower) and the Borrower, in the form of Exhibit "H-2".
-------------
"Security Interests" shall have the meaning set forth in the Security
------------------
Agreement.
"Single Employer Plan" means any Plan which is covered by Title IV of
--------------- ----
ERISA, but which is not a Multiemployer Plan.
"Solvent" or "Solvency" shall mean with respect to any Person or a
------- --------
particular date, that on such date (i) such Person is able to pay all
liabilities of such Person as they mature, (ii) the fair value of assets of such
Person (both at fair valuation and at present fair salable value) is, on the
date of determination, greater than the total amount of liabilities, including,
without limitation, contingent and unliquidated liabilities, of such Person, and
(iii) such Person does not have unreasonably small capital with which to carry
on its business, (iv) such Person does not intend to, and does not believe it
will, incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by such Person, and
of amounts to be payable on or in respect of debt of such Person), and (v) such
Person expects that the cash flow of such Person (including from asset
dispositions) after taking into account all anticipated uses of the cash of such
Person, will at all times be sufficient to pay all such amounts or in respect of
debt of such Person when such amounts are required to be paid. In computing the
amount of contingent or unliquidated liabilities at any time, such liabilities
will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Solvency Certificate" means the Certificate in the form of the Exhibit "I"
-------------------- -----------
attached to the Agreement.
"Stockholder" means an owner of Capital Stock.
-----------
A-23
<PAGE>
["Subordinated Note" means the subordinated promissory note issued by the
-----------------
Borrower in favor of the Parent dated December 15, 1989, in the original
principal amount of $30,150,000.]
"Subsidiary" and "Subsidiaries" means, as to any Person, a corporation,
---------- ------------
partnership or other entity of which shares of Capital Stock or other ownership
interests having ordinary voting power (other than Capital Stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Borrower.
"Tangible Net Worth" means, at a particular date, all amounts which, in
------------------
accordance with GAAP, would be included under stockholders' equity on a
consolidated balance sheet for the Parent at such date less the aggregate of all
intangibles, in conformity with GAAP, including goodwill, patents, organization
expenses, treasury stock, trademarks, trade names, all deferred financing and
unamortized debt discount expense. For purposes of determining Tangible Net
Worth, amounts set forth under the Cumulative "Foreign Currency Translation
Adjustment Account" under the consolidated balance sheet for the Parent and
goodwill in respect of Permitted Acquisitions shall be excluded therefrom.
"Termination Date" means the date on which the Loans have been indefeasibly
----------------
repaid in full and all other Obligations under the Agreement and the other Loan
Documents have been completely discharged and Letter of Credit Obligations have
been cash collateralized, cancelled or backed by stand-by letters of credit in
accordance with Annex B, and the Borrower shall not have any further right to
-------
borrow any monies under the Agreement.
"Trademark License" means rights under any written agreement now owned or
-----------------
hereafter acquired by the Borrower granting any right to use a Trademark.
"Trademarks" means all of the following now owned or hereafter acquired by
----------
the Borrower: (i) all trademarks, trade names, corporate names, bylines names,
trade styles, service marks, logos, other source or business identifiers, prints
nd labels of which any of the foregoing have appeared or appear, designs and
general intangibles of like nature (whether registered or unregistered), now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office an agency of the United States, any
state or territory thereof, or any other country or any political subdivision
thereof; (ii) all reissues,
A-24
<PAGE>
extensions or renewals thereof; and (iii) all goodwill associated with or
symbolized by any of the foregoing.
"Transaction Expenses" means all legal, insurance, search and filing fees,
--------------------
and appraisal costs and all other expenses that may be incurred or sustained by
the Lender or any of its authorized agents in connection with the transaction
contemplated herein, whether or not the transaction is consummated, including,
without limitation, expenses related to due diligence efforts and the
negotiation and preparation of this Agreement and the other Loan Documents, in
perfecting, preserving and enforcing the Lender's security interests in and
liens upon the Collateral, in examining, appraising and preserving the
Collateral, and in rendering advice with respect to this Agreement, the other
Loan Documents and the Revolving Loan.
"UCC" shall have the meaning set forth in the Security Agreement.
---
"Unfunded Pension Liability" means, at any time, the aggregate amount, if
--------------------------
any, of the sum (determined without duplication) of (a) the amount by which-the
present value of all accrued benefits under each Title IV Plan exceeds the fair
market value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions in
effect under such Title IV Plan, and (b) for a period of five years following a
transaction reasonably likely to be covered by (S)4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by the Borrower, any of its
Subsidiaries or any ERISA Affiliate as a result of such transaction.
"Unused Facility Fee" means, for any period, an amount equal to one-half of
-------------------
one percent (0.5%) of the average daily amount for such period by which (X) the
Working Capital Loan Commitment on each day during such period exceeds (Y) the
-------
sum of the then outstanding principal amount of the Working Capital Revolving
Loan.
"Welfare Plan" means any welfare plan, as defined in Section 3(1) of ERISA,
------------
which is maintained or contributed to by the Borrower or any ERISA Affiliate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
--------------------
of a complete or mutual withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
"Working Capital Loan Account" means the loan account maintained by the
----------------------------
Lender for the benefit of the Borrower, as more fully described in Section
-------
2.1(a)(v) hereof.
- ---------
"Working Capital Loan Advances" means loans made by the Lender to the
-----------------------------
Borrower in respect of the Working Capital Revolving Loan.
A-25
<PAGE>
"Working Capital Loan Borrowing Request" means a loan request and
--------------------------------------
certificate duly executed by the chief executive, accounting or financial
Authorized Officer of the Borrower substantially in the form of the attached
Exhibit "D-2".
- -------------
"Working Capital Loan Commitment" means the commitment of the Lender to
-------------------------------
make Working Capital Loan Advances and/or incur Letter of Credit Obligations
which commitment shall be $50,000,000 on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.
"Working Capital Loan Commitment Termination Date" means the earliest to
------------------------------------------------
occur of (i) July 1, 2001, (ii) the date on which the Lender's obligations to
make Working Capital Loan Advances and/or incur Letter of Credit Obligations or
permit existing Working Capital Revolving Loans to remain outstanding shall
terminate under Section 7.2 hereof, and (iii) the date of indefeasible
-----------
prepayment in full by the Borrower of the Loans and the cancellation and return
(or stand-by guaranty) of all Letters of Credit or the cash collateralization of
all Letter of Credit Obligations pursuant to Annex B, and the permanent
-------
reduction of the Working Capital Loan Commitment to zero dollars ($0), in
accordance with the provisions of Section 3.2(c).
--------------
"Working Capital Loan Revolving Note" means the Revolving Note in the
-----------------------------------
original principal amount of up to $50,000,000, substantially in the form of
Exhibit "G-2", as renewed, reissued, exchanged, consolidated, amended, modified,
- -------------
replaced or supplemented, from time to time.
"Working Capital Revolving Loan" means, at any time, the sum of (i) the
------------------------------
aggregate amount of Working Capital Loan Advances outstanding to the Borrower
plus (ii) the aggregate Letter of Credit Obligations incurred on behalf of the
- ----
Borrower.
A-26
<PAGE>
ANNEX B
-------
to
CREDIT AGREEMENT
----------------
LETTERS OF CREDIT
-----------------
(a) Issuance. Subject to the terms and conditions of the Agreement,
--------
Lender agrees to incur from time to time prior to the Working Capital Loan
Commitment Termination Date, upon the request of Borrower and for Borrower's
account, Letter of Credit Obligations by causing Letters of Credit to be issued
(by a bank or other legally authorized Person selected by or acceptable to
Lender in its sole discretion (each, an "L/C Issuer")) for Borrower's account
----------
and guaranteed by Lender; provided, however, that the aggregate amount of all
-------- -------
such Letter of Credit Obligations shall not at any time exceed the least of (i)
Nine Million Dollars ($9,000,000) (the "L/C Sublimit"), (ii) the Working Capital
------------
Revolving Loan Commitment less the aggregate outstanding principal balance of
----
the Working Capital Revolving Loan Advances, and (iii) the Borrowing Base less
----
the aggregate outstanding principal balance of the Working Capital Revolving
Loan Advances. No such Letter of Credit shall have an expiry date which is more
than one year following the date of issuance thereof, and Lender shall be under
no obligation to incur Letter of Credit Obligations in respect of any Letter of
Credit having an expiry date which is later than the Working Capital Loan
Commitment Termination Date.
(b) Working Capital Revolving Loan Advances Automatic. In the event
-------------------------------------------------
that Lender shall make any payment on or pursuant to any Letter of Credit
Obligation, such payment shall then be deemed automatically to constitute a
Working Capital Revolving Loan Advance to Borrower under Section 2.1(a) of the
--------------
Agreement regardless of whether a Default or Event of Default shall have
occurred and be continuing and notwithstanding Borrower's failure to satisfy the
conditions precedent set forth in Section 5.2.
------------
(c) Cash Collateral. If Borrower is required to provide cash collateral
---------------
for any Letter of Credit Obligations pursuant to the Agreement prior to the
Working Capital Loan Commitment Termination Date, Borrower will pay to Lender
cash or cash equivalents acceptable to Lender ("Cash Equivalents") in an amount
----------------
equal to 105% of the Working Capital Revolving Loan Commitment then available to
be drawn under each applicable Letter of Credit outstanding for the benefit of
Borrower. Such funds or Cash Equivalents shall be held by Lender in a cash
collateral account (the "Cash Collateral Account") maintained at a bank or
-----------------------
financial institution acceptable to Lender. The Cash Collateral Account shall
be in the name of Borrower, and shall be pledged to, and subject to the control
of, Lender in a manner satisfactory to Lender. Borrower hereby pledges and
grants to Lender a security interest in all such funds and Cash Equivalents held
in the Cash
B-1
<PAGE>
Collateral Account from time to time and all proceeds thereof, as
security for the payment of all amounts due in respect of the Letter of Credit
Obligations and other Obligations, whether or not then due. The Agreement,
including this Annex B, shall constitute a security agreement under applicable
-------
law.
If any Letter of Credit Obligations, whether or not then due and payable,
shall for any reason be outstanding on the Working Capital Loan Commitment
Termination Date, Borrower shall either (i) provide cash collateral therefor in
the manner described above, or (ii) cause all such Letters of Credit and
guaranties thereof to be canceled and returned, or (iii) deliver a stand-by
letter (or letters) of credit in guarantee of such Letter of Credit Obligations,
which stand-by letter (or letters) of credit shall be of like tenor and duration
as, and in an amount equal to 105% of the aggregate maximum amount then
available to be drawn under, the Letters of Credit to which such outstanding
Letter of Credit Obligations relate and shall be issued by a Person, and shall
be subject to such terms and conditions, as are to be satisfactory to Lender in
its sole discretion.
From time to time after funds are deposited in the Cash Collateral Account
by Borrower, whether before or after the Working Capital Loan Commitment
Termination Date, Lender may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Lender may elect, as shall be or shall become due and payable by Borrower to
Lender with respect to such Letter of Credit Obligations of Borrower and, upon
the satisfaction in full of all Letter of Credit Obligations of Borrower, to any
other Obligations of Borrower then due and payable.
No Borrower nor any Person claiming on behalf of or through Borrower shall
have any right to withdraw any of the funds or Cash Equivalents held in the Cash
Collateral Account, except that upon the termination of all Letter of Credit
Obligations and the payment of all amounts payable by Borrower to Lender in
respect thereof, any funds remaining in the Cash Collateral Account shall be
applied to other Obligations when due and owing and upon payment in full of such
Obligations, any remaining amount shall be paid to Borrower or as otherwise
required by law.
(d) Fees and Expenses. Borrower agrees to pay to Lender, as
-----------------
compensation to Lender for Letter of Credit Obligations incurred hereunder, (i)
all costs and expenses incurred by Lender on account of such Letter of Credit
Obligations, and (ii) for each month during which any Letter of Credit
Obligation shall remain outstanding, a fee (the "Letter of Credit Fee") in an
--------------------
amount equal to two percent (2.00%) per annum multiplied by the maximum amount
available from time to time to be drawn under the applicable Letter of Credit.
Such fee shall be paid to Lender in arrears on the first day of each month. In
addition, Borrower shall pay to any L/C Issuer, on demand, such fees (including
all per annum fees), charges and expenses of such L/C Issuer in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of
B-2
<PAGE>
Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
(e) Request for Incurrence of Letter of Credit Obligations. Borrower
------------------------------------------------------
shall give Lender at least two (2) Business Days prior written notice requesting
the incurrence of any Letter of Credit Obligation, specifying the date such
Letter of Credit Obligation is to be incurred, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby. The
notice shall be accompanied by the form of the Letter of Credit (which shall be
acceptable to the L/C Issuer) to be guarantied. Notwithstanding anything
contained herein to the contrary, Letter of Credit applications by Borrower and
approvals by Lender may be made and transmitted pursuant to electronic codes and
security measures mutually agreed upon and established by and among Borrower,
Lender and the L/C Issuer.
(f) Obligation Absolute. The obligation of Borrower to reimburse Lender
-------------------
for payments made with respect to any Letter of Credit Obligation shall be
absolute, unconditional and irrevocable, without necessity of presentment,
demand, protest or other formalities. Such obligations of Borrower shall be
paid strictly in accordance with the terms hereof under all circumstances
including the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit or
the Agreement or the other Loan Documents or any other agreement;
(ii) the existence of any claim, set-off, defense or other right which
Borrower or any of its Subsidiaries or Affiliates may at any time have against a
beneficiary or any transferee of any Letter of Credit (or any Persons or
entities for whom any such transferee may be acting), Lender, or any other
Person, whether in connection with the Agreement, the Letter of Credit, the
transactions contemplated herein or therein or any unrelated transaction
(including any underlying transaction between Borrower or any of its Affiliates
and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by Lender (except as otherwise expressly provided in
paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or
guaranty thereof against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit or such
guaranty;
(v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
B-3
<PAGE>
(vi) the fact that a Default or an Event of Default shall
have occurred and be continuing.
(g) Indemnification; Nature of Lender's Duties.
------------------------------------------
(i) In addition to amounts payable as elsewhere provided in the
Agreement, Borrower hereby agrees to pay and to protect, indemnify, and save
Lender harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including attorneys' fees and
allocated costs of internal counsel) which Lender may incur or be subject to as
a consequence, direct or indirect, of (A) the issuance of any Letter of Credit
or guaranty thereof, or (B) the failure of Lender or of any L/C Issuer to honor
a demand for payment under any Letter of Credit or guaranty thereof as a result
of any act or omission, whether rightful or wrongful, of any present or future
de jure or de facto government or Governmental Authority, in each case other
- ------- --------
than to the extent solely as a result of the gross negligence or willful
misconduct of Lender (as finally determined by a court of competent
jurisdiction).
(ii) As between Lender and Borrower, Borrower assumes all risks of the
acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any
Letter of Credit. In furtherance and not in limitation of the foregoing, to the
fullest extent permitted by law, Lender shall not be responsible: (A) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document issued by any party in connection with the application for and issuance
of any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (C) for failure of the beneficiary of any
Letter of Credit to comply fully with conditions required in order to demand
payment under such Letter of Credit; provided that, in the case of any payment
--------
by Lender under any Letter of Credit or guaranty thereof, Lender shall be liable
to the extent such payment was made solely as a result of its gross negligence
or willful misconduct (as finally determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of
Credit or guaranty thereof complies on its face with any applicable requirements
for a demand for payment under such Letter of Credit or guaranty thereof; (D)
for errors, omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telex or otherwise, whether or not they
be in cipher; (E) for errors in interpretation of technical terms; (F) for any
loss or delay in the transmission or otherwise of any document required in order
to make a payment under any Letter of Credit or guaranty thereof or of the
proceeds thereof; (G) for the credit of the proceeds of any drawing under any
Letter of Credit or guaranty thereof; and (H) for any consequences arising from
causes beyond the control of Lender. None of the above shall affect, impair or
prevent the vesting of any of Lender's rights or powers hereunder or under the
Agreement .
B-4
<PAGE>
(iii) Nothing contained herein shall be deemed to limit or to
expand any waivers, covenants or indemnities made by Borrower in favor of any
L/C Issuer in any letter of credit application, reimbursement agreement or
similar document, instrument or agreement between Borrower and such L/C Issuer.
B-5
<PAGE>
ANNEX C
-------
TO CREDIT AGREEMENT
-------------------
SCHEDULE OF CLOSING DOCUMENTS
-----------------------------
The obligations of the Lender to extend the Loans and to cause Letters of
Credit to be issued are subject to satisfaction of the conditions precedent that
the Lender shall have received, in addition to, and not in limitation of the
conditions described in Section 5.1 of the Agreement the following, each, unless
-----------
otherwise specified below, dated the Closing Date, in form and substance
satisfactory to the Lender and its counsel, unless otherwise specified below
(and which, in the discretion of the Lender, may be in an amended or restated or
new format):
I. PRINCIPAL LOAN DOCUMENTS.
------------------------
(a) Credit Agreement. The Credit Agreement duly executed by the Borrower.
----------------
(b) Acquisition Loan Note and Working Capital Revolving Loan Note. The
-------------------------------------------------------------
Acquisition Loan Note and the Working Capital Revolving Loan Note duly executed
to the order of the Lender.
(c) Borrowing Base Certificate. An original Borrowing Base Certificate,
--------------------------
executed by a duly authorized officer of Borrower.
(d) Working Capital Loan Borrowing Request. An original Working Capital
--------------------------------------
Loan Borrowing Request, executed by a duly authorized officer of Borrower.
II. COLLATERAL DOCUMENTS.
--------------------
(a) Security Agreement. The Security Agreement duly executed by the
------------------
Borrower or any Guarantor, as the case may be, together with delivery to the
Lender of:
(i) Acknowledgment copies of proper Financing Statements on Form UCC-l
(the "Financing Statements") duly filed under the UCC, or chattel mortgages duly
--------------------
filed under other applicable law, of all jurisdictions as may be necessary or,
in the opinion of the Lender, desirable to perfect the Liens created by the
Security Agreement;
(ii) Certified copies of Requests for Information (Form UCC-11), or
other evidence satisfactory to the Lender, listing the Financing Statements or
chattel mortgages referred to in paragraph (i) above and all other effective
financing statements or chattel mortgages which name the Borrower or any
Guarantor, as the case may be (under its present name, any previous name or any
trade or doing business name),
C-1
<PAGE>
as debtor and which are filed in the jurisdictions referred to in said paragraph
(i) above, together with copies of such other financing statements (none of
which shall cover the Collateral purported to be covered by the Security
Agreement);
(iii) Control Letters to the extent applicable;
(iv) Agreements relating to the granting of a security interest in
Patents, Trademarks and Copyrights in a form suitable for filing with the
appropriate federal filing office;
(v) Evidence of the completion of all other recordings and filings as
may be necessary or, in the opinion of and at the request of the Lender,
desirable to perfect the Liens created by the Security Agreement;
(vi) Notices of assignment and post office change of address cards from
the Borrower and each of the Subsidiaries and Affiliates which is a party to the
Receivables Purchase Agreement;
(vii) Evidence that the insurance required by the terms of the
Security Agreement and hereunder is in full force and effect; and
(viii) Duly executed notices from the Borrower or each Guarantor,
as the case may be, to each Person listed on Schedule 3.2 of the Lender's Lien
------------
on the Borrower's Inventory delivered to such Person from time to time.
(b) Government Contracts.
--------------------
(i) Assignment of Moneys Due or to Become Due Under Government Contract
for each of the Government Contracts listed on Schedule "C" to the Security
Agreement duly executed by the Borrower and each Guarantor.
(ii) Notification by the Borrower and each Guarantor to appropriate
government official/agency on Form of Assignment of Claims Act Notices for each
of the Government Contracts listed on Schedule "C" to the Security Agreement and
delivery to the Lender of Acknowledgments of such Notices.
(c) Guaranties. The Guaranties duly executed by each of the Guarantors.
----------
III. THIRD PARTY AGREEMENTS.
----------------------
(a) Landlord Consent. A Landlord Waiver and Consent for each leased
----------------
location of the Borrower and each Guarantor.
C-2
<PAGE>
(b) Cash Management System. The agreements set forth on the attached Annex
---------------------- -----
D.
- -
IV. DOCUMENTS DELIVERED BY THE BORROWER AND THE GUARANTORS.
------------------------------------------------------
(a) Board Resolutions and Incumbency Certificates. A certificate of the
---------------------------------------------
Secretary or an Assistant Secretary of the Borrower and each Guarantor
certifying (A) the resolutions adopted by the Board of Directors of the Borrower
and each Guarantor approving each Loan Document to which the Borrower and each
Guarantor is a party and the transactions contemplated hereby and thereby, (B)
all documents evidencing other necessary corporate action by the Borrower and
each Guarantor and required governmental and third party approvals with respect
to each such Loan Document, and (C) the names and true signatures of the
authorized officers of the Borrower and each Guarantor.
(b) Articles of Incorporation; By-Laws and Good Standing Certificates.
-----------------------------------------------------------------
Each of the following documents:
(i) The certificate of incorporation or the foreign equivalent thereof
of the Borrower and each Guarantor as in effect on the Closing Date, certified
by the Secretary of State or other appropriate authority of the State or country
of its incorporation as of a recent date, together with, upon request, a bring-
down certificate or the foreign equivalent thereof from such Secretary of State
or other appropriate authority in the form of a telex or telecopy dated the
Closing Date, and the by-laws or the foreign equivalent thereof of the Borrower
and each Guarantor as in effect on the Closing Date, certified by the Secretary,
Assistant Secretary or other appropriate officer or director of the Borrower and
each Guarantor; and
(ii) A good standing certificate or the foreign equivalent thereof for
the Borrower and each Guarantor from the Secretary of State or other appropriate
authority of the State or country of its incorporation as of a recent date,
together with a bring-down certificate in the form of a telex or telecopy dated
the Closing Date.
(c) Solvency. The Solvency Certificate in the form of Exhibit "H", signed
-------- -----------
by the chief financial officer of the Borrower, certifying as to the Solvency of
the Borrower, on a consolidated basis, after giving effect to the entering into
of the Loan Documents, the Loans thereunder and the other transactions
contemplated hereby.
(d) Officer's Certificate. The Certificate of an Authorized Officer of the
---------------------
Borrower, dated as of the Closing Date, stating that since June 30, 1997, (i) no
event or condition has occurred or is continuing which could reasonably be
expected to have a Material Adverse Effect, (ii) there has been no material
adverse change in the industry in which the Borrower operates, (iii) no
Litigation has been commenced which, if successful, would have a Material
Adverse Effect or could challenge any of the transactions contemplated
C-3
<PAGE>
by the Agreement and the other Loan Documents, (iv) the Borrower has not made
any Restricted Payments, and (v) there has been no material increase in
liabilities, liquidated or contingent, and no material decrease in assets of the
Borrower (on a consolidated basis).
(e) Pro Forma Balance Sheet. A pro forma consolidated and consolidating
-----------------------
balance sheet of the Borrower prepared in accordance with GAAP giving effect to
the funding of the Loans and the other transactions contemplated by the Loan
Documents.
(f) Financial Statements. Copies of the financial statements described in
--------------------
Schedule 3.4.
- ------------
(g) Projections. Copies of the Projections described in Schedule 3.4 in
----------- ------------
form and substance satisfactory to the Lender.
(h) Capital Expenditures Budget. A capital expenditures budget for the
---------------------------
Borrower.
(i) Environmental Reviews and Audits. All Environmental Reviews and Audits
--------------------------------
and other information pertaining to actual or potential environmental claims as
Lender may require.
(j) Notice to Accountants. A letter authorizing the Accountants to
---------------------
communicate with the Lender in accordance with Section 6.1(c) of the Agreement
--------------
and acknowledging the Lender's reliance on the Accountants' certification of
past and future financial statements of the Borrower.
(k) Environmental Indemnity. The Environmental Representation and
-----------------------
Indemnity, duly executed and acknowledged.
(l) Authorization for Payment. The Authorization for Payment in the form
-------------------------
of Exhibit "L".
-----------
V. LEGAL OPINIONS.
--------------
An opinion of counsel to the Borrower and the Guarantors in the form
of Exhibit "J" (which shall include an opinion as to enforceability of the Loan
-----------
Documents under New York law and the validity, binding effect and enforceability
of Liens and other matters, and such other matters incident to the transactions
contemplated hereby as the Lender may reasonably require).
VI. OTHER.
-----
C-4
<PAGE>
(a) Litigation. Evidence satisfactory to it that on the Closing Date, no
----------
Litigation shall exist (or, in the case of litigation or similar proceedings by
any government or Governmental Authority, be threatened) with respect to the
transactions contemplated by this Agreement which would in the reasonable
opinion of the Lender be likely to have a Material Adverse Effect on the ability
of the Borrower, the Guarantors and each of the Subsidiaries and Affiliates
which is a party to the Receivables Purchase Agreement to perform its
obligations under any Loan Documents to which it is a party, or the validity or
enforceability of any of the Loan Documents or on the rights, remedies or
benefits available to the Lender thereunder.
(b) Material Adverse Change. Evidence satisfactory to it that there has
-----------------------
been no Material Adverse Change with respect to the Borrower, the Guarantors or
each of the Subsidiaries and Affiliates which is a party to the Receivables
Purchase Agreement since June 30, 1997.
(c) Consents, Licenses and Approvals. A certificate of a Responsible
--------------------------------
Officer of each of the Borrower (i) attaching copies of all Approvals, if any,
and (ii) stating that any Approvals are in full force and effect, and each such
Approval shall be in form and substance satisfactory to the Lender.
(d) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be reasonably satisfactory in form and substance to the Lender, and the Lender
shall have received such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or thereby as it
shall reasonably request.
(e) Pension and Welfare Liabilities. With respect to the Borrower, each of
-------------------------------
the Guarantors and each Subsidiary and Affiliate which is a party to the
Receivables Purchase Agreement, the Lender shall have received (i) the most
recent actuarial valuation report for each Single Employer Plan, and a copy of
Schedule B to the annual return for each Single Employer Plan or Multiemployer
Plan most recently filed with the Internal Revenue Service, and (ii) an
actuarial report in form and substance satisfactory to the Lender detailing any
liabilities of the Borrower, the Guarantors and each Commonly Controlled Entity
for post-retirement benefits under Plans which are welfare benefit plans.
(f) Fees and Transaction Expenses. The Borrower shall have paid the Fees
-----------------------------
and the Transaction Expenses.
(g) Other Documents. Such other certificates, documents and agreements
---------------
respecting the Borrower or any of its Subsidiaries or Affiliates as the Lender
may, in its sole discretion, request.
C-5
<PAGE>
CASH MANAGEMENT SYSTEM
----------------------
Borrower agrees to establish and maintain, and cause its Subsidiaries
to establish and maintain the cash management system described below:
(a) On or before the Closing Date and until the Termination Date, (i)
establish lock boxes ("Lock Boxes") at one of more of the banks set forth on
----------
"Schedule 4.35" and shall request in writing and otherwise take such reasonable
- --------------
steps to ensure that all Account Debtors forward payment directly to such Lock
Boxes and (ii) deposit or, if directed by Lender, cause to be deposited
directly, in either case on the date of receipt thereof, all cash, checks,
notes, drafts or other similar items of payment relating to or constituting
payments made in respect of any and all Collateral (whether or not delivered to
a Lock Box) into bank accounts in Borrower's or any such Subsidiary's name
(collectively, the Borrower Accounts") at banks set forth on Schedule "4.35"
----------------- ---------------
(each, a "Relationship Bank"). On or before the Closing Date, Borrower shall
-----------------
have established a concentration account in its name (the "Concentration
-------------
Account" at the bank which shall be designated as the Concentration Account Bank
for Borrower on Schedule "4.35" (the "Concentration Account Bank"), which Bank
-------------- --------------------------
shall be satisfactory to Lender.
(b) On or before the Closing Date, the Concentration Account Bank,
each bank where a Disbursement Account is located and all other Relationship
Banks shall have entered into triparty blocked or restricted account agreements
(the "Blocked Account Agreements") with Lender and Borrower and its
--------------------------
Subsidiaries, as applicable, in form and substance satisfactory to Lender. Each
such Blocked Account Agreement shall provide, among other things, that (i) all
items of payment deposited in such account and proceeds thereof deposited in the
Concentration Account are held by such bank as agent or bailee in possession for
Lender, (ii) such bank executing such agreement has no rights of set-off or
recoupment or any other claim against such Lock Box or Account, as the case may
be, other than for payment of its service fees and other charges directly
related to the administration of such account and for returned checks or other
items of payment, and (iii) from and after the Closing Date, (A) with respect to
banks at which a Borrower Account is located, such bank agrees to forward
immediately amounts in each Borrower Account to the Concentration Account Bank
and to commence the process of daily sweeps from such Borrower Account into the
Concentration Account, and (B) with respect to the Concentration Account Bank,
such Bank agrees to immediately forward all amounts received in the
Concentration Account to the Collection Account through daily sweeps from such
Concentration Account into the Collection Account. Borrower shall not, and
shall not cause or permit any Subsidiary to, accumulate or maintain cash in
disbursement or payroll accounts as of the date of determination in excess of
checks outstanding against such accounts as of that date and amounts necessary
to meet minimum balance requirements.
<PAGE>
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Schedule "4.35" to add or replace a Relationship
---------------
Bank, Lock Box or Borrower Account or to replace the Concentration Account or
any Disbursement Account; provided, however, that (i) Lender shall have
-------- -------
consented in writing in advance to the opening of such account or Lock Box with
the relevant bank, and (ii) prior to the time of the opening of such account,
Borrower and/or the Subsidiaries thereof, as applicable, and such bank shall
have executed and delivered to Lender a Blocked Account Agreement, in form and
substance satisfactory to Lender. Borrower shall close any of its accounts (and
establish replacement accounts in accordance with the foregoing sentence) within
30 days of notice from Lender that the creditworthiness of the bank holding such
accounts is no longer acceptable in Lender's reasonable judgment, or as promptly
as practicable and in any event within 60 days after notice from Lender that the
operating performance, funds transfer and/or availability procedures or
performance with respect to accounts or lockboxes of the bank holding such
accounts or Lender's liability under any Blocked Account Agreement with such
bank is no longer acceptable in Lender's reasonable judgment. The Lock Boxes,
the Borrower Accounts, the Disbursement Accounts and the Concentration Account
shall be cash collateral accounts with all cash, checks and other similar items
of payment in such accounts securing payment of the Loan and all other
Obligations, and in which Borrower and each Subsidiary hereof shall have granted
a first priority perfected Lien to Lender for the benefit of Lender pursuant to
the Security Agreement.
(d) All amounts deposited in the Concentration Account shall be deemed
received by Lender in accordance with Section 3.3 and shall be applied (and
-----------
allocated) by Lender in accordance with Section 3.4. In no event shall any
-----------
amount be so applied unless and until such amount shall have been credited in
immediately available funds to the Collection Account.
(e) Borrower and each Subsidiary may maintain, in its name, an account
(each, a "Disbursement Account") at a bank acceptable to Lender into which
--------------------
Lender shall, from time to time, deposit proceeds of Advances made pursuant to
Section 2.1 for use solely in accordance with the provisions of Section 2.4.
- ----------- -----------
(f) Borrower constitutes and appoints irrevocably Lender its true and
lawful attorney, with full power of substitution, without limitation, to demand,
collect, receive and sue for all amounts which may become due or payable under
the Lock Boxes, the Borrower Accounts, the Disbursement Accounts and the
Concentration Account, and to execute all withdrawal receipts or other orders
for Borrower, in its own name or in Borrower's name or otherwise, which Lender
deems necessary or appropriate to protect and preserve its right, title and
interest in such accounts.
(g) Upon request of Lender, Borrower shall forward to Lender, on a
daily basis, evidence of the deposit of all items of payment received by
Borrower into the
D-2
<PAGE>
Lock Boxes and copies of all such checks and other items, together with a
statement showing the application of those items relating to payments on
Accounts to outstanding Accounts and a collection report with regard thereto in
form and substance satisfactory to Lender.
(h) Borrower shall, and shall cause its Subsidiaries and Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with Borrower (each, a "Related Person"), to (i) hold in trust for Lender all
--------------
checks, cash and other items of payment received by Borrower or any such
Related Person, and (ii) within one (1) Business Day after receipt by Borrower
or any such Related Person of any checks, cash or other items of payment,
deposit the same into a Borrower Account. Borrower and each Related Person
acknowledges and agrees that all cash, checks or other items of payment
constituting proceeds of Collateral and the property of Lender. All proceeds of
sale or other disposition of any Collateral shall be deposited directly into
Borrower Accounts.
D-3
<PAGE>
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Gentlemen:
We refer to the Amended and Restated Credit Agreement (the "Credit Agreement")
----------------
dated as of November 7, 1997, between you and Butler Service Group, Inc.
(together with its successors and assigns, referred to as the "Borrower").
--------
This will confirm to you that during the course of our representation of the
Borrower for the period January 1, 199_, through December 31, 199_, nothing has
come to our attention which would lead us to believe that a Default or an Event
of Default (as defined in the Credit Agreement) has occurred during such period.
This will also confirm that Borrower is in compliance with the financial
covenants set forth on Schedule "6.2(r)" to the Credit Agreement; we have
-----------------
attached hereto detailed calculations to evidence the Borrower's compliance with
such covenants.
[Accountant]
By_______________________________
Its
<PAGE>
ACQUISITION LOAN BORROWING REQUEST
----------------------------------
Name of Borrower: BUTLER SERVICE GROUP, INC.
Amount of Acquisition Loan Requested:
Bank name:
Bank address:
ABA No.:________________________ Account No.____________________________
Wire transfer No.:____________________________________
Bank contact_________________________________________________________________
Telephone number:____________________________________________________________
This Acquisition Loan Borrowing Request is submitted pursuant to
Section 2.1(b) of the Amended and Restated Credit Agreement dated as of November
- --------------
7, 1997 between Butler Service Group, Inc. and General Electric Capital
Corporation (the "Credit Agreement"). Capitalized terms not otherwise defined
----------------
herein shall have the meanings assigned to them in the Credit Agreement.
By signing below, Borrower acknowledges and certifies that all of the
conditions contained in Section 5.2 of the Credit Agreement have been satisfied
-----------
on and as of the date hereof, and will continue to be satisfied on and as of the
date of the Advances requested hereby, before and after giving effect thereto
and to the application of the proceeds therefrom, and that after giving effect
to the Acquisition Loan Advance requested hereby, (i) this Acquisition Loan
Borrowing Request is one of the Loan Documents and is governed by the Credit
Agreement and the other Loan Documents, (ii) Borrower is in compliance with all
provisions of the Loan Documents, (iii) there exists and there shall exist no
Default or Event of Default under the Credit Agreement, (iv) the proceeds of the
Acquisition Loan shall be used in accordance with Section 2.4 of the Credit
-----------
Agreement, and (v) each of the representations and warranties which is required
to be made on the date hereof is and shall be true and correct. By its delivery
of this Acquisition Loan Borrowing Request, Borrower hereby reaffirms, and
remakes, all representations, warranties and covenants contained in any of the
Loan Documents.
BUTLER SERVICE GROUP, INC.
By__________________________
Name:
Title:
Request approved:
GENERAL ELECTRIC CAPITAL CORPORATION
By__________________________
Name:
Title:
<PAGE>
WORKING CAPITAL LOAN BORROWING REQUEST
--------------------------------------
Name of Borrower: BUTLER SERVICE GROUP, INC.
Amount of Working Capital Revolving Loan Requested:
Bank name:___________________________________________________________________
Bank address:________________________________________________________________
ABA No.:________________________ Account No.____________________________
Wire transfer No.:____________________________________
Bank contact_________________________________________________________________
Telephone number:____________________________________________________________
This Working Capital Loan Borrowing Request is submitted pursuant to
Section 2.1(a) of the Amended and Restated Credit Agreement dated as of November
- --------------
7, 1997 between Butler Service Group, Inc. and General Electric Capital
Corporation (the "Credit Agreement"). Capitalized terms not otherwise defined
----------------
herein shall have the meanings assigned to them in the Credit Agreement.
By signing below, Borrower acknowledges and certifies that all of the
conditions contained in Section 5.2 of the Credit Agreement have been satisfied
-----------
on and as of the date hereof, and will continue to be satisfied on and as of the
date of the Advances requested hereby, before and after giving effect thereto
and to the application of the proceeds therefrom, and that after giving effect
to the Working Capital Revolving Loan Advance requested hereby, (i) this Working
Capital Loan Borrowing Request is one of the Loan Documents and is governed by
the Credit Agreement and the other Loan Documents, (ii) Borrower is in
compliance with all provisions of the Loan Documents, (iii) there exists and
there shall exist no Default or Event of Default under the Credit Agreement,
(iv) the proceeds of the Working Capital Revolving Loan shall be used in
accordance with Section 2.4 of the Credit Agreement, and (v) each of the
-----------
representations and warranties which is required to be made on the date hereof
is and shall be true and correct. By its delivery of this Working Capital Loan
Borrowing Request, Borrower hereby reaffirms, and remakes, all representations,
warranties and covenants contained in any of the Loan Documents.
BUTLER SERVICE GROUP, INC.
By__________________________
Name:
Title:
Request approved:
GENERAL ELECTRIC CAPITAL CORPORATION
By__________________________
Name:
Title:
<PAGE>
CERTIFICATE OF BORROWER
-----------------------
Pursuant to the terms of the Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of November 7, 1997, between Butler Service Group,
- -----------------
Inc. ("Borrower") and General Electric Capital Corporation ("Lender"), Borrower
-------- ------
certifies to Lender as follows:
1. The financial statements delivered herewith for the period ended
, 19__, are complete and correct and present fairly in accordance with GAAP the
consolidated financial position, the consolidated results of operations and the
consolidated statements of cash flow of Borrower as at the end of such period.
2. The representations, warranties and covenants of Borrower set
forth in the Credit Agreement, or which are contained in any certificate,
document or financial or other statement furnished pursuant to or in connection
with the Credit Agreement, are true and correct on and as of the date hereof,
except as set forth in the attached Exhibit "A", which contains a full and
-----------
complete listing, as of the date hereof, of any changes which vary from the
above-mentioned representations, warranties and covenants.
3. Immediately prior to and immediately after the making of the
loans or advances requested to be made on the date hereof, no Default or Event
of Default, as defined in the Credit Agreement, will have occurred and will be
continuing under the Credit Agreement or any and all related documentation, and
there has occurred no event which would, if uncured or uncorrected, constitute a
Default or Event of Default with the giving of notice, passage of time or both.
4. There are no liquidation or dissolution proceedings pending or to
its knowledge threatened against Borrower, and no other event has occurred
affecting or threatening the corporate existence of Borrower.
5. The resolutions duly adopted by the Board of Directors of the
Borrower dated __________,, 1997, have not in any way been rescinded or modified
and have been in full force and effect since their adoption up to and including
the date hereof and are now in full force and effect. Such resolutions are the
only corporate proceedings of the Borrower now in force relating to or effecting
the matters referred to therein.
6. As of [DATE], the aggregate amount of Eligible Accounts was $____
eighty-five percent (85%) of that amount is $____.
7. As of [DATE], the aggregate amount of Eligible Pending Accounts
Receivable and Fixed Contract Account Receivable was $____________; seventy-five
percent (75%) of that amount is $___________.
BUTLER SERVICE GROUP, INC.
By__________________________________
Name:
Title:
<PAGE>
ACQUISITION LOAN NOTE
---------------------
$15,000,000 As of November 7, 1997
Montvale, New Jersey
1. For value received, the undersigned, BUTLER SERVICE GROUP, INC.,
a New Jersey corporation ("Maker"), promises to pay to the order of GENERAL
-----
ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender"), at its office
------
at 201 High Ridge Road, Stamford, Connecticut, or at such other place as the
holder hereof (including Lender, hereinafter referred to as "Holder"), may
------
designate, the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000), in lawful
money of the United States of America, or so much as has been advanced and is
outstanding under the Amended and Restated Credit Agreement dated as of the date
hereof between Maker and Lender (the "Credit Agreement"). All capitalized
----------------
terms, unless otherwise defined herein, shall have the respective meanings
assigned to such terms in the Credit Agreement.
2. This Note is issued pursuant to the Credit Agreement and is
entitled to the benefit and security of the Loan Documents to which Credit
Agreement reference is hereby made for a statement of all of the terms and
conditions under which the loan evidenced hereby is made.
3. The principal amount of the indebtedness evidenced hereby shall
be payable in the amounts and on the dates specified in the Credit Agreement,
including, without limitation, those set forth in Section 2.1(b) of the Credit
Agreement. Interest thereon shall be paid until such principal amount is paid
in full at such interest rates and at such times as are specified in the Credit
Agreement.
4. Upon and after the occurrence of an Event of Default, this Note
may, as provided in the Credit Agreement, and without demand, notice or legal
process of any kind, be declared and immediately shall become, due and payable.
5. Time is of the essence of this Note. Maker waives diligence,
demand, presentment, protest and notice of nonpayment, protest and any renewals
or extensions of this Note.
6. This Note shall be governed by and construed in accordance with
the internal laws (as opposed to conflicts of law provisions) of the State of
New York.
BUTLER SERVICE GROUP, INC.
By _____________________________________
Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
<PAGE>
WORKING CAPITAL LOAN REVOLVING NOTE
-----------------------------------
$50,000,000 As of November 7, 1997
Montvale, New Jersey
1. For value received, the undersigned, BUTLER SERVICE GROUP, INC.,
a New Jersey corporation ("Maker"), promises to pay to the order of GENERAL
-----
ELECTRIC CAPITAL CORPORATION, a New York corporation ("Lender"), at its office
------
at 201 High Ridge Road, Stamford, Connecticut, or at such other place as the
holder hereof (including Lender, hereinafter referred to as "Holder"), may
------
designate, the principal sum of FIFTY MILLION DOLLARS ($50,000,000), in lawful
money of the United States of America, or so much as has been advanced and is
outstanding under the Amended and Restated Credit Agreement dated as of the date
hereof between Maker and Lender (the "Credit Agreement"). All capitalized
----------------
terms, unless otherwise defined herein, shall have the respective meanings
assigned to such terms in the Credit Agreement.
2. This Note is issued pursuant to the Credit Agreement and is
entitled to the benefit and security of the Loan Documents to which Credit
Agreement reference is hereby made for a statement of all of the terms and
conditions under which the loan evidenced hereby is made.
3. The principal amount of the indebtedness evidenced hereby shall
be payable in the amounts and on the dates specified in the Credit Agreement,
including, without limitation, those set forth in Section 2.1(a) of the Credit
Agreement. Interest thereon shall be paid until such principal amount is paid
in full at such interest rates and at such times as are specified in the Credit
Agreement.
4. Upon and after the occurrence of an Event of Default, this Note
may, as provided in the Credit Agreement, and without demand, notice or legal
process of any kind, be declared and immediately shall become, due and payable.
5. Time is of the essence of this Note. Maker waives diligence,
demand, presentment, protest and notice of nonpayment, protest and any renewals
or extensions of this Note.
6. This Note shall be governed by and construed in accordance with
the internal laws (as opposed to conflicts of law provisions) of the State of
New York.
BUTLER SERVICE GROUP, INC.
By______________________________________
Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
<PAGE>
SOLVENCY CERTIFICATE
--------------------
I, Michael C. Hellriegel, certify that I am the Chief Financial Officer of
Butler International, Inc. and, in such capacity, am familiar with the
properties, businesses and assets of Parent, on a consolidated basis, and am
duly authorized to execute and deliver this Certificate on behalf of the Parent.
This Certificate is being delivered pursuant to Section 5.1 of the Amended and
-----------
Restated Credit Agreement dated as of the date hereof (as amended, supplemented
or modified from time to time, the "Credit Agreement"). Capitalized terms not
----------------
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement.
I further certify that I have carefully reviewed the Credit Agreement and
the contents of this Certificate and, in connection herewith, have made or
caused to be made such investigation and inquiry as I have deemed reasonably
necessary and prudent therefor. I further certify that the financial
information, assumptions and valuation techniques which underlie and form the
basis for the representations made in this Certificate were reasonable when made
and were made in good faith and continue to be reasonable as of the date hereof.
I understand that Lender is relying on the truth and accuracy of this
Certificate in connection with the transactions contemplated by the Credit
Agreement. I further certify that:
1. As of the date hereof and upon the funding of the Loan, (a)
neither Parent, Borrower nor any Subsidiary is and none will be, "insolvent" as
that term is defined under the United States Bankruptcy Code Section 101 (32),
(b) no petition in bankruptcy has been filed, whether voluntary or involuntary,
with respect to Parent, Borrower or any Subsidiary, and (c) there has not been
an assignment for the benefit of creditors filed under the bankruptcy or
insolvency laws of the United States or any state thereof or any other action
brought under the aforesaid bankruptcy or insolvency laws against, or with
respect to, Parent, Borrower or any Subsidiary.
2. Neither Parent, Borrower nor any Subsidiary contemplates filing a
petition in bankruptcy or for a reorganization under the Bankruptcy Code, and
the undersigned does not have any knowledge of any threatened bankruptcy or
insolvency proceedings against Parent, Borrower or any Subsidiary.
3. The transactions contemplated by the Loan Documents are not
intended to hinder, delay or defraud the present or future creditors of Parent,
Borrower or any Subsidiary.
<PAGE>
4. Neither Parent, Borrower nor any Subsidiary intends to incur
debts beyond its ability to pay them as they mature.
5. The aggregate of the property and assets of Parent, on a
consolidated basis, at a fair valuation is sufficient in amount to pay its debts
on a consolidated basis.
6. The undersigned has examined the representations, warranties,
amendments, and covenants contained in the Loan Documents, and the undersigned
certifies that, as of the date hereof, all of the certificates, statements,
representations, warranties and covenants as to past or present existing facts
which are contained therein are true and correct in all material respects, and
that no Default or Event of Default exists as of the date hereof.
7. The statements contained herein shall be continuing in nature and
shall be deemed to have been remade upon each borrowing by Borrower under the
Loan Documents, unless and until the undersigned gives Lender prior written
notice (in the manner and to the persons required by the Loan Documents) to the
contrary. The undersigned hereby acknowledges that Lender has relied upon the
warranties, representations, agreements and covenants contained herein.
8. The financial statements previously submitted to Lender are a
fair presentation of the consolidated assets and liabilities of Parent, Borrower
and the Subsidiaries as of the date of such financial statements and there has
not been a material adverse change in the financial or other condition of
Parent, Borrower or any Subsidiary since such date.
9. In addition to having carefully reviewed the Credit Agreement in
connection herewith, I have also carefully considered and reviewed, among other
things, the following in connection with the statements contained herein:
(a) the most recent audited and unaudited consolidated financial
statements of Parent;
(b) the estimated values, to my knowledge, of the real property,
equipment, inventory, accounts receivable, customer lists, supply contracts, and
other property of Parent, Borrower and each Subsidiary, real and personal,
tangible and intangible;
(c) the experience and management of Parent, Borrower and each
Subsidiary in acquiring and disposing of its assets;
(d) all indebtedness of Parent, Borrower and each Subsidiary known to
me;
<PAGE>
(e) the customary terms of accounts payable of Parent, Borrower and each
Subsidiary;
(f) the amount of credit historically extended by and to customers of
Parent, Borrower and each Subsidiary;
(g) the amount of credit extended and to be extended under all other
credit facilities of Parent, Borrower and each Subsidiary; and
(h) the level of capital customarily maintained by Parent, Borrower and
each Subsidiary.
10. All statements made herein are to the best of my knowledge after
making such inquiries and analyses as I have deemed necessary or appropriate for
the statements contained herein.
11. This Certificate is made to induce Lender to extend the Loans to
Borrower.
-------------------------------------------
Michael C. Hellriegel, Senior Vice President
and Chief Financial Officer
Dated: As of November 7, 1997
<PAGE>
ENVIRONMENTAL REPRESENTATION AND INDEMNITY
------------------------------------------
This Environmental Representation and Indemnity is being delivered to
GENERAL ELECTRIC CAPITAL CORPORATION ("Lender"), in connection with the loan
------
facilities (the "Loans") extended by Lender to BUTLER SERVICE GROUP, INC. (the
-----
"Indemnitor").
- -----------
1. In consideration of Lender's extension of the Loans, Indemnitor
represents with respect to the real properties now or hereafter owned or leased
by Indemnitor (collectively, the "Property") that, except with respect to the
--------
ECRA Facilities:
(a) To the best of its knowledge and belief, the Indemnitor has duly
complied with, and its facilities, business assets, properties, leaseholds and
equipment are in compliance in all material respects with the provisions of the
Federal Occupational Safety and Health Act ("OSHA"), the Clean Air Act ("CAA"),
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Clean Water Act ("CWA"), the Resource Conservation and Recovery
Act ("RCRA"), the Toxic Substances Control Act ("TSCA"), and similar provisions
of all laws, all as amended and all rules and regulations governing "waste
materials" as defined herein or any federal, state and local laws, rules and
regulations.
(b) There are no outstanding citations, notices or orders of violation
or non-compliance issued to the Indemnitor or relating to its business, assets,
property or equipment of each under any such laws, rules or regulations.
(c) To the best of the Indemnitor's knowledge, no oil, petroleum,
chemical liquids, solid, liquid, gaseous products or any waste materials of any
kind, known as "waste materials" as defined herein, have been or are currently
stored or used on the Property and have not been stored or used on the Property
in the past in violation of any federal, state or local law, rule, regulation or
order of any kind.
(d) To the best of the Indemnitor's knowledge, there has never been any
discharge, spillage, uncontrolled loss, seepage or filtration of oil, petroleum,
chemical liquids or solid, liquid or gaseous products or waste materials of any
kind on the Property, through the Property emanating from the Property onto or
into any other land in violation of any federal, state or local law, rule,
regulation or order of any kind.
<PAGE>
(e) To the best of the Indemnitor's knowledge, there is no leakage from
any of the existing underground petroleum storage tanks and facilities at the
Property.
(f) The Indemnitor has been issued all required federal, state and local
licenses, certificates and permits relating to the Property occupied by any of
the facilities, businesses, assets, property, leaseholds and equipment of the
Indemnitor in compliance in all respects with all applicable federal, state and
local laws, rules and regulations relating to air emissions, water discharges,
noise emissions, solid or liquid waste disposal, hazardous waste or materials or
other environmental health or safety matters.
2. As a further inducement for Lender to extend the Loan, the
Indemnitor covenants and agrees at all times to indemnify, hold harmless and
defend Lender, its successors and assigns (collectively, the "Indemnified
-----------
Parties") from and against any and all liability, loss, damage, cost, expense
- -------
(including, without limitation, reasonable attorneys' fees and expenses and any
other professionals' fees and expenses), cause of action, suit, claim, demand or
judgment of any nature pertaining to solid or hazardous waste materials or other
waste-like or toxic substances located on, in or under any of the properties
occupied by the Indemnitor, including any action, suit, claim, demand or
judgment relating to any environmental matters, whether caused by the Indemnitor
or any other person, including, but not limited to, liens or claims of any
federal, state or municipal government or quasi-governmental agency or any third
person, whether arising under OSHA, CAA, CERCLA, CWA, RCRA, TSCA or any other
federal, state or municipal law or regulation or any tort, contract or common
law. As used herein the term "waste material" shall mean any "solid waste" or
"hazardous waste" or "hazardous substance" or "hazardous air pollutants" or
"toxic pollutants" as such terms are defined in RCRA, as amended, 42 U.S.C.
Section 6401 et seq., CERCLA, as amended, 42 U.S.C. Section 9601 et seq., the
-- ---- -- ----
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1802 et
--
seq., TSCA, as amended, 15 U.S.C. Section 2601 et seq., CWA as amended, 42
- ---- -- ----
U.S.C. Section 7041 et seq., as amended, and any regulations now or hereafter
-- ----
promulgated pursuant thereto; any mixture of sewage or other waste material that
passes through a sewer system to a treatment facility; any industrial waste-
water discharges subject to regulation under Section 402 of CWA, 33 U.S.C.
Section 1342 et seq.; any source, spent nuclear or by-product material as
-- ----
defined by the Atomic Energy Act of 1954, 42 U.S.C. Section 2014; and domestic
sewage.
3. Upon the request of any Indemnified Party, the Indemnitor agrees
that it shall execute such further instruments and deliver such further
documents as are necessary to confirm and enforce the indemnification provided
herein.
4. The indemnity set forth herein shall survive the payment in full
of the Loan and shall continue to remain in full force and effect at all times
in the future.
<PAGE>
5. This Indemnity shall be deemed effective as of the date hereof
and shall be governed by and construed in accordance with the laws of the State
of New York and shall be binding upon the Indemnitor and its successors and
assigns and inure to the benefit of any Indemnified Party, and its respective
successors and assigns.
Dated: As of November 7, 1997
BUTLER SERVICE GROUP, INC.
By_________________________________________
Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
<PAGE>
AUTHORIZATION FOR PAYMENT
-------------------------
Dated: As of November 7, 1997
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Gentlemen:
We refer to the Amended and Restated Credit Agreement dated as of this
date (the "Credit Agreement") between you and the undersigned. Capitalized
----------------
terms used herein have the meanings ascribed to them in the Credit Agreement.
Borrower acknowledges that from the $65,000,000 aggregate proceeds
available under the Loans, Lender has made the following Working Capital
Revolving Loan Advances: (i) $75,000 payable to Lender in respect of the Closing
Fee; (ii) $________ payable to Lender in respect of the Collateral Monitoring
Fee (representing the Fee of $_____less a credit of $______for the Fee paid for
the prior year); and (iii) $__________ payable in respect of legal fees
incurred on Lender's behalf.
Borrower acknowledges and confirms that after giving effect to the
payments listed above, the principal balances of the Loans are as follows:
Working Capital Revolving Loan $______________
Acquisition Loan $______________
Borrower confirms its continuing obligation to reimburse Lender for
the Fees. Borrower also acknowledges that this Authorization for Payment shall
be deemed one of the Loan Documents and that additional legal fees and out-of-
pocket disbursements shall be incurred subsequent to the date hereof and agrees
that such fees and disbursements shall be deemed Transaction Expenses.
BUTLER SERVICE GROUP, INC.
By_______________________________________
Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
<PAGE>
RESPONSIBLE INDIVIDUAL
----------------------
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927
Telephone No. 203.316.7575
Facsimile No. 203.316.7823
Attention: Ms. Suzanne Santos
or
Such other individual or telephone
number as the Lender may determine
<PAGE>
USE OF PROCEEDS
---------------
(i) The Borrower shall use the proceeds of the Working Capital Revolving
Loan (a) in substitution of the indebtedness outstanding under the Existing
Credit Agreement on the Closing Date, (b) to pay the costs and expenses of the
transactions contemplated by the Agreement and the other Loan Documents, (c)
Capital Expenditures and Permitted Investments, and (d) for general corporate
and working capital purposes.
(ii) The Borrower shall use the proceeds of the Acquisition Loan for
Permitted Acquisitions.
<PAGE>
LITIGATION
----------
<PAGE>
BROKERS
-------
None
<PAGE>
TAXES
-----
FEDERAL None
- ----------
STATE
- ----------
State Company Period Covered
- ---------- ----------------------------- --------------
Arizona Butler Service Group, Inc. 1988-1991
Michigan Butler Service Group, Inc. 1992-1996
Butler Telecom, Inc. 1992-1996
Missouri Butler Services, Inc. 1993-1995
Butler Utility Services, Inc. 1993-1995
<PAGE>
FINANCIAL STATEMENTS
--------------------
. Audited financial statements for the period ended December 31, 1996
. Annual and quarterly profit plan for 1997
. March 31, 1996 Report on Form 10-Q
. June 30, 1996, Report on Form 10-Q
<PAGE>
TITLE TO ASSETS; LIENS
----------------------
None
<PAGE>
LEASES
------
See Attached
<PAGE>
EMPLOYEE BENEFIT PLANS
----------------------
<PAGE>
CHIEF EXECUTIVE OFFICE; FEIN
----------------------------
<PAGE>
PLACES OF BUSINESS
------------------
See attached
<PAGE>
MATERIAL AGREEMENTS
-------------------
None
<PAGE>
LABOR MATTERS
-------------
None
<PAGE>
STOCK MATTERS
-------------
None
<PAGE>
INDEBTEDNESS
------------
All Indebtedness is reflected in the Report
on Form 10-Q of the Parent, a copy of which
has been provided previously
<PAGE>
INSURANCE POLICIES
- ------------------
PART I. Coverage Requirements. The insurance policies maintained by
----------------------
Borrower provide for, without limitation, the following insurance coverage:
(a) "All Risk" physical damage insurance of all of Borrower's tangible real
and personal property and assets, wherever located, and covers without
limitation, fire and extended coverage, boiler and machinery coverage, flood,
earthquake, environmental, liquids, theft, burglary, explosion, collapse, and
all other hazards and risks ordinarily insured against by owners or users of
such properties in similar businesses. All policies of insurance on such real
and personal property contain an endorsement, in form and substance acceptable
to Lender, showing loss payable to Lender (Form 438 BFU or its equivalent) and
extra expense and business interruption endorsements. Such endorsement, or an
independent instrument furnished to Lender, provides that the insurance
companies will give Lender at least thirty (30) days' prior written notice
before any such policy or policies of insurance shall be altered or cancelled or
will not be renewed and that no act or default of Borrower or any other Person
shall affect the right of Lender to recover under such policy or policies of
insurance in case of loss or damage;
(b) Comprehensive general liability insurance on an "occurrence basis"
against claims for personal injury, bodily injury, and property damage with a
minimum limit of One Million Dollars ($1,000,000) per occurrence and Four
Million Dollars ($4,000,000) in the aggregate. Such coverage includes, without
limitation, premises/operations, broad form contractual liability, underground
explosion and collapse hazard, independent contractors, broad form property
coverage, products, and completed operations liability;
(c) Statutory limits of workers' compensation insurance which includes
employee's occupational disease and employer's liability in the amount of One
Million Dollars ($1,000,000) for each accident of occurrence;
(d) Automobile liability insurance for all owned, non-owned, or hired
automobiles against claims for personal injury, bodily injury, and property
damage with a minimum combined single limit of One Million Dollars ($1,000,000)
per occurrence;
(e) Umbrella insurance of Fifteen Million Dollars ($15,000,000) per
occurrence and Fifteen Million Dollars ($15,000,000) in the aggregate;
(f) Excess umbrella insurance of Ten Million Dollars ($10,000,000) per
occurrence and Ten Million Dollars ($10,000,000) in the aggregate; and
(g) Crime bond insurance in the amount of Two Million Dollars
($2,000,000).
Part II. Summary of Terms of Insurance, Etc.
--------------------------------------------
See Certificate of Insurance attached hereto.
<PAGE>
EMPLOYMENT MATTERS
------------------
Agreements have been previously provided and
are representatives of those currently in force.
<PAGE>
ENVIRONMENT MATTERS
-------------------
None
<PAGE>
PARENTS, AFFILIATES AND SUBSIDIARIES
------------------------------------
See Attached
<PAGE>
PARENTS, AFFILIATES AND SUBSIDIARIES
------------------------------------
<PAGE>
OFFICERS AND DIRECTORS
----------------------
See attached
<PAGE>
BANK ACCOUNTS
-------------
Lock Box Accounts: NationsBank
- -----------------
(i) Account No. 3750369140 (BSG)
(ii) Account No. 3750369153 (BTI)
Concentration Accounts: The Bank of New York
- ----------------------
Account No. 6300450502
Disbursement Account: The Bank of New York
- --------------------
(i) Account No. 8900166428 (Controlled Disbursement
Account)
(ii) Account No. 300963592 (Accounts Payable
Disbursement Account)
<PAGE>
GOVERNMENT CONTRACTS
--------------------
<PAGE>
INSURANCE POLICIES
------------------
PART I. Coverage Requirements. The insurance policies maintained by
----------------------
Borrower provide for, without limitation, the following insurance coverage:
(a) "All Risk" physical damage insurance of all of Borrower's tangible real
and personal property and assets, wherever located, and covers without
limitation, fire and extended coverage, boiler and machinery coverage, flood,
earthquake, environmental, liquids, theft, burglary, explosion, collapse, and
all other hazards and risks ordinarily insured against by owners or users of
such properties in similar businesses. All policies of insurance on such real
and personal property contain an endorsement, in form and substance acceptable
to Lender, showing loss payable to Lender (Form 438 BFU or its equivalent) and
extra expense and business interruption endorsements. Such endorsement, or an
independent instrument furnished to Lender, provides that the insurance
companies will give Lender at least thirty (30) days' prior written notice
before any such policy or policies of insurance shall be altered or cancelled or
will not be renewed and that no act or default of Borrower or any other Person
shall affect the right of Lender to recover under such policy or policies of
insurance in case of loss or damage;
(b) Comprehensive general liability insurance on an "occurrence basis"
against claims for personal injury, bodily injury, and property damage with a
minimum limit of One Million Dollars ($1,000,000) per occurrence and Four
Million Dollars ($4,000,000) in the aggregate. Such coverage includes, without
limitation, premises/operations, broad form contractual liability, underground
explosion and collapse hazard, independent contractors, broad form property
coverage, products, and completed operations liability;
(c) Statutory limits of workers' compensation insurance which includes
employee's occupational disease and employer's liability in the amount of One
Million Dollars ($1,000,000) for each accident of occurrence;
(d) Automobile liability insurance for all owned, non-owned, or hired
automobiles against claims for personal injury, bodily injury, and property
damage with a minimum combined single limit of One Million Dollars ($1,000,000)
per occurrence;
(e) Umbrella insurance of Fifteen Million Dollars ($15,000,000) per
occurrence and Fifteen Million Dollars ($15,000,000) in the aggregate;
(f) Excess umbrella insurance of Ten Million Dollars ($10,000,000) per
occurrence and Ten Million Dollars ($10,000,000) in the aggregate; and
(g) Crime bond insurance in the amount of Two Million Dollars
($2,000,000).
Part II. Summary of Terms of Insurance, Etc.
--------------------------------------------
See Certificate of Insurance attached hereto.
<PAGE>
A. FINANCIAL STATEMENTS
(i) Annual Audited Financials. Within ninety (90) days after the close of
-------------------------
each Fiscal Year of the Parent, financial statements audited by the Accountants
including a balance sheet as of the close of such Fiscal Year and statements of
income and retained earnings and statement of cash flows for the year then
ended, all on a consolidated basis (and on a consolidating basis upon request)
and in a form which would provide comparisons to the prior year end, prepared in
conformity with GAAP, and accompanied by copies of all detailed financial and
management reports submitted to the Parent by the Accountants and a report
thereon containing an audit opinion of the Accountants, without limitation or
qualification, which opinion shall state that subject to the comments contained
therein such financial statements fairly present the financial condition and
results of operations of the Parent in accordance with GAAP;
(ii) Monthly Financials. Within thirty (30) days after the end of each
------------------
fiscal month, (A) internally prepared statements of income and retained
earnings, a statement of cash flows and a balance sheet showing the Parent and
its Subsidiaries as of the end of such fiscal month on a comparative basis and
the then elapsed portion of the Fiscal Year, all in a form which would provide
comparison to the prior year's equivalent period, both on a monthly and a year-
to-year basis, and to the Parent's base budget, together with a management
discussion and analysis, (B) an aged accounts receivable trial balance and, upon
request, a monthly reconciliation of the accounts receivable trial balance to
the Borrower's (and those Subsidiaries and Affiliates which are a party to the
Receivables Purchase Agreement) general ledger and monthly financial statements;
(iii) Compliance Certificate. Together with the statements referred to
----------------------
in subparagraph (i) above, a certificate of the accounting firm (in the form of
the Accountant's Letter), and together with the statements referred to in
subparagraph (ii) above, a certificate of the Responsible Officer opining on or
certifying such statements (which certificate when furnished by an accounting
firm, may be limited to accounting matters and disclaim responsibility for legal
interpretations) (a "Compliance Certificate") (A) certifying that no Event of
----------------------
Default or Default has occurred or, if such an Event of Default or Default has
occurred, specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect hereto and (B) setting forth
computations in reasonable detail satisfactory to the Lender demonstrating
compliance with the covenants contained in Section 6.02(u) of the Agreement;
---------------
(iv) SEC Filings and Press Releases. Promptly after the same become
------------------------------
publicly available, copies of all periodic and other reports, proxy statements
and other materials, if any, filed by it with the Securities and Exchange
Commission, or any governmental authority succeeding to any of or all the
functions of said Commission, or with any national securities exchange, or
distributed to its shareholders, as the case may be;
<PAGE>
(v) Operations. Promptly, from time to time, such other information
----------
regarding the operations, business affairs and financial condition of the
Parent, the Borrower or any Subsidiary or Affiliate, or compliance with the
terms of any Loan Documents, as the Lender may reasonably request;
(vi) Collateral Reports. (A) No later than the tenth (10th) day after the
------------------
end of each month, (x) a Borrowing Base Certificate as of the end of the
preceding month and (x) an aging of its Accounts by Account Debtor as of the end
of such month, and (y) no later than the second (2nd) day after the end of each
week, a summary detailing the prior week's Accounts plus additions to such
Accounts less deductions from such Accounts (collectively, the "Collateral
----------
Reports");
- -------
(vii) Schedule of Sales. Upon the request of the Lender, a schedule of
-----------------
the Borrower's sales for the previous week or shorter period, by invoice,
customer, collections, return or credits and otherwise in reasonable detail and
specific credit memos netted by customer for such week or shorter period;
(viii) Cash Balances. Upon the request of the Lender, a report as to
-------------
the cash balances in the Borrower's and each Subsidiary's and Affiliate's
deposit accounts (whether in existence on the date of this Agreement or
hereafter) or at the end of the preceding week together with a copy of the most
recent bank statement relating to such accounts;
(ix) Management Letters. Promptly, upon receipt thereof, copies of all
------------------
audit reports, management letters or written comments submitted to the
Borrower's Board of Directors by independent public accountants in connection
with each annual, interim or special-audit of the Borrower made by such
accountants; and
(x) Other Documents. Promptly upon the Lender's written request from time-
---------------
to-time, such other information about the financial condition and operations of
the Borrower as the Lender may reasonably request.
B. PROJECTIONS
(i) Within thirty (30) days after the beginning of each Fiscal Year:
(a) a projected consolidated balance sheet of the Parent and its
Subsidiaries and Affiliates for such Fiscal Year;
(b) projected consolidated cash flow statements of the Parent and its
Subsidiaries and Affiliates including details of cash disbursements (including
for Capital Expenditures), changes in working capital and the Borrowing Base for
such Fiscal Year, and projected availability of borrowings under the Working
Capital Revolving Loan;
<PAGE>
(c) projected consolidated income statements for the Parent and its
Subsidiaries and Affiliates for such Fiscal Year, in such case broken down on a
monthly basis, together with appropriate supporting details as reasonably
requested by the Lender; and
(d) all of the information under (a), (b) and (c) above shall be an
operating plan, approved by the Parent's board of directors; for the ensuing
Fiscal Year (together with a complete statement of the assumptions on which such
plan is based) which will include the monthly budget for the following year in
reasonable detail acceptable to the Lender.
<PAGE>
FINANCIAL COVENANTS
-------------------
There shall be no breach or failure to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP, consistently applied.
(a) Maximum Capital Expenditures. The Parent and its Subsidiaries
----------------------------
(except Butler UK), on a consolidated basis, shall not make Capital Expenditures
that exceed in the aggregate the amounts set forth below for each Fiscal Year
set forth below, which amount shall be noncumulative from year to year:
Maximum Capital
Fiscal Year Expenditures
----------- --------------
1997 $4,000,000
1998 $4,200,000
1999 $4,000,000
2000 $4,250,000
2001 $4,500,000
(b) Tangible Net Worth. The Parent and its Subsidiaries, on a
------------------
consolidated basis, shall have Tangible Net Worth measured as at each of the
dates set forth below for the period of the Fiscal Year to such date (and shall
maintain at all times during the period from and including such date through but
excluding the last day of the Fiscal Quarter immediately succeeding such date),
equal to or greater than the amount set forth opposite such date:
Date Tangible Net Worth
---- ------------------
September 30, 1997 $14,000,000
December 31, 1997 $15,500,000
March 31, 1998 $16,000,000
June 30, 1998 $16,500,000
September 30, 1998 $17,500,000
<PAGE>
December 31, 1998 $18,500,000
March 31, 1999 $18,500,000
June 30, 1999 $19,000,000
September 30, 1999 and thereafter $20,000,000
(c) Fixed Charge Coverage Ratio. The Parent and its Subsidiaries
---------------------------
(except Butler UK), on a consolidated basis, shall have a Fixed Charge Coverage
Ratio measured as at each of the dates set forth below for the period of the
Fiscal Year to such date (and shall maintain at all times during the period from
and including such date through but excluding the last day of the Final Quarter
immediately succeeding such date), of not less than the amount set forth
opposite such date:
Fixed Charge Coverage
Date Ratio
---- -----
September 30, 1997 1.2:1.0
December 31, 1997 1.2:1.0
March 31, 1998 1.0:1.0
June 30, 1998 1.1:1.0
September 30, 1998 1.2:1.0
December 31, 1998 1.2:1.0
March 31, 1999 1.0:1.0
June 30, 1999 1.1:1.0
<PAGE>
September 30, 1999 1.2:1.0
December 31, 1999 1.2:1.0
March 31, 2000 1.0:1.0
June 30, 2000 1.1:1.0
September 30, 2000 1.2:1.0
December 31, 2000 1.2:1.0
March 31, 2001 1.0:1.0
June 30, 2001 1.1:1.0
(d) Interest Coverage Ratio. The Parent and its Subsidiaries (except
-----------------------
Butler UK), on a consolidated basis, shall have an Interest Coverage Ratio
measured as at each of the dates set forth below for the period of the Fiscal
Year to such date (and shall maintain at all times during the period from and
including such date through but including the last day of the Fiscal Quarter
immediately succeeding such date) equal to or greater than the amount set forth
opposite such date:
Fiscal Quarter Interest Coverage Ratio
-------------- ----------------------------
September 30, 1997 1.3:1.0
December 31, 1997 1.4:1.0
March 31, 1998 1.2:1.0
June 30, 1998 1.3:1.0
September 30, 1998 1.4:1.0
December 31, 1998 1.4:1.0
March 31, 1999 1.2:1.0
June 30, 1999 1.3:1.0
September 30, 1999 1.4:1.0
December 31, 1999 1.4:1.0
March 31, 2000 1.2:1.0
June 30, 2000 1.3:1.0
September 30, 2000 1.4:1.0
December 31, 2000 1.4:1.0
March 31, 2001 1.2:1.0
June 30, 2001 1.3:1.0
<PAGE>
EXHIBIT 10.39
CREDIT AGREEMENT dated as of November 12, 1997, between Butler of New
Jersey Realty Corp., a New Jersey corporation, as borrower (the "Borrower"), and
--------
Fleet Bank, National Association, a national banking association (the "Lender").
------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lender extend credit to
the Borrower in the form of two term loans in the amount of $6,400,000 and
$350,000; and
WHEREAS, the Lender has agreed to make such extension of credit
provided that the Borrower grant to the Lender, among other things, a first
priority mortgage lien on the property known as 110 Summit Avenue, Montvale, New
Jersey on the terms and conditions set forth therein:
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall have
-------------
the following meanings:
"Affiliate": as to any Person, (a) any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common
control with, such Person, including, without limitation, any joint venture
of such Person, or (b) any Person who is a director, officer, shareholder
or partner (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in the preceding clause (a). For purposes of
this definition, "control" of a Person means the power, directly or
indirectly, either to (i) vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person or (ii)
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agreement": this Credit Agreement, as the same may be amended,
---------
supplemented or otherwise modified from time to time.
"Amortization Expense": of any Person for any period, any amount
--------------------
deducted in the determination of Consolidated Net Income of a Person for
such period and which would be included in amortization expense, determined
on a consolidated basis in accordance with GAAP.
"Base Rate": the rate of interest per annum publicly announced by the
---------
Lender from time to time as its reference rate in making loans to borrowers
at its principal offices. The Base Rate is not intended to reflect the
rate of interest
1
<PAGE>
charged to any particular class of borrowers. The applicable rate of
interest charged will change automatically and immediately as of the date
the Lender changes its Base Rate, without notice.
"Borrower": as defined in the Preamble.
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New Jersey are authorized or required by law to
close.
"Capital Stock": any and all shares, interests, participation or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Capital Expenditure": for any Person for any period, any expenditure
-------------------
or commitment to make any expenditure in respect of the purchase or other
acquisition of fixed or capital assets (excluding any such asset acquired
in connection with normal replacement and maintenance programs properly
charged to current operations) during such period as calculated on a
consolidated basis.
"Cash Equivalents": as defined in subsection 6.8(b).
----------------
"Closing Date": the date on which all the conditions set forth in
------------
Section 4 shall first have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Consolidated Fixed Charges": of any Person for any period, the sum of
--------------------------
(a) Consolidated Interest Expense of such Person for such period; (b)
required amortization of Indebtedness of any Person, determined on a
consolidated basis in accordance with GAAP, for such period, and (c) any
discount or premium relating to such Indebtedness of such Person for any
period involved, whether expensed or capitalized.
"Consolidated Fixed Charge Coverage Ratio": of any Person for any
----------------------------------------
period the ratio of (i) the sum of Consolidated Net Income for such Person
for such period plus income taxes deducted in determining such Net Income
plus Consolidated Interest Expense, plus Depreciation Expense, plus
Amortization Expense minus Capital Expenditures for such period to (ii)
Consolidated Fixed
2
<PAGE>
Charges of such Person for such period.
"Consolidated Interest Expense": of any Person for any period, the
-----------------------------
amount of interest expense, both expensed and capitalized, of such Person,
determined on a consolidated basis in accordance with GAAP, for such period
on the aggregate principal amount of the Indebtedness of such Person for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income": of any Person for any period, net income of
-----------------------
such Person determined on a consolidated basis in accordance with GAAP for
such period.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound including without limitation any Indebtedness.
"Default": any of the events specified in Section 8, hereof, whether
-------
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Depreciation Expense": of any Person for any period, any amount
--------------------
deducted in the determination of the Consolidated Net Income of such Person
for such period which would be included in depreciation expense, determined
in accordance with GAAP.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Environmental Laws": any and all foreign, federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability
or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirement": is the percentage amount
--------------------------------
(expressed as a decimal) of reserves that applicable United States laws
would require the Lender to maintain with respect to liabilities incurred
on the London Interbank Market including, without limitation, reserves
required under Regulation D of the Board of Governors of the Federal
Reserve System for euro-currency liabilities (as defined in such regulation
and deemed, for purposes of this Agreement, to include the Lender's
liabilities incurred on the London Interbank Market) without
3
<PAGE>
benefit of or credit for pro-ration, exception, or offsets otherwise
available from time to time under such regulation.
"Eurodollar Base Rate": is for each Interest Period the interest rate
--------------------
(expressed as a decimal) for deposits in Dollars approximately equal to the
then principal amount of the Term Loan and for a one month period, which
rate appears on the Telerate Page 3750 as of 11:00 a.m., London time, on
the date that is two Business Days prior to the first Business Day of such
Interest Period (If such rate does not appear on the Telerate Page 3750,
the rate utilized shall be the rate which appears, or if more than one such
rate appears, the average of the rates which appear on the Reuters Screen
LIBO Page as of 11:00 a.m., London time, on the day that is two Business
Days prior to such date).
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
------------------------------------------------------------
1.00 Eurocurrency Reserve Requirements
Eurodollar Base Rate
--------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"Financing Lease": any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"FNB": Fleet National Bank, a national banking association.
---
"Foreign Exchange Contract": contracts under which any Person agrees
-------------------------
to purchase or sell on a particular date one type of currency for another
type of currency.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"GECC Agreement": the credit agreement between Butler International,
--------------
Inc., Butler Service Group, Inc. and General Electric Capital Corporation
among others dated as of May 31, 1994 as amended from time to time.
4
<PAGE>
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person, any obligation of such
--------------------
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations of any other third Person in any manner,
whether directly or indirectly or otherwise to assure or hold harmless the
owner of any primary obligation against loss in respect thereof.
"Guarantee Liabilities": as defined in Section 7.1.
---------------------
"Guarantor" or "Guarantors": Butler International, Inc., a Maryland
--------- ----------
corporation, and Butler Service Group, Inc., a New Jersey corporation.
"Guaranty": the agreement of guaranty entered into by the Guarantors
--------
in connection with this Agreement.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business) or which is evidenced by a note, bond,
debenture or similar instrument, (b) all obligations of such Person under
Financing Leases, (c) all obligations of such Person in respect of letters
of credit or acceptances issued or created for or for the account of such
Person, (d) all obligations of such Person under Foreign Exchange Contracts
or interest rate swap agreements, and (e) all liabilities secured by any
Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Interest Period": each period beginning with the period from the
---------------
Closing Date to the date before the first Payment Date and each period
thereafter from a Payment Date to the next Payment Date.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any Financing Lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"Loan Documents": the documents in subsection 4.2(a) whose delivery
--------------
is a condition to the obligation of the Lender to make the Term Loans and
all other documents executed and delivered in connection herewith or
therewith, including any amendments, supplements or other modifications to
any of the foregoing.
5
<PAGE>
"Master Agreement": that certain Master ISDA Agreement dated September
----------------
__, 1997 entered into between the Borrower and FNB.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, prospects, operations, property or financial condition of the
Borrower, (b) the ability of the Borrower to perform its obligations under
the Loan Documents, or (c) the validity or enforceability of the Loan
Documents or the rights or remedies of the Lender hereunder or thereunder.
"Material Subsidiary": any Subsidiary of Butler Service Group, Inc.
-------------------
which generates 25% or more of the consolidated revenues of Butler Service
Group, Inc. or holds assets with 25% or more of the book value of all the
assets of Butler Service Group, Inc. and its Subsidiaries, or any
Subsidiary of Butler International, Inc. which generates 25% or more of the
consolidated revenues of Butler International, Inc. or holds assets with
25% or more of the book value of all the assets of Butler International,
Inc. and its Subsidiaries.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Mortgaged Property": as defined in Section 4.2(b).
------------------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Non-Excluded Taxes": as defined in subsection 2.12.
------------------
"Note": Term Loan A Note and Term Loan B Note.
----
"Participants": as defined in subsection 8.7(b).
------------
"Payment Date": A Term Loan A Payment Date or a Term Loan B Payment
------------
Date, as applicable.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business trust,
------
joint stock company, limited liability company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered
6
<PAGE>
by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"Purchasing Lender": as defined in subsection 8.7(c).
-----------------
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as now and form time to time hereafter in effect.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its material property is subject.
"Responsible Officer": the chief executive officer, the president or
-------------------
the chief financial officer of the Borrower.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which more than 50% of the shares of stock, or other ownership
interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity, are at the time
owned, directly or indirectly, through one or more intermediaries, or both,
by such Person.
"Term Loans": Term Loan A and Term Loan B, collectively.
----------
"Term Loan A": the loan which the Lender has committed to make
-----------
pursuant to Section 2.1 of this agreement.
"Term Loan A Maturity Date": as defined in subsection 2.1(b).
-------------------------
"Term Loan A Note": as defined in subsection 2.1(c).
----------------
"Term Loan A Payment Date": as defined in subsection 2.1(b).
------------------------
"Term Loan B": the loan which the Lender has committed to make
-----------
7
<PAGE>
pursuant to Section 2.2 of this agreement.
"Term Loan B Maturity Date": as defined in subsection 2.2(b).
-------------------------
"Term Loan B Note": as defined in subsection 2.2(c).
----------------
"Term Loan B Payment Date": as defined in subsection 2.2(b).
------------------------
"UCC": the Uniform Commercial Code as from time to time in effect in
---
the State of New Jersey.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
-----------------------------
all terms defined in this Agreement shall have the defined meanings when used in
the Note or any certificate or other document made or delivered pursuant hereto.
(b) As used herein and in the Note, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower not defined in subsection 1.1 and accounting terms partly defined in
subsection 1.1, to the extent not defined, shall have the respective meanings
given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
8
<PAGE>
SECTION 2. THE TERM LOANS
2.1 Term Loan A. (a) Subject to the terms and conditions hereof, the Lender
-----------
hereby agrees to make a term loan to the Borrower in an amount of $6,400,000
("Term Loan A").
- -------------
(b) Term Loan A will be repaid in eighty three consecutive monthly
principal payments in the amounts noted next to the Payment Dates on Exhibit C
(the date of each such payment being a "Term Loan A Payment Date") and a final
------------------------
payment on December 1, 2004 of all amounts due under this Agreement which remain
unpaid on such date (the "Term Loan Maturity Date").
-----------------------
(c) Term Loan A shall be evidenced by a note substantially in the form of
Exhibit A hereto (the "Term Loan A Note").
----------------
2.2 Term Loan B. (a) Subject to the terms and conditions hereof, the Lender
-----------
hereby agrees to make a term loan to the Borrower in an amount of $350,000
("Term Loan B").
- -------------
(b) Term Loan B will be repaid in forty seven consecutive monthly
principal payments in the amount of $7,291.67 on the first Business Day of each
month (the date of each such payment being a "Term Loan B Payment Date") and a
------------------------
final payment on November 1, 2001 of all amounts due under this Agreement which
remain unpaid on such date (the "Term Loan B Maturity Date").
-------------------------
(c) Term Loan B shall be evidenced by a note substantially in the form of
Exhibit B hereto (the "Term Loan B Note").
----------------
2.3 Swap Funding Advances. In the event that Borrower fails to pay
---------------------
any amount that is due and owing to FNB under and pursuant to the Master
Agreement (after giving effect to any applicable grace period), then upon demand
by FNB, in its sole discretion, Lender shall pay such amount directly to FNB for
the account of the Borrower and the Borrower hereby authorizes and consents to
such payment by the Lender. The Borrower agrees that (a) FNB shall have no
obligation to demand Lender to advance such funds on behalf of the Borrower, (b)
the making of such a demand by FNB will not create any obligation to make such a
demand in the future and (c) at all times, FNB may chose not to make such demand
and choose, instead, to exercise its rights under the Master Agreement. The
Borrower shall reimburse Lender for any amount Lender may pay on account of any
amount that is due and owing by Borrower to FNB. Such amounts shall be due upon
demand and shall bear interest at a rate per annum equal to the rate payable
under this Agreement for amounts outstanding under Term Loan B from, and
including, the date of payment by Lender to, but excluding, the date Borrower
reimburses Lender amount. FNB is an intended third-party beneficiary of
Lender's obligations under this section.
2.4 Optional Prepayments. With respect to the Term Loans, the
--------------------
Borrower may upon at least three Business Days' irrevocable notice to the
Lender, on
9
<PAGE>
any Payment Date prepay the amounts then due to be paid under such Term Loan,
without premium or penalty. Any prepayments with respect to any Term Loan shall
be in an aggregate principal amount of $100,000 or a whole multiple thereof and
shall be applied towards satisfaction of the obligation to make payments in
inverse order of maturity. Any amounts repaid or prepaid under the Term Loans
may not be reborrowed.
2.5 Fees. (a) The Borrower agrees to pay a commitment fee equal to $33,750,
----
$16,875 of which was paid upon the acceptance of the commitment letter and the
rest of which is payable on the Closing Date.
(b) In the event that the Borrower makes a prepayment of any principal
amounts outstanding on a date other than a Payment Date, whether that payment is
made voluntarily or by reason of an acceleration of the payment date of said
amount following the occurrence of an Event of Default, the Borrower shall pay
to the Lender a Make Whole Fee. A certificate as to the amount of the Make
Whole Fee submitted by the Lender to the Borrower setting forth in reasonable
detail the basis of computation of such amounts shall be conclusive and binding,
in the absence of manifest error, as to the amount due. The "Make Whole Fee"
--------------
means, for any prepayment prior to a Payment Date, an amount (not less than
zero) equal to a fraction, the numerator of which is the product of (i) the
amount of said prepayment so prepaid, multiplied by (ii) the Make Whole Rate,
multiplied by (iii) the Remaining Term, and the denominator of which is 360, the
entire amount of which is discounted to present value using an interest rate set
within the reasonable discretion of the Lender. The "Make Whole Rate" means for
---------------
any such prepayment (or portion thereof) the per annum rate of interest equal to
the difference between (i) interest rate which would have been charged on the
amounts outstanding, and (ii) the yield on United States Treasury Obligations as
determined by the Lender as of the date of the prepayment for such obligations
having a maturity approximately equal to the Remaining Term. "Remaining Term"
--------------
means the number of days until the Payment Date.
2.6 Interest Rates and Payment Dates. The Term Loans shall bear interest at a
--------------------------------
rate per annum equal to the Eurodollar Rate as determined as of the Closing Date
and on each Payment Date thereafter plus 2.25%. Interest on the Term Loans
shall be payable in arrears on each Payment Date. If an Event of Default shall
occur and be continuing all amounts due under the Loan Documents shall bear
interest at a rate per annum which is, in the case of overdue principal or
interest, the rate that would otherwise be applicable thereto pursuant to the
foregoing provisions of this subsection plus 3.0% from the date of such non-
payment until such amount is paid in full (as well after as before judgment).
Interest accruing pursuant to this paragraph shall be payable from time to time
on demand.
2.7 Computation of Interest and Fees. (a) Interest on the Term Loans shall be
--------------------------------
calculated on the basis of a 360 day year for the actual days elapsed. The
Lender shall as soon as practicable notify the Borrower of each determination of
a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the Base Rate or the Eurocurrency Reserve Requirement shall become
effective as of the opening of
10
<PAGE>
business on the day on which such change in the Base Rate or the Eurocurrency
Reserve Requirement becomes effective. The Lender shall as soon as practicable
notify the Borrower of the effective date and the amount of each such change in
interest rate.
(b) Each determination of an interest rate by the Lender pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
in the absence of manifest error.
2.8 Inability to Determine Interest Rate. If prior to the first day of any
------------------------------------
Interest Period the Lender shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the interbank eurodollar market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for the Interest Period the Lender
shall give telecopy or telephonic notice thereof to the Borrower as soon as
practicable thereafter. If such notice is given all amounts due under the Term
Loans shall bear interest at the Lender's floating Base Rate.
2.9 Illegality. Notwithstanding any other provisions herein, if any
----------
Requirement of Law or any change therein or in the interpretation or application
thereof shall make it unlawful for the Lender to make or maintain Eurodollar
loans all amounts due under the Term Loans shall bear interest at the Lender's
floating Base Rate.
2.10 Indemnity. The Borrower agrees to indemnify the Lender and hold the
---------
Lender harmless from any loss or expense which the Lender may sustain or incur
as a consequence of (a) default by the Borrower in payment when due of the
principal amount of or interest, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice in accordance with provisions
of this Agreement or (c) the making of a prepayment on a day which is not the
last day of an Interest Period with respect thereto, including, without
limitation, in each case, any such loss or expense arising from the reemployment
of funds obtained by it to maintain the Term Loans or from fees payable to
terminate the deposits from which such funds were obtained. This covenant shall
survive termination of this Agreement, payment of the outstanding Note and all
other amounts payable hereunder.
2.11 Requirements of Law. (a) If the adoption of or any change in any
-------------------
Requirement of Law or in the interpretation or application thereof or compliance
by the Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to any Loan Document or any Eurodollar loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof (except
for Non-Excluded Taxes covered by subsection 2.12 and changes in the rate
of tax on the overall net income of the Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
11
<PAGE>
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay the Lender, upon its demand, any additional amounts necessary to
compensate the Lender for such increased cost or reduced amount receivable. If
the Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify the Borrower, of the event by reason of
which it has become so entitled. A certificate as to any additional amounts
payable pursuant to this subsection submitted by the Lender to the Borrower
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Note and all
other amounts payable hereunder.
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by the Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which the Lender
or such corporation could have achieved but for such change or compliance
(taking into consideration the Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by the Lender to be material,
then from time to time, after submission by the Lender to the Borrower of a
written request therefore, the Borrower shall pay to the Lender such additional
amount or amounts as will compensate the Lender for such reduction.
2.12 Taxes. All payments made by the Borrower under any Loan Document shall be
-----
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority, excluding net
income taxes and franchise taxes (imposed in lieu of net income taxes) imposed
on the Lender as a result of a present or former connection between the Lender
and the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, any Loan
Document). If any such non-excluded taxes, levies, imposts, duties, charges,
fees deductions or withholdings ("Non-Excluded Taxes") are
------------------
12
<PAGE>
required to be withheld from any amounts payable to the Lender hereunder or
under the Note, the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all Non-Excluded
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in any Loan Document. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Lender a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
the Lender the required receipts or other required documentary evidence, the
Borrower shall indemnify the Lender for any incremental taxes, interest or
penalties that may become payable by the Lender as a result of any such failure.
The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Note and all other amounts payable
hereunder.[END OF SECTION]
13
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Term
Loans, the Borrower hereby represents and warrants as follows:
3.1 Financial Condition. The audited consolidated balance sheets of the Butler
-------------------
International, Inc. and its Subsidiaries as of December 31, 1996 and the related
audited consolidated statements of operations, stockholders' equity and cash
flows for the fiscal year ended on such date, reported on by Deloitte & Touche,
LLP, copies of which have heretofore been furnished to the Lender, are complete
and correct and present fairly the consolidated financial condition and results
of operations of Butler International, Inc. and its Subsidiaries as of such
dates. All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved. Neither Butler International Inc. nor its
Subsidiaries has any contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which is not reflected in the foregoing statements or in the notes thereto.
During the period from December 31, 1996 to and including the date hereof there
has been no sale, transfer or other disposition by Butler International, Inc. or
its Subsidiaries of any material part of its business or property and no
purchase or other acquisition of any business or property (including any capital
stock of any other Person) material in relation to the consolidated financial
condition of Butler International, Inc. and its Subsidiaries on December 31,
1996.
3.2 No Change. Since December 31, 1996 (a) there has been no development or
---------
event which has had or could reasonably be expected to have a Material Adverse
Effect, and (b) no dividends or other distributions have been declared, paid or
made upon the Capital Stock of the Borrower nor has any of the Capital Stock of
the Borrower been redeemed, retired, purchased or otherwise acquired for value
by the Borrower.
3.3 Corporate Existence; Compliance with Law. The Borrower (a) is duly
----------------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, (b) has the corporate power and
authority to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently engaged, (c) is duly
qualified as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification except to the extent that the
failure to be so qualified could not, in the aggregate, have a Material Adverse
Effect, and (d) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith could not, individually or in the
aggregate, have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. The Borrower has
-------------------------------------------------------
the corporate power and authority to make, deliver and perform its obligations
under each of
14
<PAGE>
the Loan Documents to which it is a party, and to borrow thereunder and has
taken all necessary corporate action to authorize the borrowings on the terms
and conditions of the Loan Documents and to authorize the execution, delivery
and performance of the Loan Documents. No consent or authorization of, filing
with or other act by or in respect of, any Governmental Authority or any other
Person is or will be required in connection with the borrowings hereunder or
with the execution, delivery, performance, validity or enforceability of the
Loan Documents. This Agreement constitutes, and each Loan Document when executed
and delivered, will constitute, legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of any Loan
------------
Document, the borrowings thereunder and the use of the proceeds thereof will not
violate any Requirement of Law or Contractual Obligation of the Borrower and
will not result in, or require, the creation or imposition of any Lien on any of
its properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
3.6 No Material Litigation. Except as disclosed in Schedule 3.6, no
----------------------
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or against any of its properties or
revenues (a) with respect to the Loan Documents or any of the transactions
contemplated thereby, or (b) which could reasonably be expected to have a
Material Adverse Effect.
3.7 No Default. The Borrower is not in default under or with respect to any of
----------
its Contractual Obligations in any respect which could reasonably be expected to
have a Material Adverse Effect. No Default or Event of Default has occurred and
is continuing.
3.8 No Burdensome Restrictions. No Requirement of Law or Contractual
--------------------------
Obligation of the Borrower has a Material Adverse Effect.
3.9 Taxes. The Borrower has filed or caused to be filed all tax returns which
-----
are required to be filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower; no tax Lien has been filed, and, to the knowledge of the
Borrower, no claim is being asserted, with respect to any such tax, fee or other
charge.
3.10 Subsidiaries. The Borrower has no Subsidiaries
------------
15
<PAGE>
3.11 Federal Regulations; Investment Company Act; Other Regulations. The
--------------------------------------------------------------
Borrower is not subject to regulation under any Federal or State statute or
regulation which limits its ability to incur Indebtedness. The Borrower is not
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No part of
the proceeds of the Term Loans will be used for "purchasing" or "carrying" any
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of such Board of Governors. If requested by the
Lender, the Borrower will furnish to the Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.
3.12 ERISA. Except as set forth in Schedule 3.12:
-----
(a) Each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code and the Borrower has filed all
reports required to be filed under ERISA and the Code with respect to each
such Plan. The Borrower have satisfied all material requirements imposed
by ERISA and the Code with respect to the funding of all Plans.
(b) Neither a reportable event (as defined in Section 4043 of ERISA)
which requires notification to the PBGC nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred or is occurring with respect to any Single Employer
Plan established or maintained, or to which contributions have been made by
the Borrower or any Commonly Controlled Entity which would have a Material
Adverse Effect.
(c) No events or conditions have occurred and are continuing which
would permit any Plan to be terminated under circumstances which would
cause the Lien provided under Section 4068 of ERISA to attach to the
Mortgaged Property or any other assets of the Borrower or any Commonly
Controlled Entity. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans),
did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made, exceed the value of the assets
of such Plan allocable to such accrued benefits.
(d) The Borrower has not had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any liability under ERISA if the Borrower or
any such Commonly Controlled Entity were to withdraw partially or
completely from any Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed
made. No such Multiemployer Plan is in Reorganization or Insolvent.
16
<PAGE>
3.13 Purpose of Term Loans. The proceeds of the Term Loans shall be used by
---------------------
the Borrower for repaying existing debt and closing expenses connected with the
Term Loans.
3.14 Environmental Matters. Except as set forth in Schedule 3.14:
---------------------
(a) The properties of Borrower have not previously contained, any
Materials of Environmental Concern in amounts or concentrations which (i)
constitute or constituted a violation of, nor (ii) could reasonably be
expected to give rise to liability under, Environmental Laws.
(b) The properties of the Borrower and all operations at such
properties are in compliance, and have in the last 5 years been in
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about such properties, or violation of any
Environmental Law with respect to such properties which could interfere
with the continued operation of such properties or impair the fair saleable
value thereof.
(c) The Borrower has not received any notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to
any of their respective properties or businesses, nor does the Borrower
have knowledge or reason to believe that any such notice will be received
or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from any property of the Borrower in violation of, or in a
manner or to a location which could reasonably give rise to liability
under, Environmental Laws, nor have any Materials of Environmental Concern
been generated, treated, stored or disposed of at, on or under any of such
properties in violation of, or in a manner that could reasonably give rise
to liability under, any applicable Environmental Laws.
(e) No judicial proceedings or governmental or administrative action
is pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which any of the Borrower is or will be named as a
party with respect to any of its properties nor are there any consent
decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under
any Environmental Law with respect to such properties.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from any of the properties of the Borrower, or
arising from or related to their operations in connection with such
properties, in violation of or in amounts or in a manner that could
reasonably give rise to liability under Environmental Laws.
17
<PAGE>
3.15 Insurance. Borrower maintains insurance with financially sound and
---------
reputable insurance companies on all of its properties in such amounts and
against such risks (but, including in any event, product and environmental
liability coverage) as are usually insured against by companies engaged in the
same or a similar business. ERROR! REFERENCE SOURCE NOT FOUND.
18
<PAGE>
SECTION 4. CONDITIONS
4.1 Closing. Closing of the Term Loans will occur at the offices of
-------
McCarter & English located in the City of Newark, New Jersey at 10:00 a.m. on
November 12, 1997 or such other location as agreed to by the parties.
4.2 Conditions to Effectiveness of this Agreement. The obligation of
---------------------------------------------
the Lender to make the Term Loans is subject to the satisfaction on or prior to
the Closing Date, of the following conditions precedent:
(a) Loan Documents. The Lender shall have received the following
--------------
documents duly executed by the Borrower and any other Person that may be a
party to such document: (i) this Agreement, (ii) the Term Note, (iii) the
Guaranty, (iv) a mortgage on Mortgaged Property, (v) an assignment of
leases effecting the Mortgaged Property, (vi) a UCC financing statement
covering items of personal property used in connection with the Mortgaged
Property, (vii) the Master Agreement, and (viii) subordination, non-
disturbance and attornment agreement for each tenant of the Mortgaged
Property which is not a Guarantor.
(b) Collateral. The Lender shall have received: (i) a first priority
----------
perfected mortgage lien on the real property known as 110 Summit Avenue,
Montvale, New Jersey (the "Mortgaged Property"), (ii) a first priority
perfected security interest in fixtures, furniture, equipment, machinery,
books and records, and other personal property located at or used in
connection with the Mortgaged Property, and (iii) an assignment of all
leases, sub-leases and associated rents for the Mortgaged Property.
(c) Corporate Proceedings of the Borrower and Guarantors. The Lender
----------------------------------------------------
shall have received a copy of the resolutions, in form and substance
satisfactory to the Lender, of the Boards of Directors of the Borrower and
each of the Guarantors authorizing the execution of the Loan Documents
certified by the Secretary of the Borrower and/or the Guarantors as of the
Closing Date, which certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded and shall
be in form and substance satisfactory to the Lender.
(d) Incumbency Certificate. The Lender shall have received a
----------------------
certificate of the Secretary of the Borrower and each of the Guarantors
dated the Closing Date, as to the incumbency and signatures of the officers
thereof executing the Loan Documents.
(e) Corporate Documents. The Lender shall have received, (i) true
-------------------
and complete copies of the certificate of incorporation and by-laws of the
Borrower and each Guarantor, certified as of the Closing Date as complete
and correct copies thereof, and (ii) a good standing certificate for the
Borrower and each Guarantor from its respective jurisdiction of
organization.
19
<PAGE>
(f) No Violation. The consummation of the transactions contemplated
------------
hereby shall not contravene, violate or conflict in any material respect
with, nor involve the Lender in any violation of, any Requirement of Law.
(g) Filings, Registrations and Recordings. Any documents (including,
-------------------------------------
without limitation, financing statements and filings under the Assignment
of Claims Act of 1940) required to be filed, and any other actions required
to be taken, under or in connection with any of the Loan Documents in order
to create or confirm, in favor of the Lender, a perfected security interest
in the collateral thereunder shall have been properly filed or taken, as
the case may be, and the Lender shall have received evidence satisfactory
to it of each such filing, registration, recordation or other action and
satisfactory evidence of the payment of any necessary fee, tax or expense
relating thereto.
(h) Fees. The Lender shall have received the fees to be received on
----
the Closing Date referred to in this Agreement.
(i) Legal Opinions. The Lender shall have received the executed
--------------
legal opinion of McBreen, McBreen & Kopko, counsel to the Borrower in form
and substance satisfactory to the Lender.
(j) Other Conditions. The Borrower shall have satisfied any other
----------------
conditions set forth in the commitment letter from the Lender to the
Borrower dated June 19, 1997.
20
<PAGE>
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that so long as any amount is owing to the
Lender:
5.1 Financial Statements. The Borrower. shall furnish to the Lender:
--------------------
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of Butler International, Inc. and its Subsidiaries,
a copy of the audited consolidated and unaudited consolidating balance
sheet of Butler International, Inc. and its Subsidiaries including the
Borrower as of the end of such year and audited consolidated and unaudited
consolidating statements of operations, stockholders' equity and cash flows
for such year, setting forth for the consolidated statements, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by Deloitte & Touche,
LLP, or other independent certified public accountants of nationally
recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of Butler International, Inc., the unaudited consolidated and
consolidating balance sheet of Butler International, Inc. and its
Subsidiaries including the Borrower as of the end of such quarter and the
related unaudited consolidated and consolidating statements of operations,
stockholders' equity and cash flows of Butler International, Inc. and its
Subsidiaries including the Borrower for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth for the
consolidated statements, certified by Butler International's chief
financial officer as being fairly stated in all material respects when
considered in relation to the most recent audited consolidated financial
statements of Butler International, Inc.;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
21
<PAGE>
5.2 Certificates; Other Information. The Borrower shall furnish to the Lender:
-------------------------------
(a) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) and 5.1(b), a certificate of Butler
International's chief financial officer (i) stating that, to the best of
such officer's knowledge, the Borrower and each Guarantor during such
period has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement and in the Note
and the other Loan Documents to be observed, performed or satisfied by it,
and that such officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) showing in detail
calculations supporting such statement in respect of all financial
covenants contained in this Agreement;
(b) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) and 5.1(b), a certificate of Butler
International's chief financial officer stating that, to the best of such
officer's knowledge, Butler International, Inc. and Butler Service Group,
Inc. during such period has observed or performed all of its covenants and
other agreements contained in all its material agreements and that such
officer has obtained no knowledge of any default under such;
(c) concurrently with the delivery of the financial statements
referred to in subsections 5.1(a) projected consolidated and consolidating
financial statements of Butler International, Inc. all in detail and
prepared in accordance with GAAP consistently applied and certified by the
chief financial officer of Butler International, Inc.;
(d) within 5 Business Days after filing, copies of all filings with
the Securities and Exchange Commission including Form 10Ks and Form 10Qs;
(e) promptly after receipt thereof, a copy of all management letters
from the Borrower's or Guarantor's independent certified public
accountants, if and when issued; and
(f) promptly, such additional financial and other information and
copies of such documents and instruments as the Lender may from time to
time reasonably request.
5.3 Payment of Obligations. The Borrower shall pay, discharge or otherwise
----------------------
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith, including by
appropriate proceedings, and reserves, in conformity with GAAP with respect
thereto, have been provided on the books of the Borrower, as the case may be.
22
<PAGE>
5.4 Conduct of Business and Maintenance of Existence. The Borrower shall
------------------------------------------------
continue to engage in business of the same general type as now conducted by it.
The Borrower shall each preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business and comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, individually or
in the aggregate, have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. The Borrower shall keep the Mortgaged
----------------------------------
Property, in good working order and condition; maintain with financially sound
and reputable insurance companies insurance on all its property in such amounts
and against such risks (but including in any event business interruption,
environmental and product liability) as are usually insured against in the same
general area by companies engaged in the same or a similar business; furnish to
the Lender on an annual basis, and at least thirty days prior to the expiration
of any policy of insurance, a certificate demonstrating the existence of such
insurance; and upon written request, full information as to details of the
insurance carried.
5.6 Right to Reappraisal and Environmental Tests. The Lender may at
--------------------------------------------
any reasonable time, cause an appraisal to be conducted on the Mortgaged
Property or cause to be conducted on the Mortgaged Property such environmental
tests as the Lender may reasonably deem desirable. The Borrower will cooperate
with the making of any such appraisal or environmental tests. The Borrower
shall reimburse the Lender for any reasonable out of pocket costs of any such
appraisal or environmental tests.
5.7 Notices. The Borrower shall give notice to the Lender of:
-------
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or (ii) litigation, investigation or proceeding
which may exist at any time between the Borrower and any Governmental
Authority, which in either case, if not cured or if adversely determined,
as the case may be, would have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower in which the
amount involved is $100,000 or more and which is not covered by insurance
or in which injunctive or similar relief is sought which, if granted, could
have a Material Adverse Effect; and
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of proceedings
or the taking of any
23
<PAGE>
other action by the PBGC or the Borrower or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower or Guarantor proposes to take with respect
thereto.
5.8 Environmental Laws. The Borrower shall:
------------------
(a) Comply with, and ensure compliance by all tenants and subtenants
of any real property owned or leased by the Borrower, if any, with, all
applicable Environmental Laws except to the extent that failure to do so would
not be reasonably expected to have a Material Adverse Effect.
(b) Obtain and comply with and maintain, and ensure that all such
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws except to the extent that failure to do so would
not be reasonably expected to have a Material Adverse Effect.
(c) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding Environmental Laws except to the extent
that the same are being contested in good faith by appropriate proceedings and
the pendency of such proceedings would not be reasonably expected to have a
Material Adverse Effect.
5.9 Master Lease; Occupy Mortgaged Property.
---------------------------------------
(a) The Borrower shall maintain a master lease for the Mortgaged
Property between the Borrower and Butler Service Group, Inc. Within 30 days
prior to the termination of such lease the Borrower shall furnish proof that the
lease has been extended to a date later than the Term Loan A Termination Date.
(b) Butler International, Inc. and its Subsidiaries including the
Borrower shall at all times occupy not less than 65% of the Mortgaged Property.
5.10 Operating Accounts. The Borrower shall open and maintain its
------------------
primary operating deposit account with the Lender.
5.11 Additional Guaranties.
---------------------
(a) If any of the existing Subsidiaries of Butler International, Inc.,
other than the Borrower or any Guarantor under this Agreement, shall become a
Material Subsidiary of Butler International, Inc., as reflected in the financial
statements
24
<PAGE>
provided to the Lender under this Agreement, then upon the written request of
the Lender the Borrower shall cause such Material Subsidiary to become a
Guarantor hereunder by executing and delivering a Guaranty Agreement Supplement
in form and substance satisfactory to the Lender and to deliver such documents
as the Lender may reasonably require to establish that the execution and
delivery of such supplement was duly authorized by such Material Subsidiary.
(b) If Butler International, Inc. or any of its Subsidiaries shall, by
reason of any merger, asset acquisition or investment, cause there to be a
Material Subsidiary which is not a Guarantor hereunder, then the Borrower shall
cause such Material Subsidiary, upon the written request of the Lender after
such merger, asset acquisition or investment, to become a Guarantor hereunder by
executing and delivering a Guaranty Agreement Supplement in form and substance
satisfactory to the Lender and to deliver such documents as the Lender may
reasonably require to establish that the execution and delivery of such
supplement was duly authorized by such Material Subsidiary.
5.12 Further Assurances. The Borrower shall execute any and all
------------------
further documents, and take all further action which the Lender may reasonably
request in order to effectuate the transactions contemplated by the Loan
Documents. Without limiting the generality of the foregoing, such further
documents and actions shall include the execution of agreements and instruments,
and filing Uniform Commercial Code financing statements, in order to effectuate
the transactions contemplated by this Agreement and in order to grant, preserve,
protect and perfect the validity and priority of the security interests created
or intended to be created by the Loan Documents.[END OF SECTION]
25
<PAGE>
SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that so long as any amount remains
outstanding under this Agreement:
6.1 Limitation on Indebtedness. The Borrower shall not create, incur, assume,
--------------------------
or suffer to exist any Indebtedness other than the Indebtedness under this
Agreement.
6.2 Limitation on Guarantee Obligations. The Borrower shall not create, incur,
-----------------------------------
assume, or suffer to exist any Guarantee Obligations.
6.3 Limitation on Liens. The Borrower shall not create, incur, assume or
-------------------
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens in favor of the Lender;
(b) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect to taxes which are being contested are maintained on the books of
the Borrower, in conformity with GAAP;
(c) carriers', warehousemen's, construction liens, repairmen's or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 90 days or which are being contested in
good faith by appropriate proceedings;
(d) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations and other
obligations of a like nature incurred in the ordinary course of business;
and
(f) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, are not substantial in amount and
which do not in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of the
business of the Borrower.
6.4 Limitations on Fundamental Changes. The Borrower shall not form, invest in
----------------------------------
or make a loan to any Subsidiary, change the corporate structure, enter into any
merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets without the prior written consent of the Lender.
26
<PAGE>
6.5 Limitation on Dividends; Stock Repurchases. The Borrower shall not declare
------------------------------------------
or pay any dividend (other than dividends payable solely in common stock of the
Borrower) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Borrower whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Borrower without the prior written consent
of the Lender.
6.6 Limitation on Investments, Loans and Advances. The Borrower shall not make
---------------------------------------------
any advance, loan, extension of credit or capital contribution to, or purchase
any stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person (an
"Investment"), except:
----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof having maturities of not more than 180 days from
the date of acquisition, (ii) time deposits and certificates of deposit
having maturities of not more than 180 days from the date of acquisition of
the Lender or of any domestic commercial bank the long-term debt of which
is rated at least A-2 or the equivalent thereof by Standard & Poor's
Corporation or a-2 or the equivalent thereof by Moody's Investors Service,
Inc. and having capital and surplus in excess of $500,000,000, (iii)
repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i) and (ii)
entered into with any bank meeting the qualifications specified in clause
(ii) above, (iv) commercial paper rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or a-2 or the equivalent thereof
by Moody's Investors Service, Inc. and in either case maturing within 180
days after the date of acquisition and (v) securities issued by any
municipality in the United States rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or a-2 or the equivalent thereof
by Moody's Investors Service, Inc. and in either case maturing within 270
days after the date of acquisition ("Cash Equivalents"); and
----------------
(c) Investments arising as a result of the compromise or settlement
of accounts in the ordinary course of business as generally conducted over
a period of time.
6.7 Transactions with Affiliates. The Borrower shall not enter into any
----------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate, unless
such transaction is in the ordinary course of, and pursuant to the reasonable
requirements of, the Borrower is in good faith and is upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate.
27
<PAGE>
6.8 Sale and Leaseback. The Borrower shall not enter into any arrangement with
------------------
any Person providing for the leasing by the Borrower of real or personal
property which has been or is to be sold or transferred by the Borrower to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such property or rental obligations of the
Borrower. [END OF SECTION]
28
<PAGE>
SECTION 7. EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default. The following shall be an "Event of Default":
------------------ ----------------
(a) The Borrower shall fail to pay any principal of or interest on
the Note or any fee or other amount payable hereunder when due in accordance
with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement or other Loan Document shall prove to
have been materially incorrect; or
(c) The Borrower shall default in the observance or performance of
any agreement contained in Section 6 of this Agreement; or
(d) The Borrower shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Documents
(other than as provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 days; or
(e) There shall be an "Event of Default" under the Guaranty; or
(f) The Borrower shall (i) default in any payment of principal of or
interest on any Indebtedness, or in the payment of any Guarantee Obligation
(provided that the principal amount of such Indebtedness or Guarantee Obligation
exceeds, individually, or in the aggregate, $100,000), provided in the
instrument or agreement under which such Indebtedness or Guarantee Obligation
was created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee Obligation
(provided that the principal amount of such Indebtedness or Guarantee Obligation
exceeds, individually, or in the aggregate, $100,000) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or such Guarantee
Obligation to become payable; or
(g) (i) The Borrower shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation,
29
<PAGE>
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower shall
make a general assignment for the benefit of its creditors; or (ii) there shall
be commenced against the Borrower any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii) there
shall be commenced against the Borrower any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the entry
thereof; or (iv) the Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
or (ii) any other event or condition shall occur or exist, with respect to a
Plan; and in each case in clauses (i) and (ii) above, such event or condition,
together with all other such events or conditions, if any, could, in the
reasonable judgment of the Lender, subject the Borrower to any tax, penalty or
other liabilities that in the aggregate could reasonably be expected to have a
Material Adverse Effect; or
(i) One or more judgments or decrees shall be entered against the
Borrower involving in the aggregate a liability (not paid or fully covered by
insurance) of $100,000 or more and (i) all such judgments or decrees shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof or (ii) the judgment creditors with respect to such
judgments or their successors or assigns shall have commenced enforcement
proceedings, which enforcement proceedings shall have remained unstayed for 10
consecutive days; or
(j) The Borrower shall cease to be a wholly owned subsidiary of a
Guarantor; or
(k) The Borrower shall so assert or the security interests created by
any Loan Document shall cease for any reason, unless caused by the action or
inaction of the Lender, to be enforceable and of the same effect and priority
purported to be created thereby.
(k) The Consolidated Fixed Charge Coverage Ratio of Butler
International, Inc. on the last day of any fiscal quarter for the period
including the fiscal quarter then ending and the immediately preceding three
fiscal quarters shall be less than 1.00 to 1.00.
7.2 Acceleration; waiver. (a) If an Event of Default specified in
--------------------
clause (i) or (ii) of paragraph (g) above with respect to the Borrower occurs,
the Term
30
<PAGE>
Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and the Note shall immediately become due and payable.
(b) If any Event of Default not referenced in Subsection 7.2(a) shall
occur, the Lender may by notice of default to the Borrower, declare the Term
Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and the Note to be due and payable forthwith, whereupon the same shall
immediately become due and payable. Upon the term Loan becoming due and payable
the Lender may exercise in whatever order it chooses, whatever remedies may be
available under to the Lender under the Loan Documents, common law, the UCC or
otherwise. The Lender shall have no obligation to exercise any remedies that it
may have with respect to the Mortgaged Property before proceeding directly
against the Borrower, any of its other assets, or otherwise.
(c) Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly
waived.[END OF SECTION]
31
<PAGE>
SECTION 8. MISCELLANEOUS
8.1 Amendments and Waivers. This Agreement and the Note or any terms hereof or
----------------------
thereof may not be amended, supplemented or modified except in accordance with
the provisions of this subsection. The Lender, the Borrower may, from time to
time, enter into written amendments, supplements or modifications hereto and to
the Note for the purpose of adding any provisions to this Agreement or the Note
or changing in any manner the rights of the Lender or of the Borrower hereunder
or thereunder. The Lender may, from time to time, execute written instruments
waiving, on such terms and conditions as the Lender may specify in such
instrument, any of the requirements of the Loan Documents or any Default or
Event of Default and its consequences. In the case of any waiver, the Borrower,
the Lender shall be restored to their former position and rights hereunder and
under the outstanding Note and any other Loan Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon. Lender shall have the right to charge a
fee with respect to any amendment or waiver granted hereunder.
8.2 Notices. All notices, requests and demands to or upon the respective
-------
parties hereto to be effective shall be in writing, and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or, in the case of telecopy notice, when received, or, in the
case of a nationally recognized courier service, one Business Day after delivery
to such courier service, addressed as follows in the case of the Borrower and
the Lender or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Note:
The Borrower: Butler of New Jersey Realty Corp.
110 Summit Avenue
Montvale, NJ 07645
The Lender: Fleet Bank, National Association
208 Harristown Road
Glen Rock, NJ 07452
8.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
------------------------------
exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8.4 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made hereunder or under any other Loan Document and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the
32
<PAGE>
execution and delivery of this Agreement and the Note.
8.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse
-----------------------------
the Lender for all its out-of-pocket costs and expenses incurred in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Agreement, the Note, and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, provided that any legal fees of the Lender shall be limited to the
reasonable fees and disbursements of counsel to the Lender, (b) to pay or
reimburse the Lender for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the Note,
the other Loan Documents and any such other documents, provided that any legal
fees of the Lender shall be limited to the reasonable fees and disbursements of
counsel to the Lender, and (c) to pay, indemnify, and hold the Lender harmless
from, any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the Note,
the other Loan Documents and any such other documents. The agreements in this
subsection shall survive repayment of the Note and all other amounts payable
hereunder.
8.6 Indemnification. The Borrower will defend, indemnify, and hold harmless
---------------
the Lender, its subsidiaries, shareholders, employees, agents, attorneys,
officers, and directors, from and against any and all claims, demands,
penalties, causes of action, fines, liabilities, settlements, damages, costs, or
expenses of whatever kind or nature, known or unknown, foreseen or unforeseen,
contingent or otherwise (including, without limitation, counsel and consultant
fees and expenses, investigation and laboratory fees and expenses, court costs,
and litigation expenses) arising out of, or in any way related to, (a) the
execution, delivery, enforcement, performance and administration of any Loan
Document, (b) the presence, disposal, spillage, discharge, emission, leakage,
release, or threatened release of any Materials of Environmental Concern which
is at, in, on, under, about, from or affecting the Borrower's property for which
the Borrower is in any way responsible, (c) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or related
to any such materials, (d) any lawsuit brought or threatened, settlement
reached, or order or directive of or by any Governmental Authority relating to
such materials, or (e) any violation or alleged violation of any Environmental
Laws by the Borrower. The Borrower shall not, without the prior written consent
of the Lender, effect any settlement of any pending or threatened proceeding,
claim or action against the Lender, in respect of which the Lender or its
parent, subsidiaries, affiliates, employees, agents, officers or directors is a
party or would be entitled to seek indemnification hereunder, unless such
settlement includes an unconditional release of the Lender and its parent,
subsidiaries, affiliates, employees, agents, attorneys, officers or directors
from all liability on claims that are the subject matter of such claim, action
or other proceeding and is otherwise acceptable
33
<PAGE>
to the Lender and its counsel, in their sole discretion. Provided, that the
--------
Borrower shall have no obligation hereunder to the Lender with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of the Lender. The agreements in this subsection shall survive repayment of the
Note and all other amounts payable hereunder.
8.7 Successors and Assigns; Participation; Purchasing Lender.
--------------------------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lender, all future holders of the Note and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Lender.
(b) The Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in the Term
------------
Loans. In the event of any such sale by the Lender of participating interests
to a Participant, the Lender's obligations under this Agreement to the Borrower
shall remain unchanged, the Lender shall remain solely responsible for the
performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Agreement and the other Loan Documents, and the Borrower
shall continue to deal solely and directly with the Lender in connection with
the Lender's rights and obligations and the rights of the Participants under
this Agreement and the other Loan Documents. The Borrower agrees that if
amounts outstanding under this Agreement and the Note are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement and the Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the Loan
Documents, provided that such Participant shall only be entitled to such right
--------
of set-off if it shall have agreed in the agreement pursuant to which it shall
have acquired its participating interest to share with the Lender the proceeds
thereof as provided in this Agreement. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.8, 2.9, 2.10,
2.11, 2.10, 8.5 and 8.6 with respect to its participation in the Term Loans
outstanding from time to time; provided, that no Participant shall be entitled
--------
to receive any greater amount pursuant to such subsections than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.
(c) The Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
additional banks or financial institutions ("Purchasing Lender") all or any part
-----------------
of its rights and obligations under the Loan Documents.
(d) The Borrower authorizes the Lender to disclose to any Participant
or Purchasing Lender (each, a "Transferee") and any prospective Transferee
----------
34
<PAGE>
any and all financial information in the Lender's possession concerning the
Borrower and the Borrowers' Affiliates which has been delivered to the Lender by
or on behalf of the Borrower pursuant to this Agreement or which has been
delivered to the Lender by or on behalf of the Borrower in connection with the
Lender's credit evaluation of the Borrower and the Borrowers' Affiliates prior
to becoming a party to this Agreement.
(e) Nothing herein shall prohibit the Lender from pledging or
assigning the Note to any Federal Reserve Lender in accordance with applicable
law.
8.8 Counterparts. This Agreement may be executed by one or more of the parties
------------
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
8.9 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8.10 Integration. This Agreement and the other Loan Documents represent the
-----------
agreement of the Borrower and the Lender with respect to the subject matter
hereof, and there are no promises, undertakings, representations or warranties
by the Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
8.11 GOVERNING LAW. THE LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW JERSEY.
8.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and
-----------------------------------
unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to the Loan Documents, or for recognition and enforcement of
any judgment in respect thereof, to the non-exclusive general jurisdiction of
the Courts of the State of New Jersey, the courts of the United States of
America for the District of New Jersey, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any
35
<PAGE>
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in this Agreement or at such other address of which the Lender
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this subsection any punitive damages.
8.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of the Loan Documents;
(b) the Lender does not have any fiduciary relationship to the
Borrower and the relationship between the Lender, on one hand, and the Borrower
on the other hand, is solely that of debtor and creditor; and
(c) no joint venture exists between the Lender and the Borrower.
8.14 WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY IRREVOCABLY AND
---------------------
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THE LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in Newark, New Jersey by their proper and duly
authorized officers as of the day and year first above written.
Butler of New Jersey Realty Corp.
as Borrower
By: /s/Michael C. Hellriegel
------------------------
Name: Michael Hellriegel
Title: Senior Vice President
Fleet Bank, National Association
as Lender
By: /s/ Craig Trautwein
-------------------
Name: Craig Trautwein
Title: Vice President
36
<PAGE>
Schedules:
Schedule 3.6 Litigation: None
Schedule 3.12 ERISA Matters None
Schedule 3.14 Environmental Matters - None
37
<PAGE>
Exhibit A
[Form of] Term Loan A Note
$6,400,000.00 NOVEMBER 12, 1997
BUTLER OF NEW JERSEY REALTY CORP. (the "Borrower"), for value received, hereby
promises to pay to the order of FLEET BANK, NATIONAL ASSOCIATION (the "Lender"),
in lawful money of the United States of America and in immediately available
funds, the principal sum of six million four hundred thousand dollars, together
with interest from the date hereof on the unpaid principal balance of this Note,
payable in accordance with the Credit Agreement dated November 12, 1997 by and
between the Borrower and the Lender, as the same may be amended from time to
time (the "Agreement"). Interest on any amounts outstanding under this Note
shall accrue at the rate provided for in the Agreement. In no event shall the
interest rate payable hereon exceed the maximum rate of interest permitted by
law. Capitalized terms used herein which are defined in the Agreement shall
have the meanings therein defined. This Note is the Term Note referred to in
the Agreement, and is entitled to the benefits and is subject to the terms of
the Agreement. This Note is repayable in the amounts and under the
circumstances, and its maturity is subject to acceleration upon the terms, set
forth in the Agreement. In the event of any conflict between the terms of this
Note and the terms of the Agreement, the terms of the Agreement shall control.
Presentment for payment, demand, notice of dishonor, protest, notice of
protest and all other demands and notices in connection with the delivery,
performance and enforcement of this Note are hereby waived. Upon the occurrence
of any Event of Default specified in the Agreement, all amounts then remaining
unpaid on this Note may, pursuant to the Agreement, be declared to be
immediately due and payable, all as provided in the Agreement. This Note shall
be construed and enforceable in accordance with, and be governed by the internal
laws of, the State of New Jersey. This Note may not be changed orally, but only
by an instrument in writing executed pursuant to the provisions of the
Agreement.
[Signature of Borrower]
38
<PAGE>
Exhibit B
[Form of] Term Loan B Note
$350,000.00 NOVEMBER 12, 1997
BUTLER OF NEW JERSEY REALTY CORP. (the "Borrower"), for value received, hereby
promises to pay to the order of FLEET BANK, NATIONAL ASSOCIATION (the "Lender"),
in lawful money of the United States of America and in immediately available
funds, the principal sum of three hundred and fifty thousand dollars, together
with interest from the date hereof on the unpaid principal balance of this Note,
payable in accordance with the Credit Agreement dated November 12, 1997 by and
between the Borrower and the Lender, as the same may be amended from time to
time (the "Agreement"). Interest on any amounts outstanding under this Note
shall accrue at the rate provided for in the Agreement. In no event shall the
interest rate payable hereon exceed the maximum rate of interest permitted by
law. Capitalized terms used herein which are defined in the Agreement shall
have the meanings therein defined. This Note is the Term Note referred to in
the Agreement, and is entitled to the benefits and is subject to the terms of
the Agreement. This Note is repayable in the amounts and under the
circumstances, and its maturity is subject to acceleration upon the terms, set
forth in the Agreement. In the event of any conflict between the terms of this
Note and the terms of the Agreement, the terms of the Agreement shall control.
Presentment for payment, demand, notice of dishonor, protest, notice of
protest and all other demands and notices in connection with the delivery,
performance and enforcement of this Note are hereby waived. Upon the occurrence
of any Event of Default specified in the Agreement, all amounts then remaining
unpaid on this Note may, pursuant to the Agreement, be declared to be
immediately due and payable, all as provided in the Agreement. This Note shall
be construed and enforceable in accordance with, and be governed by the internal
laws of, the State of New Jersey. This Note may not be changed orally, but only
by an instrument in writing executed pursuant to the provisions of the
Agreement.
[Signature of Borrower]
39
<PAGE>
Exhibit C
[payment dates and notional reductions as per swap]
40
<PAGE>
EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 11th day of August, 1997 by and between Butler Telecom, Inc., a Delaware
corporation ("Buyer"), and Jack W. Shoemaker ("Seller").
R E C I T A L S
- - - - - - - -
WHEREAS, Seller owns all of the issued and outstanding shares of capital stock
of Corporate Information Systems, Inc., an Illinois corporation ("CIS"); and
WHEREAS, CIS is engaged in the business of selling and providing contract
technical labor, payroll, and information technology services (the "Business");
and
WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, all of the issued and outstanding shares of stock of CIS, on the terms
and conditions set forth herein;
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, for and in consideration of the mutual promises herein made,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
2.1 Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell,
assign, transfer and deliver to Buyer, all of the issued and outstanding shares
of stock of CIS, consisting of 100 shares of common stock, no par value (the
"Shares").
<PAGE>
2.2 Purchase Price. Buyer shall pay to the Seller, in full payment for
--------------
the Shares, an aggregate purchase price of $2,000,000 (the "Unadjusted Purchase
Price") in immediately available funds. Subject to adjustment as set forth in
Section 1.3, the Unadjusted Purchase Price shall be payable as follows:
(a) $950,000 on the Closing Date (as defined in Section 7.1);
(b) $250,000 one year from the date hereof, and an additional
$100,000 sixty days following the end of the period defined as
the one year period beginning on the first day of Buyer's
September accounting period and ending one year following such
date (the "Year 1 Period");
(c) $250,000 two years from the date hereof, and an additional
$100,000 sixty days following the end of the period defined as
the one year period beginning at the end of the Year 1 Period and
ending one year after the end of the Year 1 Period (the "Year 2
Period"); and
(d) $250,000 three years from the date hereof, and an additional
$100,000 sixty days following the end of the period defined as
the one year period beginning at the end of the Year 2 Period and
ending one year after the end of the Year 2 Period (the "Year 3
Period").
1.3 Adjustments to Purchase Price. The payments set forth in Section 1.2
-----------------------------
shall be subject to the net worth adjustment set forth in paragraph (a), and the
earnings adjustment set forth in paragraph (b).
(a) Net Worth Adjustment.
--------------------
The payment set forth in paragraph (a) of Section 1.2 shall be
adjusted as follows: No later than forty-five (45) days after
the Closing, Buyer shall prepare and deliver to Seller a balance
sheet as of 12:01 a.m. on the Closing Date (the "Closing Date
Balance Sheet"), setting forth the Net Worth of CIS (defined as
assets minus liabilities of CIS, but excluding both Excluded
Assets and Excluded Liabilities, as defined in Section 8.3) The
Closing Date Balance Sheet shall be prepared in accordance with
generally accepted accounting principles. The parties agree that
the Closing Date Balance Sheet shall be prepared using the same
methodology as used in preparing the adjustments to generally
accepted accounting principles as set forth in Schedule 2.6. To
the extent the Net Worth shown on the Closing Date Balance Sheet
is less than $500,000, the Seller shall pay to the Buyer the
difference between such Net Worth and $500,000, in immediately
available funds, within ten (10) days following final
determination of such amount. In the event a dispute arises
concerning the Closing Date Balance Sheet, Seller shall be
required to pay the amount not
2
<PAGE>
in dispute but shall not be required to pay the amount in dispute
under this paragraph (a) of Section 1.3 until 10 days after such
dispute has been resolved as hereinafter provided.
(b) Earnings Adjustment.
-------------------
(i) The payment set forth in paragraph (b) of Section 1.2 shall
be increased by 200% of any positive amount equal to the sum
of: (x) CIS Operating Profits (as defined) earned during the
Year 1 Period minus $500,000, up to $400,000, and (y) 12
1/2% of any positive amount equal to CIS Operating Profits
earned during the Year 1 Period minus $900,000. The payment
set forth in paragraph (b) of Section 1.2 shall be decreased
by 200% of any negative amount equal to CIS Operating
Profits earned during the Year 1 Period minus $500,000,
provided, however, that no adjustment set forth in this
paragraph (b)(i) of Section 1.3 shall result in a payment of
less than $250,000. The resultant payment provided for in
this clause (i) shall be referred to as the "Year 1 Period
Adjusted Payment Amount".
(ii) The payment set forth in paragraph (c) of Section 1.2 shall
be increased by 100% of any positive amount equal to the sum
of: (x) CIS Operating Profits earned during the Year 2
Period minus $500,000, up to $400,000, and (y) 25% of any
positive amount equal to CIS Operating Profits earned during
the Year 2 Period minus $900,000. The payment set forth in
paragraph (c) of Section 1.2 shall be decreased by 100% of
any negative amount equal to CIS Operating Profits earned
during the Year 2 Period minus $500,000, provided, however,
that no adjustment set forth in this paragraph (b)(ii) of
Section 1.3 shall result in a payment of less than $250,000.
The resultant payment provided for in this clause (ii) shall
be referred to as the "Year 2 Period Adjusted Payment
Amount".
(iii)The payment set forth in paragraph (d) of Section 1.2
shall be increased by 100% of any positive amount equal to
the sum of: (x) CIS Operating Profits earned during the Year
3 Period minus $500,000, up to $400,000, and (y) 25% of any
positive amount equal to CIS Operating Profits earned during
the Year 3 Period minus $900,000. The payment set forth in
paragraph (d) of Section 1.2 shall be decreased by 100% of
any negative amount equal to CIS Operating Profits earned
during the Year 3 Period minus
3
<PAGE>
$500,000, provided, however, that no adjustment set forth in
this paragraph (b)(iii) of Section 1.3 shall result in a
payment of less than $250,000. The resultant payment
provided for in this clause (iii) shall be referred to as
the "Year 3 Period Adjusted Payment Amount".
(iv) Buyer's obligation to pay $250,000 of the respective Year 1
Period Adjusted Payment Amount, Year 2 Period Adjusted
Payment Amount, and Year 3 Period Adjusted Payment Amount
shall be evidenced by a certain Promissory Note, dated the
date hereof, in the original principal amount of $668,252.96
(the "Promissory Note") from Buyer as Maker to Seller as
Payee.
(v) Butler International, Inc., a Maryland corporation ("BI"),
shall issue a certain guaranty (the "Guaranty")with respect
to buyer's payment obligation set forth in Section 1.2 and
in this paragraph (b) of Section 1.3.
(vi) In the event a dispute arises concerning the Year 1 Period
Adjusted Payment Amount, the Year 2 Period Adjusted Payment
Amount, or the Year 3 Period Adjusted Payment Amount, Buyer
shall be required to pay the amount not in dispute but shall
not be required to pay the amount in dispute under this
paragraph (b) of Section 1.3 until 10 days after such
dispute has been resolved as hereinafter provided.
(vii)Definition of Operating Profits.
-------------------------------
For purposes of this Section 1.3, "CIS Operating Profits"
shall mean all revenues earned from the Business (excluding
the Business conducted in Arizona) before allocation of
interest expense (except interest expense on receivables
outstanding for more than 60 days), income taxes, and
amortization of intangible assets, but after deduction of
Operating Expenses (as defined below). Operating Profits
shall be calculated on the accrual basis of accounting in
accordance with generally accepted accounting principles.
The term "Operating Expenses" shall include the following:
4
<PAGE>
(a) All direct expenses related to the operations of the
Business (excluding the Business conducted in Arizona) such
as employee compensation, employee fringes, independent
contractor cost, recruitment costs, office expense directly
related to the Business, advertising, telephone, travel,
postage, lease expense, and depreciation on tangible assets;
(b) Any direct expenses requested or agreed to by
Shoemaker, incurred by Buyer on behalf of the Business
(excluding the Business conducted in Arizona), and
(c) Governmental penalties, litigation settlements,
workers' compensation, and other similar governmental costs
and expenses (including reasonable attorney's fees) specific
to the operation of the Business (excluding the Business
conducted in Arizona).
General corporate allocations for corporate staff,
corporate advertising, payroll processing, accounting, legal
or other corporate support functions will not be deducted as
an expense in computing Operating Profits.
(vi) Statements. Within sixty (60) days after the end of the
----------
Year 1 Period, the Year 2 Period, and the Year 3 Period,
respectively, Buyer shall prepare and deliver to Seller an
itemized statement of all income and expenses for such
respective period, a computation of CIS Operating Profits
for such respective period, and a disbursement of the actual
payment due at that time.
(c) Resolution of Disputes. In the event Seller is not satisfied
----------------------
with the Closing Date Balance Sheet or any statement of CIS
Operating Profits submitted by Buyer, Seller shall attempt in
good faith to resolve any disputed item with Buyer. In the event
the parties are irreconcilable, then Seller shall have the right
to have its auditors make a special audit of the item or items in
question. The Closing Date Balance Sheet or any statement of CIS
Operating Profit which is not contested in writing to Buyer by
Seller within 30 (thirty) days of the statement's receipt is
deemed final and correct by Seller.
If upon Seller's submission of audit results to Buyer, Buyer
agrees (or in the event of arbitration under paragraph (d) below,
the arbitrator finds) that additional monies are due Seller
hereunder and said monies exceed
5
<PAGE>
$10,000, then Buyer will contribute the lesser of $2,500 or the
actual costs of said audit to Seller.
(d) Arbitration of Disputes. If a dispute arises out of this
-----------------------
Agreement as to the computation of the Closing Date Balance Sheet
or any statement of CIS Operating Profit and the parties have not
been successful in resolving such dispute through negotiation,
the parties agree to resolve the dispute through arbitration, to
be conducted in Illinois, by submitting the dispute to a sole
arbitrator selected by the parties or, at any time at the option
of a party, to arbitration by the American Arbitration
Association ("AAA"). Each party shall bear its own expenses and
an equal share of the expenses of the arbitrator and the fees of
the AAA. The parties, or their representatives, other
participants and the arbitrator shall hold the existence, content
and result of the arbitration in confidence. The results of such
arbitration shall be final and binding upon the parties and shall
not be subject to judicial review.
(e) Further Adjustment.
------------------
All amounts required to be paid pursuant to Section 1.2 are
subject to further adjustment as provided in Section 6.4.
(f) On the 120th day following the closing there shall be a
determination of the amount received as of such date with respect
to all accounts receivable existing as of the date of Closing
("Open Items"). Seller shall immediately pay Buyer the
difference between such amounts. If proceeds are subsequently
received with respect to such Open Items Buyer shall promptly,
from time to time, pay such proceeds to Seller. During the 120
period, Buyer shall send Seller monthly statements of outstanding
receivables to Seller.
1.4 Stock Free of Liens. The Shares to be transferred hereunder shall be
-------------------
transferred free and clear of all liens, claims, encumbrances, restrictions or
rights of others of every kind and description, including, without limitation,
tax liens.
1.5 Purchase price Allocation. Ten Thousand and no/100 Dollars ($10,000)
-------------------------
of the purchase price hereunder shall be allocated to Seller's covenant not to
compete contained in Section 8.2 of this Agreement.
ARTICLE II
6
<PAGE>
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
In order to induce Buyer to enter into this Agreement, the Seller represents
and warrants to the Buyer that the statements contained in this Article II are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article
II).
2.3 Authority Relative to this Agreement. The Seller has the full power and
------------------------------------
authority to execute, deliver and perform this Agreement and any agreement or
document contemplated hereby, and to consummate the transactions contemplated
hereby or thereby. The obligations imposed on Seller by this Agreement, or by
any agreement or document contemplated hereby, constitute the valid and binding
obligations and agreements of Seller, enforceable against him in accordance with
their respective terms except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights; and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
2.4 Compliance of Transaction With Laws and Other Instruments. Except as set
---------------------------------------------------------
forth in Section 2.2 of the disclosure schedules attached hereto (the
"Disclosure Schedules"), the execution, delivery and performance by Seller and
CIS of this Agreement and any agreement or document contemplated hereby, and the
performance and consummation of the transactions contemplated hereby or thereby
by Seller and CIS (i) do not require on behalf of Seller or CIS any approval,
consent or waiver of, or filing with, any governmental agency, court or other
authority which has not been obtained and which is not in full force and effect
as of the date hereof; (ii) will not conflict with or constitute a breach or
violation of the charter or bylaws of CIS; (iii) will not result in a violation
of any law, regulation, judgment, writ, injunction, order or decree of any court
or governmental or regulatory authority (federal, local or otherwise) to which
Seller or CIS is subject; and (iv) will not require the approval, consent or
waiver of, or filing with any party to, violate or conflict with or result in a
breach of, or constitute a default or acceleration of or give rise to a right of
termination (or an event which with notice or lapse of time or both would become
a default) under, any provision of any contract, indenture, mortgage, lease,
agreement or other instrument to which Seller or CIS is a party or to which any
of his or its assets are subject.
2.5 Shares. The Seller holds of record and owns beneficially the number of
------
Shares set forth in Section 1.1, free and clear of any restrictions on transfer
(other than any restrictions under federal or state securities laws), taxes,
security interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option,
warrant, purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of CIS
(other than this Agreement). The
7
<PAGE>
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of CIS.
2.6 Organization and Qualification. CIS is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its assets and properties and to conduct the Business in the manner
and in the places where such assets and properties are owned, leased or operated
or the Business is conducted by it. CIS has no subsidiaries and does not own,
directly or indirectly, any equity investment in any corporation, partnership,
joint venture or other business entity. The Seller has delivered to the Buyer
correct and complete copies of the charter and bylaws of CIS (as amended to
date). The minute book (containing the records of meetings of the stockholders,
the board of directors, and any committees of the board of directors) is correct
and complete as to the subject matter contained therein. The stock certificate
book and the stock record book of CIS are correct and complete. CIS is not in
default under or in violation of any provision of its charter or bylaws.
2.7 Capitalization. The entire authorized capital stock of CIS consists of
--------------
1,000 shares of common stock, no par value ("Common Shares"), of which 100
Common Shares are issued and outstanding . All of the issued and outstanding
Common Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Seller as set forth in Section 1.1.
-----------
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require CIS to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to CIS. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of CIS. No debt
instrument issued by CIS has or could have voting rights.
2.8 Financial Statements. Section 2.6 of the Disclosure Schedules contains
--------------------
true and complete copies of CIS's financial statements and the notes thereto for
the year ended February 28, 1997 (the "Financial Statements") which have been
compiled by Business Advisory Ltd. of Crystal Lake, Illinois. Except as set
forth in the Disclosure Schedules, the Financial Statements (i) have been
prepared in accordance with generally accepted accounting principles on a
consistent basis and (ii) fairly present in all material respects, based on the
accounting methods used by CIS, the financial position and results of operation
of CIS as of the indicated dates and for the period indicated therein.
2.7 Title to Properties; Liens; Condition of Properties. CIS has good and
---------------------------------------------------
marketable title to or a valid leasehold in, the properties and assets used by
it, located on its premises, or shown in the Financial Statements or acquired
after the date thereof (the "Assets", which shall exclude the "Excluded Assets"
as defined in Section 8.3). Except as noted in Section 2.7 of the Disclosure
Schedules, none of such assets are subject to any mortgage, pledge, lien,
conditional
8
<PAGE>
sale agreement, security interest, encumbrance, title defect or other charge,
except for liens for taxes not yet due and payable. Section 2.7 of the
Disclosure Schedules sets forth the addresses or locations of all facilities
(whether leased or owned) of CIS and the addresses or locations of all places
where CIS operates the Business.
2.8 No Undisclosed Liabilities. There are no obligations, debts or
--------------------------
liabilities ("Liabilities") of any nature of CIS which should be properly
included under its Financial Statements, which are not otherwise included
therein. CIS has not incurred any Liabilities since February 28, 1997, except
for those Liabilities incurred in the ordinary course of CIS's business. CIS is
not directly or indirectly (i) liable, by guaranty, surety or otherwise, upon or
with respect to, or (ii) obligated in any way to provide funds in respect of, or
(iii) obligated to guaranty or assume any debt, dividend or other obligation of
any person, corporation, association, partnership or other entity.
2.9 Tax Matters. Except as set forth on Schedule 2.9 of the Disclosure
-----------
Schedules, CIS has filed all federal, state, municipal and local tax returns
(whether relating to income, sales, franchise, withholding, real or personal
property, employment or otherwise) ("tax returns") required to be filed; (ii)
all federal, state, municipal and local tax returns (whether relating to income,
sales, franchise, withholding, real or personal property, employment or
otherwise) ("taxes") which are due, pursuant to such returns, or claimed to be
due by any taxing authority, or otherwise due and owing, and any penalties or
other charges due with respect to the late filing of any such return have been
fully paid, and shall be fully paid at the time of closing; (iii) each such tax
return heretofore filed by CIS correctly and accurately reflects the amount of
its tax liability thereunder; (iv) CIS currently is not the beneficiary of any
extension of time within which to file any tax return; (v) no claim has ever
been made by an authority in a jurisdiction where CIS does not file tax returns
that it is or may be subject to taxation by that jurisdiction; (vi) there are no
security interests, mortgages, pledges, encumbrances, charges or other liens on
any of the assets of CIS that arose in connection with any failure (or alleged
failure) to pay any tax; (vii) CIS has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party and all such
taxes shall be withheld or paid by Closing ; (viii) Seller does not expect any
authority to assess any additional taxes for any period for which tax returns
have been filed; (ix) There is no dispute or claim concerning any tax liability
of CIS claimed or raised by any authority or as to which Seller has knowledge
based upon personal contact with any agent of such authority.
2.10 Absence of Certain Changes. Since February 28, 1997, there has not been
--------------------------
except as otherwise herein provided:
(a) any material adverse change in the financial condition, properties,
assets, liabilities, personnel or operations of the Business or of
CIS;
9
<PAGE>
(b) any obligation or liability incurred by CIS, other than
obligations and liabilities incurred in the ordinary course of
business;
(c) any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of
any of the services, properties or assets of the Business, except
in the ordinary course of business;
(d) any damage, destruction or loss, whether or not covered by
insurance, affecting the Business, except for lightning damage to
the computer equipment and other office equipment owned by CIS in
the amount of approximately $2,200;
(e) any loss or threatened loss of any permit, license, qualification
or certificate of authority held or enjoyed by CIS ;
(f) any pending or threatened labor disputes or strikes, labor union
organizational activity, claim or threatened claim of unfair
labor practices, or any adverse change in relations with CIS's
employees generally;
(g) any action taken by CIS outside of the ordinary course of
business;
(h) any written notice of termination of, or default under, any
contract,except for those contract which have terminated in due
course;
(i) any loan or advance to, receivable from, or any investment in any
person, firm or corporation, except for normal business advances
to employees consistent with past practice;
(j) any increase in the compensation payable or to become payable to
any of its officers or employees (other than non-material
increases in the ordinary course of business) and there has been
no establishment, adoption, entering into, or making or any new
grants or awards under, acceleration of payment or vesting, any
obligation to grant any awards under, or any amendment to any
collective bargaining, bonus, profit sharing, thrift,
compensation, stock option or other equity, pension, retirement,
incentive or deferred compensation, employment, retention,
termination, severance, health, life or other welfare, fringe,
Employee Benefit Plan, or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any current or former
directors, officers or employees, or any granting or paying of
any benefit not required by any existing CIS Benefit Plan or
other plan or arrangement.
10
<PAGE>
(k) any commitment for any addition to property, plant or equipment
not in the ordinary course of business;
(l) any payment, loan or advance of any amount to, or sale, transfer
or lease of Assets to, or any agreements or arrangements with,
any of CIS's officers, directors or any other persons or entities
which, directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with CIS or Shoemaker ("Affiliate"), except for
compensation to officers permitted by subparagraph (j) above;
(m) any charitable or other capital contribution, except for those
capital contributions necessary to pay off certain of the
Excluded Liabilities;
(n) except as provided with respect to the transaction set forth in
Section 4.9 and 4.10, any declaration, set aside or payment of
any dividend, any distribution with respect to its capital stock,
or any redemption, repurchase, or other acquisition of any of its
capital stock;
(o) any failure to pay current liabilities, including accounts
payable and accrued expenses in the ordinary course of business
and otherwise in accordance with their terms; or
(p) any agreement or understanding by CIS to do any of the foregoing.
2.11 Patents, Trademarks, Trade Names and Similar Rights. CIS owns no
---------------------------------------------------
trademarks, logos, service marks, trade names, copyrights or other similar
proprietary rights (the "Intangibles") used in the Business, has no obligation
to any third party with respect thereto, and has not sold, licensed, sublicensed
or otherwise granted to any third party the right to use any Intangibles.
2.12 Trade Secrets and Customer Lists. To the best of Seller's knowledge,
--------------------------------
CIS has the right to use, without liability to others, all trade secrets and
customer lists, if any, required and used in the Business within the last five
years and has not disclosed, sold, licensed, sublicensed or otherwise granted to
any third party the right to use such trade secrets and information. To the
best of Seller's knowledge, CIS is not using or in any way making use of any
confidential information or trade secrets of any third party, including, without
limitation, a former employer of any present or past employee of CIS.
2.13 Lease Agreements; Client Agreements. With respect to the Lease
-----------------------------------
Agreements and Client Agreements set forth in Schedule 2.13 of the Disclosure
Schedules: (i) all such agreements are legal, valid, binding, enforceable, in
full force and effect, and subject to customer
11
<PAGE>
consent, are fully transferable to Buyer subject to no governmental or
regulatory requirement or impediment; (ii) all such agreements will be legal,
valid, binding and enforceable and in full force and effect on the same terms
and conditions on the Closing; (iii) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification or acceleration, under said
agreements; (iv) no party has repudiated any provision of said agreements; (v)
the list of Client Agreements set forth in Section 2.13 of the Disclosure
Schedules is a complete and accurate list of all agreements between CIS and its
customers; (vi) Seller knows of no set of facts, and has not received any notice
or information from any of the listed customers indicating an intention to
decrease the number of employees placed with CIS's customers ("Field
Personnel"), or to decrease the quantity of services CIS provides to any such
customer, or to reduce the rates at which CIS is being compensated for any and
all services provided by CIS including without limitation the placement of any
Field Personnel with said customers (except with respect to Allstate as
hereinafter provided), and no illegal or other payment or consideration has been
given by CIS to secure or maintain any business with its customers; and (vii)
none of such Client Agreement were awarded or are in any way based upon or
related to the status of CIS or its principals as a socially and economically
disadvantaged small business enterprise, women-owned business and/or small
business enterprise, minority business enterprise or individual. Notwithstanding
the foregoing representations in this paragraph 2.13, Seller specifically
represents that Allstate has advised CIS that CIS is no longer a "preferred
vendor" of Allstate, and accordingly, Seller's representations with respect to
Allstate are limited consistent with this notification and change in status.
Seller represents, however, that it is still undertaking work with Allstate, has
received no notice of termination from Allstate, and expects to continue to be
able to perform services for, and place personnel with, Allstate.
2.14 Employee Agreements and Plans.
-----------------------------
(a) Except as set forth in Section 2.14 of the Disclosure Schedules,
CIS nor any ERISA Affiliate presently maintains, contributes to,
or has (or may have) any liability under any Employee Benefit
Plan with respect to employees (including both Field Personnel
and all other employees other than Field Personnel, hereinafter
referred to as "Administrative Employees"), former employees,
directors or independent contractors of CIS or their dependents
or beneficiaries. For purposes of this Section 2.14 and the
Agreement:
(i) "CIS Benefit Plans" mean the plans, programs and
arrangements set forth in Section 2.14 of the Disclosure
Schedules;
(ii) "Employee Benefit Plan" means (a) any bonus, incentive
compensation, profit sharing, retirement, pension, group
insurance, death benefit, group health, medical expense
12
<PAGE>
reimbursement, dependent care, legal services, flexible
benefits or cafeteria, stock option, stock purchase, stock
appreciation rights, phantom stock, savings, deferred
compensation, consulting, severance pay or termination pay,
vacation pay, leave of absence, layoff, life insurance,
accident, disability, workers' compensation, welfare or
other employee benefit or fringe benefit plan, program,
arrangement practice or policy which is an "employee pension
benefit plan" as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") or an "employee welfare benefit plan" as defined
in Section 3(1) of ERISA, whether written or unwritten; and
(iii)"ERISA Affiliate" means each person (as defined in Section
3(9) of ERISA) that, together with CIS (or any person whose
liabilities CIS has assumed or is otherwise subject to,
whether directly or indirectly, including as a result of
indemnification) would be or has been treated as a single
employer under Section 4001(b) of ERISA or Section 414 of
the Internal Revenue Code of 1986, as amended ("Code").
Except with respect to CIS Benefit Plans, CIS does not have (nor
may have) any liability under any Employee Benefit Plan which an
ERISA Affiliate presently maintains, contributes to or has (or
may have) liability under.
(b) With respect to all employees and former employees of CIS, CIS
nor any ERISA Affiliate presently maintains, contributes to or
has or may have any liability under any funded or unfunded
medical, health or life insurance plan or arrangement or other
employee welfare benefit plan as defined in Section 3(1) of ERISA
for present or future retirees or present or future terminated
employees, except as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") or state
continuation coverage laws.
(c) Favorable determination letters have been received from the
Internal Revenue Service with respect to each CIS Benefit Plan
which is intended to comply with the provisions of Section 401(a)
of the Code, evidencing compliance with the relevant provisions
of the Tax Equity and Fiscal Responsibility Act of 1982, the Tax
Reform Act of 1984, the Retirement Equity Act of 1984, the Tax
Reform Act of 1986 and other applicable laws and governmental
regulations for which amendment is required by the Closing. Each
such CIS Benefit Plan complies in form and in operation
13
<PAGE>
with the requirements of the Code and meets the requirements of a
"qualified plan" under Section 401(a) of the Code and each
related trust is exempt from federal income tax under Code
Section 501(a). No event has occurred or circumstance exists that
will or could give rise to disqualification or loss of tax-exempt
status of any such CIS Benefit Plan or trust.
(d) CIS, the ERISA Affiliates and all of their respective directors,
officers, employees and any other "fiduciary" (as such term is
defined in Section 3(21) of ERISA) have complied with and
performed all of their contractual obligations and all
obligations under the Code, ERISA and all applicable federal,
state and local laws, rules and regulations (domestic and
foreign) required to be performed by them under or with respect
to all of the CIS Benefit Plans and any related agreements and
there has been no "prohibited transaction" as defined by Section
4975 of the Code or Section 406 of ERISA with respect to any CIS
Benefit Plan. Any bonding required by ERISA with respect to the
CIS Benefit Plans has been obtained and is in full force and
effect.
(e) No CIS Benefit Plan has any unfunded liability and all accruals
with respect to the CIS Benefit Plans have been made. No CIS
Benefit Plan is subject to Section 412 of the Code, Section 302
of ERISA or Title IV of ERISA. All applicable contributions and
premium payments for all periods ending prior to the Closing
(including periods from the first day of the then current plan
year to the Closing) shall be made prior to the Closing Date in
accordance with past practice. No event has occurred or
circumstance exists that could result in a material increase in
premium costs of the CIS Benefit Plans that are insured or a
material increase in the benefit costs of such CIS Benefit Plans
that are self-insured.
(f) CIS nor any ERISA Affiliate maintains, contributes to or has or
may have any liability (including current or potential withdrawal
liability) with respect to any "multiemployer plan" as such term
is defined in Section 3(37) or 4001(a)(3) of ERISA.
(g) CIS nor any ERISA Affiliate has maintained an "employee pension
benefit plan", as such term is defined in Section 3(2) of ERISA,
that has been the subject of a "reportable event", as such term
is defined in Section 4043 of ERISA, as to which notices would be
required to be filed with the Pension Benefit Guaranty
Corporation ("PBGC"), or any event requiring disclosure under
Section 4063(a) of ERISA. CIS nor any ERISA Affiliate has
incurred any outstanding liability under Section 4062 of ERISA to
the
14
<PAGE>
PBGC or engaged in any transaction described in Section 4069 of
ERISA and all premiums or other amounts due and payable to the
PBGC have been paid. CIS nor any ERISA Affiliate has terminated
any employee pension benefit plan subject to Title IV of ERISA
and no proceeding by the PBGC to terminated any employee pension
benefit plan pursuant to Title IV of ERISA has ever been
instituted or threatened, no notice of any such termination has
been received and no condition exists which presents a material
risk of termination of a CIS Benefit Plan.
(h) There is no pending, threatened or anticipated legal action,
proceeding, investigation, dispute, grievance, charge, complaint,
restraining or injunctive order or claim against or involving any
CIS Benefit Plan maintained by CIS or any ERISA Affiliate (other
than routine claims for benefits) or the assets of any such CIS
Benefit Plan and to the best of Seller's knowledge and belief
there is no basis for or any facts which could give rise to any
such legal action, proceeding, investigation, dispute, grievance,
charge, complaint, restraining or injunctive order or claim. No
CIS Benefit Plan is presently under audit or examination (nor has
notice been received of a potential audit) by the Internal
Revenue Service, Department of Labor or the PBGC, nor are there
any matters pending with respect to any CIS Benefit Plan with the
Internal Revenue Service under its Voluntary Compliance
Resolution program, its Closing Agreement Program or similar
programs.
(i) There has been no act or acts which would result in a
disallowance of a deduction or the imposition of a tax pursuant
to Code Section 4980B or any predecessor provision of the Code,
or any related regulations. No event has occurred with respect
to which CIS or any of its affiliates could be liable for a tax
imposed by any of Code Sections 4972, 4976, 4977, 4979 or 4980,
or for a civil penalty under Section 502(c) of ERISA.
(j) With respect to each of the CIS Benefit Plans, to the extent
applicable, CIS has delivered to Buyer true and complete copies
of: (i) the plan documents (or, if there is none, a written
summary of the plan's terms and conditions), including any
amendments, related trust agreements, insurance contracts and
other funding arrangements; (ii) the most recent determination
letter received from the Internal Revenue Service; (iii) the
three most recent IRS Form 5500 annual reports, including all
schedules and attachments thereto; (iv) the three most recent
actuarial valuations; (v) the most recent financial statement;
(vi) all correspondence with the Internal Revenue Service, the
Department of Labor and the PBGC with respect to the past three
plan years, other than IRS Form 5500 filings and
15
<PAGE>
PBGC premium payments; and (vii) the most recent summary plan
description and any summaries of material modifications not
reflected therein (or other summaries and descriptions furnished
to participants and beneficiaries, if a summary plan description
is not required). Each CIS Benefit Plan can be unilaterally
amended, terminated or otherwise discontinued, in whole or part,
by CIS at any time without liability to CIS. CIS nor any ERISA
Affiliate has any formal plan or commitment, or has communicated
to any current or former employee any intention, whether legally
binding or not, to increase any benefits or create new benefits
under any CIS Benefit Plan or to create any additional Employee
Benefit Plan. CIS nor any ERISA Affiliate maintains or
contributes to a trust, organization or association described in
any of Sections 501(c)(9), 501 (c)(17) or 501 (c)(20) of the
Code.
(k) CIS nor any of its affiliates is a party to any employment
agreement, whether written or oral, or agreement with change in
control or similar provisions, or collective bargaining agreement
or contract with any labor union relating to any employees or
former employees of CIS. Except as set forth in Section 2.14 of
the Disclosure Schedules, the execution, delivery or performance
of this Agreement or the consummation of the transactions
contemplated by this Agreement will not entitle any individual to
severance pay or accelerate the time of payment or vesting, or
increase the amount of any compensation or benefits due to any
individual nor result in the imposition of any federal excise tax
with respect to any CIS Benefit Plan. All contributions and
payments made or accrued with respect to all CIS Benefit Plans
are deductible currently under Code Section 162 or 404 and no
amount payable to an employee or former employee of CIS will be
an "excess parachute payment" which is non-deductible or subject
to tax under Section 280G or 4999 of the Code. CIS nor any of
its affiliates has currently outstanding any loan or loans to any
current or former employees of CIS, nor have CIS or any of its
affiliates guaranteed such loans, except for a loan from the
Corporate Information Systems, Inc. 401(k) Salary Reduction Plan
(the "CIS 401(k) Plan") to Anthony Bertronski, in the amount of
$_________, which loan is currently outstanding.
(l) Section 2.14 of the Disclosure Schedules sets forth, with respect
to each employee employed by CIS, his or her name, position,
salary or hourly wage, his or her date of employment and any
applicable significant employee benefits or entitlements not
available generally to CIS's employees.
16
<PAGE>
(m) CIS has complied with all applicable laws relating to the
employment of labor, including without limitation those relating
to wages, hours, collective bargaining, unemployment insurance,
workers' compensation, equal employment opportunity and the
payment and withholding of taxes, provided, however, that with
respect to overtime pay, Seller represents only that CIS's
current practices are in compliance with applicable laws.
(n) CIS is not a party to any contract with any labor organization,
nor has CIS agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining
unit been certified as representing any Employees. CIS has not
experienced any strikes, work stoppages, significant grievance
proceedings or claims of unfair labor practices filed or, to
Seller's knowledge, threatened to be filed with respect to the
operation of the Business.
2.15 Litigation, Proceedings, Etc. Except for matters described in Section
----------------------------
2.15 of the Disclosure Schedules, (i) there is no pending claim, action,
litigation, suit or proceeding against, or investigation of, CIS; (ii) CIS has
not received any notice of any claim, action, litigation, suit or proceeding
against it or investigation of it, and no such claim, action, suit, proceeding
or investigation is pending or, to Seller's knowledge, threatened against CIS,
and there are, to the best of Seller's knowledge and belief, no facts existing
which would be a proper basis for any such claim, action, litigation, suit
proceeding or investigation; and (iii) there are no outstanding court,
arbitration or agency orders, decrees or stipulations to which CIS is a party or
which are directed to CIS.
2.16 Compliance with Law and Other Instruments; Permits. CIS is in full
--------------------------------------------------
compliance and is not in violation of, or default under: (i) any term or
provision of its charter or by-laws; (ii) any term or provision of any financial
covenant or any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party, or by which it or any of its properties or
business is or may be bound or affected, or (iii) any existing applicable law
(including, without limitation, the Fair Labor Standards Act and all other
federal and state wage and hour laws), rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or any of its properties or business; CIS owns, possesses,
or has obtained all governmental and other licenses, permits, certifications,
registrations, approvals or consents and other authorizations necessary to own,
operate or lease, as the case may be, its business or operations as presently
conducted and all such governmental and other licenses, permits, certifications,
registrations, approvals, consents and other authorizations are in good
standing, and there are no proceedings pending or, to the best knowledge of
Seller, threatened, or any basis therefore existing, seeking to cancel,
terminate or limit such licenses, permits, certifications, registrations,
approvals, or consents or authorizations, or related to the breach or failure to
comply with any law, rule, regulation, judgment or decree.
17
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2.17 Transactions with Affiliates. Except as provided with respect to the
----------------------------
transaction set forth in Section 4.9 and 4.10, there is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding or other
arrangement of any kind whatsoever entered into by CIS with Seller or any of its
other stockholders, officers or directors or any Affiliate of any of them. At
Closing, Seller and CIS shall cancel all arrangements with any Affiliate,
without any liability to CIS or Buyer.
2.18 Insurance. Set forth in Schedule 2.18 of the Disclosure Schedules is a
---------
list of insurance in force with respect to the Business, which list is true,
complete and accurate in all material respects. CIS has paid all premiums due
under such policies and such policies are each outstanding and in full force and
effect on the date hereof. CIS will continue to maintain said insurance in
effect until and including the Closing Date. No insurance carrier has refused
any application for insurance by CIS.
2.19 Books and Records. All books and records pertaining to the Business
-----------------
have been, or prior to the Closing shall have been, made available for review by
Buyer and its representatives and, to the extent supplied or made available by
Seller or his agents (excluding document prepared by Benchmark Equity Group
and/or David Skala), are correct and complete in all material respects
consistent with past business practices of CIS, and fairly reflect the basis
for the financial condition and results of operations of CIS based on the
accounting methods used by CIS.
2.20 Powers of Attorney; Bank Accounts. There are no outstanding powers of
---------------------------------
attorney executed on behalf of CIS. Set forth in Schedule 2.20 of the
Disclosure Schedules is an accurate and complete list of the name and address of
each bank or other institution where CIS has an account or safe deposit box, the
number of such account, and the names of all persons authorized to draw thereon
or have access thereto.
2.21 Minority-Owned Enterprise, etc. CIS is not doing business as a
------------------------------
socially and economically disadvantaged small business enterprise, minority
owned enterprise, or women owned business, nor has it filed any applications or
documents to qualify as an economically disadvantaged small business enterprise,
minority owned enterprise, or women owned business. CIS has not received a
preference, preferred status, contract and/or award based upon in whole or in
part CIS doing business as a socially and economically disadvantaged small
business enterprise, women-owned business and/or small business enterprise,
minority business enterprise or individual.
2.22 Minimum Work Hours; Independent Contractor Status; Visas. CIS has not
--------------------------------------------------------
entered into any employment agreement and/or arrangement with non-exempt
personnel guaranteeing a minimum number of work hours during a predetermined
time period. All Field Personnel who are classified as "independent
contractors" with respect to the business for which they perform services are,
to the best of Seller's knowledge and belief, correctly classified as
18
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such in accordance with all applicable law. All Field Personnel who are non-U.S.
citizens have visas which are valid, legal, and current.
2.23 Employment Eligibility Verification Forms. The information on, and the
-----------------------------------------
contents of all Employment Eligibility Verification Forms (Form I-9) is, to the
best of Seller's knowledge and belief, true and accurate.
2.24 Broker's Fees. Neither CIS nor Seller has any obligation or liability
-------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement, except an obligation to pay a
commission to Benchmark Equity Group. Seller shall pay such commission at
Closing without any liability to CIS or Buyer.
2.25 Disclosure. The statements contained in this Agreement, and in any
----------
written documents or Schedules attached hereto prepared and delivered by or on
behalf of CIS pursuant to the terms hereof are (except for documents prepared by
Benchmark Equity Group and/or David Skala) true and correct in all material
respects, and such statements, documents or Schedules do not omit any material
fact required by the terms hereof or thereof to be stated herein or therein or
necessary to make the statements contained herein or therein not misleading.
There is no fact known to CIS which would have a material adverse effect on the
Business, other than those which have been set forth in this Agreement or in the
Disclosure Schedules attached hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
In order to induce Seller to enter into this Agreement, the Buyer represents
and warrants to the Seller that the statements contained in this Article III are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement through this Article III).
2.9 Authority Relative to this Agreement. The Buyer has the full corporate
------------------------------------
power and authority, and has taken all necessary and proper action, corporate
and otherwise, to execute, deliver and perform this Agreement and any other
agreement or document contemplated hereby, and to consummate the transactions
contemplated hereby or thereby. All action on the part of Buyer necessary for
the authorization, execution, delivery and performance of this Agreement and any
other agreement or document contemplated hereby, and the consummation of the
transactions contemplated hereby or thereby, has been taken. The obligations
imposed on Buyer by this Agreement, or by any agreement or document contemplated
hereby, constitute the valid and binding obligations and agreements of Buyer,
enforceable against it in accordance with their
19
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respective terms, except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights; and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
2.10 Compliance of Transaction with Laws and Other Instruments. The
---------------------------------------------------------
execution, delivery and performance by Buyer of this Agreement and any agreement
or document contemplated hereby, and the performance and consummation of the
transactions contemplated hereby or thereby by Buyer (i) do not require on
behalf of Buyer any approval, consent or waiver of, or filing with, any
governmental agency, court or other authority which has not been obtained and
which is not in full force and effect as of the date hereof; (ii) will not
result in a violation of any law, regulation, judgment, writ, injunction, order
or decree of any court or governmental or regulatory authority (federal, local
or otherwise) to which Buyer is subject; (iii) will not conflict with or
constitute a breach or violation of the charter or bylaws of Buyer; and (iv)
will not require the approval, consent or waiver of, or filing with any party
to, violate or conflict with or result in a breach of, or constitute a default
or acceleration of or give rise to a right of termination (or an event which
with notice or lapse of time or both would become a default) under, any
provision of any contract, indenture, mortgage, lease, agreement or other
instrument to which Buyer is a party or to which any of its assets are subject.
2.11 Organization and Qualification. Buyer is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its state of
incorporation.
2.12 Consents. Buyer is not subject to any law, ordinance, regulation, rule,
--------
order, judgment, injunction, decree, contract, commitment, lease, agreement,
instrument or other restriction of any kind, which by its provisions would
prevent the consummation of this Agreement or any of the transactions
contemplated hereby, without the consent, filing with or notification of any
third party which has not already been obtained or made or will not be obtained
prior to the Closing.
2.13 Broker's Fees. Buyer has no liability or obligation to pay any fees or
-------------
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
3.6 Securities Law. Buyer is purchasing the Shares for its own account for
--------------
investment and not with a view for resale or distribution thereof; and Buyer
will not sell, transfer or otherwise dispose of the Shares in violation of any
applicable Federal or state securities laws or any rules or regulations
promulgated thereunder or in such a manner as to cause the sale of their Shares
by Seller pursuant to this Agreement to be in violation of any applicable
Federal or state securities laws or any rules or regulations promulgated
thereunder.
20
<PAGE>
3.7 Waiver by Buyer. Buyer acknowledges that Benchmark Equity Group of
---------------
Houston, Texas ("Benchmark") by and through Mr. David Skala ("Skala") has
assisted in connection with the sale of Shares by the Seller. Buyer further
acknowledges that, although unknown by Seller until recently, neither Benchmark
or Skala are registered as brokers, dealers, agents or sales persons under
Federal or state securities laws. Specifically in view of the foregoing, Buyer
hereby waives any and all rights or remedies, if any, it may now or hereafter
have against the Seller, including but not limited to any post-closing right of
rescission, arising by reason of or in any way related to the fact that
Benchmark and/or Skala are not registered as brokers, dealers, agents or sales
persons under Federal or state securities laws.
ARTICLE IV
BUYER'S CONDITIONS TO CLOSING
-----------------------------
The obligations of Buyer to purchase the Shares and to consummate the
transactions contemplated hereby, are subject to the fulfillment in all material
respects on or prior to the Closing Date of each of the following conditions:
2.14 Representations and Warranties. The representations and warranties made
------------------------------
by Seller in Article II hereof shall be true and correct when made, and shall be
----------
true and correct in all material respects on the Closing Date with the same
force and effect as if they had been made on and as of the Closing Date, except
for changes permitted or contemplated by this Agreement and except that
representations which are specifically made as of a specified date shall be true
and correct as of such earlier date.
2.15 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Seller on or prior to the Closing
Date shall have been performed or complied with in all material respects.
2.16 Closing Deliveries. Buyer shall have received all documents and
------------------
instruments required pursuant to Section 7.2 hereof.
-----------
2.17 Absence of Litigation. No action, claim suit or proceeding before any
---------------------
court or any governmental body or authority shall be pending against either
Seller, CIS or Buyer which seeks to impose substantial damages in connection
with, or to restrain or invalidate the transactions contemplated by, this
Agreement, and no preliminary or permanent injunction or order that would
prohibit or restrain such transactions shall be in effect.
2.18 Absence of Certain Changes. There shall not have occurred prior to the
--------------------------
Closing Date (a) any material adverse change in the Business or CIS, or any
event or condition which, with the passage of time or the filing of notice, may
cause or create any such material adverse
21
<PAGE>
change, or (b) the legal inability of Seller to convey, assign and transfer to
Buyer the Business, or to convey, assign and transfer to Buyer the Shares.
2.19 Further Assurances. All actions to be taken by the Seller in connection
------------------
with consummation of the transactions contemplated hereby and all certificates,
opinion, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer. The Buyer may waive any condition specified in this Article IV if it
executes a writing so stating at or prior to the Closing Date.
4.7 Certificates. CIS shall deliver to Buyer, from or with respect to the
------------
state of Arizona, a good standing certificate, a broad form general liability
certificate, and a workmen's compensation certificate, and from or with respect
to the State of Illinois, a good standing certificate, a broad form general
liability certificate, a letter of clearance from the Illinois Department of
Employment Security, a workmen's compensation certificate, and a tax clearance
certificate.
4.8 Field Employees. At Closing the number of full time Field Personnel that
---------------
will be billed by Buyer must equal or exceed 48 (excluding Field Personnel
employed at the Phoenix location).
4.9 Excluded Liabilities. Seller shall have provided Buyer with evidence of
--------------------
payment or satisfaction of all Excluded Liabilities.
4.10 Excluded Assets. Seller shall have provided Buyer with evidence of
---------------
transfer of all Excluded Assets out of CIS.
4.11 401(k) Plans. Prior to closing, Seller shall have taken or have caused
------------
to be taken all steps necessary to terminate the CIS 401(k) Plan, including:
(i) causing the board of directors of CIS to adopt a resolution
terminating the CIS 401(k) Plan and forwarding a copy of the same
to Lincoln National Life Insurance Co., a unit of Lincoln
National Corporation ("Lincoln National");
(ii) causing the appropriate officer of CIS to execute any
documentation necessary to terminate the CIS 401(k) Plan; and
(iii)giving any required notice of termination of the CIS 401(k)
Plan to (or obtaining legally effective waivers of receipt of
such advance notice or any other required notice of the
termination of the CIS 401(k) Plan from):
(a) The Plan Administrator;
22
<PAGE>
(b) The Plan Trustee; and
(c) The Plan Insurers.
4.12 Post-Closing Procedures Regarding CIS 401(k) Plan. Pursuant to
-------------------------------------------------
Paragraph 4.11, Seller has caused the CIS 401(k) Plan to have been terminated
effective as of August 8, 1997. The Seller and Buyer do hereby agree that the
following provisions shall be applicable to the CIS 401(k) Plan subsequent to
the Closing Date:
(a) Buyer shall within one hundred twenty (120) days after the
Closing Date, cause to be filed with the Internal Revenue Service
an application seeking a favorable determination relative to the
termination of the Plan and distribution of its assets. Seller
and Buyer shall cooperate in the preparation of such an
application and Buyer agrees to keep Seller informed regarding
the status of the application and its processing.
(b) If Buyer shall receive a favorable determination letter with
respect to the termination of the CIS 401(k) Plan and
distribution of its assets, the Buyer shall, as soon as
reasonably practical after the receipt of such determination
letter, cause the assets of the CIS 401(k) Plan to be distributed
to the plan participants in accordance with the provisions of the
plan and applicable law.
(c) If Buyer shall be unable to receive a favorable determination
letter from the Internal Revenue Service relative to the
termination of the CIS 401(k) Plan and distribution of its
assets, then within one hundred twenty (120) days after the
Internal Revenue Service notifies Buyer that it is unwilling to
issue such a favorable determination letter, Buyer must implement
one of the two following procedures relative to the plan:
(i) Merge the CIS 401(k) Plan into a qualified employee benefit
plan of Buyer all in accordance with the requirements of
each plan and applicable law; or
(ii) Maintain the CIS 401(k) Plan as a "frozen plan and wasting
trust" designating Seller as one of the Plan trustees. If
the CIS 401(k) Plan is to be maintained as a frozen plan,
Buyer shall consult with Seller regarding the administration
of the plan and any amendments thereto.
ARTICLE V
23
<PAGE>
SELLER'S CONDITIONS TO CLOSING
------------------------------
The obligations of Seller to sell the Shares at the Closing, and the
obligation of Seller to consummate the transactions contemplated hereby are
subject to the fulfillment in all material respects on or prior to the Closing
of each of the following conditions:
2.20 Representations and Warranties. The representations and warranties made
------------------------------
by Buyer in Article III hereof shall be true and correct when made, and shall be
-----------
true and correct in all material respects on the Closing with the same force and
effect as if they had been made on and as of the Closing, except for changes
permitted or contemplated by this Agreement and except that representations
which are specifically made as of a specified date shall be true and correct as
of such earlier date.
2.21 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Buyer on or prior to the Closing
shall have been performed or complied with in all material respects.
2.22 Closing Deliveries. Seller shall have received all documents and
------------------
instruments required pursuant to Section 7.2 hereof.
-----------
2.23 Absence of Litigation. No action, claim, suit or proceeding before any
---------------------
court or any governmental body or authority shall be pending against either
Seller, CIS, or Buyer which seeks to impose substantial damages in connection
with, or to restrain or invalidate the transactions contemplated by this
Agreement and no preliminary or permanent injunction or order that would
prohibit or restrain such transactions shall be in effect.
2.24 Further Assurances. All actions to be taken by the Buyer in connection
------------------
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller. The Seller may waive any condition specified in this Article V if it
---------
executes a writing so stating at or prior to the Closing.
ARTICLE VI
FURTHER AGREEMENTS
------------------
2.25 Expenses. Seller shall pay its costs incurred in connection with the
--------
preparation, negotiation, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby including, without
limitation, the fees of the attorneys and accountants of Seller. Buyer shall
pay its costs incurred in connection with the preparation, negotiation,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby including, without limitation, the fees of its
attorneys and accountants.
24
<PAGE>
2.26 News Releases. Except as required by law, Seller shall not issue any
-------------
news release or other public announcement concerning this Agreement prior to the
Closing. Seller will cooperate with Buyer in Buyer's preparation and issuance
of any press release regarding the transaction contemplated hereby .
2.27 Survival of Representations. The representations and warranties
---------------------------
contained herein are and will be deemed and construed to be continuing
representations and warranties and will survive the Closing and (other than the
representations and warranties set forth in Section 2.9 above and other than
fraudulent misrepresentations made by Seller) continue in full force and effect
for a period of three years thereafter. The representations and warranties set
forth in Section 2.9 above and all fraudulent misrepresentations made by Seller
shall continue in full force and effect at all times thereafter.
2.28 Indemnification.
---------------
(a) From and after the Closing, Seller shall defend, indemnify and hold
harmless Buyer from and against any and all claims, actions, causes
of action, lawsuits, losses, costs, damages, liabilities and
expenses, including reasonable attorneys' fees and expenses, of
whatever nature, kind or description incurred by Buyer to the
extent not covered by relevant insurance coverages of CIS or Buyer
then in effect or required to be in effect hereunder (it being
agreed that (i) insurance claims which are denied after a good
faith pursuit of recovery by Buyer, or (ii) that portion of a
covered claim which is in excess of coverage limits, shall be
deemed "not covered" for purposes hereof) (collectively, "Damages")
that arise out of or relate to:
(i) a breach of the representations, warranties, covenants and
agreements given or made by Seller in this Agreement, any of
the Disclosure Schedules or under or pursuant to any
document, certificate, schedule or instrument delivered by
or on behalf of Seller in connection herewith;
(ii) all matters arising solely out of or solely in connection
with the operation of the Business or of CIS on or before
the Closing;
(iii) the matter referred to in Schedule 2.15 of the Disclosure
Schedules; and
(iv) all Excluded Liabilities and Excluded Assets (as defined in
Section 8.3).
25
<PAGE>
(b) From and after the Closing Date, Buyer shall defend, indemnify and
hold harmless Seller from and against any and all Damages incurred
by Seller arising out of or relate to a breach of the
representations, warranties, covenants and agreements given or made
by Buyer in this Agreement, any of the Disclosure Schedules, or
under or pursuant to any document, certificate, schedule or
instrument delivered by or on behalf of Buyer in connection
herewith; and
(ii) all matters arising solely out of or solely in connection
with the operation of the Business from and after the
Closing unless arising out of
1) Seller's breach of any provision of Buyer's employment
agreement with Seller.
2) Seller's breach of fiduciary duty to Buyer.
3) Any intentional act of dishonesty, illegality or
falsification of reports, records or information submitted to Buyer by Seller.
(c) Any out-of-pocket expenditures actually paid by Buyer pursuant to
the provisions contained in this Article VI as a result of a
liability to, claim against or obligation of Buyer (collectively a
"Claim"), along with court costs and attorneys fees and expenses
arising as a result of such liability, claim or obligation, may (in
lieu of seeking any indemnification of such set-off amount to which
Buyer is entitled pursuant to Section 6.5 hereunder) be set-off
against amounts due Seller pursuant to this Agreement and the
Promissory Note of Buyer executed in connection herewith.
Notwithstanding the preceding sentence, prior to paying any of the
aforesaid out-of-pocket expenditures Buyer shall give written
notice to Seller of the Claim and Seller shall have the
opportunity, for a thirty (30) day period commencing on the receipt
of said notice, to cure such Claim. If Seller has failed to cure
such Claim within the said thirty (30) day period, Buyer shall be
entitled to pay such claim directly and assert its set-off rights
under this Paragraph 6.4(c).
(d) Buyer hereby releases Seller from any and all liability or
responsibility from any of the indemnification obligations set
forth in this Paragraph 6.4 which are covered by or which are
required under this Agreement to be covered by, valid and
collectible insurance coverage, to the extent of the proceeds
collected.
26
<PAGE>
2.29 Procedures; Third Party Claims. If a claim to which the indemnification
------------------------------
provisions of Section 6.4 apply arises out of any suit, claim or other assertion
-----------
of liability by a third party (hereinafter collectively, the "Claims" and
individually, a "Claim"), the indemnified party agrees to give written notice
within a reasonable time to the indemnifying party of the existence of such
Claim, it being understood that the failure to give such notice shall not affect
the indemnified party's right to indemnification and the indemnifying party's
obligation to indemnify as set forth in this Agreement, unless the indemnifying
party's ability to contest, defend or settle with respect to such Claim is
thereby demonstrated and materially prejudiced.
The obligations and liabilities of the parties hereto with respect to their
respective indemnities pursuant to Section 6.4 resulting from any Claim, shall
-----------
be subject to the following additional terms and conditions:
(a) The indemnifying party shall have the right to undertake, by
counsel or other representatives of its own choosing, the defense
or opposition to such Claim, subject to the right of approval by
indemnified party, which right shall not be unreasonably withheld.
(b) In the event that the indemnifying party shall elect not to
undertake such defense or opposition, or within 30 days after
notice of any such Claim from the indemnified party shall fail to
defend or oppose, the indemnified party (upon further written
notice to the indemnifying party) shall have the right to undertake
the defense, opposition, compromise or settlement of such Claim, by
counsel or other representatives of its own choosing, on behalf of
and for the account and risk of the indemnifying party (subject to
the right of the indemnifying party to assume the defense of or
opposition to such Claim at any time prior to settlement,
compromise or final determination thereof).
(c) Anything in this Section 6.5 to the contrary notwithstanding, (i)
-----------
if there is a reasonable probability that a Claim may materially
and adversely affect the indemnified party, the indemnified party
shall have the right, at its own cost and expense, to participate
in the defense, opposition, compromise or settlement of the Claim,
(ii) the indemnifying party shall not, without the indemnified
party's written consent, settle or compromise any Claim or consent
to entry of any judgment which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of
such Claim, and (iii) in the event that the indemnifying party
undertakes defense of or opposition to any Claim, the indemnified
party, by counsel or other representative of its own choosing and
at its sole cost and expense, shall
27
<PAGE>
have the right to consult with the indemnifying party and its
counsel or other representatives concerning such Claim and the
indemnifying party and the indemnified party and their respective
counsel or other representatives shall cooperate in good faith with
respect to such Claim.
(d) No undertaking of defense or opposition to a Claim shall be
construed as an acknowledgement by such party that it is liable to
the party claiming indemnification with respect to the Claim at
issue or other similar Claims.
2.30 Conduct of Business Pending Closing.
-----------------------------------
(a) Except as set forth in the Disclosure Schedules, and except as set
forth in Sections 4.9 and 4.10, during the period from the date of
this Agreement to the date of Closing (the "Closing Date"), Seller
shall and Seller shall cause CIS to conduct the Business according
to its ordinary and usual course of business, consistent with past
practice. Without limiting the generality of the foregoing, prior
to the Closing Date, Seller shall not, and shall cause CIS not to,
without the prior written consent of Buyer, engage in any of the
following transactions with respect to the Business:
(i) entering into any new employment agreement between CIS and
Seller or any other officers, directors or employees of CIS
except pursuant to the Employment Agreement set forth in
Exhibit A-1 and A-2.
(ii) granting any increase in the compensation payable or to become
payable to any of CIS' officers or employees (other than non-
material increases in the ordinary course of business not to
exceed $5,000) or establishing, adopting, entering into,
making any new grants or awards under, accelerating payment or
vesting, being obligated to grant any awards under, or
amending any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option or other equity, pension,
retirement, incentive or deferred compensation, employment,
retention, termination, severance, health, life or other
welfare, fringe, Employee Benefit Plan, or other plan,
agreement, trust, fund, policy or arrangement for the benefit
of any current or former directors, officers or employees, or
granting or paying any benefit not required by an existing CIS
Benefit Plan or other plan or arrangement.
(iii) making a commitment for any significant investment of a
capital nature;
28
<PAGE>
(iv) entering into any waiver, release or relinquishment of any
material contract rights, except, in each case, in the
ordinary course of business and consistent with past
practice;
(v) entering into any new leases for property except in the
ordinary course of business, or terminating any of the
Client Agreements;
(vi) acquiring the assets of any business or any corporation,
partnership or other business organization or otherwise
acquiring any assets which are material in the aggregate to
CIS or the Business;
(vii) selling, leasing or otherwise disposing of any assets
or properties of the Business, whether owned or leased, and
whether or not reflected on the books and records of CIS
(the "Assets") except in the ordinary course of business
consistent with past practice, and except for the conveyance
described in paragraph 8.3(a);
(viii)creating, assuming or incurring any encumbrance on any of
the Assets;
(ix) amending, terminating or waiving any right of substantial
value arising under any of the Client Agreements or
otherwise relating to the Business;
(x) failing to pay current liabilities, including accounts
payable and accrued expenses, in the ordinary course of
business and otherwise in accordance with their terms;
(xi) collecting any accounts receivable outside of the ordinary
course and in advance of their due dates;
(xii) taking or performing any action which would or might
cause any representation or warranty made by CIS or Seller
herein to be rendered inaccurate, in whole or in part,
and/or which would prevent, inhibit or preclude the
satisfaction, in whole or in part, of any covenant required
to be performed or satisfied by CIS or Seller at or prior to
the Closing and/or the implementation of the within
transaction;
29
<PAGE>
(xiii) agreeing in writing or otherwise taking any of the
foregoing actions or any action which would make any
representation or warranty in this Agreement to be untrue or
incorrect; or
(xiv) otherwise engaging in any practice, taking any action,
or entering into any transaction of the sort described in
Section 2.10 above.
------------
(b) During the period from the date of this Agreement to the Closing
Date, CIS and Seller will:
(i) take and perform any and all actions necessary to render
accurate and/or maintain the accuracy of, all of the
representations and warranties of CIS and Seller herein
contained and satisfy each covenant or condition required to
be performed or satisfied by CIS and Seller prior to the
Closing and/or cause or permit the implementation of the
within transaction;
(ii) carry on and maintain the Business in substantially the same
form, style and manner as operated by CIS prior to this
Agreement and use its best efforts to preserve its business
organization and its relationships with its customers, all
employees and others having business relations with CIS, and
not voluntarily engage in any material transaction not in the
ordinary course of business without the prior consent of
Buyer;
(iii) Seller shall use his best efforts to cause each of its
employees to continue employment with CIS (or Buyer, as the
case may be) following the Closing Date.
2.31 Continued Disclosure. If any event or state of facts occurs or arises
--------------------
between the date hereof (or the date as of which disclosure has been made with
respect to such type of event or state of facts) and the Closing Date that, had
it occurred or arisen prior to or on such date, would have been required by the
terms hereof to be disclosed herein, Seller shall give notice thereof in writing
to Buyer within five days of the happening of such event or state of facts. The
giving of such notice and the disclosure of such event or state of facts shall
in no way change the conditions precedent to the obligations of Buyer as set
forth in Article IV.
----------
2.32 Full Access. Seller will permit, and will cause CIS to permit,
-----------
representatives of the Buyer to have full access to all premises, properties,
personnel, books, records, contracts and documents of or pertaining to CIS.
Buyer shall conduct such inspections in such a manner as to not unreasonably
interfere with the business of CIS.
30
<PAGE>
2.33 Notices and Consents. The Seller will cause CIS to give any notices to
--------------------
third parties, and will cause CIS to use its best efforts to obtain any third
party consents with respect to the matters referred to in Sections 2.2.
2.34 Exclusivity. From the date of this Agreement until the termination
-----------
hereunder, the Seller will not (and the Seller will not cause or permit CIS to)
(i) solicit, initiate, or encourage the submission of any proposal or offer from
any person or entity relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets of, CIS (including
any acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person or entity to do or seek any of
the foregoing. The Seller will not vote the Shares in favor of any such
acquisition structured as a merger, consolidation, or share exchange. The
Seller will notify the Buyer immediately if any person or entity makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
6.11 Insurance. Beginning at Closing, Buyer will maintain for a period until
---------
at least December 31, 2000 the following types and amounts of insurance with
respect to the Business:
. Workers Compensation as required by law and Employers Liability
insurance with a limit of $500,000 per occurrence;
. General Liability Insurance with a limit of $1,000,000 per
occurrence, and an aggregate of $2,000,000; and
. Electronic Data Processors Errors & Omissions Insurance on a
claims made basis with a limit of $500,000, and an aggregate of
$500,000, inclusive of defense costs, charges and expenses.
ARTICLE VII
CLOSING DELIVERIES
------------------
2.35 Closing. The closing of the transactions contemplated by this Agreement
-------
(the "Closing") shall be held on the 11th day of August, 1997, to be effective
at 12:01 a.m. on the day of Closing (the "Closing Date") at the offices of
McBreen, McBreen & Kopko in Chicago, Illinois.
2.36 Deliveries.
----------
(a) At the Closing, Buyer shall deliver to Seller:
31
<PAGE>
(i) The Purchase Price pursuant to Section 1.2 hereof;
-----------
(ii) The duly executed Promissory Note;
(iii) The duly executed Guaranty;
(iv) Certified copies of the resolutions of the Board of Director
of Buyer authorizing Buyer to execute and deliver this
Agreement, any agreement or document contemplated hereby,
and to consummate the transactions contemplated hereby and
thereby;
(v) A certificate of an executive officer of Buyer, dated the
Closing Date, certifying that: (i) all representations and
warranties made by Buyer in Article III hereof were true and
-----------
correct when made, and are true and correct on the Closing
Date, except for changes permitted or contemplated by this
Agreement and except that representations which are
specifically made as of a specified date shall be true and
correct as of such earlier date; and (ii) all covenants,
agreements and conditions contained in this Agreement to be
performed or complied with by Buyer on or prior to the
Closing Date have been performed or complied with;
(vi) Duly executed Employment Agreements, in substantially the
forms attached as Exhibits A-1 and A-2 hereto;
(vii) An opinion of Buyer's counsel, in a form to be mutually
agreed by the parties; and
(viii) Any other documents required by this Agreement.
(b) At the Closing, Seller shall deliver to Buyer:
(i) Stock certificates representing the Shares, endorsed in
blank or accompanied by duly exercised assignment documents;
(ii) Possession of all Assets used in the Business, except for
Excluded Assets;
(iii) All contracts, leases, agreements or other documents, books,
financial and accounting records of CIS not previously
delivered or not located on the premises of CIS, to the
extent such items are
32
<PAGE>
used in the Business, and are not Excluded Assets or items
related to Excluded Assets;
(iv) Duly executed Employment Agreements, in substantially the
forms attached as Exhibits A-1 and A-2 hereto;
(v) The notices and consents pursuant to Section 6.9;
(vi) A certificate of the Seller, dated the Closing Date,
certifying that: (i) all representations and warranties made
by Seller in Article II hereof were true and correct when
----------
made, and are true and correct on the Closing Date except
for changes permitted or contemplated by this Agreement and
except that representations which are specifically made as
of a specified date shall be true and correct as of such
earlier date; and (ii) all covenants, agreements and
conditions contained in this Agreement to be performed or
complied with by CIS on or prior to the Closing Date have
been performed or complied with;
(vii) An opinion of Seller's counsel, in a form to be mutually
agreed by the parties; and
(viii) Letters of resignation of all directors and officers of CIS;
and
(ix) Any other documents required by this Agreement.
ARTICLE VIII
POST-CLOSING COVENANTS AND AGREEMENTS
-------------------------------------
2.37 Further Assurances. If at any time and from time to time after the
------------------
Closing, any party reasonably determines that any further conveyance,
assignment, consent to assignment or other document or any other further action
is necessary or desirable to carry out the purposes of and to make effective the
transactions contemplated by this Agreement, the parties agree to execute and
deliver all such instruments and to take such actions as may be reasonably
necessary or advisable for such purpose.
8.2 Covenant Not to Compete.
-----------------------
(a) During Seller's employment with Buyer and for a period of two years
thereafter, or five (5) years following closing of this transaction,
33
<PAGE>
whichever is longer (except with respect to competing in locations
other than Illinois and within 150 miles of downtown Chicago
pursuant to clauses (i) or (ii), in which event the time limitation
shall extend only to the duration of Seller's employment with Buyer
and for a period of one year thereafter), Seller shall not directly
or indirectly through representatives, agents or otherwise (i)
engage in competition with the technology staffing or technology
services business as currently performed by CIS or Butler Technology
Solutions, a division of Butler Telecom, Inc. ("BTS"), their
successors or assigns in the Territory; (ii) provide information,
solicit or sell for, own, or organize any interest in, either
directly or through any affiliate or subsidiary corporation,
partnership or other entity, or become engaged by, act as agent for,
or in any manner assist, any person, corporation or other entity
that is in competition with the technology staffing or technology
services business currently performed by CIS or BTS , or their
successors or assigns in the Territory (iii) solicit any "customers"
(as defined in this paragraph) for any corporation, partnership or
other entity that is in the business of providing technology
staffing or technology services as currently performed by CIS or
BTS; or (iv) contact or approach either directly or indirectly for
his own individual purposes or those of another, any employee of
Buyer, CIS, or BTS, without regard to his/her location, for the
purposes of attempting to or actually soliciting or hiring that
employee on his own account or on the account of another. Seller
further agrees that within the restrictive period, Seller will not
in any way divert or attempt to divert from Buyer, BTS or CIS any
business whatsoever and Seller further agrees that during said
restrictive period he will not influence or attempt to influence any
of the customers of Buyer, BTS, or CIS not to do business with
Buyer, BTS, or CIS, and Seller further agrees that he will not make
or permit the making of any public announcement or statement of any
kind that Seller was formerly employed or connected with Buyer or
CIS, which announcement has as its purpose directly or indirectly
the intent to violate the provision of this Agreement. The term
"customer", as used herein, shall mean any person or entity to which
Seller employees under his direct or indirect control has contact
with and does business with for Buyer, BTS, or CIS at any time while
employed by BTS, CIS or Buyer. The term "Territory" as used herein
shall mean the states of Illinois (including areas that are not in
Illinois but are within 150 miles of downtown Chicago) Arizona and
any other area within fifty miles of any location where Seller
performs on-going services pursuant to Seller's employment agreement
with Buyer.
(b) During the term set forth in paragraph (a) and thereafter, Seller
shall not divulge any of Buyer's, BTS's or CIS's business contacts,
customers,
34
<PAGE>
suppliers, technology, know-how, trade secrets, marketing
techniques, books and records, computer programs or any other
confidential or proprietary information or make available to any
other persons any documents, files or other papers concerning the
foregoing or the Business or financial affairs of CIS, BTS or
Buyer. During the term set forth in paragraph (a) and thereafter,
Seller shall not solicit the employment of, or hire any employee
or consultant currently or provisionally employed or retained by
Buyer, BTS or CIS.
In the event that any part of the aforesaid confidential
information ("Confidential Information"); (i) becomes generally
known to the public through a legitimate origin (other than by
breach of this agreement by Seller), (ii) becomes available to
Seller on a non-confidential basis, (iii) has been independently
developed by Seller or Seller's representatives, (iv) has been
disclosed by operation of law, or (v) has been disclosed by
Seller with the prior written consent of Buyer, then those parts
of the said Confidential Information shall no longer be deemed
Confidential Information for purposes of this Agreement, but
Seller shall continue to be bound by the terms of this Agreement
as to all other Confidential Information. Further, in the event
that Seller is requested in any proceeding to disclose any
Confidential Information, Seller shall give Buyer prompt notice
of such request so that Buyer may seek an appropriate protective
order. If, in the absence of a protective order, Seller is
nonetheless compelled to disclose such Confidential Information,
Seller, or Seller's Representatives, as the case may be, may
disclose such information to the extent compelled to do so in
such proceeding, without liability hereunder; provided, however
that Seller shall give Buyer written notice of the information to
be disclosed as far in advance of its disclosure as is
practicable and, upon Buyer's request and at Buyer's expense,
Seller shall use its best efforts to obtain assurances that
confidential treatment will be accorded to such information.
(c) Seller has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon
Buyer under this Agreement and hereby acknowledges and agrees
that the same are reasonable in time and territory.
8.3 Excluded Assets and Excluded Liabilities
----------------------------------------
35
<PAGE>
(a) Prior to the Closing, Seller shall convey the Excluded Assets out
of CIS. At the Closing, Seller shall pay or otherwise satisfy
the obligation of CIS to pay the Excluded Liabilities.
(b) For purposes of this Section 8.3,
(i) "Excluded Assets" shall mean all automobiles (except for the
Mercedes lease, with a monthly payment of approximately
$940, which shall not be an "Excluded Asset"), salary
continuation plans and life insurance policies owned or
leased by CIS as of the date of Closing.
(ii) "Excluded Liabilities" shall mean all bank debt, automobile
loans, and other financings.
8.4 Inspection of Books and Records. After the Closing, Seller and his
-------------------------------
representatives shall have the right of access, for a "Legitimate Business
Purpose", to the books and records of CIS relating to any period ending on or
prior to the Closing Date, at all reasonable times during business hours and to
make copies thereof at his expense. In the event that Buyer, within a period of
five (5) years after the Closing Date, desires to dispose of any of the said
books and records of CIS, Buyer shall give Seller at least thirty (30) days
prior written notice thereof and Seller shall have the right to take possession
of any of said books and records that Buyer desires to dispose of within the
said thirty (30) day period. With respect to he inspection and/or copying of
the books and records of CIS pursuant to this Paragraph 8.4, Seller shall be
bound by his covenant concerning confidential information set forth in Paragraph
8.2(b) hereunder. For purposes of this Paragraph 8.4 each of the following
should be deemed a "Legitimate Business Purpose":
A. Independent verification of any of Seller's rights or obligations
under this Agreement.
B. Substantiation or clarification of any tax position taken by Seller
with respect to his individual tax returns.
C. Any other business purpose which reasonably requires the inspection
rights of Seller hereunder.
ARTICLE IX
TERMINATION; WAIVER
-------------------
2.38 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing as follows:
36
<PAGE>
(a) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (i) in the event
the Seller has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer
has notified the Seller of breach, and the breach has continued
without cure for a period of 10 days after the notice of breach
or (ii) if the Closing shall not have occurred on or before
August 11, 1997, by reason of Seller being unable or unwilling to
effect a Closing on or before August 11, 1997, or by reason of
the failure of any condition precedent under Article IV hereof
----------
(unless the failure results primarily from the Buyer itself
materially breaching any material representation, warranty, or
covenant contained in this Agreement), (iii) if the Closing shall
not have occurred on or before August 11, 1997, by reason of the
failure to obtain all third party consents required to be
obtained by Section 6.9; or (iv) if Buyer in its sole discretion
-----------
is not satisfied with the results of its continuing legal,
business and accounting due diligence regarding CIS; and
(c) the Seller may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (i) in the event
the Buyer has materially breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Seller has notified the Buyer of the breach, and the
breach has continued without cure for a period of 10 days after
the notice of breach, or (ii) if the Closing shall not have
occurred on or before August 11, 1997, by reason of Buyer being
unable or unwilling to effect a Closing on or before August 11,
1997, or by reason of the failure of any condition precedent
under Article V hereof (unless the failure results primarily from
---------
the Seller itself breaching any representation, warranty, or
covenant contained in this Agreement).
2.39 Effect of Termination; Specific Performance.
-------------------------------------------
(a) In the event of the termination of this Agreement pursuant to
Section 9.1 hereof, notice thereof shall be promptly given by
-----------
the terminating party to the other party and thereafter this
Agreement shall forthwith become void and have no effect, without
any liability on the part of any party or its directors, officers
or stockholders, except that (i) the provisions of Section 6.1
-----------
hereof shall remain in effect and (ii) nothing in this Section
-------
9.2 shall relieve any party to this Agreement from liability
---
for breach of this
37
<PAGE>
Agreement or any misrepresentation hereof, including pursuant to
paragraph (b) hereof.
(b) In the event of a breach or threatened breach by Seller or Buyer
of any of the agreements and obligations set forth herein,
monetary damages or the other remedies at law that may be
available to the non-breaching party for such breach or
threatened breach will be inadequate and, without prejudice to
the non-breaching party's right to pursue any remedies at law or
in equity available to it for such breach or threatened breach,
including without limitation the recovery of damages, the non-
breaching party will be entitled to injunctive relief as a means
of having the breaching party comply with the provisions herein.
2.40 Extension; Waiver. At any time prior to the Closing, the parties hereto
-----------------
may (i) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by the other party or in any
document, certificate or writing delivered pursuant hereto by the other party or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of either party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No waiver of any breach of a provision of this Agreement
shall constitute or be deemed a waiver of any other breach of the same or any
other provision of this Agreement, and no delay or failure to take action with
respect to any breach or provision of this Agreement shall constitute or be
deemed a waiver of the right to enforce this Agreement and to take action
against such breach or any subsequent breach of the same or any other provision.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
2.41 Entire Agreement; Amendment. Except with respect to those documents
---------------------------
signed in connection with the Closing of the transactions contemplated by this
Agreement and those documents that, by their terms, modify or supersede this
Agreement, this Agreement, (including the Disclosure Schedules), contains the
entire agreement between the parties hereto and supersedes all prior oral or
written agreements, promises, representations, commitments or understandings
with respect to the matters provided for herein. This Agreement may be modified
or amended only by a writing duly executed by Buyer and Seller, which
modification or amendment shall be binding upon all of the parties hereto.
2.42 Assignment and Binding Effect. This Agreement and the rights and
-----------------------------
obligations of any party hereunder may not be assigned by any party without the
prior written consent of the
38
<PAGE>
other party hereto. All covenants, agreements, statements, representations,
warranties and indemnities in this Agreement by and on behalf of either of the
parties hereto shall bind and inure to the benefit of their respective heirs,
successors and permitted assigns of the parties hereto.
2.43 Waivers. No waiver of any of the provisions of this Agreement shall be
-------
deemed or shall constitute a continuing waiver, and no waiver shall be binding
unless executed in writing by the party making the waiver.
2.44 Notices. All notices, demands or other communications which may be or
-------
are required to be given by any party to any other party pursuant to this
Agreement, shall be in writing and shall be mailed by certified mail, return
receipt requested, postage prepaid, or transmitted by hand delivery, national
overnight express, telegram or facsimile transmission, addressed as follows:
(a) If to Buyer:
Butler International, Inc.
110 Summit Avenue
Montvale, New Jersey 07645
Attention: Chief Financial Officer
Facsimile: (201) 573-9773
with a copy (which shall not constitute notice) to:
McBreen, McBreen & Kopko
20 North Wacker Drive
Suite 2520
Chicago, Illinois 60606
Attention: James R. Stern
Facsimile: (312) 332-2657
(b) If to Seller:
Mr. Jack W. Shoemaker
3815 Tecoma Drive
Crystal Lake, Illinois 60012
until such time as either party notifies the other of a change of address. Each
notice or other communication which shall be mailed, delivered or transmitted in
the manner described above shall be deemed sufficiently given and received for
all purposes at such time as it is delivered to the addressee (with the return
receipt, the delivery receipt, or the affidavit of messenger or
39
<PAGE>
telefax transmission log being deemed conclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
2.45 Governing Law; Jurisdiction and Venue. This Agreement shall be governed
-------------------------------------
by and construed in accordance with the laws of the State of Illinois, without
giving effect to the principles of conflicts of laws thereof.
2.46 Counterparts; Execution. To facilitate execution, this Agreement may be
-----------------------
executed in as many counterparts as may be required, and each such counterpart
hereof shall be deemed to be an original instrument, but all such counterparts
together shall constitute but a single agreement.
2.47 Effective Time of Closing. Notwithstanding the time at which Closing
-------------------------
takes place, the Closing shall be deemed to be effective as of 12:01 a.m. on the
Closing Date.
2.48 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
2.49 No Third Parties Benefitted. This Agreement is made and entered into
---------------------------
for the sole protection and benefit of the parties hereto, and no other person
or persons shall have any right or action under this Agreement; This agreement
is made and entered into for the sole protection and benefit of the parties
hereto, their successors and assigns, and no other person or persons shall have
any right of action under this Agreement; provided, however, the payment
obligations of Buyer set forth in this Agreement may be assigned by Seller to a
trust in connection with the estate planning of Seller.
2.50 Recitals, Schedules and Exhibits. The recitals, schedules, and exhibits
--------------------------------
to this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
2.51 Section Headings. The section headings used herein are inserted for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
40
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
caused this Agreement to be executed on its behalf, as of the date first above
written.
BUYER:
BUTLER TELECOM, INC.
By: _______________________________
Its: ______________________________
SELLER:
____________________________________
JACK W. SHOEMAKER
41
<PAGE>
EXHIBIT 10.41
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the 28th day of February, 1998 by and between Butler Telecom, Inc., a
Delaware corporation ("Buyer"), Argos Adriatic Corporation, a California
corporation ("Seller"), Shashi Mahendru ("Mahendru") and Vinod Wadhawan
("Wadhawan") (Mahendru and Wadhawan being sometimes individually referred to as
"Stockholder" or collectively as "Stockholders").
R E C I T A L S
- - - - - - - -
WHEREAS, Seller is engaged in the business of selling and providing, among
other things, labor, payroll, and information technology services such as
project work and training (the "Business"); and
WHEREAS, Buyer wishes to purchase and Seller wishes to sell, the assets and
Business of Seller specified in this Agreement;
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, for and in consideration of the mutual promises herein made,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
------------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of this Agreement
---------------
and in reliance on the representation, warranties and agreements set forth
herein, at the Closing (as defined in Section 2), Seller shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase from Seller all
of Sellers's right, title and interest in and to all of the assets of
<PAGE>
Seller of every kind, tangible and intangible, wherever located, excepting only
those assets specifically excluded in Section 1.2 hereof, and including, without
limitation:
(a) the office furniture and equipment, computers, and leasehold
improvements listed in Schedule 1.1 A;
(b) all computer software owned by Seller and Seller's interest in any
other computer software licensed by it from others;
(c) all office supplies;
(d) the client agreements, purchase orders, request, requirements,
correspondence, memoranda and inquiries from or with past and present
customers, all subcontractor agreements and arrangements past or
present including, but not limited to, those set forth in Schedule 1.1
B ("Client Agreements");
(e) the office leases, equipment leases, agreements with firms based in
the country of India related to recruitment of consultants, and other
agreements, contracts and instruments listed in Schedule 1.1C;
(f) all prepayments and deposits including without limitation, security
deposit under leases;
(g) the corporate name Argos Adriatic Corporation, all assumed names
relating thereto, all logos, trademarks, service marks, domain names,
trade names and copyrights and registrations in applications for
registration of any of them and any other intellectual property rights
of Seller, including, but not limited to, those all of which are
listed in Schedule 1.1 D;
(h) originals of all books and records of Seller pertaining to the assets
referred to in this Agreement, including customer lists and credit
files, and all those pertaining to Seller's employees who are hired by
Buyer pursuant to the Agreement;
(i) all permits, licenses, approvals and other governmental authorizations
relating to Seller's Business which are transferable to Buyer
including, but not limited to, those listed in Schedule 1.1 E;
(j) any other assets not to referred to in Section 1.2 which are used by
Seller in connection with its Business, including, without limitation,
all telephone and facsimile numbers and e-mail addresses used by
Seller in connection with such business;
(k) employee loans and advances, listed in Schedule 1.1F;
(l) all goodwill pertaining to Seller's Business; and
(m) all agreements, rights to employ and information for or with respect
to Seller's current or former employees including, without limitation
all tangible and electronic manifestations, files, resumes, payroll,
employee information and other such information relating to employees
and consultants.
All as the same exist on the date hereof and shall exist on the Closing Date
(as hereinafter defined) subject only to changes occurring in the ordinary
course of business of Seller. All such assets to be acquired are referred
together as the "Acquired Assets".
2
<PAGE>
1.2 Excluded Assets. The following assets of Seller are excluded from the
---------------
Acquired Assets;
(a) the rights that accrue to Seller under this Agreement, including the
consideration payable to Seller by Buyer hereunder;
(b) any cash and cash equivalent owned by Seller;
(c) Seller's accounts receivables;
(d) any tax refund of Seller;
(e) any of Seller's unbilled revenue;
(f) all of Seller's vehicles;
(g) any treasury stock held by Seller;
(h) the corporate stock certificate books, ledger, minute books and
similar corporate records of Seller; and
(i) all records and correspondence relating to the foregoing excluded
assets.
1.3 Purchase Price. (a) As consideration for the sale, conveyance,
--------------
transfer, assignment and delivery to Buyer of the Acquired Assets, Buyer shall
pay to Seller a purchase price of $5,083,000 dollars (the "Unadjusted Price")
plus the Earnout Payments hereinafter defined:
(i) on the Closing Date, Five Million Eighty Three Thousand Dollars
($5,083,000), in immediately available funds.
(ii) the earnout payments payable by Buyer to Seller shall be made as
follows:
(a) on May 30, 1999, for the twelve month period ending February
28, 1999, an amount equal to 70% of the first $1.429 million
of EBITA (hereafter defined) and 30% of EBITA in excess of
$1.429 million;
(b) on May 30, 2000 for the twelve month period ending February
29, 2000 an amount equal to 70% of the first $1.429 million
of EBITA and 30% of EBITA in excess on $1.429 million;
(c) on May 30, 2001, for the twelve month period ending February
28, 2001, an amount equal to 70% of the first $1.429 million
of EBITA and 30% of EBITA in excess of $1.429 million.
3
<PAGE>
Each of the payments referred to above in subsections (a), (b), and (c), are
referred to as the ("Earnout Payments"). Each of three consecutive 12 month
periods is referred to herein as an "Earnout Period".
Each of the Earnout Payments will be paid 75% in cash and 25% in such number
of shares of Butler International, Inc. ("BI") common stock ("BI Common Stock")
as is determined by dividing the 25% amount of said Earnout Payment by the
Average Price (such BI Common Stock shall be called "Earnout Shares").
Notwithstanding the above, at each Earnout Payment Date, if BI's common stock is
not then listed on the NASDAQ National Market System, or on any national
securities exchange, the Earnout Payment will be paid 100% in cash. The
"Average Price" is defined as the average of the closing bid and closing asked
prices of the BI Common Stock on the NASDAQ National Market System for each of
the twenty (20) trading days immediately prior to the Earnout Payment Dates (the
"Measurement Period"). Earnout Shares will be subject to restrictions on resale
under the Securities Act of 1933 as amended (the "Act"), the rules and
regulations promulgated thereunder and applicable state laws. The Seller will
be required to hold the Earnout Shares for a minimum of 1 year from the date of
issue. Notwithstanding anything to the contrary contained herein, no Earnout
Payments will apply or will be due to Seller for any Earnout Period unless the
EBITA for such Earnout Period exceeds eight hundred and fifty thousand dollars
($850,000).
For purposes of this Agreement, "EBITA" means revenue from Seller's Business
less all direct branch expenses such as staff, compensation and related fringes,
payroll taxes, commissions, office expense, advertising, telephone, travel
(excluding travel requested by Buyer's corporate office), postage, lease
expense, H1 processing, all consultant related costs, litigation and related
costs net of any insurance proceeds pertaining directly to the operations of the
Business, (excluding any litigation costs related to dispute between or among
Buyer and Seller or Buyer and the Stockholders), workers compensation,
government penalties, and interest on accounts receivable greater than 60 days
outstanding. The interest rate applied to accounts receivable greater than 60
days outstanding will be the interest rate Buyer is charged on its credit
facility with GE Capital or any successor organization providing credit
facilities similar to the credit facility provided by GE Capital (described in
Section 3.4 hereof) to the Buyer. The Stockholders will continue to approve all
expenses charged to the branch established by Buyer for the Seller's operations.
It is agreed that the Business being purchased hereunder by Buyer will be
covered by the Buyer's group general liability insurance program and no general
liability insurance premium costs will be allocated to the Business. EBITA will
be calculated in accordance with generally accepted accounting principles.
1.4 Acquired Assets Free of Liens. The Acquired Assets to be transferred
-----------------------------
hereunder shall be transferred free and clear of all liens, claims,
encumbrances, mortgages, pledges, restrictions or rights of others of every kind
and description, including, without limitation, tax liens, environmental liens,
and ERISA obligations.
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1.5 Assumption of Liabilities. As additional consideration for the purchase
-------------------------
of the Acquired Assets, Buyer shall assume and agree to pay, perform and
discharge in full the following debts, contracts, obligations and liabilities of
Sellers ("Assumed Liabilities"), and no others, as and when due, and to
indemnify Seller and the Stockholders harmless therefrom:
(a) all obligations and liability of Seller accruing and arising after the
Closing Date under its office lease for 39355 California Street,
Fremont, CA;
(b) all obligations and liabilities accruing and arising after the Closing
Date under the client agreements and arrangements set forth in
Schedule 1.1 B and in the equipment leases and other agreements,
contracts and instruments set forth in Schedule 1.1 C; and
(c) all employee benefit plan obligations, as listed in clause 2.12(a) of
the Disclosure Schedule, arising after the Closing Date.
Notwithstanding the above, with respect to accrued vacation pay, such
obligations shall be assumed both before and after the Closing Date.
1.6 Liabilities Not Assumed. Notwithstanding the assumption of liabilities
-----------------------
referred to in the foregoing Section 1.5, Buyer shall not assume or be deemed to
have assumed any of the liabilities or obligations of Seller or any kind
together (the "Unassumed Liabilities"), including, without limitation:
(a) any public or other liability claims with respect to the Business and
affairs of Seller and the acts and omission of its officers,
directors, employees, and agents before the Closing date;
(b) any obligation or liability of Seller to any of the Stockholders or
any other officer or director of Seller;
(c) any obligation or liability for Federal, State, local or foreign
income taxes;
(d) any obligation or liability arising out of or relating, directly or
indirectly, to the operation of Seller's Business prior to the Closing
Date, including any rebates, discounts, offsets or concessions
attributable to amounts invoiced to Sellers clients prior to the
Closing Date;
(e) any obligation or liability to Seller's employees for salary, wages or
other compensation or benefits, including any obligation or liability
with respect to retirement plans, sick and holidays time and pay,
including any liabilities of Seller contemplated by this Agreement;
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(f) any liabilities of Seller with respect to any pension, retirement,
savings, profit sharing or other benefit plans;
(g) any obligation or liability which is inconsistent with any
representation or warranty of Seller or the Stockholders;
(h) any liability arising out of, and any expenses relating to, any claim,
action, dispute, or litigation involving the operation of Seller's
Business before the Closing Date;
(i) any liability of Seller for fines, penalties, or damages payable to
any government or governmental agency or instrumentality involving the
operation of Seller's Business before the Closing Date, including, but
not limited to, any liability of Seller for fines, penalties, or
damages payable to any government or governmental agency or
instrumentality arising out of any violation of 8 USC 1101 et.seq.
prior to the Closing Date;
(j) any obligation or liability of Seller or the Stockholders for the
expenses incurred in preparing or negotiating this Agreement and
consummating the transactions contemplated hereunder.
Seller and Stockholders, jointly and severally, agree to discharge and
indemnify, defend and hold harmless Buyer, BI, and their respective officers,
directors, employees, agents, and stockholders from all Unassumed Liabilities,
whether or not known, liquidated or contingent.
1.7 Allocation Of Purchase Price. The purchase price for the Acquired Assets
----------------------------
and the Assumed Liabilities by Buyer in accordance with Sections 1.3 and 1.5
hereof as finally determined shall be allocated among the Acquired Assets as
described on Schedule 1.6. No party to this Agreement will take a position on
any federal or state tax return, before any governmental agency charged with the
collection of any income tax, or in any judicial proceeding that is in any way
inconsistent with Schedule 1.6.
1.8 Sales and Use Taxes on the Acquired Assets. Buyer will pay the cost of
------------------------------------------
any sales, use, transfer or similar taxes payable in connection with the sale,
assignment, and transfer of the Acquired Assets.
1.9 Restriction on Transfer Of Shares Of BI Common Stock.
----------------------------------------------------
(a) Subject to the provisions of this Agreement Seller understands that
Buyer and BI have no obligation to register the Earnout Shares under
the Securities Act and accordingly, the shares shall be subject to
restrictions under the Act, and the rules and regulations promulgated
thereunder and applicable state securities laws. At
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each Earnout Payment Date, Buyer shall deliver to Seller one or more
certificates in proper form in the name of Seller evidencing the
shares being issued on such dates. Each certificate shall bear an
appropriate legend as to the lack of registration of the shares and
the resulting restrictions on transfer.
(b) Subject to the provisions of this Agreement, no shares shall be
transferable except in compliance with the provisions of this Section
1.8 (b). Seller agrees that prior to any proposed transfer of any
shares, it will give Buyer notice of its intention to effect such
transfer. Such notice shall describe briefly the manner and
circumstance of the proposed transfer in sufficient detail, and shall
include such information as is reasonably necessary to enable counsel
for Buyer to render the opinion contemplated by this paragraph. If,
in the opinion of such counsel, the proposed transfer of such shares
may be effected without registration or qualification thereof under
the act or applicable state securities laws, Buyer, as promptly as
practical, shall notify Seller of such opinion, whereupon Seller shall
be entitled to transfer such shares in accordance with the terms of
its notice.
1.10 Earnout Payment Calculations. Each Earnout Payment shall be accompanied
----------------------------
by a statement from an Officer of Buyer setting forth (i) a detailed itemization
of EBITA for the applicable Earnout Period (ii) the calculation of the payment
due to Seller. Such Officer's statement shall state that such computations are
accurate and have been prepared in accordance with this Agreement. Buyer shall
prepare and maintain, in accordance with generally accepted accounting
principles, complete and accurate records from which the computation of EBITA
shall be made. Seller and Stockholders shall at reasonable times and upon
reasonable notice have the right to review the books of Buyer pertaining to
Seller's Business. Each month, Buyer shall provide Seller and Stockholders with
monthly and year to date income statements with respect to Seller's Business.
1.11 Apportionments. The following items will be apportioned as of 11:59 pm
--------------
on February 21, 1998:
(a) real estate and personal property taxes, and other state, county and
municipal taxes and assessments and charges affecting the acquired assets;
(b) rents and other payments under any of the contracts assigned
hereunder; and
(c) charges for water, electricity, and all other utilities (except to
the extent disposed of by final billing to Seller), all such items, prior to
such time, being for the account of Seller and all such items, after such time,
being for the account of Buyer. At the Closing, Seller or Buyer, as the case may
be, shall deliver to the other a check for the net amount owing under this
Section 1.10. If any such item cannot be accurately apportioned at the Closing
or if it is incorrectly apportioned at the Closing or subsequent thereto, for a
period of one year after the
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Closing Date such items shall be subject to apportionment or reapportionment, as
the case may be, as soon as practicable after the Closing Date.
1.12 Settlement of Disputes. Any controversy or claim arising out of or
----------------------
related to the Earnout Payments shall be finally resolved by arbitration
pursuant to the commercial arbitration rules of the American Arbitration
Association; provided, however, that this Section 1.11 shall not in any way
affect the right of Buyer to seek injunctive relief or any other remedies
pursuant to Section 8.2 hereof. Any such arbitration shall take place in Santa
Clara County, California, before three arbitrators one of which shall be
appointed by Buyer, one by Seller and the Stockholders and the third by the
arbitrators; provided, however, that the parties may by mutual agreement
designate a single arbitrator. The parties further agree that (i) the
arbitrators shall be empowered to include arbitration costs and attorney fees in
the award to the prevailing parties in such proceedings and (ii) the award in
such proceedings shall be final and binding on the parties. The arbitrators
shall apply the law of the State of California exclusive of conflicts of laws
principles, to any dispute. Judgment on the arbitrators' award may be entered
in any court having the requisite jurisdiction. Nothing in this agreement shall
require the arbitration of disputes between the parties that arise from actions,
suits or proceedings instituted by third parties. Each party irrevocably
submits to the jurisdiction and venue of the arbitration described in the
foregoing and to the jurisdiction and venue of the Federal and State courts
sitting in California for the enforcement of any judgment on arbitrators' award
and waives any objection it may have with respect to the jurisdiction of such
arbitrations or such courts or the inconvenience of such forums or venues.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS
---------------------------------------------------------
In order to induce Buyer to enter into this Agreement, each of the Seller and
the Stockholders, jointly and severally, represent and warrant to the Buyer
that, except as set forth in the Disclosure Schedule attached hereto as Schedule
2, the statements contained in this Article II are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article II).
3.1 Authority Relative to this Agreement. The Seller and Stockholders have
------------------------------------
the full power and authority to execute, deliver and perform this Agreement and
any agreement or document contemplated hereby, and to consummate the
transactions contemplated hereby or thereby. The obligations imposed on Seller
and Stockholders by this Agreement, or by any agreement or document contemplated
hereby, constitute the valid and binding obligations and agreements of Seller
and Stockholders, enforceable against each of them in accordance with their
respective terms except that (i) such enforcement may be subject to bankruptcy,
insolvency,
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reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights; and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
3.2 Compliance of Transaction With Laws and Other Instruments. The
---------------------------------------------------------
execution, delivery and performance by Seller and the Stockholders of this
Agreement and any agreement or document contemplated hereby, and the performance
and consummation of the transactions contemplated hereby or thereby by Seller
and Stockholders (i) do not require on behalf of Seller and Stockholders any
approval, consent or waiver of, or filing with, any governmental agency, court
or other authority which has not been obtained and which is not in full force
and effect as of the date hereof; (ii) will not conflict with or constitute a
breach or violation of the charter or bylaws of Seller; (iii) will not result in
a violation of any law, regulation, judgment, writ, injunction, order or decree
of any court or governmental or regulatory authority (federal, local or
otherwise) to which Seller or Stockholders are subject; and (iv) will not
require the approval, consent or waiver of, or filing with any party to, violate
or conflict with or result in a breach of, or constitute a default or
acceleration of or give rise to a right of termination (or an event which with
notice or lapse of time or both would become a default) under, any provision of
any contract, indenture, mortgage, lease, agreement or other instrument to which
Seller or Stockholders is a party or to which any of his or its assets are
subject.
3.3 Organization and Qualification. Seller is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its assets and properties and to conduct the Business in the manner
and in the places where such assets and properties are owned, leased or operated
or the Business is conducted by it. Seller has no subsidiaries and does not
own, directly or indirectly, any equity investment in any corporation,
partnership, joint venture or other business entity.
3.4 Financial and Other Statements. The Disclosure Schedule contains true
------------------------------
and complete copies of (i) Seller's financial statements and the notes thereto
reviewed by a certified public accountant for the years ended December 31, 1996
and December 31, 1995, and (ii) Seller's financial statements and the notes
thereto for the period ended December 31, 1997 (collectively the "Financial
Statements"). Except as set forth in the Disclosure Schedule, the Financial
Statements (i) have been prepared in accordance with generally accepted
accounting principles on a consistent basis and (ii) fairly present in all
material respects the financial position and results of operation of Seller as
of the indicated dates and for the periods indicated therein.
2.5 Title to Properties; Liens; Condition of Properties. Seller has good and
---------------------------------------------------
marketable title to or a valid leasehold in, the properties and assets used by
it, located on its premises, or shown in the Financial Statements or acquired
after the date thereof (the "Acquired Assets", which shall exclude the "Excluded
Assets" as defined in Section 8.3). None of such
9
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assets are subject to any mortgage, pledge, lien, conditional sale agreement,
security interest, encumbrance, title defect or other charge, except for liens
for taxes not yet due and payable. The Disclosure Schedule sets forth the
addresses or locations of all facilities (whether leased or owned) of Seller and
the addresses or locations of all places where Seller operates the Business.
2.6 No Undisclosed Liabilities. There are no contractual or non-contractual
--------------------------
obligations, debts or liabilities of any nature of Seller whether accrued or
unaccrued, contingent or absolute, direct or indirect, recorded or unrecorded,
potential or realized (the "Liabilities") as of December 31, 1997, which are not
otherwise disclosed in the Financial Statements. Seller has not incurred any
Liabilities since December 31, 1997, except for those Liabilities incurred in
the ordinary course of Seller's business and consistent with past practice and
which, in any event, would not, in the aggregate, have a Material Adverse
Effect.
2.7 Taxes. Except as set forth on the Disclosure Schedule, Seller has filed
-----
(i) all federal, state, municipal and local tax returns (whether relating to
income, sales, franchise, withholding, real or personal property, employment or
otherwise) ("tax returns") required to be filed; (ii) all federal, state,
municipal and local tax returns (whether relating to income, sales, franchise,
withholding, real or personal property, employment of otherwise) ("taxes") which
are due, pursuant to such returns, or claimed to be due by any taxing authority,
or otherwise due and owing, and any penalties or other charges due with respect
to the late filing of any such return have been fully paid, and shall be fully
paid at the time of closing; (iii) each such tax return heretofore filed by
Seller correctly and accurately reflects the amount of its tax liability
thereunder; (iv) Seller currently is not the beneficiary of any extension of
time within which to file any tax return; (v) no claim has ever been made by an
authority in a jurisdiction where Seller does not file tax returns that it is or
may be subject to taxation by that jurisdiction; (vi) there are no security
interests on any of the assets of Seller that arose in connection with any
failure (or alleged failure) to pay any tax; (vii) Seller has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent contractor, or other third
party and all such taxes shall be withheld or paid by Closing and all such taxes
accrued but not due as of Closing shall be escrowed with Buyer; (viii) Seller
does not expect any authority to assess any additional taxes for any period for
which tax returns have been filed; (ix) There is no dispute or claim concerning
any tax liability of Seller claimed or raised by any authority or as to which
Seller has knowledge based upon personal contact with any agent of such
authority.
2.8 Absence of Certain Changes. Since December 31, 1997, there has not been:
--------------------------
(a) any material adverse change in the financial condition, properties,
assets, liabilities, personnel or operations of Seller;
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(b) any obligation or liability incurred by Seller, including the
obligation to perform services normally conducted by the Business, other than
obligations and liabilities incurred in the ordinary course of business;
(c) any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the services,
properties or assets of the Business, except in the ordinary course of business;
(d) any damage, destruction or loss, whether or not covered by
insurance, affecting the Business;
(e) any loss or threatened loss of any permit, license, qualification or
certificate of authority held or enjoyed by Seller which loss has had, or could
in the future have, a material adverse effect ("Material Adverse Effect") on the
business, properties, financial condition or results of operation of the
Business or Buyer's free and unencumbered ownership and use of any of the assets
or properties of the Business, whether owned or leased, and whether or not
carried or reflected on the books and records of Seller (the "Assets");
(f) any pending or threatened labor disputes or strikes, labor union
organizational activity, claim or threatened claim of unfair labor practices, or
any material adverse change in relations with Seller's employees generally;
(g) any action taken by Seller outside of the ordinary course of
business;
(h) any written notice of termination of, or default under, any
contract;
(i) any loan or advance to or any investment in any person, firm or
corporation, except for normal business advances to employees consistent with
past practice;
(j) any increase in the compensation payable or to become payable to any
of its officers or employees (other than non-material increases in the ordinary
course of business) and there has been no establishment, adoption, entering
into, or making or any new grants or awards under, acceleration of payment or
vesting, any obligation to grant any awards under, or any amendment to any
collective bargaining, bonus, profit sharing, thrift, compensation, stock option
or other equity, pension, retirement, incentive or deferred compensation,
employment, retention, termination, severance, health, life or other welfare,
fringe, Employee Benefit Plan, or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, or any granting or paying of any benefit not required by any existing
Seller Benefit Plan or other plan or arrangement.
(k) any commitment for any addition to property, plant or equipment not
in the ordinary course of business;
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(l) any payment, loan or advance of any amount to, or sale, transfer or
lease of Assets to, or any agreements or arrangements with, any of Seller's
officers, directors or "affiliates," as such term is defined in the rules and
regulations of the Securities and Exchange Commission ("Affiliate"), except for
(i) normal business advances to employees consistent with past practice and (ii)
compensation to officers permitted by subparagraph (j) above;
(m) any charitable or other capital contribution;
(n) any declaration, set aside or payment of any dividend, any
distribution with respect to its capital stock, or any redemption, repurchase,
or other acquisition of any of its capital stock;
(o) any failure to pay current liabilities, including accounts payable
and accrued expenses in the ordinary course of business and otherwise in
accordance with their terms; or
(p) any agreement or understanding by Seller to do any of the foregoing.
2.9 Patents, Trademarks, Trade Names and Similar Rights. Seller owns all
---------------------------------------------------
trademarks, logos, service marks, trade names, copyrights or other similar
proprietary rights (the "Intangibles") used in the Business, has no obligation
to any third party with respect thereto, and has not sold, licensed, sublicensed
or otherwise granted to any third party the right to use such Intangibles. All
Intangibles of Seller are based on statutory and common law usage rights (not
registration) and are listed in the Disclosure Schedule. Except as set forth in
the Disclosure Schedule, to Seller's knowledge, none of the Intangibles, and
none of the products or services sold or processes used by Seller, conflict with
the patents, trademarks, logos, service marks, trade names, copyrights or other
similar proprietary rights of any person or entity, and Seller has not received
notice of the possibility of any such conflict.
2.10 Trade Secrets and Customer Lists. Seller has the right to use, without
--------------------------------
liability to others, all trade secrets and customer lists, if any, required and
used in the Business within the last five years and has not disclosed, sold,
licensed, sublicensed or otherwise granted to any third party the right to use
such trade secrets and information. Seller is not using or in any way making
use of any confidential information or trade secrets of any third party,
including, without limitation, a former employer of any present or past employee
of Seller.
2.11 Client and Other Agreements. With respect to the Client Agreements set
---------------------------
forth in Section 2 of the Disclosure Schedule, and all other agreements relating
to the Business: (i) all such agreements are legal, valid, binding, enforceable,
in full force and effect, and subject to customer consent, are fully
transferable to Buyer subject to no governmental or regulatory requirement or
impediment; (ii) all such agreements will be legal, valid, binding and
enforceable
12
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and in full force and effect on the same terms and conditions on the Closing;
(iii) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification or acceleration, under said agreements; (iv) no party
has repudiated any provision of said agreements; (v) the list of Client
Agreements set forth in Section 2 of the Disclosure Schedule is a complete and
accurate list of all agreements between Seller and its customers; (vi) Seller
and Stockholders have no reason to know of and have not received any notice or
information from any of the listed customers indicating an intention to decrease
the number of employees placed with Seller's customers ("Field Personnel"), or
to decrease the quantity of services Seller provides to any such customer, or to
reduce the rates at which Seller is being compensated for the placement of any
Field Personnel with said customers; (vii) Seller and Stockholders have not
received any notice of claims from any of the listed customers relating to
Seller's performance of services for such customer, and (viii) none of such
agreements were awarded or are in any way based upon or related to the status of
Seller or its principals as a minority business, small business, woman-owned
business or disadvantaged business enterprise or individual. Seller and
Stockholders represent and acknowledge that with respect to the representations
set forth in this Section 2.11, they have reviewed the aforesaid representations
with their client service managers, associate client service managers, and
project managers (the "Executive Employees") and such Executive Employees have
no reason to know that such representations are not true and correct.
2.12 Employee Agreements and Plans.
-----------------------------
(a) Except as set forth in the Disclosure Schedule, Seller nor any ERISA
Affiliate presently maintains, contributes to, or has (or may have) any material
liability under any Employee Benefit Plan with respect to all employees and
former employees (including both Field Personnel and all other employees other
than Field Personnel, hereinafter referred to as "Administrative Employees"),
directors and independent contractors of Seller and their dependents and
beneficiaries. For purposes of this Section 2.12 and the Agreement:
(i) "Seller Benefit Plans" mean the plans, programs and arrangements
set forth in the Disclosure Schedule;
(ii) "Employee Benefit Plan" means (a) any bonus, incentive
compensation, profit sharing, retirement, pension, group
insurance, death benefit, group health, medical expense
reimbursement, dependent care, legal services, flexible benefits
or cafeteria, stock option, stock purchase, stock appreciation
rights, phantom stock, savings, deferred compensation, consulting,
severance pay or termination pay, vacation pay, leave of absence,
layoff, life insurance, accident, disability, workers'
compensation, welfare or other employee benefit or fringe benefit
plan, program, arrangement practice or policy which is an
"employee pension benefit plan" as such term is defined in Section
3(2) of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA") or an
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA, whether written or unwritten; and
(iii) "ERISA Affiliate" means each person (as defined in Section 3(9) of
ERISA) that, together with Seller (or any person whose liabilities
Seller has assumed or is otherwise subject to, whether directly or
indirectly, including as a result of indemnification) would be or
has been treated as a single employer under Section 4001(b) of
ERISA or Section 414 of the Internal Revenue Code of 1986, as
amended ("Code").
Except with respect to Seller Benefit Plans, Seller does not have (nor may have)
any material liability under any Employee Benefit Plan which an ERISA Affiliate
presently maintains, contributes to or has (or may have) liability under.
(b) With respect to all employees and former employees of Seller,
Seller nor any ERISA Affiliate presently maintains, contributes to or has or may
have any liability under any funded or unfunded medical or health plan or
arrangement or other employee welfare benefit plan as defined in Section 3(1) of
ERISA for present or future retirees or present or future terminated employees,
except as required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended ("COBRA") or state continuation coverage laws.
(c) Seller does not maintain a plan intended to be a tax-qualified plan
under sections 401(a) and 501(a) of the Code.
(d) Seller, the ERISA Affiliates and all of their respective directors,
officers, employees and any other "fiduciary" (as such term is defined in
Section 3(21) of ERISA) have complied with and performed all of their material
contractual obligations and all material obligations under the Code, ERISA and
all applicable federal, state and local laws, rules and regulations (domestic
and foreign) required to be performed by them under or with respect to all of
the Seller Benefit Plans and any related agreements.
(e) As of the Closing, no Seller Benefit Plan has any unfunded
liability and all accruals with respect to the Seller Benefit Plans have been
made. No Seller Benefit Plan is subject to Section 412 of the Code, Section 302
of ERISA or Title IV of ERISA. All applicable due and owing contributions and
premium payments for all periods ending prior to the Closing Date (including
periods from the first day of the then current plan year to the Closing Date)
shall be made prior to the Closing Date in accordance with past practice. No
event has occurred or circumstance exists that could result in a material
increase in premium costs of the Seller Benefit Plans that are insured or a
material increase in the benefit costs of such Seller Benefit Plans that are
self-insured.
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(f) Seller nor any ERISA Affiliate maintains, contributes to or has or
may have any liability (including current or potential withdrawal liability)
with respect to any "multiemployer plan" as such term is defined in Section
3(37) or 4001(a)(3) of ERISA.
(g) Seller nor any ERISA Affiliate has ever maintained an "employee
pension benefit plan", as such term is defined in Section 3(2) of ERISA.
(h) There is no pending, threatened or anticipated legal action,
proceeding, investigation, dispute, grievance, charge, complaint, restraining or
injunctive order or claim against or involving any Seller Benefit Plan which has
a material adverse effect maintained by Seller or any ERISA Affiliate (other
than routine claims for benefits) or the assets of any such Seller Benefit Plan
and there is no basis for or any facts which could give rise to any such legal
action, proceeding, investigation, dispute, grievance, charge, complaint,
restraining or injunctive order or claim. No Seller Benefit Plan is presently
under audit or examination (nor has notice been received of a potential audit)
by the Internal Revenue Service, Department of Labor or the PBGC, nor are there
any matters pending with respect to any Seller Benefit Plan with the Internal
Revenue Service under its Voluntary Compliance Resolution program, its Closing
Agreement Program or similar programs.
(i) There has been no act or acts which would result in a disallowance
of a deduction or the imposition of a tax pursuant to Code Section 4980B or any
predecessor provision of the Code, or any related regulations. No event has
occurred with respect to which Seller or any of its affiliates could be liable
for a tax imposed by any of Code Sections 4972, 4976, 4977, 4979 or 4980, or for
a civil penalty under Section 502(c) of ERISA.
(j) With respect to each of the Seller Benefit Plans, to the extent
applicable, Seller has made available to Buyer true and complete copies of: (i)
the plan documents (or, if there is none, a written summary of the plan's terms
and conditions), including any amendments, related trust agreements, insurance
contracts and other funding arrangements; (ii) the most recent determination
letter received from the Internal Revenue Service; (iii) the three most recent
IRS Form 5500 annual reports, including all schedules and attachments thereto as
applicable; (iv) the most recent financial statement; (v) all correspondence
with the Internal Revenue Service, the Department of Labor and the PBGC with
respect to the past three plan years, other than IRS Form 5500 filings and PBGC
premium payments; and (vi) the most recent summary plan description and any
summaries of material modifications not reflected therein (or other material
summaries and descriptions furnished to participants and beneficiaries, if a
summary plan description is not required). Each Seller Benefit Plan can be
unilaterally amended, terminated or otherwise discontinued, in whole or part, by
Seller at any time without liability to Seller (except to the extent prohibited
by law). Neither Seller nor any ERISA Affiliate has any formal plan or
commitment, or has communicated to any current or former employee any intention,
whether legally binding or not, to increase any benefits or create new benefits
under any Seller Benefit Plan or to create any additional Employee Benefit Plan.
Neither Seller nor any ERISA Affiliate
15
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maintains or contributes to a trust, organization or association described in
any of Sections 501(c)(9), 501 (c)(17) or 501 (c)(20) of the Code.
(k) Neither Seller nor any of its affiliates is a party to any
employment agreement, whether written or oral, or agreement with change in
control or similar provisions, or collective bargaining agreement or contract
with any labor union relating to any employees or former employees of Seller.
Except as set forth in the Disclosure Schedule, the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement will not entitle any individual to severance pay
or accelerate the time of payment or vesting, or increase the amount of any
compensation or benefits due to any individual nor result in the imposition of
any federal excise tax with respect to any Seller Benefit Plan. All
contributions and payments made or accrued with respect to all Seller Benefit
Plans are deductible currently under Code Section 162 or 404 and no amount
payable to an employee or former employee of Seller will be an "excess parachute
payment" which is non-deductible or subject to tax under Section 280G or 4999 of
the Code. Neither Seller nor any of its affiliates has currently outstanding any
loan or loans to any current or former employees of Seller, nor have Seller or
any of its affiliates guaranteed such loans.
(l) The Disclosure Schedule sets forth, as of the date of this
Agreement, with respect to each employee employed by Seller, his or her name,
position, salary or hourly wage, his or her date of employment and any
applicable significant employee benefits or entitlement not available generally
to Seller's employees.
(m) Without limiting the application of any other representation set
forth herein, Seller has substantially complied, in all material respects, with
all applicable laws relating to the employment of labor or consultants or
independent contractors in connection with the operation of the Business,
including, without limitation, those relating to wages, hours, collective
bargaining, unemployment insurance, workers' compensation, immigration and
naturalization, equal employment opportunity and the payment and withholding of
taxes.
(n) Seller is not a party to any contract with any labor organization,
nor has it agreed to recognize any union or other collective bargaining unit,
nor has any union or other collective bargaining unit been certified as
representing any Employees. Seller has not experienced any strikes, work
stoppages, significant grievance proceedings or claims of unfair labor practices
filed or, to Seller's or Stockholder's knowledge, threatened to be filed with
respect to the operation of the Business.
2.13 Litigation, Proceedings, Etc. Except for matters described in the
----------------------------
Disclosure Schedule, (i) there is no pending claim, action, litigation, suit or
proceeding against, or investigation of, Seller; (ii) Seller has not received
any notice of any claim, action, litigation, suit or proceeding against it or
investigation of it, and no such claim, action, suit, proceeding or
investigation is pending or, to Seller's or Stockholders'(in their capacity as
officers of the Seller)
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knowledge, threatened against Seller; and (iii) there are no outstanding court,
arbitration or agency orders, decrees or stipulations to which Seller is a party
or which are directed to Seller.
2.14 Compliance with Law and Other Instruments; Permits. Seller is not (and
--------------------------------------------------
has not been for the past twelve months) in violation of, or default under: (i)
any term or provision of its charter or by-laws; (ii) any material term or
provision of any financial covenant or any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party, or by which
it or any of its properties or business is or may be bound or affected, or (iii)
any applicable law (including, without limitation, the Fair Labor Standards Act
and all other federal and state wage and hour laws and any and all Federal
immigration laws, regulations and promulgations), rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or any of its properties or business, or Seller's employees
or Seller's consultants or independent contractors. Seller owns, possesses, or
has obtained all governmental and other licenses, permits, certifications,
registrations, approvals or consents and other authorizations necessary to own
or lease, as the case may be, its business or operations as presently conducted
and all such governmental and other licenses, permits, certifications,
registrations, approvals, consents and other authorizations are in good
standing, and there are no proceedings pending or, to the best knowledge of
Seller's officers and directors, threatened, or any basis therefor existing,
seeking to cancel, terminate or limit such licenses, permits, certifications,
registrations, approvals, or consents or authorizations, or related to the
breach or failure to comply with any law, rule, regulation, judgment or decree.
2.15 Transactions with Affiliates. Except as set forth in the Disclosure
----------------------------
Schedule, there is no material lease, sublease, indebtedness, contract,
agreement, commitment, understanding or other material arrangement of any kind
whatsoever entered into by Seller with Seller or any of its other stockholders,
officers or directors or any Affiliate of any of them.
2.16 Books and Records. All books and records pertaining to the Business
-----------------
have been, or prior to the Closing shall have been, made available for review by
Buyer and its representatives and are correct and complete in all material
respects, have been maintained in accordance with good business practice and
fairly reflect the basis for the financial condition and results of operations
of Seller set forth in the Financial Statements.
2.17 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of Seller. Set forth in the Disclosure Schedule is an
accurate and complete list of the name and address of each bank or other
institution where Seller has an account or safe deposit box, the number of such
account, and the names of all persons authorized to draw thereon or have access
thereto.
2.18 Minority-Owned Enterprise, Etc. Seller is not doing business as a
------------------------------
minority-owned business enterprise nor as a small or economically disadvantaged
business nor as a women-owned business.
17
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2.19 Broker's Fees. Neither Seller nor Stockholder has any obligation or
-------------
liability to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
2.20 Miscellaneous. Seller is not a guarantor or otherwise liable for any
-------------
liability or obligation (including indebtedness of any other person). Seller
has no subsidiary, parent of affiliate organizations. All compensation payments
including vacation, per diem, holiday and sickness payments, required to be paid
to Seller's personnel for any period prior to the Closing, will be paid in full
at the time of Closing. Seller has not entered into any employment agreement
and or arrangement with nonexempt personnel guaranteeing a minimum number or
work hours during any predetermined time period. Except as is necessary to
close the Business, collect accounts receivable, and pay off obligations, Seller
and the Stockholders agree not to use the name Argos Adriatic Corporation or any
similar name for any purpose.
2.21 Disclosure. The statements contained in this Agreement, and in any
----------
written documents or Schedules attached hereto prepared and delivered by or on
behalf of Seller pursuant to the terms hereof are true and correct in all
material respects, and such statements, documents or Schedules do not omit any
material fact required by the terms hereof or thereof to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading.
2.22 Further Disclosure. No representation or warranty made by Seller in
------------------
this Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished or to be
prepared and furnished by Seller or its representatives pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were
furnished. There is no event, fact or condition that materially and adversely
affects the business of Seller taken as a whole, or that reasonably could be
expected to do so, that has not been disclosed to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
In order to induce Seller to enter into this Agreement, the Buyer represents
and warrants to each of the Seller and Stockholders that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement through this Article III).
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3.5 Authority Relative to this Agreement. The Buyer has the full corporate
------------------------------------
power and authority, and has taken all necessary and proper action, corporate
and otherwise, to execute, deliver and perform this Agreement and any other
agreement or document contemplated hereby, and to consummate the transactions
contemplated hereby or thereby. All action on the part of Buyer necessary for
the authorization, execution, delivery and performance of this Agreement and any
other agreement or document contemplated hereby, and the consummation of the
transactions contemplated hereby or thereby, has been taken. The obligations
imposed on Buyer by this Agreement, or by any agreement or document contemplated
hereby, constitute the valid and binding obligations and agreements of Buyer,
enforceable against it in accordance with their respective terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights; and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
3.6 Compliance of Transaction with Laws and Other Instruments. The
---------------------------------------------------------
execution, delivery and performance by Buyer of this Agreement and any agreement
or document contemplated hereby, and the performance and consummation of the
transactions contemplated hereby or thereby by Buyer (i) do not require on
behalf of Buyer any approval, consent or waiver of, or filing with, any
governmental agency, court or other authority which has not been obtained and
which is not in full force and effect as of the date hereof; (ii) will not
result in a violation of any law, regulation, judgment, writ, injunction, order
or decree of any court or governmental or regulatory authority (federal, local
or otherwise) to which Buyer is subject; (iii) will not conflict with or
constitute a breach or violation of the charter or bylaws of Buyer; and (iv)
will not require the approval, consent or waiver of, or filing with any party
to, violate or conflict with or result in a breach of, or constitute a default
or acceleration of or give rise to a right of termination (or an event which
with notice or lapse of time or both would become a default) under, any
provision of any contract, indenture, mortgage, lease, agreement or other
instrument to which Buyer is a party or to which any of its assets are subject.
3.7 Organization and Qualification. Buyer is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its state of
incorporation.
3.4 SEC Documents. Buyer has made available to Seller true and complete
-------------
copies of each statement, report, registration statement (without exhibits) and
definitive proxy statement filed by Buyer with the Securities and Exchange
Commission (the "SEC") since December 31, 1996 (the "SEC Documents"), which are
all the documents (other than preliminary material) that Buyer was required to
file with the SEC since such date and which include the Annual Report on Form
10-K for Buyer's fiscal year ended December 31, 1996 (the "10-K Report") and the
Quarterly Report on Form 10-Q for Buyer's fiscal quarter ended September 30,
1997 (the "10-Q Report"). As of their respective filing dates, the SEC
Documents complied or will comply in all material respects with the applicable
requirements of the Exchange Act and/or the Securities Act,
19
<PAGE>
and none of the SEC Documents contained or will contain any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading except to the extent
corrected by a subsequently filed SEC Document. The financial statements of
Buyer included in the SEC Documents, including the 10-K Report and the 10-Q
Report (the "Financial Statements"), comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC), are in accordance with the books and
records of the Buyer, are accurate in all material respects, and fairly present
the consolidated financial position of Buyer and its consolidated subsidiaries
at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended (subject, in the case
of unaudited statements, to normal, recurring audit adjustments).
3.5 Future SEC Filings. All documents that Buyer is required to file with
------------------
the SEC prior to each Earnout Payment date and during each Measurement Period
(the "SEC Filings") will be timely filed by Buyer prior to the applicable
Measurement Period. As of their respective filing dates, the SEC Filings will
comply in all material aspects with the applicable requirements of the Exchange
Act and/or the Securities Act, and none of the SEC Filings will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances in which they are made, not misleading except to the extent
corrected by a subsequently filed SEC Filing filed prior to the Measurement
Period. Any material adverse information reasonably likely to affect the market
price of BI Common Stock will have been disclosed in the SEC filings or
otherwise disclosed to the public markets prior to the applicable Measurement
Periods. The financial statements of Buyer included in the SEC Filings will
comply as to form in all material aspects with applicable accounting
requirements and with published rules and regulations of the SEC with respect
thereto. Such financial statements will be prepared in accordance with
generally accepted accounting principles consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC), will be in accordance with the books and
records of the Buyer, will be accurate in all material respects, will fairly
present the consolidated financial position of Buyer and its consolidated
subsidiaries at the dates thereof and the consolidated results of their
operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments).
3.6 Disclosure. No representative or warranty made by Buyer in this
----------
Agreement, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared and furnished or to be
prepared and furnished by Buyer or its representatives pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to
20
<PAGE>
make the statements or facts contained herein or therein not misleading in light
of the circumstances under which they were furnished. There is no event, fact or
condition that materially and adversely affects the business of Buyer and its
subsidiaries taken as a whole, or that reasonably could be expected to do so,
that has not been disclosed to Seller. Buyer meets the current public
information requirements set forth in SEC Rule 144(c).
3.7 Consents. Except for the consent or waiver of GE Capital Corp. ("GE
--------
Capital") under the Credit Agreement by and between GE Capital as lender and BI
and various BI affiliates as Borrowers, Buyer is not subject to any law,
ordinance, regulation, rule, order, judgment, injunction, decree, contract,
commitment, lease, agreement, instrument or other restriction of any kind, which
by its provisions would prevent the consummation of this Agreement or any of the
transactions contemplated hereby, without the consent, filing with or
notification of any third party which has not already been obtained or made or
will not be obtained prior to the Closing.
3.8 Broker's Fees. Buyer has no liability or obligation except to Elite
-------------
Investment Group, LLC to pay any fees or commissions to any broker, investment
bankers, finder or agent with respect to the transactions contemplated by this
Agreement.
ARTICLE IV
BUYER'S CONDITIONS TO CLOSING
-----------------------------
The obligations of Buyer to purchase the Acquired Assets and to consummate the
transactions contemplated hereby, are subject to the fulfillment in all material
respects on or prior to the Closing Date of each of the following conditions:
3.8 Representations and Warranties. The representations and warranties made
------------------------------
by Seller and Stockholders in Article II hereof shall be true and correct when
----------
made, and shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that representations which are specifically made as of a specified date shall be
true and correct as of such earlier date.
3.9 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Seller on or prior to the Closing
Date shall have been performed or complied with in all material respects.
3.10 Closing Deliveries. Buyer shall have received all documents and
------------------
instruments required pursuant to Section 7.2 hereof.
-----------
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3.11 Absence of Litigation. No action, suit or proceeding before any court
---------------------
or any governmental body or authority shall be pending against either Seller or
Buyer which seeks to impose substantial damages in connection with, or to
restrain or invalidate the transactions contemplated by, this Agreement, and no
preliminary or permanent injunction or order that would prohibit or restrain
such transactions shall be in effect.
3.12 Absence of Certain Changes. There shall not have occurred prior to the
--------------------------
Closing Date (a) any material adverse change in the Business of Seller, or any
event or condition which, with the passage of time or the filing of notice, may
cause or create any such material adverse change, or (b) the legal inability of
Seller to convey, assign and transfer to Buyer the Business, or to convey,
assign and transfer to Buyer the Acquired Assets.
4.6 Consent. The Consent of GE Capital.
-------
4.7 Further Assurances. All actions to be taken by the Seller in connection
------------------
with consummation of the transactions contemplated hereby and all certificates,
opinion, instruments, and other documents required to effect the transactions
contemplated hereby will be satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Article IV if it executes a
writing so stating at or prior to the Closing Date.
ARTICLE V
SELLER'S CONDITIONS TO CLOSING
------------------------------
The obligations of Seller to sell the Acquired Assets at the Closing, and the
obligation of Seller to consummate the transactions contemplated hereby are
subject to the fulfillment in all material respects on or prior to the Closing
of each of the following conditions:
3.13 Representations and Warranties. The representations and warranties made
------------------------------
by Buyer in Article III hereof shall be true and correct when made, and shall be
-----------
true and correct in all material respects on the Closing with the same force and
effect as if they had been made on and as of the Closing, except for changes
permitted or contemplated by this Agreement and except that representations
which are specifically made as of a specified date shall be true and correct as
of such earlier date.
3.14 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Buyer on or prior to the Closing
shall have been performed or complied with in all material respects.
3.15 Closing Deliveries. Seller and Stockholders shall have received all
------------------
documents and instruments required pursuant to Section 7.2 hereof.
-----------
22
<PAGE>
5.4 Consent. The Consent of GE Capital.
-------
5.5 Absence of Litigation. No action, suit or proceeding before any court or
---------------------
any governmental body or authority shall be pending against either Seller,
Stockholders or Buyer which seeks to impose substantial damages in connection
with, or to restrain or invalidate the transactions contemplated by this
Agreement and no preliminary or permanent injunction or order that would
prohibit or restrain such transactions shall be in effect.
23
<PAGE>
ARTICLE VI
FURTHER AGREEMENTS
------------------
3.16 Expenses. Seller and Stockholders shall pay their costs incurred in
--------
connection with the preparation, negotiation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the fees of the attorneys and accountants of
Seller. Buyer shall pay its costs incurred in connection with the preparation,
negotiation, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the fees of
its attorneys and accountants.
3.17 News Releases. Upon Closing, Buyer may prepare and issue, subject to
-------------
Seller's reasonable approval, press release(s) regarding the transaction
contemplated hereby and upon doing same will provide advance notice to Seller
and will review and consider Seller's comments on same.
3.18 Survival of Representations. The representations and warranties
---------------------------
contained herein are and will be deemed and construed to be continuing
representations and warranties and will survive the Closing and (other than the
representations and warranties set forth in Section 2.7 and other than
fraudulent misrepresentations made by Seller or Stockholders) continue in full
force and effect thereafter, provided that a notice is given as to a breach of
such representations or warranties within one year of the Closing Date. The
representations and warranties set forth in Section 2.7 above and all fraudulent
misrepresentations made by Seller and Stockholders shall continue in full force
and effect at all times thereafter. If a notice of breach is given within any
applicable time period, the other party shall be responsible for all Adverse
Consequences (as defined below) resulting from, arising out of, or related to
such breach, including Adverse Consequences suffered after the date notice has
been given.
3.19 Indemnification.
---------------
(a) Indemnification of Buyer. Each of Seller and Stockholders jointly
------------------------
and hereby severally agrees to indemnify, defend and hold harmless Buyer from
and against all demands, claims, actions, or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without limitation,
interest, penalties and reasonable attorney's fees and expenses (a "Claim"),
that arise out of:
(i) any inaccuracy or breach of any representation, warranty or
covenant by Seller or Stockholders contained in or made pursuant to this
Agreement;
(ii) all matters arising out of or in connection with the
operation of the Business on or before the Closing; and
24
<PAGE>
(iii) all Unassumed Liabilities and Excluded Assets.
(b) Indemnification of Seller. Buyer hereby agrees to indemnify,
-------------------------
defend and hold Seller and Stockholders from and against all demands, claims,
actions, or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including without limitation, interest, penalties and reasonable
attorney's fees and expenses (a "Claim"), that arise out of:
(i) any inaccuracy or breach of any representation, warranty or
covenant by Buyer contained in or made pursuant to this Agreement;
(ii) all matters arising out of or in connection with the
operation of the Business after Closing; and
(iii) all Assumed Liabilities and Acquired Assets.
(c) Limitations.
-----------
(i) Any Claim shall be offset or reduced by the amount of any
insurance proceeds or net tax benefits , hereinafter "Tax Benefits") received by
any party to such Claim.
(ii) Notwithstanding the foregoing, in no event shall the amount
of liability of Seller and Stockholders to Buyer for breach of any
representation, warranty, indemnity or covenant or otherwise under, or arising
in connection with, this Agreement (including, without limitation the
indemnification set forth above and the obligations under all exhibits hereto)
exceed an amount equal to (x) $1,500,000 (after deducting any insurance proceeds
and Tax Benefits received therefrom), in aggregate, or (y) $1,000,000 (after
deducting any insurance proceeds and Tax Benefits received therefrom), for all
matters other than claims arising out of project work (excluding, in clauses (x)
and (y), matters set forth in the last sentence of this paragraph). The
liability, if any, of the Stockholders to the Buyer pursuant to this Section 6.4
shall be joint and several. However, nothing in this Section 6.4 shall limit, in
any manner (whether by time, amount, procedure or otherwise), any remedy at law
or in equity to which a party may be entitled as a result of, (x) actual fraud
by the other party, including any wilful failure to disclose matters that should
have been disclosed pursuant to Article 2 hereof; or (y) any Claim resulting or
arising out of the Seller's Datablade project with Informix Corporation.
(iii) Except as provided in subsection (ii) above, this section 6.4
shall set forth the sole and exclusive remedy and recourse (and corresponding
liability for any party) of the parties arising from a Claim, cause of action,
any other claim, or right of nature against a party or any or its officers,
directors, employees, agents and representatives.
25
<PAGE>
(iv) Buyer and Seller shall act in good faith and in a
commercially reasonable manner to mitigate any Claims and damages they may
suffer.
(d) Notice of Claim. Each month, each Indemnified Party shall notify
---------------
the other party of any potential indemnity claims that have come to the
attention of the Indemnified Party (provided that a good faith failure to notify
the other party of such claims will not affect the rights and obligations of
either party under this Article). In addition, if an Indemnified Party becomes
aware of a Claim in respect of which indemnification is provided for pursuant to
this Agreement, the Indemnified Party shall promptly give written notice of the
Claim to the Indemnifying Party. Such notice shall specify whether the Claim
arises as a result of a Claim by a person other than a party against the
Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise
(a "Direct Claim"), and shall also specify with reasonable particularity (to the
extent information is available): (i) the factual basis of the Claim; and (ii)
the amount of the Claim, if known. If, through the fault of the Indemnified
Party, the Indemnifying Party does not receive notice of a Claim in time
effectively to contest the determination of any liability susceptible to being
contested, then the liability of the Indemnifying Party to the Indemnified Party
under this Section 6.4 shall be reduced by the amount of any losses incurred by
the Indemnifying Party resulting from the Indemnified Party's failure to give
such notice on a timely basis.
(e) Direct Claims. In the case of a Direct Claim, the Indemnifying
-------------
Party shall have 15 days from receipt of notice of the Claim within which to
make such investigation of the Claim as the Indemnifying Party considers
necessary or desirable. For the purpose of such investigation, the Indemnified
Party shall make available to the Indemnifying Party the information relied upon
by the Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably request. If both parties
agree at or before the expiration of such 15 day period (or any mutually agreed
upon extension thereof) to the validity and amount of such Claim, the
Indemnifying Party shall pay to the Indemnified Party (or the Indemnified Party
may set-off such amounts from amounts due to the Indemnifying Party pursuant to
Section 1.3 hereof) the full amount of such Claim, including court costs and
attorney's fees and expenses arising as a result of such claim ("Adverse
Consequences"), failing which the disputed amount (by way of set-off or
otherwise) may be placed in a Third Party escrow acceptable to both parties and
the matter shall be referred to binding arbitration in such manner as the
parties may agree or shall be determined by a court of competent jurisdiction.
(f) Third Party Claims. In the case of a Third Party Claim, the
------------------
Indemnifying Party shall have the right, at its expense, to participate in or
assume control of the negotiation, settlement or defense of the Claim and, in
such event, the Indemnifying Party shall reimburse the Indemnified Party for all
of the Indemnified Party's out-of-pocket expenses as a result of such
participation or assumption. If the Indemnifying Party elects to assume such
control, the Indemnified Party shall have the right to participate in the
negotiation, settlement or defense of such Third Party claim and to retain
counsel to act on its behalf, provided that the fees and
26
<PAGE>
disbursements of such counsel shall be paid by the Indemnified Party unless the
Indemnifying Party consents to the retention of such counsel at its expense or
unless the named parties to any action or proceeding include both the
Indemnifying Party and the Indemnified Party and a representation of both the
Indemnifying Party and the Indemnified Party by the same counsel would be
inappropriate due to the actual or potential differing interests between them
(such as the availability of different defenses). If the Indemnifying Party,
having elected to assume such control, thereafter fails to defend the Third
Party Claim within a reasonable time, the Indemnified Party shall be entitled to
assume such control and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such Third Party Claim.
(g) Settlement of Third Party Claims. If the Indemnifying Party fails
--------------------------------
to assume control of the defense of any Third Party Claim, the Indemnified Party
shall have the right to contest, settle or pay the amount claimed. If the
Indemnifying Party assumes control of the negotiation, settlement and defense of
any Third Party Claim, the Indemnifying Party may settle any Third Party Claim
in a manner that does not adversely affect the Indemnified Party with prior
notice to the Indemnified Party. The Indemnified Party shall not agree to any
settlement of any such action or claim without the consent of the Indemnifying
Party, which shall not be unreasonably withheld.
(h) Set-Off. In the event the Indemnifying Party is required to make
-------
any payments under paragraphs (f) or (g) hereof, or in the event Indemnifying
Party is required to reimburse the Indemnified Party pursuant to paragraphs (f)
and (g) hereof, the Indemnified Party, may, in lieu of seeking such payments
from the Indemnifying Party or in lieu of seeking reimbursement from the
Indemnifying Party, set-off such amounts from amounts due to the Indemnifying
Party pursuant to Section 1.3 hereof, and place the amount of the payment or the
amount of the reimbursement in a Third Party escrow acceptable to both parties,
whereupon the matter shall be referred to binding arbitration in such manner as
the parties may agree or shall be determined by a court of competent
jurisdiction.
6.5 Seller's Employees. Buyer will employ all of Seller's current employees
------------------
and will offer such employees compensation, in the aggregate, at least equal to
such employees' current aggregate compensation. Buyer will employ all such
current employees of Seller effective on the Closing Date.
ARTICLE VII
CLOSING DELIVERIES
------------------
3.20 Closing. Subject to the conditions contained in this Agreement, the
-------
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place on February 24, 1998. The effective time for purposes of
apportionments and other matters involving allocations for the Closing shall be
at 11:59 p.m. on February 21, 1998.
27
<PAGE>
3.21 Deliveries.
----------
(a) At the Closing, Buyer shall deliver to Seller:
(i) The Purchase Price pursuant to Section 1.2 hereof;
-----------
(ii) Certified copies of the resolutions of the Board of
Directors of Buyer authorizing Buyer to execute and deliver this Agreement, any
agreement or document contemplated hereby, and to consummate the transactions
contemplated hereby and thereby;
(iii) A certificate of an executive officer of Buyer, dated the
Closing Date, certifying that: (i) all representations and warranties made by
Buyer in Article III hereof were true and correct when made, and are true and
-----------
correct on the Closing Date, except for changes permitted or contemplated by
this Agreement and except that representations which are specifically made as of
a specified date shall be true and correct as of such earlier date; and (ii) all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by Buyer on or prior to the Closing Date have been performed or
complied with;
(iv) Executed Employment Agreements, in substantially the forms
attached as Exhibits A-1 and A-2 hereto; and
(v) Evidence of employment of or reasonable actions to employ
all of Seller's current employees in accordance with the provisions of Section
6.5.
(b) At the Closing, Seller and Stockholders, as the case may be, shall
deliver to Buyer:
(i) General Assignment and Bill of Sale conveying title, free
and clear of any encumbrances, to the Acquired Assets, from Seller to Buyer;
(ii) Possession of all Acquired Assets used in the Business,
except for Excluded Assets;
(iii) All contracts, leases, agreements or other documents, books,
financial and accounting records of Seller not previously delivered or not
located on the premises of Seller, to the extent such items are used in the
Business, and are not Excluded Assets or items related to Excluded Assets;
(iv) Executed Employment Agreements, in substantially the forms
attached as Exhibits A-1 and A-2 hereto;
28
<PAGE>
(v) Certificate of good standing in California along with
California Tax Clearance Certificates and a Certificate of Release (Form DE-
2220);
(vi) The Federal Predecessor/Successor Election, in the form
attached hereto as Exhibit B;
(vii) Consent by the Lessor of the Lease referred to in Article I
hereof, (x) consenting to the assignment and assumption of such lease to Buyer,
(y) acknowledging that all obligations, duties and liabilities of whatever
nature, kind or description arising or occurring prior to closing are the sole
and exclusive responsibility of Seller to the exclusion of Buyer, and (z)
waiving and releasing all claims against Buyer;
(viii) Certified copies of the resolutions of the Board of
Directors of Seller authorizing Seller to execute and deliver this Agreement,
any agreement or document contemplated hereby, and to consummate the
transactions contemplated hereby and thereby;
(ix) An opinion of Wilson, Sonsini, Goodrich and Rosati, counsel
for Seller and the stockholders, dated the Closing Date, in the form attached
hereto as Exhibit C;
(x) The Certificate of Incorporation and By-Laws of Seller, as
amended to the date hereof, and a certification by an officer of Seller that
same are true and complete copies of such documents in effect at the time of
certification;
(xi) A certificate of the Seller, dated the Closing Date,
certifying that: (i) all representations and warranties made by Seller in
Article II hereof were true and correct when made, and are true and correct
- ----------
on the Closing Date except for changes permitted or contemplated by this
Agreement and except that representations which are specifically made as of a
specified date shall be true and correct as of such earlier date; and (ii) all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by Seller on or prior to the Closing Date have been performed
or complied with; and
(xii) Evidence of payment of all liens, or satisfactory consents
to terminate such liens.
ARTICLE VIII
POST-CLOSING COVENANTS AND AGREEMENTS
-------------------------------------
3.22 Further Assurances. If at any time and from time to time after the
------------------
Closing, Buyer determines that any further conveyance, assignment, consent to
assignment or other document or any other further action is necessary or
desirable to carry out the purposes of and to make
29
<PAGE>
effective the transactions contemplated by this Agreement, Seller agrees to
execute and deliver all such instruments and to take such actions as may be
reasonably necessary or advisable for such purpose.
8.2 Covenant Not to Compete.
-----------------------
(a) Until the last to occur of: (i) 5 years from the date of this
Agreement, or (ii) 1 year from the last termination or end of employment of
either Stockholder pursuant to the Employment Agreement (provided, however, that
if the employment of the Stockholders is terminated or ended on different dates,
the period of this covenant not to compete shall, with respect to the
Stockholder whose employment is first terminated or ended, terminate on the last
to occur of: (i) 5 years from the date of this Agreement, or (ii) 1 year from
the date of termination or end of employment of such Stockholder), Seller and
Stockholders shall not directly or indirectly through representatives, agents or
otherwise, (i) engage in competition with the Business sold hereunder, its
successors or assigns in the Territory or with respect to "Seller's Customers"
as defined in this Agreement; or (ii) provide information, solicit or sell for,
own, or organize any interest in, either directly or through any affiliate or
subsidiary corporation, partnership or other entity, or become engaged by, act
as agent for, or in any manner assist, any person, corporation or other entity
that competes with the Business, or their successors or assigns in the Territory
or with respect to Seller's Customers. Seller and Stockholders further agree
that within the restrictive period, Seller and Stockholders will not in any way
divert or attempt to divert from Buyer or Seller any business whatsoever and
Seller and Stockholders further agree that during said restrictive period they
will not influence or attempt to influence any customers of Buyer or Seller's
Customers not to do business with Buyer. Seller and Stockholders further agree
that they will not make or permit the making of any public announcement or
statement of any kind that Stockholder was formerly employed or connected with
Buyer or Seller, which announcement has as its purpose the intent to violate the
provisions of this paragraph. The term "Seller's Customer", as used in this
Section 8.2, shall mean, (i) each individual or entity listed on the Disclosure
Schedule, and (ii) each otherindividual or entity which either Stockholder does
business with on behalf of Buyer, and that purchases services directly related
to Seller's Business at, or within 12 months prior to the last termination or
end of employment of either Stockholder pursuant to the Employment Agreement
(provided, however, that if the employment of the Stockholders is terminated or
ended on different dates, then the definition of "Seller's Customer", as used in
this Section 8.2, with respect to the Stockholder whose employment is first
terminated or ended, shall mean, (i) each individual or entity listed on the
Disclosure Schedule, and (ii) each other individual or entity which either
Stockholder does business with on behalf of Buyer and that purchases services
directly related to Seller's Business, at, or within 12 months prior the
termination or end of employment of the Stockholder whose employment is first
terminated or ended). The term "Territory" as used herein shall mean: (i) any
location within 150 miles of Fremont, California, and (ii) any location within
150 miles of any other office, either now existing or hereinafter opened, where
Seller or Stockholders exert any material management control with respect to the
Business.
30
<PAGE>
(b) During the term set forth in paragraph (a) and thereafter, Seller
shall not divulge any of Buyer's or Seller's business contacts, customers,
suppliers, technology, know-how, trade secrets, marketing techniques, books and
records, computer programs or any other confidential or proprietary information
or make available to any other persons any documents, files or other papers
concerning the foregoing or the Business or financial affairs of Seller or
Buyer. During the term set forth in paragraph (a) and thereafter, Seller shall
not solicit the employment of, any employee or consultant currently or
provisionally employed or retained by Buyer or Seller.
(c) Seller has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon Buyer under
this Agreement and hereby acknowledges and agrees that the same are reasonable
in time and Territory.
(d) It is stipulated that a breach by Seller and/or either Stockholder of
the restrictive covenants set forth herein will cause irreparable damage to
Buyer and that in the event of any breach of the provisions under this Section,
Buyer, in addition to any other remedies it has, shall be entitled to an
injunction restraining Seller and the Stockholders from violating or continuing
a violation of the restrictive covenants herein contained. It is further
stipulated that the existence of any claim or cause of action on the part of
Seller and/or any Stockholder against Buyer, whether arising from this Agreement
or otherwise shall in no way constitute a defense to the enforcement of the
restrictive covenants contained herein, and the restrictive periods which Buyer
is entitled to an injunction shall be extended in an amount which equals the
time period which the Seller or Stockholders are or have been in violation of
the restrictive covenant contained herein. The provisions of this Section 8.2
shall survive the Closing Date. If any of the provisions of this Section shall
be held invalid, illegal, or unenforceable by the final determination of a court
of competent jurisdiction and all appeals therefrom shall have failed or the
time for such appeals shall have expired the provision or provisions shall be
deemed eliminated from this Agreement to such jurisdiction but the remaining
provisions shall nevertheless be given full effect. In the event this Agreement
or any portion hereof is more restrictive than permitted by the law of the
jurisdiction in which enforcement is sought, this Agreement or such portion
shall be limited in that jurisdiction only to the extent required by the law of
that jurisdiction. If a court of competent jurisdiction shall determine that the
terms of this Section 8.2 are partially or wholly inoperative, unenforceable or
invalid in a particular case because of their time or geographic scope or for
any other reason such court shall have the power to limit such time or
geographic scope or otherwise to recast the terms of this Agreement in such case
so as to permit its enforcement to the greatest extent permitted by applicable
law.
8.3 Additional Post Closing Agreements.
----------------------------------
(a) Buyer agrees it shall fund the necessary working capital to
achieve the approved financial plan of the operations relating to Seller's
Business for each Earnout Payment,
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<PAGE>
and will not take any action which will materially impair the Seller's ability
to achieve the Earnout Payments.
(b) Seller acknowledges and agrees that the Earnout Shares are being
acquired solely for the account of Seller for investment and not with a view to
or for resale in connection with any distribution;
(c) Seller hereby authorizes Buyer to receive and open mail addressed
to Seller and to deal with the contents thereof in a responsible matter provided
that such mail relates to the Acquired Assets or to the Business of Seller; and
(d) Buyer agrees to pay for all expenses associated with the transfer
of Seller's current employees to Buyer, including but not limited to costs
associated with visa processing and transfers.
ARTICLE IX
TERMINATION; WAIVER
-------------------
3.23 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing:
(a) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing (i) in the event the Seller has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified the Seller of breach,
and the breach has continued without cure for a period of 10 days after the
notice of breach or (ii) if the Closing shall not have occurred on or before
February 28, 1998, by reason of Seller being unable or unwilling to effect a
Closing on or before , February 28, 1998, or by reason of the failure of any
condition precedent under Article IV hereof (unless the failure results
----------
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(c) the Seller may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Closing (i) in the event the Buyer has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, any of the Seller has notified the Buyer of
the breach, and the breach has continued without cure for a period of 10 days
after the notice of breach, or (ii) if the Closing shall not have occurred on or
before February 28, 1998, by reason of Buyer being unable or unwilling to effect
a Closing on or before February 28, 1998, or by reason of the failure of any
condition precedent under Article V
---------
32
<PAGE>
hereof (unless the failure results primarily from the Seller itself breaching
any representation, warranty, or covenant contained in this Agreement).
3.24 Effect of Termination; Specific Performance. In the event of the
-------------------------------------------
termination of this Agreement pursuant to Section 9.1 hereof, notice thereof
-----------
shall be promptly given by the terminating party to the other party and
thereafter this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders, except that (i) the provisions of Section 6.1 hereof shall remain
-----------
in effect and (ii) nothing in this Section 9.2 shall relieve any party to this
-----------
Agreement from liability for breach of this Agreement or any misrepresentation
hereof.
3.25 Extension; Waiver. At any time prior to the Closing, the parties hereto
-----------------
may (i) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by the other party or in any
document, certificate or writing delivered pursuant hereto by the other party or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of either party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No waiver of any breach of a provision of this Agreement
shall constitute or be deemed a waiver of any other breach of the same or any
other provision of this Agreement, and no delay or failure to take action with
respect to any breach or provision of this Agreement shall constitute or be
deemed a waiver of the right to enforce this Agreement and to take action
against such breach or any subsequent breach of the same or any other provision.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
3.26 Entire Agreement; Amendment. Except with respect to those documents
---------------------------
signed in connection with the Closing of the transactions contemplated by this
Agreement and those documents that, by their terms, modify or supersede this
Agreement, this Agreement, (including the Disclosure Schedule), contains the
entire agreement between the parties hereto and supersedes all prior oral or
written agreements, promises, representations, commitments or understandings
with respect to the matters provided for herein. This Agreement may be modified
or amended only by a writing duly executed by the Buyer, the Stockholders and
the Seller, which modification or amendment shall be binding upon all of the
parties hereto.
3.27 Assignment and Binding Effect. This Agreement and the rights and
-----------------------------
obligations of any party hereunder may not be assigned by any party without the
prior written consent of the other party hereto. All covenants, agreements,
statements, representations, warranties and
33
<PAGE>
indemnities in this Agreement by and on behalf of either of the parties hereto
shall bind and inure to the benefit of their respective heirs, successors and
permitted assigns of the parties hereto.
3.28 Waivers. No waiver of any of the provisions of this Agreement shall be
-------
deemed or shall constitute a continuing waiver, and no waiver shall be binding
unless executed in writing by the party making the waiver.
3.29 Notices. All notices, demands or other communications which may be or
-------
are required to be given by any party to any other party pursuant to this
Agreement, shall be in writing and shall be mailed by certified mail, return
receipt requested, postage prepaid, or transmitted by hand delivery, national
overnight express, telegram or facsimile transmission, addressed as follows:
34
<PAGE>
(a) If to Buyer:
Butler International, Inc.
110 Summit Avenue
Montvale, New Jersey 07645
Attention: Michael C. Hellriegel
Sr. Vice President-Finance
Facsimile: (201) 573-9773
with a copy (which shall not constitute notice) to:
McBreen, McBreen & Kopko
20 North Wacker Drive
Suite 2520
Chicago, Illinois 60606
Attention: Frederick H. Kopko, Jr.
Facsimile: (312) 332-2657
(b) If to Seller:
Argos Adriatic Corporation
39120 Argonaut Way #227
Fremont, CA 94538
Attn: Shashi Mahendru
(c) If to Stockholders:
Shashi Mahendru
Argos Adriatic Corporation
39120 Argonaut Way, #227
Fremont, CA 94538
Vinod Wadhawan
Argos Adriatic Corporation
39120 Argonaut Way, #227
Fremont, CA 94538
until such time as either party notifies the other of a change of address. Each
notice or other communication which shall be mailed, delivered or transmitted in
the manner described above shall be deemed sufficiently given and received for
all purposes at such time as it is delivered to the addressee (with the return
receipt, the delivery receipt, or the affidavit of messenger or
35
<PAGE>
telefax transmission log being deemed conclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
3.30 Governing Law; Jurisdiction and Venue. This Agreement shall be governed
-------------------------------------
by and construed in accordance with the laws of the State of California, without
giving effect to the principles of conflicts of laws thereof. Each party hereby
submits to the personal jurisdiction of the United States District Court for the
Northern District of California or any court of the State of California, and
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such court. In
addition, each party hereby irrevocably and unconditionally waives, to the
fullest extent permitted by law, (i) any objection which it may now have or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any related matter in such court, (ii)
the defense of an inconvenient forum to the maintenance of any suit, action or
proceeding in any such court and (iii) trial by jury in any such suit, action or
proceeding.
3.31 Counterparts; Execution. To facilitate execution, this Agreement may be
-----------------------
executed in as many counterparts as may be required, and each such counterpart
hereof shall be deemed to be an original instrument, but all such counterparts
together shall constitute but a single agreement.
3.32 Effective Time of Closing. Notwithstanding the time at which Closing
-------------------------
takes place, the Closing shall be deemed to be effective as of 11:59 p.m. on
February 21, 1998.
3.33 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
3.34 No Third Parties Benefitted. This Agreement is made and entered into
---------------------------
for the sole protection and benefit of the parties hereto, their successors and
assigns, and no other person or persons shall have any right or action under
this Agreement.
3.35 Recitals, Schedules and Exhibits. The recitals, schedules, and exhibits
--------------------------------
to this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
3.36 Section Headings. The section headings used herein are inserted for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
36
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
caused this Agreement to be executed on its behalf, as of the date first above
written.
BUYER:
BUTLER TELECOM, INC.
By: ______________________________
Its: ______________________________
SELLER:
ARGOS ADRIATIC CORPORATION
BY:___________________________
Its:__________________________
STOCKHOLDERS:
_____________________________
SASHI MAHENDRU
__________________________
VINOD WADHAWAN
37
<PAGE>
EXHIBIT 10.42
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of the ____ day of March, 1998 by and between Butler Telecom, Inc., a Delaware
corporation ("Buyer"), Norwood Computer Services Inc., a New York corporation
("Seller"), and Vassilis Chaimanis ("Chaimanis"), and Henry Piscitelli
("Piscitelli") (Chaimanis and Piscitelli being sometimes individually referred
to as "Stockholder" or collectively as "Stockholders").
R E C I T A L S
- - - - - - - -
WHEREAS, Seller is engaged in the business of providing temporary information
technology professional staffing services (the "Business"); and
WHEREAS, Chaimanis and Piscitelli are the owners of 100% of the outstanding
common stock of Seller; and
WHEREAS, Chaiminis and Piscitelli are also the owners of 100% of the
outstanding common stock of Norwood Computer Services of LI, Inc., Norwood
Computer Services of Manhattan, Inc., and Norwood Computer Services of New
Jersey, Inc.; and
WHEREAS, Norwood Computer Services of LI, Inc. is the lessee of that certain
property located at 270-F Duffy Avenue, Hicksville, New York; and
WHEREAS, Norwood Computer Services of Manhattan, Inc. is the lessee of that
certain property located at 225 West 34th Street, New York, NY; and
WHEREAS, Norwood Computer Services of New Jersey, Inc. is the lessee of that
certain property located at 200 Middlesex Turnpike, Iselin, New Jersey (Norwood
Computer Services of LI, Inc., Norwood Computer Services of Manhattan, Inc. and
Norwood Computer Services of New Jersey, Inc. hereinafter referred to as
"Lessees" and the leases held by such Lessees hereinafter referred to as the
"Acquired Leases"); and
<PAGE>
WHEREAS, Buyer is a wholly-owned subsidiary of Butler International, Inc. a
Maryland corporation ("BI"); and
WHEREAS, Buyer wishes to purchase and Seller wishes to sell, the assets and
business of Seller specified in this Agreement;
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, for and in consideration of the mutual promises herein made,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto do hereby agree as follows:
2
<PAGE>
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
------------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of this Agreement
---------------
and in reliance on the representation, warranties and agreements set forth
herein, effective as of 11:59 p.m. on March 31, 1998 (the "Closing Date"),
Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer
shall purchase from Seller all of Seller's right, title and interest in and to
all of the assets of Seller of every kind, tangible and intangible, wherever
located, excepting only those assets specifically excluded in Section 1.2
hereof, and including, without limitation, the following :
(a) the office furniture and equipment, computers, leasehold improvements,
and deposits pursuant to equipment leases, all as listed in Schedule
1.1 A;
(b) all computer software owned by Seller and Seller's interest in any
other computer software licensed by it from others;
(c) all office supplies;
(d) the client agreements, purchase orders, request, requirements,
correspondence, memoranda and inquiries from or with present and
potential customers, including, but not limited to, those set forth
in Schedule 1.1 B ("Client Agreements");
(e) the equipment leases, and other agreements, contracts and instruments
listed in Schedule 1.1C;
(f) all subcontractor agreements and agreements with suppliers to provide
consultants to Seller, including, but not limited to, those set forth
in Schedule 1.1D;
(g) the corporate name Norwood Computer Services Inc., all assumed names
relating thereto, logos, trademarks, service marks, domain names,
trade names, copyrights, registrations, applications for
registration of any of them, and any other intellectual property
rights of Seller, including, but not limited to, those listed in
Schedule 1.1 E but excluding the corporate name Norwood Com * Star,
Inc.;
(h) originals of all books and records of Seller pertaining to the
Acquired Assets , including customer lists and credit files, and all
those pertaining to Seller's employees who are hired by Buyer pursuant
to the Agreement;
(i) all permits, licenses, approvals and other governmental authorizations
relating to the Business which are transferable to Buyer including,
but not limited to, those listed in Schedule 1.1 F;
(j) any other assets not to referred to in Section 1.2 which are used by
Seller in connection with the Business, including, without limitation,
all telephone and facsimile numbers and e-mail addresses used by
Seller in connection with the Business;
(k) all goodwill pertaining to the Business; and
3
<PAGE>
(l) all information for or with respect to Seller's current or former
employees including, without limitation, all tangible and electronic
manifestations, files, resumes, employee information and other such
information relating to employees and consultants.
In addition, Stockholders will cause the Lessees to assign the Acquired Leases
and the security deposits pursuant to such Acquired Leases, to Buyer, at the
Closing Date.
All as the same exist on the date hereof and shall exist on the Closing Date
subject only to changes occurring in the ordinary course of business of Seller.
All such assets to be acquired are referred together as the "Acquired Assets".
1.2 Excluded Assets. The following assets of Seller are excluded from the
---------------
Acquired Assets:
(a) the consideration payable to Seller by Buyer hereunder;
(b) any cash, cash equivalents, or securities owned by Seller;
(c) Seller's accounts receivables, including receivables from affiliates;
(d) any tax refund due to Seller;
(e) any of Seller's unbilled revenue;
(f) all of Seller's vehicles;
(g) all rights in and with respect to Seller's 401(k)/Profit-Sharing Plan;
(h) all assets related to a company known as Norwood Com * Star, Inc.;
(i) any treasury stock held by Seller;
(j) the corporate stock certificate books, ledger, minute books and
similar corporate records of Seller; and
(k) all records and correspondence relating to the foregoing excluded
assets.
1.3 Purchase Price. (a) As consideration for the sale, conveyance,
--------------
transfer, assignment and delivery to Buyer of the Acquired Assets, Buyer shall
pay to Seller the unadjusted purchase price of Eight Million Four Hundred Forty
Thousand Dollars [$8,440,000] (the "Unadjusted Purchase Price"), subject to
adjustment as set forth in paragraph (b) hereof, plus the Earnout Payments
hereinafter defined, as follows:
(i) at the closing of the transaction contemplated by this Agreement
(the "Closing"), Eight Million Four Hundred Forty Thousand
Dollars ($8,440,000), in immediately available funds.
(ii) unless accelerated pursuant to the provisions of Section 8.3(b)
hereof, the earnout payments payable by Buyer to Seller shall be
made as follows:
4
<PAGE>
(a) on June 30, 1999, for the twelve month period ending March
31, 1999, an amount equal to $400,000, provided that EBITA
is equal to or greater than $3,240,000, plus 5% of EBITA in
excess of $3,960,000;
(b) on June 30, 2000, for the twelve month period ending March
31, 2000, an amount equal to $400,000, provided that EBITA
is equal to or greater than $3,888,000, plus 5% of EBITA in
excess of $4,752,000; and
(c) on June 30, 2001, for the twelve month period ending March
31, 2001, an amount equal to $400,000, provided that EBITA
is equal to or greater than $4,665,000, plus 5% of EBITA in
excess of $5,702,000.
Each of the payments referred to above in subsections (a), (b), and (c), are
referred to as an "Earnout Payment". Each of the three consecutive 12 month
periods is referred to herein as an "Earnout Period". Each of the Earnout
Payments will be paid in cash, and will be guaranteed by BI.
For purposes of this Agreement, "EBITA" means the revenue of Buyer's Butler
Technology Solutions division which is under the direct control of Chaimanis
less all direct branch expenses incurred in connection with such revenue such as
staff, compensation and related fringes, payroll taxes, commissions, office
expense, advertising, telephone, travel, postage, lease expense, H1 processing,
all consultant related costs, litigation and related costs net of any insurance
proceeds pertaining directly to the operations of such business (excluding any
litigation costs related to disputes between or among Buyer and Seller or Buyer
and the Stockholders), workers compensation, government penalties, and interest
on accounts receivable greater than 45 days outstanding. The interest rate
applied to accounts receivable greater than 45 days outstanding will be the
interest rate Buyer is charged on its credit facility with General Electric
Capital Corporation ("GE Capital") or any successor organization providing
credit facilities similar to the credit facility provided by GE Capital to
Buyer. Amortization of goodwill and income taxes shall be excluded from the
EBITA calculation. EBITA will be calculated in accordance with generally
accepted accounting principles.
(b) Post-Closing Adjustment. The Unadjusted Purchase Price shall be adjusted
-----------------------
following Closing as follows:
(i) Post-Closing Statement. No later than forty-five (45) days after
----------------------
the Closing Date, Seller shall prepare and deliver to Buyer a detailed itemized
statement as of 11:59 p.m. on the Closing Date (the "Post-Closing Statement"),
setting forth the positive or negative amount equal to the amount of Net Working
Capital (as hereinafter defined) minus $1,575,000.
5
<PAGE>
For purposes of this Agreement, the amount referred to in the immediately
preceding sentence is hereinafter referred to as the "Post-Closing Adjustment
Amount." Seller will allow Buyer and its representatives full and complete
access to all work papers, books and records and all additional information used
in preparing the Post-Closing Statement and will make its officers and employees
available to discuss with the parties and their representatives such papers,
books, records and information. The Post-Closing Statement, when delivered by
Seller, shall be deemed conclusive and binding on the parties and will be deemed
to be the Post-Closing Statement upon which the Post-Closing Adjustment to the
Unadjusted Purchase Price will be based, unless Buyer notifies Seller, within
thirty (30) days after receipt of the Post-Closing Statement from Seller, of its
disagreement therewith (which notice shall state with reasonable specificity the
reasons for any disagreement and the amounts in dispute). If there is a
disagreement, and such disagreement cannot be resolved by Buyer and Seller
within thirty (30) days following the receipt from Buyer of its objections to
the Post-Closing Statement, the items in dispute shall be submitted to a
reputable firm of independent auditors acceptable to both Buyer and Seller, and
the determination by such independent auditing firm shall be binding and
conclusive upon the parties. The fees and disbursements of the accounting firm
shall be allocated between Buyer and Seller so that Buyer's share of such fees
and disbursements shall be in the same proportion that the aggregate amount of
such remaining disputed amounts so submitted by Buyer to the accounting firm
that is unsuccessfully disputed by Buyer (as finally determined by the
accounting firm) bears to the total amount of such remaining disputed amounts so
submitted by Buyer to the accounting firm. For purposes of this Section 1.3
(b)(i), the term "Net Working Capital" shall mean accounts receivable and
unbilled revenue less current operating liabilities (excluding accrued vacation,
sick and holiday time and pay) of the Business (excluding accounts receivable,
accounts payable, and accrued liabilities of Norwood Com * Star Inc.). Current
operating liabilities include accounts payable and accrued liabilities that are
not inconsistent with past payment practice terms. Liabilities that do not occur
and exist each month are excluded, including but not limited to amounts payable
to government agencies for audits and fines, payables to accountants, lawyers
and other professional firms.
(ii) Positive Adjustment. If the Post-Closing Adjustment Amount is
-------------------
positive, then the Unadjusted Purchase Price shall be adjusted downward dollar-
for-dollar by the Post-Closing Adjustment Amount, and Seller shall pay the
lesser of: (x) such Post-Closing Adjustment Amount, and (y) $200,000, to Buyer
in immediately available funds within three (3) days following final
determination of such amount as described in Section 1.3(b) (i).
(iii) Negative Adjustment. If the Post-Closing Adjustment Amount is
-------------------
negative, then the Unadjusted Purchase Price shall be adjusted upward dollar-
for-dollar by the Post-Closing Adjustment, and Buyer shall pay the lesser of (x)
such Post-Closing Adjustment Amount and (y) $200,000, to Seller in immediately
available funds within three (3) days following final determination of such
amount as described in Section 1.3(b) (i).
6
<PAGE>
1.4 Earnout Payment Calculations. Each Earnout Payment shall be accompanied
----------------------------
by a statement from an officer of Buyer setting forth (i) a detailed itemization
of EBITA for the applicable Earnout Period, and (ii) the calculation of the
payment due to Seller. Such officer's statement shall state that such
computations are accurate and have been prepared in accordance with this
Agreement. Buyer shall prepare and maintain, in accordance with generally
accepted accounting principles, complete and accurate records from which the
computation of EBITA shall be made. Until all Earnout Payments have been made,
Seller shall at reasonable times and upon reasonable notice have the right to
review the books and records of Buyer pertaining to the Earnout Payments. Until
all Earnout Payments have been made, Buyer shall provide Seller with monthly and
year to date income statements with respect to the Business, within 30 days
following the end of each calendar month.
1.5 Acquired Assets Free of Liens. The Acquired Assets to be transferred
-----------------------------
hereunder shall be transferred free and clear of all liens, claims,
encumbrances, mortgages, pledges, restrictions or rights of others of every kind
and description, including, without limitation, tax liens environmental liens,
and ERISA obligations, but excluding the Assumed Liabilities.
1.6 Assumption of Liabilities. As additional consideration for the purchase
-------------------------
of the Acquired Assets, Buyer shall assume and agree to pay, perform and
discharge in full the following debts, contracts, obligations and liabilities of
Sellers ("Assumed Liabilities"), and no others, as and when due, and to
indemnify Seller and the Stockholders harmless therefrom:
(a) All obligations and liabilities accruing and arising after the Closing
Date under the Acquired Leases, client agreements and arrangements set forth in
Schedule 1.1 B, the equipment leases and other agreements, contracts and
instruments set forth in Schedule 1.1 C, the subcontractor agreements and
agreements with suppliers set forth in Schedule 1.1 D, the intellectual property
items set forth in Schedule 1.1 E, and the licenses and related items set forth
in Schedule 1.1 F, the office leases set forth in Schedule 1.1G, and all
telecommunication services (including telephone, facsimile, and e-mail) arising
after the Closing Date; and
(b) accrued vacation, sick and holiday time and pay.
1.7 Liabilities Not Assumed. Notwithstanding the assumption of liabilities
-----------------------
referred to in the foregoing Section 1.6, Buyer shall not assume or be deemed to
have assumed any of the liabilities or obligations of Seller (the "Unassumed
Liabilities"), including, without limitation:
(a) any public or other liability claims with respect to the Business and
affairs of Seller (other than Assumed Liabilities), and the acts and
omission of its officers, directors, employees, and agents either
before or after the Closing Date;
(b) any obligation or liability of Seller to either of the Stockholders or
any other officer or director of Seller;
7
<PAGE>
(c) any obligation or liability for Federal, State, local, foreign income
or other taxes, other than sales taxes due in connection with the
transactions contemplated herein;
(d) any obligation or liability arising out of or relating, directly or
indirectly, to the operation of the Business prior to the Closing
Date, including any rebates, discounts, offsets or concessions
attributable to amounts invoiced to Seller's clients prior to the
Closing Date;
(e) any obligation or liability to Seller's employees for salary, wages or
other compensation or benefits, including any obligation or liability
with respect to any pension, retirement, 401(k), savings, profit
sharing or other Employee Benefit Plan (as defined in Section 2.11);
(f) any liability arising out of, and any expenses relating to, any claim,
action, dispute, or litigation involving Seller;
(g) any liability of Seller for fines, penalties, damages or other amounts
payable to any government or governmental agency or instrumentality,
including, but not limited to, any liability of Seller for fines,
penalties, damages or amounts payable to any government or
governmental agency or instrumentality arising out of any violation of
8 U.S.C. 1101 et. seq.; and
--- ----
(j) any obligation or liability of Seller or the Stockholders for the
expenses incurred in preparing or negotiating this Agreement and
consummating the transactions contemplated hereunder.
Seller, and Stockholders, jointly and severally, agree to discharge and
indemnify, defend and hold harmless Buyer and their respective affiliates,
officers, directors, employees, agents, and stockholders from all Unassumed
Liabilities, whether or not known, liquidated or contingent.
1.8 Allocation Of Purchase Price. The purchase price for the Acquired Assets
----------------------------
shall be allocated as described on Schedule 1.8. No party to this Agreement
will take a position on any federal or state tax return, before any governmental
agency charged with the collection of any income tax, or in any judicial
proceeding that is in any way inconsistent with Schedule 1.8.
1.9 Apportionments. To the extent necessary, the following items will be
--------------
apportioned as of 11:59 p.m. on the Closing Date:
(a) real estate and personal property taxes, and other state, county and
municipal taxes and assessments and charges affecting the Acquired Assets;
8
<PAGE>
(b) rents and other payments under any of the contracts assigned hereunder;
and
(c) charges for water, electricity, and all other utilities (except to the
extent disposed of by final billing to Seller).
All such items, prior to such time, being for the account of Seller and all
such items, after such time, being for the account of Buyer. At the Closing,
Seller or Buyer, as the case may be, shall deliver to the other a check for the
net amount owing under this Section 1.9. If any such item cannot be accurately
apportioned at the Closing or if it is incorrectly apportioned at the Closing or
subsequent thereto, such items shall be apportioned or reapportioned, as the
case may be, as soon as practicable after the Closing Date or the date on which
the apportionment error is discovered, as applicable.
1.10 Settlement of Disputes. Any controversy or claim arising out of or
----------------------
related to the Earnout Payments shall be finally resolved by arbitration
pursuant to the commercial arbitration rules of the American Arbitration
Association. Any such arbitration shall take place in Newark, New Jersey,
before three arbitrators one of which shall be appointed by Buyer, one by Seller
and the Stockholders and the third by the arbitrators; provided, however, that
the parties may by mutual agreement designate a single arbitrator. The parties
further agree that (i) the arbitrators shall be empowered to include arbitration
costs and attorney fees in the award to the prevailing parties in such
proceedings and (ii) the award in such proceedings shall be final and binding on
the parties. The arbitrators shall apply the law of the State of New Jersey
exclusive of conflicts of laws principles, to any dispute. Judgment on the
arbitrators' award may be entered in any court having the requisite
jurisdiction. Nothing in this Agreement shall require the arbitration of
disputes between the parties that arise from actions, suits or proceedings
instituted by third parties. Each party irrevocably submits to the jurisdiction
and venue of the arbitration described in the foregoing and to the jurisdiction
and venue of the Federal and State courts sitting in New Jersey for the
enforcement of any judgment on arbitrators' award and waives any objection it
may have with respect to the jurisdiction of such arbitrations or such courts or
the inconvenience of such forums or venues.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDERS
---------------------------------------------------------
In order to induce Buyer to enter into this Agreement, each of the Seller and
the Stockholders, jointly and severally, represent and warrant to the Buyer that
the statements contained in this Article II are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article II).
9
<PAGE>
3.1 Authority Relative to this Agreement. The Seller and Stockholders have
------------------------------------
the full power and authority to execute, deliver and perform this Agreement and
any agreement or document contemplated hereby, and to consummate the
transactions contemplated hereby or thereby. The obligations imposed on Seller
and Stockholders by this Agreement, or by any agreement or document contemplated
hereby, constitute the valid and binding obligations and agreements of Seller
and Stockholders, enforceable against each of them in accordance with their
respective terms except that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights; and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
3.2 Compliance of Transaction With Laws and Other Instruments. Except as set
---------------------------------------------------------
forth in Section 2.2 of the disclosure schedules attached hereto (the
"Disclosure Schedules"), the execution, delivery and performance by Seller and
the Stockholders of this Agreement and any agreement or document contemplated
hereby, and the performance and consummation of the transactions contemplated
hereby or thereby by Seller and Stockholders (i) do not require on behalf of
Seller and Stockholders any approval, consent or waiver of, or filing with, any
governmental agency, court or other authority which has not been obtained and
which is not in full force and effect as of the date hereof; (ii) will not
conflict with or constitute a breach or violation of the charter or bylaws of
Seller; (iii) will not result in a material violation of any law, regulation,
judgment, writ, injunction, order or decree of any court or governmental or
regulatory authority (federal, local or otherwise) to which Seller or
Stockholders are subject; and (iv) will not require the approval, consent or
waiver of, or filing with any party to, violate or conflict with or result in a
material breach of, or constitute a default or acceleration of or give rise to a
right of termination (or an event which with notice or lapse of time or both
would become a default) under, any provision of any contract, indenture,
mortgage, lease, agreement or other instrument to which Seller or Stockholders
is a party or to which any of his or its assets are subject.
3.3 Organization and Qualification. Seller is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its assets and properties and to conduct the Business in the manner
and in the places where such assets and properties are owned, leased or operated
or the Business is conducted by it. Seller has no subsidiaries and does not
own, directly or indirectly, any equity investment in any corporation,
partnership, joint venture or other business entity.
3.4 Financial and Other Statements. Section 2.4 of the Disclosure Schedules
------------------------------
contains true and complete copies of Seller's financial statements and the notes
thereto audited by a certified public accountant for the years ended December
31, 1997 and December 31, 1996, (collectively the "Financial Statements").
Except as set forth in the Disclosure Schedules, the
10
<PAGE>
Financial Statements (i) have been prepared in accordance with generally
accepted accounting principles on a consistent basis and (ii) fairly present in
all material respects the financial position and results of operation of Seller
as of the indicated dates and for the periods indicated therein.
2.5 Title to Properties; Liens; Condition of Properties. Except as set forth
---------------------------------------------------
on Section 2.5 of the Disclosure Schedules, Seller has good and marketable title
to or a valid leasehold in, the Acquired Assets. Except as set forth on Section
2.5 of the Disclosure Schedules, none of the Acquired Assets are subject to any
mortgage, pledge, lien, conditional sale agreement, security interest,
encumbrance, title defect or other charge, except for liens for taxes not yet
due and payable. Section 2.5 of the Disclosure Schedules sets forth the
addresses or locations of all facilities (whether leased or owned) of Seller and
the addresses or locations of all places where Seller operates the Business.
2.6 No Undisclosed Liabilities. There are no material contractual or non-
--------------------------
contractual obligations, debts or liabilities of any nature of Seller whether
accrued or unaccrued, contingent or absolute, direct or indirect, recorded or
unrecorded, potential or realized (the "Liabilities") as of December 31, 1997,
which are not otherwise disclosed in the Financial Statements. Seller has not
incurred any Liabilities since December 31, 1997, except for those Liabilities
incurred in the ordinary course of Seller's business and consistent with past
practice and which, in any event, would not, in the aggregate, have a material
adverse effect on the Business.
2.7 Absence of Certain Changes. Except as set forth on Schedule 2.7, since
--------------------------
December 31, 1997, there has not been:
(a) any material adverse change in the financial condition, properties,
assets, liabilities, personnel or operations of Seller which affect or may
affect the Acquired Assets;
(b) any obligation or liability incurred by Seller which affect or may
affect the Acquired Assets, including the obligation to perform services
normally conducted by the Business, other than obligations and liabilities
incurred in the ordinary course of business;
(c) any damage, destruction or loss, whether or not covered by
insurance, affecting the Acquired Assets;
(d) any loss or threatened loss of any permit, license, qualification or
certificate of authority held or enjoyed by Seller which loss has had, or could
in the future have, a material adverse effect on the business, properties,
financial condition or results of operation of the Business or Buyer's free and
unencumbered ownership and use of any of the Acquired Assets;
(e) to the best of Seller's and Stockholder's knowledge, any pending or
threatened labor disputes or strikes, labor union organizational activity, claim
or threatened claim
11
<PAGE>
of unfair labor practices, or any material adverse change in relations with
Seller's employees generally;
(f) any written notice of termination of, or default under, any Client
Agreement;
(g) other than in the ordinary course of business and consistent with
past practice, any change in the salary or commission structure of any of
Seller's employees or consultants;
(h) any failure to pay current liabilities, including accounts payable
and accrued expenses, except in the ordinary course of business or consistent
with past practice; or
(i) any agreement or understanding by Seller to do any of the foregoing.
2.8 Patents, Trademarks, Trade Names and Similar Rights. To the best of
---------------------------------------------------
Seller's and Stockholder's knowledge, Seller owns all trademarks, logos, service
marks, trade names, copyrights or other similar proprietary rights (the
"Intangibles") used in the Business, has no obligation to any third party with
respect thereto, and has not sold, licensed, sublicensed or otherwise granted to
any third party the right to use such Intangibles. All Intangibles of Seller
are based on statutory or common law usage rights (not registration) and are
listed in Section 2.8 of the Disclosure Schedules. Except as set forth in
Section 2.8 of the Disclosure Schedules, to Seller's and Stockholder's
knowledge, none of the Intangibles, and none of the products or services sold or
processes used by Seller, conflict with the patents, trademarks, logos, service
marks, trade names, copyrights or other similar proprietary rights of any person
or entity, and Seller has not received notice of the possibility of any such
conflict.
2.9 Trade Secrets and Customer Lists. Seller has the right to use, without
--------------------------------
liability to others, all trade secrets and customer lists, if any, required and
used in the Business within the last five years and has not disclosed, sold,
licensed, sublicensed or otherwise granted to any third party the right to use
such trade secrets and information. To the best of Seller's and Stockholder's
knowledge, Seller is not using or in any way making use of any confidential
information or trade secrets of any third party, including, without limitation,
a former employer of any present or past employee of Seller.
2.10 Client and Other Agreements. To the best of Seller's and Stockholder's
---------------------------
knowledge, with respect to the Client Agreements and the agreements set forth in
Section 1.1D of the Disclosure Schedules, : (i) all such agreements are legal,
valid, binding, enforceable, in full force and effect, and subject to customer
consent of the other party to such agreement, are fully transferable to Buyer
subject to no governmental or regulatory requirement or impediment; (ii) all
such agreements will be legal, valid, binding and enforceable and in full force
and effect
12
<PAGE>
on the same terms and conditions on the Closing Date; (iii) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification or
acceleration, under said agreements; (iv) no party has repudiated any provision
of said agreements; (v) the list of agreements set forth in Sections 1.1B and
1.1D of the Disclosure Schedules is a complete and accurate list of all
agreements between Seller and its customers; (vi) the relationship of Seller
with the customers that are parties to the agreements are good and Seller and
Stockholders know of no set of facts, and have not received any notice or
information from any of the listed customers indicating an intention to decrease
the number of consultants (both employees and independent contractors placed
with Seller's customers ("Field Personnel"), or to decrease the level of
services Seller provides to any such customer, or to reduce the rates at which
Seller is being compensated for the placement of any Field Personnel with said
customers, and no illegal or other payment or consideration has been given by
Seller to secure or maintain any business with its customers; and (vii) Seller
and Stockholders have not received any notice of claims from any of the listed
customers relating to Seller's performance of services for such customers;
(viii) no material amount claimed to be payable to Seller under any of the
agreements is being disputed by any client; and (ix) none of such agreements
were awarded or are in any way based upon or related to the status of Seller or
its principals as a minority business, small business, woman-owned business or
disadvantaged business enterprise or individual.
2.11 Employee Benefit Plans.
----------------------
(a) Except as set forth in Section 2.11 of the Disclosure Schedules,
Seller does not presently maintain, contribute to, or have (or may have) any
liability under any Employee Benefit Plan with respect to all employees and
former employees (including both Field Personnel and all other employees other
than Field Personnel, hereinafter referred to as "Administrative Employees"),
directors and independent contractors of Seller and their dependents and
beneficiaries. For purposes of this Section 2.11; "Employee Benefit Plan" means
any bonus, incentive compensation, profit sharing, retirement, pension, group
insurance, death benefit, group health, medical expense reimbursement, dependent
care, legal services, flexible benefits or cafeteria, stock option, stock
purchase, stock appreciation rights, phantom stock, savings, deferred
compensation, consulting, severance pay or termination pay, vacation pay, leave
of absence, layoff, life insurance, accident, disability, workers' compensation,
welfare or other employee benefit or fringe benefit plan, program, arrangement
practice or policy which is an "employee pension benefit plan" as such term is
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or an "employee welfare benefit plan" as defined in Section
3(1) of ERISA, whether written or unwritten. A description of all Employee
Benefit Plans is set forth in Section 2.11 of the Disclosure Schedules.
(b) Seller is not a party to any employment agreement, whether written
or oral, or agreement with change in control or similar provisions, or
collective bargaining agreement or contract with any labor union relating to any
employees or former employees of
13
<PAGE>
Seller, or any agreement, plan or arrangement which provides for severance or
termination of employment benefits in cash or some other form.
(c) Section 2.11 of the Disclosure Schedules sets forth, as of the date
of this Agreement, with respect to each employee employed by Seller, his or her
name, position, salary or hourly wage, his or her date of employment and any
applicable significant employee benefits or entitlement not available generally
to Seller's employees.
2.12 Litigation, Proceedings, Etc. Except for matters described in Section
----------------------------
2.12 of the Disclosure Schedules, (i) there is no pending claim, action,
litigation, suit or proceeding against, or investigation of, Seller; (ii) Seller
has not received any notice of any claim, action, litigation, suit or proceeding
against it or investigation of it, and no such claim, action, suit, proceeding
or investigation is pending or, to Seller's and Stockholder's knowledge,
threatened against Seller, and there are no facts existing which would be a
proper basis for any such claim; and (iii) there are no outstanding court,
arbitration or agency orders, decrees or stipulations to which Seller is a party
or which are directed to Seller.
2.13 Compliance with Law and Other Instruments; Permits. Seller is not (and
--------------------------------------------------
has not been for the past twelve months) in violation of, or default under: (i)
any term or provision of its charter or by-laws; (ii) any material term or
provision of any financial covenant or any indenture, mortgage, contract,
commitment or other agreement or instrument to which it is a party, or by which
it or any of its properties or business is or may be bound or affected, or (iii)
any applicable law (including, without limitation, the Fair Labor Standards Act
and all other federal and state wage and hour laws), any and all Federal
immigration laws, regulations and promulgations, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or any of its properties or business, or Seller's employees
or Seller's consultants or independent contractors. To the best of Seller's and
Stockholders' knowledge, Seller owns, possesses, or has obtained all
governmental and other licenses, permits, certifications, registrations,
approvals or consents and other authorizations necessary to own or lease, as the
case may be, its business or operations as presently conducted and all such
governmental and other licenses, permits, certifications, registrations,
approvals, consents and other authorizations are in good standing, and there are
no proceedings pending or, to the best knowledge of Seller's officers and
directors, threatened, or any basis therefor existing, seeking to cancel,
terminate or limit such licenses, permits, certifications, registrations,
approvals, or consents or authorizations, or related to the breach or failure to
comply with any law, rule, regulation, judgment or decree.
2.14 Insurance. Set forth in Schedule 2.14 of the Disclosure Schedules is a
---------
list of insurance in force with respect to the Business, which list is true,
complete and accurate in all material respects. Seller has paid all premiums
due under such policies and, to Seller's knowledge, such policies are each
outstanding and in full force and effect on the date hereof.
14
<PAGE>
Seller will continue to maintain said insurance in effect until and including
the Closing Date. To Seller's knowledge, no insurance carrier has refused any
application for insurance by Seller.
2.15 Books and Records. All books and records pertaining to the Business
-----------------
have been, or prior to the Closing shall have been, made available for review by
Buyer and its representatives and are correct and complete in all material
respects, have been maintained in accordance with good business practice and
fairly reflect the basis for the financial condition and results of operations
of Seller set forth in the Financial Statements.
2.16 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of Seller.
2.17 Minority-Owned Enterprise, Etc. Seller is not doing business as a
------------------------------
minority-owned business enterprise nor as a small or economically disadvantaged
business nor as a women-owned business.
2.18 Broker's Fees. Neither Seller nor Stockholder has any obligation or
-------------
liability to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement, other than Updata
Capital, Inc. Seller agrees to pay all fees and commissions due to Updata
Capital, Inc.
2.19 Miscellaneous. Except as set forth in Schedule 2.19 of the Disclosure
-------------
Schedules, Seller has no subsidiary, parent or affiliate organizations. Seller
has not entered into any employment agreement and or arrangement with "nonexempt
personnel" (as defined under the Fair Labor Standards Act) guaranteeing a
minimum number or work hours during any predetermined time period. Except as is
necessary to close the Business and pay off obligations, Seller and the
Stockholders agree not to use the name Norwood Computer Services Inc. or any
similar name for any purpose, except that Stockholders may use the name Norwood
Com * Star.
2.20 Disclosure. The statements contained in this Agreement, and in any
----------
written documents or Schedules attached hereto prepared and delivered by or on
behalf of Seller pursuant to the terms hereof are true and correct in all
material respects, and such statements, documents or Schedules do not omit any
material fact required by the terms hereof or thereof to be stated herein or
therein or necessary to make the statements contained herein or therein not
misleading. There is no fact known to Seller which would have a material
adverse effect on the Business, other than those which have been set forth in
this Agreement or in the Disclosure Schedules attached hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
15
<PAGE>
In order to induce Seller to enter into this Agreement, the Buyer represents
and warrants to the Seller that the statements contained in this Article III are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement through this Article III).
3.5 Authority Relative to this Agreement. The Buyer has the full corporate
------------------------------------
power and authority, and has taken all necessary and proper action, corporate
and otherwise, to execute, deliver and perform this Agreement and any other
agreement or document contemplated hereby, and to consummate the transactions
contemplated hereby or thereby. All action on the part of Buyer necessary for
the authorization, execution, delivery and performance of this Agreement and any
other agreement or document contemplated hereby, and the consummation of the
transactions contemplated hereby or thereby, has been taken. The obligations
imposed on Buyer by this Agreement, or by any agreement or document contemplated
hereby, constitute the valid and binding obligations and agreements of Buyer,
enforceable against it in accordance with their respective terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights; and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
3.6 Compliance of Transaction with Laws and Other Instruments. The
---------------------------------------------------------
execution, delivery and performance by Buyer of this Agreement and any agreement
or document contemplated hereby, and the performance and consummation of the
transactions contemplated hereby or thereby by Buyer (i) do not require on
behalf of Buyer any approval, consent or waiver of, or filing with, any
governmental agency, court or other authority which has not been obtained and
which is not in full force and effect as of the date hereof; (ii) will not
result in a violation of any law, regulation, judgment, writ, injunction, order
or decree of any court or governmental or regulatory authority (federal, local
or otherwise) to which Buyer is subject; (iii) will not conflict with or
constitute a breach or violation of the charter or bylaws of Buyer; and (iv)
will not require the approval, consent or waiver of, or filing with any party
to, violate or conflict with or result in a breach of, or constitute a default
or acceleration of or give rise to a right of termination (or an event which
with notice or lapse of time or both would become a default) under, any
provision of any contract, indenture, mortgage, lease, agreement or other
instrument to which Buyer is a party or to which any of its assets are subject.
3.7 Organization and Qualification. Buyer is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of its state of
incorporation.
3.8 Consents. Buyer is not subject to any law, ordinance, regulation, rule,
--------
order, judgment, injunction, decree, contract, commitment, lease, agreement,
instrument or other restriction of any kind, which by its provisions would
prevent the consummation of this
16
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Agreement or any of the transactions contemplated hereby, without the consent,
filing with or notification of any third party which has not already been
obtained or made or will not be obtained prior to the Closing.
3.9 Broker's Fees. Buyer has no liability or obligation except to Elite
-------------
Investment Group, LLC to pay any fees or commissions to any broker, investment
bankers, finder or agent with respect to the transactions contemplated by this
Agreement. Buyer agrees to pay all fees and commissions due to Elite Investment
Group, LLC.
ARTICLE IV
BUYER'S CONDITIONS TO CLOSING
-----------------------------
The obligations of Buyer to purchase the Acquired Assets and to consummate the
transactions contemplated hereby, are subject to the fulfillment in all material
respects on or prior to the Closing Date of each of the following conditions:
3.10 Representations and Warranties. The representations and warranties made
------------------------------
by Seller and Stockholders in Article II hereof shall be true and correct when
----------
made, and shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of the Closing
Date, except for changes permitted or contemplated by this Agreement and except
that representations which are specifically made as of a specified date shall be
true and correct as of such specified date.
3.11 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Seller on or prior to the Closing
Date shall have been performed or complied with in all material respects.
3.12 Closing Deliveries. Buyer shall have received all documents and
------------------
instruments required pursuant to Section 7.2 hereof.
-----------
3.13 Absence of Litigation. No action, suit or proceeding before any court
---------------------
or any governmental body or authority shall be pending against either Seller or
Buyer which seeks to impose substantial damages in connection with, or to
restrain or invalidate the transactions contemplated by, this Agreement, and no
preliminary or permanent injunction or order that would prohibit or restrain
such transactions shall be in effect.
3.14 Absence of Certain Changes. There shall not have occurred prior to the
--------------------------
Closing Date (a) any material adverse change in the Business, or any event or
condition which, with the passage of time or the filing of notice, may cause or
create any such material adverse change, or
17
<PAGE>
(b) the legal inability of Seller to convey, assign and transfer to Buyer the
Business, or to convey, assign and transfer to Buyer the Acquired Assets.
4.6 Miscellaneous. (A) The Stockholders shall have executed and delivered to
-------------
Buyer the employment agreements attached hereto. (B) Seller shall have delivered
to Buyer good standing certificates for New Jersey and New York. (C) Buyer
shall have received from Seller, in such form as shall be requested by counsel
for Buyer, such corporate documents, duly executed by the appropriate corporate
officers attesting to the enactment of resolutions authorizing Seller to enter
into and consummate this transaction; (D) Buyer shall have received an opinion
of Morse, Zelnick, Rose & Lander, counsel for Seller and the Stockholders, dated
the Closing Date, satisfactory in form and substance to counsel for Buyer; and
(E) Buyer shall receive from Seller certified copies of amendments to its
certificate of incorporation to effect a change of its corporate name consistent
herewith.
4.7 Workmen's Compensation. Seller shall deliver to Buyer evidence of
----------------------
workmen's compensation coverage for the states of New York and New Jersey.
ARTICLE V
SELLER'S CONDITIONS TO CLOSING
------------------------------
The obligations of Seller to sell the Acquired Assets at the Closing, and the
obligation of Seller to consummate the transactions contemplated hereby are
subject to the fulfillment in all material respects on or prior to the Closing
of each of the following conditions:
3.15 Representations and Warranties. The representations and warranties made
------------------------------
by Buyer in Article III hereof shall be true and correct when made, and shall be
-----------
true and correct in all material respects on the Closing with the same force and
effect as if they had been made on and as of the Closing, except for changes
permitted or contemplated by this Agreement and except that representations
which are specifically made as of a specified date shall be true and correct as
of such earlier date.
3.16 Performance. All covenants, agreements and conditions contained in this
-----------
Agreement to be performed or complied with by Buyer on or prior to the Closing
shall have been performed or complied with in all material respects.
3.17 Closing Deliveries. Seller and Stockholders shall have received all
------------------
documents and instruments required pursuant to Section 7.2 hereof.
-----------
3.18 Absence of Litigation. No action, suit or proceeding before any court
---------------------
or any governmental body or authority shall be pending against either Seller,
Stockholders or Buyer
18
<PAGE>
which seeks to impose substantial damages in connection with, or to restrain or
invalidate the transactions contemplated by this Agreement and no preliminary or
permanent injunction or order that would prohibit or restrain such transactions
shall be in effect.
ARTICLE VI
FURTHER AGREEMENTS
------------------
3.19 Expenses. Seller and Stockholders shall pay their costs incurred in
--------
connection with the preparation, negotiation, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the fees of the attorneys and accountants of
Seller. Buyer shall pay its costs incurred in connection with the preparation,
negotiation, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby including, without limitation, the fees of
its attorneys and accountants.
3.20 News Releases. Upon execution of this Agreement and thereafter upon
-------------
Closing, Buyer may prepare and issue, subject to Seller's reasonable approval,
press release(s) regarding the transaction contemplated hereby and upon doing
same will provide advance notice to Seller and will review and consider Seller's
comments on same.
6.3 Survival of Representations. The representations and warranties
---------------------------
contained herein are and will be deemed and construed to be continuing
representations and warranties and will survive the Closing and other than
fraudulent misrepresentations made by Seller or Stockholders) continue in full
force and effect thereafter, provided that a notice is given as to a breach of
such representations or warranties within eighteen months of the Closing Date.
All fraudulent misrepresentations made by Seller and Stockholders shall continue
in full force and effect at all times thereafter. If a notice of breach is
given within any applicable time period, the other party shall be responsible
for all Damages (as defined below) resulting from, arising out of, or related
to such breach, including all Damages suffered after the date notice has been
given.
6.4 Indemnification.
---------------
(a) From and after the Closing, Seller and Stockholders, jointly and
severally, shall defend, indemnify and hold harmless Buyer from and against any
and all claims, actions, causes of action, lawsuits, losses, costs, damages,
liabilities and expenses, including reasonable attorneys' fees and expenses
(collectively, "Damages"), incurred by Buyer that arise out of:
(i) a material breach of the representations, warranties, covenants
and agreements given or made by Seller or Stockholders in this Agreement, any of
the Disclosure
19
<PAGE>
Schedules or under or pursuant to any document, certificate, schedule or
instrument delivered by or on behalf of Seller or Stockholders in connection
herewith;
(ii) all matters arising out of or in connection with the operation
of the Business on or before the Closing;
(iii) all Unassumed Liabilities and Excluded Assets; and
(iv) any claim, action, suit or proceeding asserted or instituted on
the basis of any matter described in clauses (i), (ii) or (iii) of this
paragraph (a) of Section 6.4.
(b) From and after the Closing, Buyer shall defend, indemnify and hold
harmless Seller and Stockholders from and against any and all damages incurred
by Seller that arise out of:
(i) a material breach of the representations, warranties, covenants
and agreements given or made by Buyer in this Agreement, any of the Disclosure
Schedules or under or pursuant to any document, certificate, schedule or
instrument delivered by or on behalf of Buyer in connection herewith;
(ii) all matters arising out of or in connection with the operation
of the Business after the Closing;
(iii) all Assumed Liabilities and Acquired Assets; and
(iv) any claim, action, suit or proceeding asserted or instituted on
the basis of any matter described in clauses (i), (ii) or (iii) of this
paragraph (b) of Section 6.4.
(c) Limitations. Notwithstanding the foregoing,
-----------
(i) Seller and Stockholders shall have no obligation to indemnify the
Buyer from and against any damages resulting from, arising out of, or relating
to or caused by the breach of any representation, warranty, indemnity or
covenant under, or arising in connection with this Agreement, until the Buyer
has suffered Damages by reason of all such breaches in excess of a $50,000
aggregate deductible (after which point the Seller and Stockholders will be
obligated only to indemnify Buyer from and against further damages);
(ii) In no event shall the amount of liability of Seller and
Stockholders to Buyer for breach of any representation, warranty, indemnity or
covenant or otherwise under, or arising in connection with, this Agreement
exceed an amount equal to $8,000,000 (excluding matters set forth in the last
sentence of this paragraph). The liability, if any, of the Stockholders to the
Buyer pursuant to this Section 6.4 shall be joint and several. However, nothing
in this
20
<PAGE>
Section 6.4 shall limit, in any manner (whether by time, amount, procedure or
otherwise), any remedy at law or in equity to which a party may be entitled as a
result of actual fraud by the other party, including any wilful failure to
disclose matters that should have been disclosed pursuant to Article II hereof.
(d) All payments made pursuant to this Section 6.4 shall be treated as
adjustments to the Purchase Price.
(e) In the event the indemnified party is or becomes dissatisfied with
the defense and indemnification being provided hereunder then the indemnified
party, as it may deem appropriate, may undertake the defense of such claim but
the indemnifying party will remain responsible for all Damages the indemnified
party may suffer resulting from, arising from, relating to, in the nature of or
caused by such claims to the fullest extent provided in this Agreement.
(f) The foregoing indemnification provisions are in addition to and not
in derogation of, any statutory, equitable, or common law remedy either party
may have for breach of any of the provisions of this Agreement.
6.5 Conduct of Business Pending Closing.
-----------------------------------
(a) Except as set forth in the Disclosure Schedules, during the period
from the date of this Agreement to the Closing, Seller shall conduct the
Business according to its ordinary and usual course of business, consistent with
past practice. Without limiting the generality of the foregoing, prior to the
Closing, Seller will not, except in the ordinary course of business and
consistent with past practice, without the prior written consent of Buyer,
engage in any of the following transactions:
(i) enter into any new employment agreement with Stockholders
or any other officer, director or employee of Seller (other than Field
Employees);
(ii) make any change in the salary or commission structure of
any of Seller's employees or consultants, except in the ordinary course of
business and consistent with past practice;
(iii) enter into any waiver, release or relinquishment of any
material contract rights, except, in each case, in the ordinary course of
business and consistent with past practice;
(iv) terminate any of the Client Agreements;
21
<PAGE>
(v) acquire the assets of any business or any corporation,
partnership or other business organization or otherwise acquiring any assets
which are material in the aggregate to Seller or the Business;
(vi) sell, lease or otherwise dispose of any Acquired Asset
except in the ordinary course of business consistent with past practice;
(vii) create, assume or incur any encumbrance on any of the
Acquired Assets;
(viii) amend, terminate or waive any right of substantial value
arising under any of the Client Agreements or otherwise relating to the
Business;
(ix) fail to pay current liabilities, including accounts
payable and accrued expenses, in the ordinary course of business, consistent
with past practice, and otherwise in accordance with their terms;
(x) collect any accounts receivable in advance of their due
dates, outside of the ordinary course of business, and not consistent with past
practice;
(xi) take or perform any action which would or might cause any
representation or warranty made by Seller herein to be rendered inaccurate, in
whole or in part, and/or which would prevent, inhibit or preclude the
satisfaction, in whole or in part, of any covenant required to be performed or
satisfied by Seller at or prior to the Closing and/or the implementation of the
within transaction;
(xii) agree in writing or otherwise take any of the foregoing
actions or any action which would make any representation or warranty in this
Agreement to be untrue or incorrect; or
(xiii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 2.7 above.
-----------
(b) During the period from the date of this Agreement to the Closing
Date, Seller and Stockholders will:
(i) take and perform any and all actions necessary to render
accurate and/or maintain the accuracy of, all of the representations and
warranties of Seller and Stockholders herein contained and satisfy each covenant
or condition required to be performed or satisfied by Seller prior to the
Closing and/or cause or permit the implementation of the within transaction;
22
<PAGE>
(ii) carry on and maintain the Business in substantially the
same form, style and manner as operated by Seller prior to this Agreement and
use their reasonable best efforts to preserve the Business and its relationships
with its customers, all employees and others having business relations with
Seller, and not voluntarily engage in any material transaction not in the
ordinary course of business without the prior consent of Buyer;
(iii) use their reasonable best efforts in good faith to cause
each of Seller's customers including, but not limited to those listed on Section
1.1B to the Disclosure Schedules, to indicate their intention to continue to be
bound by the terms and conditions of the Client Agreements; and
(iv) use their reasonable best efforts in good faith to cause
each of Seller's employees to continue employment with Buyer following the
Closing Date; and
(v) give prompt written notice to Buyer of any material
development affecting Seller's assets, clients, liabilities, business, financial
condition, operations, results of operations, or future prospects; and give
prompt written notice to Buyer of any material development affecting Seller's
ability to consummate the transactions contemplated by this Agreement.
6.6 Continued Disclosure. If any event or state of facts occurs or arises
--------------------
between the earlier of the date hereof (or the date as of which disclosure has
been made with respect to such type of event or state of facts) and the Closing
Date that, had it occurred or arisen prior to or on such date, would have been
required by the terms hereof to be disclosed herein, Seller shall give notice
thereof in writing to Buyer within five days of the happening of such event or
state of facts. The giving of such notice and the disclosure of such event or
state of facts shall in no way change the conditions precedent to the
obligations of Buyer as set forth in Article VI.
----------
6.7 Full Access. Seller will permit representatives of the Buyer to have
-----------
full access, upon reasonable notice, to all premises, properties, personnel,
books, records, contracts and documents of or pertaining to Seller.
6.8 Notices and Consents. Seller will cooperate with Buyer in the filing of
--------------------
bulk sale documentation in the states of New York and New Jersey. Stockholders
will cause Lessees to use their reasonable best efforts to obtain the consent of
the lessors of the Acquired Leases whereby such lessors shall have consented and
agreed to (i) the assignment to and assumption by Buyer of such Acquired Leases;
and (ii) that all obligations, duties and liabilities of whatever nature, kind
or description arising or occurring prior to Closing are the sole and exclusive
responsibility of Seller to the exclusion of Buyer. Buyer will, upon request of
Seller, assist Seller in obtaining such consents.
23
<PAGE>
6.9 Exclusivity. Until the termination of this Agreement, the Seller will
-----------
not (and Stockholders will not cause or permit Seller to): (i) solicit,
initiate, or encourage the submission of any proposal or offer from any person
or entity relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, Seller (including any
acquisition structured as a merger, consolidation, or share exchange) or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person or entity to do or seek any of
the foregoing.
6.10 Buyer's Non-Disclosure. Until the Closing (as hereinafter defined),
----------------------
Buyer agrees to keep confidential and not to disclose any information obtained
from or otherwise regarding Seller, unless such information was independently
obtained by Buyer or is a matter of public record or in Buyer's prior possession
or required to be disclosed pursuant to law, regulation or court order.
Notwithstanding the foregoing, Buyer shall be entitled to disclose such
information as required in any documents necessary to help affect the financing
of this transaction, as well as to its representatives who are involved in the
consummation of this transaction and who need to have such information, provided
that such representatives are advised and agree that the information is to be
held confidential by them.
6.11 Seller's and Stockholders Non-Disclosure. Seller and Stockholders
----------------------------------------
agrees to keep confidential and not to disclose any information obtained from or
otherwise regarding Buyer, unless such information was independently obtained by
Seller or Stockholders or is a matter of public record or in Seller's or
Stockholders prior possession or required to be disclosed pursuant to law,
regulation or court order. Notwithstanding the foregoing, Seller shall be
entitled to disclose such information to its representatives who are involved in
the consummation of this transaction contemplated hereby and who need to have
such information, provided that such representatives are advised and agree that
the information is to be held confidential by them.
ARTICLE VII
CLOSING DELIVERIES
------------------
3.21 Closing. Subject to the conditions contained in this Agreement, the
-------
Closing shall take place at a location mutually agreeable to Buyer and Seller at
10:00 a.m. local time on the Closing Date. The effective time for purposes of
apportionments and other matters involving allocations for the Closing shall be
11:59 p.m. on the Closing Date.
3.22 Deliveries.
----------
(a) At the Closing, Buyer shall deliver to Seller:
24
<PAGE>
(i) The Purchase Price pursuant to Section 1.3 hereof;
-----------
(ii) Certified copies of the resolutions of the Board of
Director of Buyer authorizing Buyer to execute and deliver this Agreement, any
agreement or document contemplated hereby, and to consummate the transactions
contemplated hereby and thereby;
(iii) A certificate of an executive officer of Buyer, dated the
Closing Date, certifying that: (i) all representations and warranties made by
Buyer in Article III hereof were true and correct when made, and are true and
-----------
correct on the Closing Date, except for changes permitted or contemplated by
this Agreement and except that representations which are specifically made as of
a specified date shall be true and correct as of such earlier date; and (ii) all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by Buyer on or prior to the Closing Date have been performed or
complied with;
(iv) Executed employment agreements for Chaimanis and
Piscitelli, in substantially the forms attached as Exhibits A-1 and A-2 hereto;
and
(v) An opinion of McBreen, McBreen & Kopko, counsel for
Buyer, dated the Closing Date.
(b) At the Closing, Seller and Stockholders, as the case may be, shall
deliver to Buyer:
(i) General Assignment and Bill of Sale conveying title, free
and clear of any encumbrances to the Acquired Assets from Seller to Buyer;
(ii) Possession of all Acquired Assets;
(iii) All contracts, leases, agreements or other documents,
books, financial and accounting records of Seller not previously delivered or
not located on the premises of Seller, to the extent such items are Acquired
Assets;
(iv) Executed Employment Agreements for Chaimanis and
Piscitelli, in substantially the forms attached as Exhibits A-1 and A-2 hereto;
(v) Certificates of Good Standing in New Jersey and New York;
(vi) The Federal Predecessor/Successor Election, in the form
attached hereto as Exhibit B;
25
<PAGE>
(vii) Certified copies of the resolution of the Board of
Directors of Seller authorizing Seller to execute and deliver this Agreement,
any agreement or document contemplated hereby, and to consummate the
transactions contemplated hereby or thereby;
(viii) An opinion of Morse, Zelnick, Rose & Lander, counsel for
Seller and Stockholders, dated the Closing Date;
(ix) Certified copies of amendments to Seller's Certificate of
incorporation to effect a change in Seller's corporate name;
(x) Evidence of payment of all liens, along with UCC-3
termination statements with respect to the Acquired Assets; and
(xi) A certificate of the Seller, dated the Closing Date,
certifying that: (i) all representations and warranties made by Seller in
Article II hereof were true and correct when made, and are true and correct
- ----------
on the Closing Date except for changes permitted or contemplated by this
Agreement and except that representations which are specifically made as of a
specified date shall be true and correct as of such specified date; and (ii) all
covenants, agreements and conditions contained in this Agreement to be performed
or complied with by Seller on or prior to the Closing Date have been performed
or complied with.
ARTICLE VIII
POST-CLOSING COVENANTS AND AGREEMENTS
-------------------------------------
3.23 Further Assurances. If at any time and from time to time after the
------------------
Closing, Buyer determines that any further conveyance, assignment, consent to
assignment or other document or any other further action is necessary or
desirable to carry out the purposes of and to make effective the transactions
contemplated by this Agreement, Seller agrees to execute and deliver all such
instruments and to take such actions as may be reasonably necessary or advisable
for such purpose.
8.2 Seller's Employees
------------------
(a) All employees of Seller will become employed by Buyer effective from
and after the Closing Date.
(b) All of Seller's salespersons will be employed at the same salary and
commission structure as immediately prior to the Closing Date (except that, with
respect to any salesperson, the same commission structure shall apply only with
respect to (i) customers of such salesperson
26
<PAGE>
who are customers of such salesperson at the Closing Date; and (ii) up to six
additional customers(per salesperson) identified prior to Closing).
(c) (i) John Manarte and Lesley Bernsteinwill be employed upon the
following terms and conditions: term - 2 years; salary - same salary as
previously earned by such employees immediately prior to the Closing Date;
severance if terminated without cause - calculated according to paragraph (ii)
hereof; provided, however, that such employees may be terminated without cause
and without liability for a termination payment if the the gross margin for the
last twelve months prior to termination is not at least 20%.
(ii) The determination of the severance payment, if terminated without
cause, and if the gross margin for the last twelve months prior to termination
is at least 20%, shall be as follows:
(w) If the gross profit contribution of such employees for the
last twelve months prior to termination is at least $1,000,000, the severance
payment shall be $150,000;
(v) If the gross profit contribution of such employees for the
last twelve months prior to termination is greater than $867,000 but less than
$1,000,000, the severance payment shall be $112,500;
(x) If the gross profit contribution of such employees for the
last twelve months prior to termination is greater than $733,000 but less than
or equal to $867,000, the severance payment shall be $75,000;
(y) If the gross profit contribution of such employees for the
last twelve months prior to termination is greater than $600,000 but less than
or equal to $733,000, the severance payment shall be $37,500; and
(z) If the gross profit contribution of such employees for the
last twelve months prior to termination is less than or equal to $600,000, there
shall be no severance payment.
(d) Donnamarie Kolb will be employed pursuant to the terms of a
standard branch manager contract and otherwise pursuant to the same terms and
conditions as prior to the Closing Date, but with no equity participation
rights.
8.3 Acceleration of Earnout. If Chaimanis is terminated from employment with
-----------------------
Buyer without cause, or if Chaimanis terminates his employment for Good Reason
(as defined in the Employment Agreement attached as Exhibit A-1) then Buyer will
make payments to Seller of the remaining Earnout Periods subsequent to the
termination of said employment as follows.
27
<PAGE>
(a) If, prior to March 31, 1999, Chaimanis is terminated from employment
with Buyer without cause, or if Chaimanis terminates his employment for Good
Reason, then Buyer will make a payment equal to the present value of the three
$400,000 payments in Section 1.3(a)(ii) (a), (b) and (c) calculated as if EBITA
equalled or exceeded the lower amount set forth in clauses (a), (b) and (c)
thereof.
(b) If, between April 1, 1999 and March 31, 2000, Chaimanis is
terminated from employment with Buyer without cause, or if Chaimanis terminates
his employment for Good Reason, and
(x) EBITA for the twelve-month period ended March 31, 1999
exceeds $3,000,000, then Buyer will make a payment equal to the present value of
the sum of: (i) the payment required to be made, pursuant to Section 1.3(a) (ii)
(a) (if not already made), plus (ii) the two $400,000 payments that would have
been made as provided in Section 1.3 (a) (ii) (b) and (c), calculated as if
EBITA equalled or exceeded the lower amounts set forth in clauses (b) and (c)
thereof, or
(y) EBITA for the twelve-month period ended March 31, 1999 does
not exceed $3,000,000, then Buyer will make a payment equal to one-half (1/2)
the present value of the two $400,000 payments that would have been made as
provided in Section 1.3 (a)(ii)(b) and (c), calculated as if EBITA equalled or
exceeded the lower amounts set forth in clauses (b) and (c) thereof.
(c) If, between April 1, 2000 and March 31, 2001, Chaimanis is
terminated from employment with Buyer without cause, or if Chaimanis terminates
his employment for Good Reason, and
(x) EBITA for the twelve-month period ended March 31, 2000
exceeds $3,600,000, then Buyer will make a payment equal to the present value of
the sum of: (i) the payment required to be made pursuant to Section 1.3(a) (ii)
(b) (if not already made), plus (ii) the $400,000 payment that would have been
made as provided in Section 1.3 (a) (ii) (c), calculated as if EBITA equalled or
exceeded the lower amount set forth in clause (c) thereof, or
(y) EBITA for the twelve-month period ended March 31, 2000 does
not exceed $3,600,000, then Buyer will make a payment equal to one-half (1/2)
the present value of the one $400,000 payment that would have been made as
provided in Section 1.3 (a)(ii)(c) had EBITA equalled or exceeded the lower
amount set forth in clauses (c) thereof.
All net payments referred to above shall be made no later than 120 days after
the termination of employment mentioned above. The interest rate used for such
present value calculation shall be eight (8) % from the original payment date to
the payout date.
28
<PAGE>
8.4 Retention of Books and Records. To the extent required in connection
------------------------------
with any litigation, audit or other proceeding, Seller shall be entitled for a
period of five(5) years after the Closing to make copies of such books and
records included in the Acquired
29
<PAGE>
Assets at their sole cost and expense and the Buyer will maintain such books,
records and financial data relating to Seller for the same period of time.
8.5 Settlement for Cash Collections and Disbursements. For each calendar
-------------------------------------------------
month commencing with the month in which the Closing Date occurs and continuing
until reasonably determined by the parties no longer to be necessary, the Buyer
and the Seller shall cause all cash collections and cash disbursements received
or made by the Buyer for the benefit of the Seller or by the Seller for the
benefit of the Buyer during the relevant month to be remitted or reimbursed, as
the case may be, to the party entitled to the benefit thereof as promptly as
possible.
8.6 Continued Occupancy. Stockholders may continue to occupy an office of a
-------------------
size not to exceed 12' x 12', in the Hicksville, New York property, for a term
not to exceed 2 years, in order to continue the operation of the Norwood Com *
Star business and wind-up the business of Seller.
8.7 Consents. Subsequent to the Closing Date, Stockholders will assist Buyer
--------
in obtaining consents of Seller's customers to the transfer of such customer's
contracts to Buyer.
8.8 Covenant Not to Compete.
-----------------------
(a) For a period of five (5) years commencing on the date hereof, Seller
and Stockholders shall not directly or indirectly through representatives,
agents or otherwise (i) engage in competition with Buyer or the Business in the
"Territory" or with respect to the "Customers", both as defined in this
paragraph; or (ii) provide information, solicit or sell for, own, or organize
any interest in, either directly or through any affiliate or subsidiary
corporation, partnership or other entity, or become engaged by, act as agent
for, or in any manner assist, any person, corporation or other entity that is
directly or indirectly in competition with Buyer or the Business, in the
"Territory" or with respect to the "Customers", both as defined in this
paragraph. Seller and Stockholders further agree that within the restrictive
period, Seller and Stockholders will not in any way divert or attempt to divert
from Buyer or Seller any business whatsoever and Seller and Stockholders further
agree that during said restrictive period they will not influence or attempt to
influence any of the customers of Buyer or Seller not to do business with Buyer
or Seller. Seller and Stockholders further agree that they will not make or
permit the making of any public announcement or statement of any kind, which
announcement has as its purpose directly or indirectly the intent to violate the
provision of this Agreement. The term "Customer", as used herein, shall mean any
person or entity to which Seller does business with at or within 12 months prior
to Closing. The term "Territory", as used herein, shall mean the following: (i)
any location in the New York/New Jersey metropolitan area; and (ii) any location
within 150 miles of mid-town Manhattan.
(b) During the term set forth in paragraph (a) and thereafter, Seller
and Stockholders shall not divulge any of Buyer's or Seller's business contacts,
customers, suppliers,
30
<PAGE>
technology, know-how, trade secrets, marketing techniques, books and records,
computer programs or any other confidential or proprietary information or make
available to any other persons any documents, files or other papers concerning
the foregoing or the Business or financial affairs of Seller or Buyer. During
the term set forth in paragraph (a) and thereafter, Seller or Stockholders shall
not solicit the employment of, or hire any employee or consultant currently or
provisionally employed or retained by Buyer or Seller.
(c) Seller and Stockholder have carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
Buyer under this Agreement and hereby acknowledges and agrees that the same are
reasonable in time and territory.
(d) It is stipulated that a breach by Seller and/or either Stockholder
of the restrictive covenants set forth herein will cause irreparable damage to
Buyer and that in the event of any breach of the provisions under this Section,
Buyer, in addition to any other remedies it has, shall be entitled to an
injunction restraining Seller and the Stockholders from violating or continuing
a violation of the restrictive covenants herein contained. It is further
stipulated that the existence of any claim or cause of action on the part of
Seller and/or any Stockholder against Buyer, whether arising from this Agreement
or otherwise shall in no way constitute a defense to the enforcement of the
restrictive covenants contained herein, and the restrictive periods which Buyer
is entitled to an injunction shall be extended in an amount which equals the
time period which the Seller or Stockholders are or have been in violation of
the restrictive covenant contained herein. In the event there is a "final
determination" that there has been a breach of the restrictive covenants
contained in the Agreement, Seller and the Stockholders, jointly and severally,
agree to the payment of or reimbursement of, Buyer's reasonable attorney's fees
and disbursements incurred in enforcing any such provision. A "final
determination" shall mean a determination of a judicial or quasi-judicial body
which is not appealable. The provisions of this Section shall survive the
Closing Date. If any of the provisions of this Section shall be held invalid,
illegal, or unenforceable by the final determination of a court of competent
jurisdiction and all appeals therefrom shall have failed or the time for such
appeals shall have expired, the provision or provisions shall be deemed
eliminated from this Agreement to such jurisdiction but the remaining provisions
shall nevertheless be given full effect. In the event this Agreement or any
portion hereof is more restrictive than permitted by the law of the jurisdiction
in which enforcement is sought, this Agreement or such portion shall be limited
in that jurisdiction only to the extent required by the law of that
jurisdiction. If a court of competent jurisdiction shall determine that the
terms of this Section are partially or wholly inoperative, unenforceable or
invalid in a particular case because of their time or geographic scope or for
any other reason such court shall have the power to limit such time or
geographic scope or otherwise to recast the terms of this Agreement in such case
so as to permit its enforcement to the greatest extent permitted by applicable
law.
31
<PAGE>
ARTICLE IX
TERMINATION; WAIVER
-------------------
3.24 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing (i) in the event the Seller has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified the Seller of breach,
and the breach has continued without cure for a period of 10 days after the
notice of breach or (ii) if the Closing shall not have occurred on or before
April 15, 1998, by reason of Seller being unable or unwilling to effect a
Closing on or before, April 15, 1998, or by reason of the failure of any
condition precedent under Article IV hereof (unless the failure results
----------
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(c) the Seller may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Closing (i) in the event the Buyer has
breached any material representation, warranty, or covenant contained in this
Agreement in any material respect, any of the Seller has notified the Buyer of
the breach, and the breach has continued without cure for a period of 10 days
after the notice of breach, or (ii) if the Closing shall not have occurred on or
before April 15, 1998, by reason of Buyer being unable or unwilling to effect a
Closing on or before April 15, 1998, or by reason of the failure of any
condition precedent under Article V hereof (unless the failure results
---------
primarily from the Seller itself breaching any representation, warranty, or
covenant contained in this Agreement).
3.25 Effect of Termination; Specific Performance.
-------------------------------------------
(a) In the event of the termination of this Agreement pursuant to Section 9.1
-----------
hereof, notice thereof shall be promptly given by the terminating party to the
other party and thereafter this Agreement shall forthwith become void and have
no effect, without any liability on the part of any party or its directors,
officers or stockholders, except that (i) the provisions of Section 6.1 hereof
-----------
shall remain in effect and (ii) nothing in this Section 9.2 shall relieve any
-----------
party to this Agreement from liability for breach of this Agreement or any
misrepresentation hereof, including pursuant to paragraph (b) hereof.
(b) In the event of a breach or threatened breach by Seller or Buyer of any of
the agreements and obligations set forth herein, monetary damages or the other
remedies at law that may be available to the non-breaching party for such breach
or threatened breach will be inadequate and, without prejudice to the non-
breaching party's right to pursue any remedies at
32
<PAGE>
law or in equity available to it for such breach or threatened breach, including
without limitation the recovery of damages, the non-breaching party will be
entitled to injunctive relief as a means of having the breaching party comply
with the provisions herein.
3.26 Extension; Waiver. At any time prior to the Closing, the parties hereto
-----------------
may (i) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein by the other party or in any
document, certificate or writing delivered pursuant hereto by the other party or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of either party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No waiver of any breach of a provision of this Agreement
shall constitute or be deemed a waiver of any other breach of the same or any
other provision of this Agreement, and no delay or failure to take action with
respect to any breach or provision of this Agreement shall constitute or be
deemed a waiver of the right to enforce this Agreement and to take action
against such breach or any subsequent breach of the same or any other provision.
33
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
3.27 Entire Agreement; Amendment. Except with respect to those documents
---------------------------
signed in connection with the Closing of the transactions contemplated by this
Agreement and those documents that, by their terms, modify or supersede this
Agreement, this Agreement, (including the Disclosure Schedules), contains the
entire agreement between the parties hereto and supersedes all prior oral or
written agreements, promises, representations, commitments or understandings
with respect to the matters provided for herein. This Agreement may be modified
or amended only by a writing duly executed by Buyer and Seller, which
modification or amendment shall be binding upon all of the parties hereto.
3.28 Assignment and Binding Effect. This Agreement and the rights and
-----------------------------
obligations of any party hereunder may not be assigned by any party without the
prior written consent of the other party hereto. All covenants, agreements,
statements, representations, warranties and indemnities in this Agreement by and
on behalf of either of the parties hereto shall bind and inure to the benefit of
their respective heirs, successors and permitted assigns of the parties hereto.
3.29 Waivers. No waiver of any of the provisions of this Agreement shall be
-------
deemed or shall constitute a continuing waiver, and no waiver shall be binding
unless executed in writing by the party making the waiver.
3.30 Notices. All notices, demands or other communications which may be or
-------
are required to be given by any party to any other party pursuant to this
Agreement, shall be in writing and shall be mailed by certified mail, return
receipt requested, postage prepaid, or transmitted by hand delivery, national
overnight express, telegram or facsimile transmission, addressed as follows:
(a) If to Buyer:
Butler International, Inc.
110 Summit Avenue
Montvale, New Jersey 07645
Attention: Michael C. Hellriegel
Sr. Vice President-Finance
Facsimile: (201) 573-9773
with a copy (which shall not constitute notice) to:
McBreen, McBreen & Kopko
20 North Wacker Drive
34
<PAGE>
Suite 2520
Chicago, Illinois 60606
Attention: Frederick H. Kopko, Jr.
Facsimile: (312) 332-2657
(b) If to Seller or Stockholders:
Norwood Computer Services, Inc.
270 - F Duffy Avenue
Hicksville, NY 11801
Attn: Bill Chaimanis
with a copy (which shall not constitute notice) to:
Morse, Zelnick, Rose & Lander
450 Park Avenue
New York, NY 10022-2605
Attention: Joel J. Goldschmidt
Facsimile: (212) 838-9190
until such time as either party notifies the other of a change of address. Each
notice or other communication which shall be mailed, delivered or transmitted in
the manner described above shall be deemed sufficiently given and received for
all purposes at such time as it is delivered to the addressee (with the return
receipt, the delivery receipt, or the affidavit of messenger or telefax
transmission log being deemed conclusive evidence of such delivery) or at such
time as delivery is refused by the addressee upon presentation.
3.31 Governing Law; Jurisdiction and Venue. This Agreement shall be governed
-------------------------------------
by and construed in accordance with the laws of the State of New Jersey, without
giving effect to the principles of conflicts of laws thereof. Each party hereby
submits to the personal jurisdiction of the United States District Court for the
District of New Jersey or any court of the State of New Jersey, and hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such court. In addition,
each party hereby irrevocably and unconditionally waives, to the fullest extent
permitted by law, (i) any objection which it may now have or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Agreement or any related matter in such court, (ii) the defense of an
inconvenient forum to the maintenance of any suit, action or proceeding in any
such court and (iii) trial by jury in any such suit, action or proceeding.
3.32 Counterparts; Execution. To facilitate execution, this Agreement may be
-----------------------
executed in as many counterparts as may be required, and each such counterpart
hereof shall be deemed to be an original instrument, but all such counterparts
together shall constitute but a single agreement.
35
<PAGE>
3.33 Effective Time of Closing. Notwithstanding the time at which Closing
-------------------------
takes place, the Closing shall be deemed to be effective as of 11:59 p.m. on
March 31, 1998.
3.34 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
3.35 No Third Parties Benefitted. This Agreement is made and entered into
---------------------------
for the sole protection and benefit of the parties hereto, their successors and
assigns, and no other person or persons shall have any right or action under
this Agreement.
3.36 Recitals, Schedules and Exhibits. The recitals, schedules, and exhibits
--------------------------------
to this Agreement are incorporated herein and, by this reference, made a part
hereof as if fully set forth at length herein.
3.37 Section Headings. The section headings used herein are inserted for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
36
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or
caused this Agreement to be executed on its behalf, as of the date first above
written.
BUYER:
BUTLER TELECOM, INC.
By: ______________________________
Its: ______________________________
SELLER:
NORWOOD COMPUTER SERVICES, INC.
By:___________________________
Its:__________________________
STOCKHOLDERS:
_____________________________
VASSILIS CHAIMANIS
__________________________
HENRY PISCITELLI
For purposes of Sections 1.3 and 8.3 only:
BUTLER INTERNATIONAL, INC.
By: ______________________________
Its: ______________________________
37
<PAGE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company recorded earnings of $8.7 million for the year ended December
31, 1997, compared with $4.8 million for the year ended December 31, 1996, and a
net loss of $7.9 million for the year ended December 31, 1995. The 1997 results
include a tax benefit of $2.0 million as described below. Net income, excluding
the tax benefit, was $6.7 million or 40% greater than 1996. Basic earnings
(loss) per share were $1.37 in 1997 compared with $.76 in 1996 and ($1.36) in
1995. On a diluted basis, earnings per share increased to $1.16 per share in
1997 from $.67 reported in 1996.
The increase in earnings before the tax benefit was driven by higher
margins and lower interest expense. Gross margins in 1997 were 15.8% versus
14.6% in 1996 and 13.0% in 1995. The increase in margins on a year to year
basis were fueled principally by increased volume from the higher end Technology
Solutions and Telecommunications Services businesses. Further providing
earnings improvement was an overall increase in hourly billing rates,
representative of the Company's focus on its higher end business. Also
contributing to higher earnings in 1997 was a decrease in interest cost, which
was principally due to reduced borrowings.
Net sales were $425.0 million for the year ended December 31, 1997,
compared with $409.4 million recorded in 1996, and $433.6 million for the year
ended December 31, 1995. Growth in the current year was attributable to a 16%
increase in the Company's Technology Solutions operation and a 15% increase in
the Telecommunications Services unit, which more than offset a planned decrease
of 1% in the Contract Technical Services business ("CTS"). The decrease in 1996
was due to the Company's actions taken to exit certain unprofitable businesses
and low margin contracts, particularly in the CTS division. However, the 1996
sales in the Company's Telecommunications Services, Technology Solutions and
Fleet Services operations increased by an aggregate 51%, based solely on
internal growth. That growth reflected the emphasis placed on the higher than
average margin businesses.
The Company's 1995 loss was largely due to its operations in the United
Kingdom ("U.K."), and Latin America and other non-recurring charges. The U.K.
recorded an operating loss of $4.5 million in 1995. As a result, the Company
chose to exit its U.K. Telecommunications, Utility, Pacific and South African
operations. In 1995, the Company exited its Latin American operations and, as a
result, recorded a $1.5 million non-recurring charge. Other non-recurring
charges included $0.5 million of severance costs related to management personnel
eliminated in 1995, and $0.7 million in costs related to the relocation of the
Company's billing, collection and other accounting functions. In addition,
marginal business units were discontinued including Butler Quality Services,
Butler Airport Services, and Butler Canada. The operating losses from these
marginal operations were $0.1 million in 1995.
Selling, general and administrative ("SG&A") expenses increased to $52.6
million for the year ended December 31, 1997, compared with $46.8 million and
$52.9 million for the years ended December 31, 1996 and 1995, respectively. The
1997 increase is a direct result of the Company's efforts to grow its higher
margin business units and further develop its internal systems. Management
continues to closely monitor its overhead expenses.
For the year ended December 31, 1997, interest expense was $4.2 million,
compared with $5.2 million and $6.5 million for the years ended December 31,
1996 and December 31, 1995, respectively. The $1.0 million interest reduction
in 1997 was principally due to reduced borrowings. The outstanding balance on
the Company's revolving credit facility was $21.0 million at December 31, 1997,
compared to $31.3 million at December 31, 1996.
In 1997, the Company recorded an income tax benefit of $2.0 million which
resulted from the recording of deferred tax assets related to the expected
future tax benefit of certain loss carryforwards and temporary differences in
accordance with the provisions of Financial Accounting Standards Board ("FASB")
SFAS 109. By December 31, 1997, the Company
<PAGE>
had two consecutive years of profitability. In addition, the Company
renegotiated its financing and obtained significant operational efficiencies and
improvements. The Company now believes that it is more likely than not that a
portion of the December 31, 1997 deferred tax assets will be realized.
Therefore, the valuation allowance was reduced and an income tax benefit was
recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are generated from operations and
borrowings under its Credit Facility. (See "Financing Activities").
Availability under the Credit Facility is based upon the amount of eligible
receivables. As of December 31, 1997, $21.0 million was outstanding under the
Credit Facility, and an additional $5.5 million was used to collateralize
letters of credit. Proceeds from the Credit Facility are used by the Company to
finance its internal business growth, working capital and capital expenditures.
The credit facility excludes the U.K. operation, which has its own (Pounds)1.5
million facility. In November 1997, the Credit Facility was extended through
July 2001 and amended to include a $15.0 million acquisition facility.
Cash and cash equivalents increased by $0.7 million during the year ended
December 31, 1997. The major components of cash inflows were net income before
depreciation and amortization of $11.7 million, a decrease in working capital
requirements of $3.9 million and net proceeds from the exercise of stock options
and warrants amounting to $0.8 million. Cash outflows were primarily due to a
$10.7 million reduction in debt, capital expenditures of $3.0 million, and
acquisition related payments of $2.0 million.
During the year ended December 31, 1997, the Company realized $0.8 million
of net proceeds from the exercise of outstanding common stock purchase warrants
and options. As a result, 235,855 common shares were issued by the Company
during the year.
Annual dividends paid, for the year ended December 31, 1997 on the
Company's Series B Cumulative Convertible Preferred Stock amounted to $0.2
million, and were paid in the form of additional shares of such preferred stock
at the option of the holders.
In November 1997, the Company closed on a new seven year mortgage. The
mortgage consists of a $6.4 million loan that is repayable based on a 15 year
amortization schedule and a $375,000 loan that is repayable based on a 4 year
schedule. The variable interest rate on these loans is one month Libor plus 225
basis points.
The Company entered into an interest rate swap arrangement with its
mortgage holder on its $6.75 million mortgage notes. The Company makes monthly
interest payments at the fixed rates of 8.6% and 8.42% on the $6.4 million loan
and the $375,000 loan, respectively. The Company receives payments based upon
Libor plus 225 basis points. The net loss from the exchange of interest rate
payments, which was not material, was included in interest expense. The fair
value of the Company's interest rate swap agreement as of December 31, 1997,
would require a payment by the Company of approximately $97,000 if the agreement
were terminated. The Company does not anticipate terminating the interest rate
swap agreement prior to its current expiration date of November 1, 2004.
Management believes that cash flows from operations and availability under
the Credit Facility will be sufficient to meet the Company's foreseeable cash
requirements.
FINANCING ACTIVITIES
In November 1997, the Company amended and restated its Credit Facility with
General Electric Capital Corporation ("GECC") to include an acquisition facility
(in addition to the original facility). The Credit Facility, as amended,
provides the Company with up to $50.0 million in loans including $9.0 million
for letters of credit and an additional $15.0 million acquisition line of
credit. The sum of the aggregate amount of loans outstanding under the Credit
Facility plus the aggregate amount available for letters of credit may not
exceed the lesser of (i) $50.0 million or (ii) an amount equal to 85% of
eligible receivables plus 75% of eligible pending receivables (which percentages
are subject to adjustment from time to time by GECC). The interest rate in
effect at December 31, 1997, was 7.6%, or 200 basis points above the 30 day
commercial paper rate. Interest
<PAGE>
reductions are available based upon the Company achieving certain financial
results. The average interest rate during 1997 was 7.91%. The acquisition
facility bears interest at 300 basis points above the 30 day commercial paper
rate. The Company has guaranteed all obligations incurred or created under the
Credit Facility. The Company is required to comply with certain affirmative and
financial covenants. The Company is in compliance with the aforementioned
covenants, as amended. As of December 31, 1997, $21.3 million was outstanding
under the Credit Facility, and an additional $5.5 million was used to
collateralize letters of credit.
ACQUISITION
In August 1997, the Company acquired Corporate Information Systems, Inc.
("CIS"), a Chicago based information technology ("IT") company with offices in
Chicago and Phoenix. The purchase price includes $2.0 million payable in cash
and a contingent payout to be paid over three years based on the future earnings
of CIS in excess of certain annual thresholds. CIS has provided IT support
services to its clients for the last 15 years, and currently generates
approximately $6 million in annual sales. The results of operations of the
purchased CIS business have been included in the Company's consolidated
statement of operations from the date of acquisition. Pro forma results for the
Company, assuming the acquisition had been made at the beginning of each period
presented, would not be materially different from the results reported.
SUBSEQUENT EVENT
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley IT company headquartered in Fremont, CA.
The purchase price includes $5.1 million payable in cash and a contingent payout
to be paid over three years based on the future earnings of Argos in excess of
certain annual thresholds. Argos provides a variety of IT support services to a
wide range of clients in Northern California, and generates approximately $10
million in annual revenues with similar margins as the Company's Technology
Solutions business. Argos currently has a staff of approximately 90 full time
employees. Argos' President and its Chief Operating Officer will continue to
manage the business.
YEAR 2000 COMPLIANCE
The Company has been investing in new financial and operational systems in
recent years. As a result, it expects to be essentially year 2000 compliant by
the end of 1998. The costs associated with additional year 2000 related
projects is not expected to have a material impact on the Company's financial
position or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting for Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both standards are effective for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact, if
any, of these standards on its financial reporting.
Information contained in this Management's Discussion and Analysis of
Results of Operations and Financial Condition, other than historical
information, may be considered forward-looking in nature, as such it is based
upon certain assumptions and is subject to various risks and uncertainties,
which may not be controllable by the Company. To the extent that these
assumptions prove to be incorrect, or should any of these risks or uncertainties
materialize, the actual results may vary materially from those which were
anticipated.
<PAGE>
BUTLER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 914 $ 229
Accounts receivable, net of allowance for
uncollectible accounts of $1,465 and $1,455 54,827 56,271
Inventories 2,196 2,292
Other current assets 4,687 2,160
----------- -----------
Total current assets 62,624 60,952
Property and equipment, net 15,613 13,347
Other assets 1,907 1,138
Excess cost over net assets of businesses
acquired, net of accumulated amortization
of $9,004 and $7,843 24,572 23,743
----------- -----------
Total assets $ 104,716 $ 99,180
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 28,153 $ 21,145
Current portion of long-term debt 920 7,766
----------- -----------
Total current liabilities 29,073 28,911
----------- -----------
Revolving credit facility 20,985 31,342
Other long-term debt 6,517 -
Other long-term liabilities 3,052 3,348
Commitments and contingencies
Stockholders' equity:
Preferred stock: par value $.001 per share, authorized
5,000,000: Series B 7% Cumulative Convertible
Preferred Shares, authorized 3,500,000; issued
2,814,133 in 1997 and 2,627,025 in 1996 (Aggregate
liquidation preference $2,814 in 1997 and $2,627 in 1996) 3 3
Common stock: par value $.001 per share,
authorized 83,333,333; issued 6,380,023 in 1997
and 6,144,168 in 1996 6 6
Additional paid-in capital 94,710 93,673
Accumulated deficit (49,566) (58,112)
Cumulative foreign currency translation adjustment (64) 9
----------- -----------
Total stockholders' equity 45,089 35,579
----------- -----------
Total liabilities and
stockholders' equity $ 104,716 $ 99,180
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BUTLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Net sales $ 424,964 $ 409,353 $ 433,564
Cost of sales 357,852 349,762 377,069
----------- ----------- ----------
Gross margin 67,112 59,591 56,495
Depreciation and amortization 2,881 3,001 3,040
Selling, general and administrative expenses 52,555 46,763 52,911
Non recurring charges - - 2,680
----------- ----------- ----------
Operating income (loss) 11,676 9,827 (2,136)
Other income (expense):
Interest and other income 413 772 628
Interest expense (4,168) (5,215) (6,517)
----------- ----------- ----------
Income (loss) before income taxes 7,921 5,384 (8,025)
Income tax (benefit) expense (812) 593 (111)
----------- ----------- ----------
Net income (loss) $ 8,733 $ 4,791 $ (7,914)
=========== =========== ==========
Net income (loss) per share:
Basic $ 1.37 $ 0.76 $ (1.36)
Diluted $ 1.16 $ 0.67 -
Average number of common shares and dilutive
common share equivalents outstanding
Basic 6,253 6,087 5,943
Diluted 7,511 7,166 N/A
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BUTLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,733 $ 4,791 $ (7,914)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and excess purchase
price amortization 2,881 3,001 3,040
Amortization of deferred financing
and employee stock purchase
plan loans 82 681 622
Foreign translation (73) 116 488
(Increase) decrease in assets,
increase (decrease) in
liabilities:
Accounts receivable 1,444 8,242 (2,871)
Inventories 96 (1,931) (125)
Other current assets (3,524) 824 (101)
Other assets (851) (1,166) 39
Current liabilities 7,097 (8,420) 9,583
Other long term liabilities (296) (329) (591)
--------- ---------- ---------
Net cash provided by operating activities 15,589 5,809 2,170
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,989) (1,399) (3,973)
Cost of businesses acquired (1,990) (512) (569)
Expenses paid in conjunction with
discontinued operations (89) (117) (118)
Proceeds from sale of certain UK operations - 5,454 -
--------- ---------- ---------
Net cash (used in) provided by investing
activities (5,068) 3,426 (4,660)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under
financing agreements (10,667) (10,650) 1,218
Net proceeds from the exercise of
common stock warrants and options 831 709 209
Repurchase common stock - (162) (125)
--------- ---------- ---------
Net cash (used in) provided by financing
activities (9,836) (10,103) 1,302
--------- ---------- ---------
Net (decrease) increase in cash 685 (868) (1,188)
Cash and cash equivalents,
beginning of period 229 1,097 2,285
--------- ---------- ---------
Cash and cash equivalents,
end of period $ 914 $ 229 $ 1,097
========= ========== =========
</TABLE>
The accompanying notes are an intregal part of these consolidated financial
statements.
<PAGE>
BUTLER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
CUMULATIVE
SERIES B ADDITIONAL FOREIGN TOTAL
COMMON STOCK PREFERRED STOCK PAID-IN EXCHANGE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 5,903,658 $ 6 2,288,878 $ 2 $ 92,635 $ (595) $ (54,650) $ 37,398
Issuances of Common Stock 110,083 - - - 494 - - 494
Loans issued for exercise
of options - - - - (285) - - (285)
Repurchase and retire shares (19,958) - - - (125) - - (125)
Dividends Paid - - 163,020 - 163 - (163) -
Current Year Foreign Currency
Adjustments - - - - - 488 - 488
Net loss - - - - - - (7,914) (7,914)
---------- ----- ---------- ----- --------- ---------- ---------- ---------
Balance at December 31, 1995 5,993,783 6 2,451,898 2 92,882 (107) (62,727) 30,056
Forgive employee loans - - - - 69 - - 69
Issuances of Common Stock 174,964 - - - 709 - - 709
Repurchase and retire shares (24,579) - - - (162) - - (162)
Dividends Paid - - 175,127 1 175 - (176) -
Current Year Foreign Currency
Adjustments - - - - - 116 - 116
Net income - - - - - - 4,791 4,791
---------- ----- ---------- ----- --------- ---------- ---------- ---------
Balance at December 31, 1996 6,144,168 6 2,627,025 3 93,673 9 (58,112) 35,579
Forgive employee loans - - - - 19 - - 19
Loans issued for exercise
of options - - - - (196) - - (196)
Issuances of Common Stock 235,855 - - - 1,027 - - 1,027
Dividends Paid - - 187,108 - 187 - (187) -
Current Year Foreign Currency
Adjustments - - - - - (73) - (73)
Net income - - - - - - 8,733 8,733
---------- ----- ---------- ----- --------- ---------- ---------- ---------
Balance at December 31, 1997 6,380,023 $ 6 2,814,133 $ 3 $ 94,710 $ (64) $ (49,566) $ 45,089
========== ===== ========== ===== ========= ========== ========== =========
</TABLE>
The accompanying notes are an intregal part of these consolidated financial
statements.
<PAGE>
BUTLER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Consolidation and Presentation
The consolidated financial statements include the accounts of Butler
International, Inc. ("the Company") and all its wholly-owned subsidiaries.
Significant intercompany balances and transactions have been eliminated.
Certain amounts from prior years' consolidated financial statements have been
reclassified in the accompanying consolidated financial statements to conform
with the current year presentation.
Business
The Company operates in one business segment which is principally engaged in
the location, recruitment and hiring of a wide variety of skilled engineers,
computer and other technical personnel to provide services on a temporary basis
to industrial, telecommunication, service corporations as well as other
organizations.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Property and Equipment
Property and equipment are recorded at cost, which, for assets acquired
through the Company's corporate acquisitions, represents the fair value at date
of acquisition. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which generally range between one and ten
years except for the Montvale, NJ, building which has a thirty year life.
Excess Cost Over Net Assets of Businesses Acquired
Excess cost over net assets of businesses acquired is being amortized using
the straight-line method generally over forty years from the date of
acquisition. Management routinely evaluates the recoverability of goodwill with
reference to estimates of future profitability and operating cash flow. Such
estimates, on an undiscounted basis, are compared to the unamortized balance of
goodwill. Should the results of this analysis indicate that impairment is
likely, the Company will recognize a charge to operations at that time.
Revenue Recognition
The Company's net sales relate to net service revenues of its wholly-owned
subsidiaries. Service revenues are recognized upon performance of such services
at amounts expected to be ultimately realized.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined by
using an average cost per unit.
Foreign Currency Translation
For foreign operations, the assets and liabilities are translated at the
current exchange rates, while income and expenses are translated at the average
exchange rates for the period. Resulting translation gains and losses are
reported as a component of stockholders' equity.
Earnings Per Common Share
In the fourth quarter of 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share"
<PAGE>
as required and restated the previously reported earnings per share in
conformity with SFAS No. 128. The new standard specifies the computation,
presentation and disclosure requirements for earnings per share. The following
table represents the computation of basic and diluted earnings per common share
as required by SFAS No. 128 (in thousands, except per share data).
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ --------
<S> <C> <C> <C>
Basic Earnings per Share:
Income available to
common shareholders $8,546 $4,615 $(8,077)
------ ------ -------
Weighted average common
shares outstanding 6,253 6,087 5,943
------ ------ -------
Basic earnings per
common share $ 1.37 $ 0.76 $ (1.36)
====== ====== =======
Diluted Earnings per Share:
Income available to
common shareholders
assuming conversion $8,733 $4,791 $(7,914)
------ ------ -------
Weighted average common
shares outstanding 6,253 6,087 N/A
Common stock equivalents 456 330 N/A
Assumed conversion of
preferred stock 802 749 N/A
------ ------ -------
Total weighted average
common shares 7,511 7,166 N/A
------ ------ -------
Diluted earnings per
common share $ 1.16 $ 0.67 $ N/A
====== ====== =======
</TABLE>
Diluted earnings per share for the year ended December 31, 1995 are not
reflected since the effect of common stock equivalents and the conversion of
preferred stock was anti-dilutive.
NOTE 2 - PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land $ 5,662 $ 5,662
Buildings 4,168 4,168
Motor vehicles and equipment 7,123 6,554
Computer hardware and software 10,269 8,214
Leasehold improvements 1,716 1,591
-------- --------
28,938 26,189
Less accumulated depreciation (13,325) (12,842)
-------- --------
Property and equipment, net $ 15,613 $ 13,347
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996, and 1995 was
$1,721, $1,944, and $2,042, respectively.
<PAGE>
NOTE 3 - CURRENT LIABILITIES:
Accounts payable and accrued liabilities are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accounts payable $ 7,146 $ 5,917
Insurance-related payables 5,029 1,393
Accrued compensation 3,656 3,825
Taxes other than income taxes 2,967 2,436
Accrued pension and 401(k)
contributions 2,378 2,750
Income taxes payable 948 245
Accrued acquisition payouts 600 400
Deferred compensation 546 582
Other 4,883 3,597
------- -------
Accounts payable and
accrued liabilities $28,153 $21,145
======= =======
NOTE 4 - LONG-TERM DEBT:
Long-term debt is summarized as follows (in thousands):
1997 1996
------- -------
Credit Facility, due July, 2001 $20,985 $31,342
UK Credit Facility 611 889
Notes payable related to headquarters
facility 6,826 6,877
------- -------
28,422 39,108
Less current portion ( 920) (7,766)
------- -------
Long-term debt $27,502 $31,342
======= =======
</TABLE>
Credit Facility
In November 1997, the Company amended and restated its Credit Facility with
General Electric Capital Corporation ("GECC") to include an acquisition facility
(in addition to the original facility). The Credit Facility, as amended,
provides the Company with up to $50.0 million in loans including $9.0 million
for letters of credit and an additional $15.0 million acquisition line of
credit. As of December 31, 1997, the acquisition line of credit had not been
drawn down upon. The interest rate in effect at December 31, 1997, was 7.6% or
200 basis points above the 30 day commercial paper rate. Interest reductions
are available based upon the Company achieving certain financial results. The
average interest rate during 1997 was 7.91%. The acquisition facility bears
interest at 300 basis points above the 30 day commercial paper rate. The
Company has guaranteed all obligations incurred or created under the Credit
Facility. The Company is required to comply with certain affirmative and
financial covenants. The Company is in compliance with the aforementioned
covenants, as amended. As of December 31, 1997, $21.3 million was outstanding
under the Credit Facility, and an additional $5.5 million was used to
collateralize letters of credit.
U.K. Credit Facility
The Company's U.K. operation has a credit facility with TSB Commercial
Finance Ltd. which provides up to (Pounds)1.5 million in loans. The total
amount of loans outstanding under this facility may not exceed 80% of eligible
receivables. The interest rate chargeable to the Company is 8%. The balance
outstanding as of December 31, 1997 was (Pounds)364,000 or $611,000.
Facility Mortgage
In May 1993, the Company, through its wholly-owned subsidiary, Butler of
New Jersey Realty Corp. ("BNJRC"), acquired its corporate office complex in
Montvale, New Jersey. BNJRC financed this transaction principally through the
assumption of an existing mortgage as well as issuing short and long-term notes.
<PAGE>
The Company issued an unsecured promissory note in the amount of $510,000
payable to North American Investment Realty of New Jersey, Inc. with an interest
rate of 9 7/8% per annum. Principal payments were made in 1994, 1995 and 1996
bringing the balance down to $127,000. In 1996, the Company exercised its
options to extend the term of the note for a period not to exceed three years.
In November, 1997, the Company closed on a new seven year mortgage for its
corporate office facility. The mortgage consists of a $6.4 million loan, that
is repayable based on a 15 year amortization schedule and a $375,000 loan that
repayable based on a 4 year schedule. The variable interest rate on these loans
is one month Libor plus 225 basis points. This facility replaces the previous
$6.75 million mortgage which had borne interest at 10%. The outstanding
balance of the loans was $6.7 million at December 31, 1997.
The Company entered into an interest rate swap arrangement with its mortgage
holder and swapped its exposure to variable interest rates on its $6.75 million
mortgage notes. The Company makes monthly interest payments at the fixed rates
of 8.6% and 8.42% on the $6.4 million loan and the $375,000 loan, respectively.
The Company receives payments based upon Libor plus 225 basis points. The net
gain or loss from the exchange of interest rate payments is not material and is
included in interest expense. The fair value of the Company's interest rate
swap agreement as of December 31, 1997, would require a payment by the Company
of approximately $97,000 if the agreement were terminated. The Company does not
anticipate terminating the interest rate swap agreement prior to its current
expiration date of November 1, 2004.
NOTE 5 - COMMON STOCK:
In 1997 and 1996, the Company received proceeds of $561,704 and $618,588,
respectively, from the exercise of 155,008 and 143,714 common stock purchase
warrants. At December 31, 1997, the Company had 145,000 common stock purchase
warrants outstanding with exercise prices ranging from $3.62 to $6.00 per share
and expiration dates from April, 2000 to July, 2003.
The Company received proceeds of $465,598, $123,750 and $345,203 in 1997,
1996 and 1995, respectively, from the exercise of 80,847, 37,500 and 75,833
options granted under various stock option plans.
NOTE 6 - CUMULATIVE CONVERTIBLE PREFERRED STOCK:
The Company's Series B Cumulative Convertible Preferred Stock ("Series B
Preferred Shares") accrues dividends at the rate of 7% per annum, based upon a
liquidation value of $1.00 per share, payable in cash or in-kind at the option
of the holder. In 1997, 1996 and 1995, dividends in-kind amounting to $187,108,
$175,127, and $163,020, respectively, were paid to the holders of Series B
Preferred Shares. Series B Preferred Shares are convertible at a ratio of one
Series B Preferred Share to .285 Common Shares.
NOTE 7 - STOCK OPTIONS
The Company has in effect a number of stock-based incentive and benefit
programs designed to attract and retain qualified directors, executives and
management personnel. To accomplish these objectives, the Company has adopted a
1985 Incentive Stock Option Plan (the "ISOP"), a 1985 non-qualified Stock Option
Plan (the "Non-qualified Plan"), a 1989 Directors Stock Option Plan ("Directors
Plan"), a 1992 Stock Option Plan ("1992 Non-qualified Plan"), a 1992 Incentive
Stock Option Plan ("1992 ISOP"), a 1992 Stock Bonus Plan ("1992 Bonus Plan"),
and a 1992 Stock Option Plan for Non-employee Directors ("1992 Directors Plan").
In addition, the Company has encouraged its directors to subscribe for shares of
common stock from time to time at a price equal to the market price of the
common stock at the time of their subscription.
<PAGE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and other related interpretations in accounting
for its stock option plans. No compensation expense has been recognized for
these plans. Had compensation cost been determined based upon the fair value at
grant date consistent with the accounting methodology prescribed under SFAS No.
123, "Accounting for Stock Based Compensation", the Company's net income would
have been reduced by approximately $326,000, $311,000 and $227,000 for 1997,
1996 and 1995, respectively. Basic earnings per share would have been reduced
by approximately $.05, $.05, and $.04 for 1997, 1996 and 1995, respectively.
Diluted earnings per share would have been reduced by $.04 for both 1997 and
1996. The weighted average fair value of options granted during 1997, 1996 and
1995 are estimated to be $6.09, $4.27 and $4.42, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for 1997, 1996 and 1995, respectively: volatility of 35%, 43%, and
71%, risk free interest rates of 6.43%, 6.76%, and 6.82%, assumed forfeiture
rates of 15.8% for 1997 and 13.2% for 1996 and 1995, and expected lives of 6.72
years for 1997 and 6.76 years for 1996 and 1995.
Changes in stock options outstanding are as follows:
Qualified Stock Options
1997 1996 1995
------------- ------------- --------------
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding
balance
at beginning
of
year 372,080 $5.19 436,413 $4.73 345,001 $4.07
Granted 40,000 14.30 30,000 9.63 132,000 6.04
Exercised (59,580) 4.85 (37,500) 3.30 (15,833) 3.80
Canceled (20,000) 7.00 (44,833) 4.85 (24,755) 3.13
Transferred - - (12,000) 7.00 - -
------- ------- -------
Outstanding at
end of year 332,500 6.24 372,080 $5.19 436,413 $4.73
======= ======= =======
Options
exercisable
at end of year 226,750 $4.78 260,167 $4.70 273,668 $4.36
======= ======= =======
Non-Qualified Stock Options
1997 1996 1995
---------------------------------------------
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
---------------------------------------------
Outstanding balance
at beginning of
year 322,833 $ 6.83 145,833 $6.18 165,833 $5.60
Granted 48,000 11.00 165,000 7.40 40,000 6.44
Exercised (21,267) 8.32 - - (60,000) 4.75
Transferred - - 12,000 7.00 - -
------- ------- -------
Outstanding at
end of year 349,566 $7.31 322,833 $6.83 145,833 $6.18
======= ======= =======
Options exercisable
at end of year 274,566 $7.37 222,833 $6.70 145,833 $6.18
======= ======= =======
As of December 31, 1997, the 682,066 stock options outstanding have
exercise prices between $3.13 and $16.88 and a weighted average remaining
contractual life of 6.3 years.
NOTE 8 - EMPLOYEE STOCK PURCHASE PLAN:
The Butler International, Inc. 1990 Employee Stock Purchase Plan (the
"Plan") made available $2.5 million for loans to officers, directors, and other
key employees to purchase Company stock. Except for the loans to outside
directors, the Company, subject to the Plan provisions, may reduce the amount
due
<PAGE>
with respect to each loan by twenty-five percent of the original principal
balance on successive anniversary dates of the loan, provided that the employee
remains employed by the Company or one of its subsidiaries on such anniversary
dates, or has not terminated his employment for other than a reason permitted by
the Plan. The shares acquired by the outside directors pursuant to the Plan were
subject to forfeiture ratably under certain conditions. During 1997 and 1996,
plan loans totaling $18,734 and $68,726, respectively, previously granted to
employees who have been terminated, were forgiven and charged to expense.
NOTE 9 - EMPLOYEE BENEFIT PLANS:
Defined Benefit Plan
The Company has a defined benefit pension plan ("DBP") covering
substantially all of its full-time staff employees. Benefits under the DBP are
determined based on earnings and period of service. The Company funds the DBP
in accordance with the minimum funding requirements of the Employees Retirement
Income Security Act of 1974. Benefits payable under the plan are reduced by a
participant's Employee Stock Option Plan ("ESOP") credits.
Effective June 1997, retroactive to December 31, 1996, the Company froze
future benefit accruals under the DBP and ESOP and approved a matching program
under its 401(k) plan, in lieu of benefits which said participants would
otherwise have accrued under the DBP. The effect of freezing the DBP resulted
in a gain, which was not material.
Net pension (income) expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Service cost-benefits
earned during the period $ - $ 432 $ 543
Interest cost on projected
benefit obligations 212 250 213
Actual return on assets (233) (194) (159)
Net amortization and deferral - 99 99
----- ------ -------
Net pension (income) expense $ (21) $ 587 $ 696
===== ====== =======
Assumptions used in determining net pension expense were:
1997 1996 1995
----- ------ -------
Discount rate 7.25% 7.25% 7.25%
Rates of increase in
compensation levels N/A 4.00% 4.00%
Expected long-term rate
of return on assets 9.00% 9.00% 9.00%
The following table sets forth the funded status and amount recognized in the
balance sheets (in thousands):
1997 1996
------ -------
Actuarial present value of
benefit obligations:
Vested benefit obligation $2,307 $ 1,945
====== =======
Accumulated benefit obligation $3,127 $ 2,709
====== =======
Plan assets at fair value $3,115 $ 2,686
Less projected benefit obligation 3,127 4,134
------ -------
Projected benefit obligation in
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
excess of plan assets (12) (1,448)
Unrecognized net gain - (107)
Prior service cost not yet recognized in
net periodic pension cost - 1,183
------ -------
Accrued liability recognized in
the financial statements $ (12) $ (372)
====== =======
</TABLE>
At December 31, 1997, approximately 25% of plan ass ets were held in fixed
income investments and 75% in equity investments compared to 53% in fixed
investments and 47% in equity investments at December 31, 1996.
Postemployment and Postretirement Benefits
The Company currently does not provide postemployment and postretirement
benefits other than pensions.
401(K) Plan
The Company provides a 401(k) savings plan. Effective December 31, 1996,
the Company froze its DBP and ESOP and approved a matching program under the
401(k) plan. The Company made matching contributions of approximately $315,000
in 1997. At the Company's option, no contributions were made to the plan in
1996 and 1995.
NOTE 10 - INCOME TAXES:
The components of income tax expense (benefit) were as follows
(in thousands):
1997 1996 1995
------- ----- -----
Current taxes:
Federal $ 234 $ 130 $ 32
State 913 463 73
Foreign - - (216)
------- ----- -----
Total Current 1,147 593 (111)
Deferred tax benefit (1,959) - -
------- ----- -----
Total income tax
expense (benefit) $ (812) $ 593 $(111)
======= ===== =====
Significant components of the Company's deferred tax assets as of December
31, 1997 and 1996 are as follows (in thousands):
Current Deferred Tax Assets: 1997 1996
-------- ---------
Reserves for doubtful accounts $ 461 $ 444
Accruals not currently deductible 2,477 1,743
Depreciation and amortization 377 360
Net operating loss carryforwards 3,166 8,096
Tax credit carryforwards 968 729
Capital loss carryforwards 0 1,840
Other 998 903
Valuation allowance (4,588) (14,115)
------- --------
Net current deferred tax asset
(included in other current assets) $ 3,859 $ 0
======= ========
As of December 31, 1996, utilization of the net operating loss and other
carryforwards did not meet the SFAS No. 109 more likely than not recognition
standard. Therefore, the estimated future tax benefit of carryforwards as
reflected in the Company's December 31, 1996 deferred tax assets of $14.1
million was fully reserved for with a valuation allowance. By December 31,
1997, the
<PAGE>
Company has had two consecutive periods of financial profitability. In addition,
the Company has renegotiated its financing and has obtained significant
operational efficiencies and improvements. The deferred tax assets and the
valuation allowance have been reduced principally for the realization of net
operating loss carryforwards and the expiration of capital loss carryforwards.
The Company now believes that it is more likely than not that a portion of the
December 31, 1997 deferred tax assets will be realized. Accordingly, the
valuation allowance has been further reduced. Income tax benefits have been
recorded for these changes.
A reconciliation between the income tax expense (benefit) computed by
applying the federal statutory rate to income (loss) from operations before
income taxes to the actual expense (benefit) is as follows (in thousands):
1997 1996 1995
------- ------- -------
Income tax (benefit) expense at
statutory rate $ 2,693 $1,831 $(2,729)
Amortization of excess of
cost over net assets of
businesses acquired 227 214 215
Limitation on utilization
(utilization) of net operating
loss and credit carryforwards (2,960) (2,025) 1,947
Net changes in deferred taxes,
including reduction in
valuation allowance (1,959) - -
State income tax expense, net
of federal tax benefit 895 454 72
Other, including foreign rate
differential 292 119 384
------- ------- -------
Provision (benefit)
for income taxes $ (812) $ 593 $ (111)
======= ======= =======
U.S. net operating loss carryforwards of $2.6 million from 1993 (which
expire in 2008) and $2.7 million from separate return limitation years
(SRLY)(which expire in 2000), are available to reduce future taxable income,
subject to applicable Internal Revenue Service carryforward rules and
limitations. U.K. net operating loss carryforwards of $4.4 million from 1996 and
1995 are available to reduce future U.K. taxable income. U.K. tax law provides
an unlimited life for net operating loss carryforwards. However, the benefit of
the U.K. net operating losses have not been recognized for financial reporting
purposes because realization is not likely in the foreseeable future. The
Company has regular tax credit carryforwards for financial reporting and/or tax
reporting purposes of approximately $1.0 million expiring from 2000 onward.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office space and various computer
equipment. Estimated minimum future rental commitments under non-cancelable
leases at December 31, 1997 are as follows (in thousands):
1998 $4,013
1999 2,856
2000 1,197
2001 512
2002 280
Thereafter 4
------
Total $8,862
======
Substantially all of the leases provide for increases based upon use of
utilities and lessors' operating expenses. Net rent expense for the years ended
<PAGE>
December 31, 1997, 1996 and 1995 was approximately $4.0 million, $3.9 million
and $4.0 million, respectively.
In 1995, the Company filed a complaint against CIGNA Property and Casualty
Insurance Company alleging negligence, breach of contract, breach of fiduciary
duty, and negligent misrepresentation arising out of CIGNA's and other
defendants' acts and omissions in the processing, handling and investigation of
claims against the Company under general liability and workmen's compensation
insurance contracts. The defendants filed an answer, new matter and
counterclaim denying the Company's allegations, asserting certain affirmative
defenses, and alleging that the Company has failed to pay retrospective premiums
amounting to approximately $7.6 million. In April 1997, CIGNA drew down on
three letters of credit, posted by the Company, in the aggregate amount of
approximately $2.9 million. There was no impact on current year operating
results. These letters of credit had been posted as collateral for estimated
retrospective premiums. In July 1997, the Company entered into an agreement
with CIGNA which, in the absence of a settlement, will result in the respective
parties undertaking binding arbitration in late 1998. In accordance with the
terms of the agreement the Company paid $2.1 million to Cigna. The parties
further agreed to grant the Company an option to settle the remaining disputed
amounts for $1.5 million in lieu of arbitration. Management believes that the
ultimate resolution of this matter will not have an adverse impact on the
Company's financial position or results of operations.
The Company and its subsidiaries are parties to various legal proceedings
and claims incidental to its normal business operations for which no material
liability is expected beyond which is recorded. While the ultimate resolution
of the above matters is not known, management does not expect that the
resolution of such matters will have a material adverse effect on the Company's
financial statements and results of operations.
NOTE 12 - RELATED PARTY TRANSACTIONS:
Under various approved stockholder option plans and other stock purchase
agreements, certain directors have executed primarily non-interest bearing notes
payable to the Company to purchase common stock. As of December 31, 1997,
approximately $2.3 million remained outstanding under such notes. In addition,
in 1997, the Chairman and a non-employee director executed notes in the amounts
of $51,102 and $144,800, respectively, to purchase an aggregate of 45,100 shares
of the Company's common stock.
During 1997, 1996 and 1995, the Company paid or accrued $745,000, $519,000
and $346,000, respectively, in fees and expenses to McBreen, McBreen & Kopko,
its outside counsel.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1997, 1996 and 1995, the Company received approximately $168,000,
$62,000 and $18,000, respectively, in federal, state and foreign income tax
refunds.
Cash paid for interest and federal, state and foreign income taxes for the
years ended December 31, 1997, 1996 and 1995 is as follows (in thousands):
1997 1996 1995
------ ------ ------
Interest $3,635 $4,767 $5,711
Income taxes $ 719 $ 144 $ 304
<PAGE>
NOTE 14 - INFORMATION ABOUT THE COMPANY'S FOREIGN OPERATIONS:
(in thousands):
1997 1996 1995
------- -------- --------
Net Sales $11,906 $21,280 $42,354
Operating Income
(loss) 237 (942) (5,013)
Identifiable Assets 2,182 2,773 9,226
Operating income (loss) consists of earnings (losses) from continuing
operations before interest expense, corporate expenses and income taxes.
Identifiable assets consist of total assets excluding any intercompany
receivables or payables employed by the Company's foreign operations. Foreign
operations consist principally of the United Kingdom. During 1996, the Company
completed the sale and disposal of the U.K. telecommunications, Pacific and
South African operations of its United Kingdom subsidiary.
NOTE 15 - NON-RECURRING CHARGES:
In 1995, the Company recorded non-recurring charges totaling $2.7 million,
consisting of $1.5 million of expenses and reserves in connection with the sale
and exiting of certain of its foreign and non strategic operations, one-time
costs of approximately $650,000 related to the relocation of its payroll,
billing, accounts payable, collections and other administrative functions, and
$535,000 of costs related to the termination of certain management level
personnel.
NOTE 16 - ACQUISITION:
In August 1997, the Company acquired Corporate Information Systems, Inc.
("CIS"), a Chicago based information technology ("IT") company with offices in
Chicago and Phoenix. The purchase price includes $2 million payable in cash and
a contingent payout to be paid over three years based on the future earnings of
CIS in excess of certain annual thresholds. CIS has provided IT support
services to its clients for the last 15 years, and currently generates
approximately $6 million in annual sales. The results of operations of the
purchased CIS business have been included in the Company's consolidated
statement of operations from the date of acquisition. Pro forma results for the
Company, assuming the acquisition had been made at the beginning of each period
presented, would not be materially different from the results reported.
NOTE 17 - SUBSEQUENT EVENT:
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley IT company headquartered in Fremont, CA.
The purchase price includes $5.1 million payable in cash, plus a contingent
payout to be paid over three years based on future earnings of Argos in excess
of certain annual thresholds. Argos provides a variety of IT support services
to a wide range of clients in Northern California, and generates approximately
$10 million in annual revenues. Argos currently has a staff of approximately 90
full time employees. Argos' President and its Chief Operating Officer will
continue to manage the business.
NOTE 18 - RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the FASB issued SFAS No. 130, "Reporting for Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both standards are effective for fiscal years beginning
after December 15, 1997. The Company is currently evaluating the impact, if
any, of these standards on its financial reporting.
<PAGE>
NOTE 19 - INTERIM FINANCIAL INFORMATION:
(in thousands, except per share data) (unaudited)
1997 QUARTERS FIRST SECOND THIRD FOURTH
- ------------------ -------- -------- -------- --------
OPERATIONS:
Net Sales $104,697 $108,419 $106,465 $105,383
Gross Margin 15,584 16,557 17,178 17,793
Net income 841 1,803 2,098 3,991
======== ======== ======== ========
PER SHARE DATA:
Basic earnings
per share $ 0.13 $ 0.29 $ 0.32 $ 0.62
======== ======== ======== ========
Diluted earnings
per share $ 0.11 $ 0.24 $ 0.28 $ 0.52
======== ======== ======== ========
1996 QUARTERS FIRST SECOND THIRD FOURTH
- ------------------ -------- -------- -------- --------
OPERATIONS:
Net Sales $100,671 $105,379 $103,054 $100,249
Gross margin 13,888 15,354 15,321 15,028
Net income 512 1,316 1,479 1,484
======== ======== ======== ========
PER SHARE DATA:
Basic earnings
per share $ 0.08 $ 0.21 $ 0.23 $ 0.23
======== ======== ======== ========
Diluted earnings
per share $ 0.07 $ 0.18 $ 0.20 $ 0.20
======== ======== ======== ========
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Butler International, Inc.:
We have audited the accompanying consolidated balance sheets of Butler
International, Inc. as of December 31, 1997 and December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Butler International, Inc. as of
December 31, 1997 and December 31, 1996, and the results of their operations and
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ------------------------
Parsippany, New Jersey
March 6, 1998
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales $ 424,964 $ 409,353 $ 433,564 $ 393,250 $ 307,715
Gross margin $ 67,112 $ 59,591 $ 56,495 $ 53,617 $ 41,744
Income (loss) from continuing
operations $ 8,733 $ 4,791 $ (7,914) (a) $ 1,659 $ 1,227
Income (loss) from discontinued
operations - - - - $ (3,427)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 8,733 $ 4,791 $ (7,914) (a) $ 1,659 $ (2,200)
========== ========== ========== ========== ==========
PER SHARE DATA:
Income (loss) from continuing
operations per share:
Basic $ 1.37 $ 0.76 $ (1.36) $ 0.26 $ 0.20
Diluted $ 1.16 $ 0.67 N/A $ 0.25 $ 0.20
Weighted average number of shares
outstanding:
Basic 6,253 6,087 5,943 5,430 4,928
Diluted 7,511 7,166 N/A 6,639 6,040
BALANCE SHEET DATA:
Working capital $ 33,551 $ 32,041 $ 34,103 $ 48,155 $ 34,753
Total assets $ 104,716 $ 99,180 $ 110,572 $ 107,810 $ 85,381
Long-term debt $ 27,502 $ 31,342 $ 40,480 $ 45,746 $ 32,151
Total liabilities $ 59,627 $ 63,601 $ 80,516 $ 70,412 $ 50,691
Stockholders' equity $ 45,089 $ 35,579 $ 30,056 $ 37,398 $ 34,690
</TABLE>
(a) 1995 includes $2,680 of non-recurring charges (See Note 15).
<PAGE>
MARKET INFORMATION ON BUTLER'S COMMON STOCK
The Common Stock is quoted under the symbol "BUTL" and is listed on the
NASDAQ National Market System. As of March 6, 1998, there were approximately
3,860 holders of record of Common Stock. Not reflected in the number of record
holders are persons who beneficially own shares of the Common Stock held in
nominee or street name.
HIGH LOW
1996
First Quarter $6.00 $4.63
Second Quarter 9.50 5.50
Third Quarter 9.88 6.25
Fourth Quarter 11.38 9.25
1997
First Quarter $13.75 $10.00
Second Quarter 14.13 9.38
Third Quarter 17.25 11.50
Fourth Quarter 19.38 16.00
1998
First Quarter (Through March 6, 1998) $22.25 $16.38
No cash dividends were declared on the Company's Common Stock during the
years ended December 31, 1997 and 1996. The Company has no present intention
of paying cash dividends during the year ending December 31, 1998.
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
--------------------------
PERCENTAGE
OF VOTING STATE OR
SECURITIES JURISDICTION OF
CORPORATION OWNED BY OWNED INCORPORATION
- ----------------------------------- ---------- ---------- ---------------
Butler Service Group, Inc. Registrant 100 New Jersey
AAC Corp. Registrant 100 Delaware
Sylvan Insurance Co. Ltd. Registrant 100 Bermuda
Butler Airport Services, Corp. Registrant 100 Maryland
Butler of New Jersey Realty Corp. Registrant 100 New Jersey
BUTLER SERVICE GROUP, INC. ("BSG") SUBSIDIARIES
-----------------------------------------------
Butler Service Group-UK, Ltd. BSG 100 United Kingdom
Butler Airport Services, Ltd. BSG 100 United Kingdom
Butler Services International, Inc. BSG 100 Delaware
Butler Telecom, Inc. BSG 100 Delaware
Butler Services, Inc. BSG 100 Delaware
Butler Utility Services, Inc. BSG 100 Delaware
Butler Airport Services, Inc. BSG 100 Cayman Islands
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
22263, No. 33-58481 and No. 33-87012 on Form S-8, Registration Statement No. 33-
59427 on Form S-3 and Post-Effective Amendment No. 4 to Registration Statement
No. 33-58278 on Form S-2 of our reports dated March 6, 1998, appearing in and
incorporated by reference in this Annual Report on Form 10-K of Butler
International, Inc. for the year ended December 31, 1997.
/s/Deloitte & Touche LLP
- ------------------------
Parsippany, New Jersey
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUTLER
INTERNATIONA, INC. FORM 10K FOR PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 914
<SECURITIES> 0
<RECEIVABLES> 56,292
<ALLOWANCES> 1,465
<INVENTORY> 2,196
<CURRENT-ASSETS> 62,624
<PP&E> 28,937
<DEPRECIATION> 13,324
<TOTAL-ASSETS> 104,716
<CURRENT-LIABILITIES> 29,073
<BONDS> 0
0
3
<COMMON> 6
<OTHER-SE> 45,080
<TOTAL-LIABILITY-AND-EQUITY> 104,716
<SALES> 424,964
<TOTAL-REVENUES> 424,964
<CGS> 357,852
<TOTAL-COSTS> 357,852
<OTHER-EXPENSES> 54,019
<LOSS-PROVISION> 1,004
<INTEREST-EXPENSE> 4,168
<INCOME-PRETAX> 7,921
<INCOME-TAX> (812)
<INCOME-CONTINUING> 8,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,733
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.16
</TABLE>
