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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, 1998
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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
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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. [_].
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The aggregate market value of the voting stock held by non-affiliates of
the registrant is approximately $126,584,000. Such aggregate market value has
been computed by reference to the $20.50 per share closing sale price of such
stock as of March 8, 1999.
As of March 8, 1999, 6,626,233 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, 1998 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, 1999. Portions of the proxy statement
for the 1999 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,
provides a wide range of technical and information technology services to
companies worldwide. The Company provides strategic outsourcing, project
management and staff augmentation services on a contractual basis to clients in
a wide variety of industries and service lines, including financial services,
telecommunications, banking, quality assurance, brokerage, computer software,
voice data and video communications, cable TV, entertainment, CAD design,
electronics, energy, consumer products, environmental, aerospace, aircraft, food
processing, marine, petrochemical, pharmaceutical, automotive, fleet services,
trucking, utilities and courier. As of March 5, 1999, the Company had
approximately 5,600 employees, of which approximately 5,000 billable employees
provide services, generally at client facilities, from a network of 45 offices
in the United States and abroad. Through its international operations, the
Company currently provides similar services from offices in the United Kingdom.
In 1998, the Company had net sales of $444 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 and information technology services are utilized by the Company's
clients for: (i) outsourcing services, (ii) project management and (iii) staff
augmentation, as follows:
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.
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Project management services involve 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.
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 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.
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 outsourcing services, project management and staff
augmentation services are provided through the following operating segments: (i)
Butler Technology Solutions, (ii) Butler Telecom, (iii) Butler Fleet Services,
(iv) Butler Technical Group. Additional segment information is included in Note
14 in the Company's 1998 Annual Report, which is incorporated herein by
reference.
Butler Technology Solutions provides a complete and broad range of
information technology expertise including, technical staffing, project
management, and technology solutions. To augment its service offerings the
Company recently established practice areas such as Quality Assurance,
Enterprise Networking, Web Solutions and Enterprise Architecture. Butler
Technology Solutions serves all sectors of the information technology industry,
from development through testing and final software quality assurance. Butler
employees provide a broad range of information technology specialists with
expertise in a wide variety of applications, operating systems and platforms.
Butler Telecom provides a full range of installation and test services,
specialty project services and human resource staffing 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 applications, with both standard coaxial cable and fiber optic
capabilities. Such services are also provided for both campus and multi-story
telecommunications management. Butler Telecom also provides drafting, design,
printing and graphics services to a wide range of industries.
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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. Butler Fleet provides services including:
preventive maintenance, mobile maintenance repair and service, scheduling
service 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 technicians. Industries served through this division include
telecommunications, utilities, municipalities, courier, and trucking. Recently,
Butler introduced its Technicians on Demand service, a program which offers
highly qualified technicians to all types of businesses nationwide, regardless
of project scope or length.
Butler Technical Group provides skilled technical and engineering
personnel, project management, and total outsourcing solutions to companies
worldwide and to industries ranging from aerospace to pharmaceuticals to energy
and electronics. It also 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. In 1998,
the Company combined its Project Engineering Services, Contract Technical
Services and Butler Service Group, UK Ltd. Operations to form Butler Technical
Group.
International Operations
The Company's international operations ("International Operations") are
directed from offices in the United Kingdom. Currently, approximately 4.5% of
the Company's personnel are employed in its International Operations.
International Operations accounted for approximately 3.6% of the Company's net
sales in 1998, principally from the United Kingdom.
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 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.
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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 policies 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 ten (10) 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 business units. Management believes that its
commitment to quality will enhance Butler's standing as a provider of quality
technical services throughout the world.
In 1998, Butler received three prestigious awards signifying the Company's
dedication to quality and customer satisfaction. Butler was the winner of the
New Jersey Technology Council (NJTC) award for Customer Service Company of the
Year. The Company's website was ranked as one of the Top 100 websites by the
Internet Business Network (IBN), out of more than 15,000 reviewed sites. Butler
was also recognized as one of the top 5 third party recruiting sites for
excellence in the electronic recruiting industry, signifying that the Company's
job board is among the best in its category. The Company was named as one of the
Top 3 companies worldwide in exceeding customer expectations by the Arthur
Andersen International Best Practices AwardsSM. Butler was the winner in the
same category for the Metro New York Area.
Butler's vision is to be the Number One Client-Rated Company in its
industry. The company's future marketing plans include a strong proactive
branding effort to let the marketplace know Butler is striving to be the best,
gaining recognition as the best and fueling its quest with strong core values
that will not change.
Business Expansion and Acquisitions
In recent years, the Company completed several acquisitions in its
Technology Solutions and Telecommunications businesses. The Company believes
acquisitions in the information technology and telecommunication services
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markets 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 $15 million
credit facility dedicated to financing the Company's acquisition program. This
acquisition line of credit was increased to $35 million in 1998. This four year
facility provides additional resources to selectively expand and broaden the
Company's higher margin Technology Solutions and Telecommunication Services
businesses.
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley information technology ("IT") company
headquartered in Fremont, CA. The purchase price includes $5.1 million paid in
cash ($4.1 million charged against the Company's acquisition line and $1.0
million against the revolving credit facility), plus 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 a staff of approximately 90 full-time employees.
On April 1, 1998, the Company acquired the operations of Norwood Computer
Services, Inc. ("Norwood") an IT services company headquartered in Hicksville,
NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn
down on the acquisition line and $1.7 charged to the revolving credit facility),
plus a contingent payout of $1.3 million that was paid in March 1999. Norwood
has been serving a wide range of mid-sized and Fortune 500 companies in the New
York metropolitan area since 1978 and generates approximately $17 million in
annual revenues through a staff of approximately 120 consultants.
On June 2, 1998, the Company's Telecommunication Services operation
acquired WCC Telephone Services, Inc. ("WCC") a California based
telecommunications services company. WCC specializes in central office services
for customers such as Pacific Bell and Northern Telecom. It generates annual
sales of approximately $2 million. This business has been merged with the
existing Butler Telecom business in Southern California. The purchase price
includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition
line and $0.4 million charged to the revolving credit facility), plus a
contingent payout based on the earnings of WCC for the next year.
Also, on June 2, 1998, the Company's Technology Solutions operation
acquired certain assets of the Reston, VA branch operations of Automated
Concepts, Inc. This business generates annual sales of approximately $3
million. Employees and consultants of this operation have been merged with the
existing Butler office in McLean, VA. The purchase price was $550,000 of which
$440,000 was drawn down on the acquisition line and $110,000 was charged to the
revolving credit facility plus a contingent payout based on earnings for one
year.
On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a
Chicago area IT services business. The purchase price was $10.3 million ($8.2
charged to the acquisition line and $2.1 charged against the revolving credit
facility). DPI has provided a variety of IT support services to a wide range of
customers in the Chicago marketplace for the past eleven years. Its offerings
include contract programming, software consulting, IT staffing and
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Year 2000 project work. DPI currently generates approximately $10 million in
annual revenues through its staff of 80 consultants.
On August 5, 1998, the Company completed the acquisition of ISL
International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ.
The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn
down on acquisition line and $1.5 charged to the revolving credit facility),
plus a multi-year contingent payout based on the future earnings of ISL. ISL
has provided services to a wide range of companies in the metropolitan New York
area since 1978. It generates approximately $20 million in annual revenues
through a staff of approximately 150 consultants.
In connection with these 1998 acquisitions, the Company acquired
substantially all of the operating assets and assumed certain liabilities of the
acquired businesses. The transactions were recorded using the purchase method
of accounting. Excess cost over net assets of businesses acquired has been
recorded as goodwill and is being amortized over forty years.
The Company continues to review potential acquisition candidates in the
information technology and telecommunications service industries. There are no
acquisition transactions currently pending.
Clients
The Company provides its services to over 1,600 clients. In 1998, Boeing
accounted for approximately 11.7% of the Company's net sales. No other clients
individually represented 10% of the Company's net sales in 1998. A substantial
amount of the Company's 1998 net sales were derived from U.S. companies included
in the "Fortune 500" companies list.
Employees
The Company currently has approximately 5,600 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. Self-paced, interactive training experiences
from the desktop allow employees to develop the skills necessary to work with
today's most desired technologies. Video 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.
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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 technical/professional 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. Technical/professional fall into three categories (1) salaried
employees, (2) contracted employees, and (3) independents. Salaried employees
continue to work for Butler after an assignment ends, usually starting their
next assignment immediately, but sometimes working on internal projects while
"on the bench." Contracted and independent employees are terminated if a new
assignment is not identified. However, Butler has many initiatives and programs
in place to secure reassignment of technical/professional employees.
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,
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. In 1998, BRASS was recognized by the Internet Business Network for
its recruiting capabilities. 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.
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Competition
The Company's 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, technical, 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.
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 5, 1999, Butler maintained office space at the following locations
for predominantly sales, recruiting and administrative functions:
UNITED STATES
Albuquerque, NM Hicksville, NY Raleigh, NC
Aurora, IL Huntington Beach, CA Redmond, WA
Austin, TX Indianapolis, IN Riverside, CA
Baltimore, MD Irving, TX Rochester, NY
Burlington, MA Iselin, NJ Rolling Meadows, IL
Center Line, MI King of Prussia, PA Saginaw, MI
Chillicothe, IL Lake St. Louis, MO San Jose, CA
Cincinnati, OH Maryland Heights, MO Schaumburg, IL
Encino, CA McLean, VA Shelton, CT
Euclid, OH New York, NY St. Louis, MO
Fairport, NY Norcross, GA Tempe, AZ
Fort Wayne, IN Ontario, CA Twinsburg, OH
Fremont, CA Park Ridge, IL
Gaylord, MI Pleasanton, CA
INTERNATIONAL
Portsmouth, 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.
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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 regarding 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. In 1997, the
Company entered into an agreement with CIGNA which, in the absence of a
settlement, would 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. In August 1998, the Company exercised its
option to settle the remaining disputed amounts with CIGNA for $1.5 million plus
interest of $255,000. This settlement had no impact on current year operating
results.
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 40 of the Company's 1998 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 39 of the Company's 1998 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 14-19 of the Company's 1998 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 1998 Annual Report:
Consolidated Balance Sheets at December 31, 1998 and
December 31, 1997 PAGE 20
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Consolidated Statements of Operations for the years
ended December 31, 1998, December 31, 1997, and
December 31, 1996 PAGE 21
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, December 31, 1997, and
December 31, 1996 PAGE 22
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1998, December 31, 1997,
and December 31, 1996 PAGE 23
Notes to Consolidated Financial Statements PAGES 24-37
Independent Auditors' Report PAGE 38
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
--------------------
Not Applicable.
PART III
A definitive proxy statement pursuant to Regulation 14A will be filed with
the Commission not later than April 30, 1999, 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, 1998.
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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 24, 1999 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 24, 1999
- ------------------ Directors and CEO
Edward M. Kopko (Principal Executive Officer)
/s/Michael C. Hellriegel Senior Vice President March 24, 1999
- ------------------------ and Chief Financial Officer
Michael C. Hellriegel
/s/John F. Hegarty Director March 24, 1999
- ------------------
John F. Hegarty
/s/Frederick H. Kopko, Jr. Director March 24, 1999
- --------------------------
Frederick H. Kopko, Jr.
/s/Hugh G. McBreen Director March 24, 1999
- ------------------
Hugh G. McBreen
/s/Nikhil S. Nagaswami Director March 24, 1999
- ----------------------
Nikhil S. Nagaswami
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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, 1998 and December 31, 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated February 26, 1999; such financial statements and report are included in
your 1998 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
February 26, 1999
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Schedule I
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BUTLER INTERNATIONAL, INC. - PARENT
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(in thousands)
December 31,
------------------
1998 1997
-------- --------
ASSETS
- ------
Total current assets $ 5,820 $ 3,937
Investment in and receivable from subsidiaries 56,710 43,832
Other assets 116 112
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Total assets $62,646 $ 47,881
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 4,287 $ 632
Current portion of long-term debt 127 127
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Total current liabilities 4,414 759
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Long-term liabilities 3,033 2,033
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Stockholders' equity:
Preferred stock 3 3
Common stock 7 6
Foreign exchange translation (133) (64)
Additional paid-in capital 95,244 94,710
Accumulated deficit (39,922) (49,566)
-------- --------
Total stockholders' equity 55,199 45,089
-------- --------
Total liabilities and
stockholders' equity $ 62,646 $ 47,881
======== ========
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
Schedule I (continued)
- -----------------------
BUTLER INTERNATIONAL, INC. - PARENT
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Year ended December 31,
--------------------------
1998 1997 1996
------- ------- -------
Revenues
Interest income (includes intercompany
interest of $160, $118 and $1,181) $ 172 $ 167 $1,200
------- ------- ------
Expenses
Administrative and operating expenses 456 721 630
Interest expense 13 11 12
------- ------- ------
469 732 642
------- ------- ------
Equity in income of subsidiaries 12,946 7,573 4,363
------- ------- ------
Income from operations before income taxes 12,649 7,008 4,921
Income taxes (benefit) 2,805 (1,725) 130
------- ------- ------
Net income $ 9,844 $ 8,733 $4,791
======= ======= ======
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
Schedule I (continued)
- ----------------------
BUTLER INTERNATIONAL, INC. - PARENT
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
----------------------------
1998 1997 1996
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,844 $ 8,733 $ 4,791
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Depreciation and amortization 1 2 9
Gains of subsidiaries (12,946) (7,573) (4,363)
(Increase) decrease in assets, increase
(decrease) in liabilities:
Other current assets (1,883) (3,859) 41
Accounts payable and accrued liabilities 3,654 (7) 107
Long-term liabilities 1,000 1,900 -
-------- ------- -------
Net cash (used in) provided by
operating activities (330) (804) 585
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in note receivable from Butler
Service Group, Inc. - - (1,181)
Capital expenditures - net - (4) -
Other (5) (42) -
-------- ------- -------
Net cash used in investing activities (5) (46) (1,181)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of common
stock options and warrants 335 831 547
Net payments of note payable - 19 47
-------- ------- -------
Net cash provided by financing activities 335 850 594
-------- ------- -------
Net decrease in cash - - (2)
Cash at beginning of year - - 2
-------- ------- -------
Cash at end of year $ - $ - $ -
======== ======= =======
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
Schedule I (continued)
- ----------------------
BUTLER INTERNATIONAL, INC. PARENT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT AT DECEMBER 31, 1998
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 1998 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 1998 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
- --------------------------------------------------------------------------
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
1998
--------------
Allowance for
uncollectible
accounts
receivable $1,465,000 $2,058,000 - $ 214,000 $3,309,000
Reserve for
discontinued
operations $ 47,000 - - $ 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 Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 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.
*Denotes compensatory plan, compensation arrangement, or management
contract.
E-1
<PAGE>
Exhibit No. Description
- ----------- -----------
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.
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.
*Denotes compensatory plan, compensation arrangement, or management
contract.
E-2
<PAGE>
Exhibit No. Description
- ----------- -----------
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.
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.
*Denotes compensatory plan, compensation arrangement, or management
contract.
E-3
<PAGE>
Exhibit No. Description
- ----------- -----------
10.32* 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.
10.33* 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.
10.34* 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.
10.35* 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.
10.36 Amended and Restated Credit Agreement, dated November 7, 1997,
between Butler Service Group, Inc. and General Electric Capital
Corporation, filed as Exhibit 10.38 to the 1997 10-K, and hereby
incorporated by reference.
10.37(a) First Amendment Agreement, dated as of June 26, 1998 among Butler
Service Group, Inc., Butler International, Inc. and General
Electric Capital Corporation, filed herewith as Exhibit 10.37(a).
10.37(b) Second Amendment Agreement, dated as of August 31, 1998, among
Butler Service Group, Inc., Butler International, Inc. and
General Electric Capital Corporation, filed herewith as Exhibit
10.37(b).
10.38 Credit Agreement, dated November 12, 1997, between Butler of New
Jersey Realty Corp. and Fleet Bank, National Association, filed
as Exhibit 10.39 to the 1997 10-K, and hereby incorporated by
reference.
10.39 Asset Purchase Agreement, dated August 11, 1997, between Butler
Telecom, Inc. and Jack W. Shoemaker, filed as Exhibit 10.40 to
the 1997 10-K, and hereby incorporated by reference.
10.40* Form of Promissory Note dated January 28, 1998 in the original
amount of $168,278.74 executed by Hugh G. McBreen and made
payable to the order of Butler International, Inc., filed
herewith as Exhibit 10.40.
10.41* Form Pledge Agreement dated January 28, 1998 between Butler
International, Inc. and Hugh G. McBreen, filed herewith as
Exhibit 10.41.
10.42 Asset Purchase Agreement, dated February 28, 1998 by and between
Butler Telecom, Inc., Argos Adriatic Corporation, Shashi Mahendru
and Vinod Wadhawan, filed as Exhibit 10.41 to the 1997 10-K, and
hereby incorporated by reference.
10.43 Asset Purchase Agreement, dated March 17, 1998, by and between
Butler Telecom, Inc., Norwood Computer Services Inc., Vassilis
Chaimanis and Henry Piscitelli, filed as Exhibit 10.42 to the
1997 10-K, and hereby incorporated by reference.
*Denotes compensatory plan, compensation arrangement, or management
contract.
E-4
<PAGE>
Exhibit No. Description
- ----------- -----------
10.44 Stock Purchase Agreement, dated May 29, 1998, by and among Butler
Telecom, Inc., Tom Cannon, Ted Connolly, Marianne A. Adams, and
Jacqueline Anne Hirst, filed as Exhibit 10.43 to Form 10-Q for
the period ended June 30, 1998, and hereby incorporated by
reference.
10.45 Acquisition Agreement, dated May 27, 1998, between Butler
Telecom, Inc. and Automated Concepts, Inc. filed as Exhibit 10.44
to Form 10-Q for the period ended June 30, 1998, and hereby
incorporated by reference.
10.46 Stock Purchase Agreement, dated June 30, 1998, by and among
Butler Telecom, Inc., Prem Advani, Sharon K. Advani, and Prem
Advani 1997 Charitable Remainder Trust filed as Exhibit 10.45 to
Form 10-Q for the period ended June 30, 1998 and hereby
incorporated by reference.
10.47 Asset Purchase Agreement, dated July 26, 1998, by and between
Butler Telecom, Inc., ISL International, Inc. and Meryvn Haft,
filed as Exhibit 10.46 to Form 10-Q for the period ended June 30,
1998, and hereby incorporated by reference.
10.48* Form of Promissory Note dated October 13, 1998 in the original
amount of $181,000 executed by Frederick H. Kopko, Jr. and made
payable to Butler International, Inc., filed herewith as Exhibit
10.48.
10.49* Form Pledge Agreement dated October 13, 1998 between Butler
International, Inc. and Frederick H. Kopko, Jr., filed herewith
as Exhibit 10.49.
13.1 1998 Annual Report to Stockholders, Financial Section (pages 14-
40), 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 10.37 (a)
FIRST AMENDMENT AGREEMENT
-------------------------
AGREEMENT, dated as of June 26, 1998, among BUTLER SERVICE GROUP, INC., a
New Jersey corporation, BUTLER INTERNATIONAL, INC., a Maryland corporation, the
"Subsidiaries" signatory hereto, and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation.
Background
----------
A. Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Amended and Restated Credit Agreement dated as of
November 7, 1997, between Butler Service Group, Inc. and General Electric
Capital Corporation (as amended, modified or supplemented from time to time, the
"Credit Agreement").
----------------
B. The Borrower has requested that the Lender increase, from $15,000,000
to $25,000,000, the Acquisition Loan Commitment.
C. The Lender has agreed to the Borrower's request subject to the terms
and conditions of this Agreement.
Agreement
---------
In consideration of the Background, which is incorporated by reference, the
parties, intending to be legally bound, agree as follows:
1. Modifications. All the terms and provisions of the Credit
-------------
Agreement and the other Loan Documents shall remain in full force and effect
except as follows:
(a) The figure "$15,000,000" contained in the "Background" section of
the Credit Agreement is deleted and the figure "$25,000,000" is substituted
therefor.
(b) The third sentence of Section 2.1(b)(iv) of the Credit Agreement
is deleted and the following is substituted therefor:
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-eight (28), 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;
<PAGE>
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.
(c) Section 3.9(e) of the Credit Agreement is deleted and Section
3.9(f) of the Credit Agreement is renumbered accordingly.
(d) Section 6.2(d)(vii) of the Credit Agreement is deleted and
Sections 6.2(d)(ix), (x), (xi) and (xii) and renumbered accordingly.
(e) The figure "$180,000" contained in Section 6.2(x) of the Credit
Agreement is deleted and the figure "$250,000" is substituted therefor.
(f) The provision contained in Section 8.7 of the Credit Agreement
with respect to copies of notices to be sent to Cummings & Lockwood is deleted
and the following is substituted therefor.
Robinson & Cole LLP
Financial Centre
695 East Main Street
Stamford, CT 06904
Attention: Gregory E. Harmer, Esq.
Telephone: 203.462.7524
Facsimile: 203.462.7599
(g) The definition of "Acquisition Loan Commitment" contained in Annex
A to the Credit Agreement is deleted and the following is substituted therefor:
"Acquisition Loan Commitment" means the commitment of the
---------------------------
Lender to make Acquisition Loan Advances in an aggregate
principal amount up to $25,000,000, as such amount may be
adjusted, if at all, from time to time in accordance with the
Agreement.
(h) The amount "$15,000,000" contained in the definition of
Acquisition Loan Note in Annex A to the Credit Agreement is deleted and the
amount "$25,000,000" is substituted therefor.
(i) The definition of "Drawdown Fee" contained in Annex A to the
Credit Agreement is deleted.
2
<PAGE>
(j) Subparagraph (ix) of the definition of "Eligible Accounts"
contained in Annex A to the Credit Agreement is deleted and the following is
substituted therefor:
(ix) it is the obligation of an Account Debtor located in a
foreign county;
2. Modification Fee. In consideration of the Lender's execution,
----------------
delivery and performance of this Agreement, including, without limitation, the
increase of the Acquisition Loan Commitment, the Borrower is simultaneously
paying to the Lender the amount of $100,000 in immediately available funds (the
"Modification Fee").
----------------
3. Conditions Precedent. The Lender's obligations under this
--------------------
Agreement are contingent upon the Lender's receipt of the following, all in
form, scope and content acceptable to the Lender in its sole discretion:
(a) Amendment Agreement. This Agreement duly executed by the
-------------------
parties hereto;
(b) Allonge. The First Allonge to Acquisition Loan Note, duly
-------
drawn to the order of the Lender;
(c) Modification Fee. The payment to the Lender of the
----------------
Modification fee; and
(d) Other. Such other agreements and instruments as the Lender
-----
shall require.
4. Reaffirmation By Borrower. The Borrower acknowledges and agrees,
-------------------------
and reaffirms, that it is legally, validly and enforceably indebted to the
Lender under the Notes without defense, counterclaim or offset, and that it is
legally, validly and enforceably liable to the Lender for all costs and expenses
of collection and attorneys' fees related to or in any way arising out of this
Agreement, the Credit Agreement, the Notes and the other Loan Documents. The
Borrower hereby restates and agrees to be bound by all covenants contained in
the Credit Agreement and the other Loan Documents and hereby reaffirms that all
of the representations and warranties contained in the Credit Agreement remain
true and correct in all material respects. The Borrower represents that except
as set forth in the Credit Agreement, there are not pending or to the Borrower's
knowledge threatened, legal proceedings to which the Borrower or any of the
Guarantors is a party, or which materially or adversely affect the transactions
contemplated by this Agreement or the ability of the Borrower or any of the
Guarantors to conduct its business. The Borrower acknowledges and represents
that the resolutions of the Borrower dated on or about November 7, 1997, remain
in full force and effect and have not been amended, modified, rescinded or
otherwise abrogated.
3
<PAGE>
5. Reaffirmation by Guarantors. Each of the Guarantors acknowledges
---------------------------
that each is legally and validly indebted to the Lender under the Guaranty of
each without defense, counterclaim or offset. Each of the Guarantors affirms
that the Guaranty of each remains in full force and effect and acknowledges that
the Guaranty of each encompasses, without limitation, the Obligations, as
modified herein.
6. Reaffirmation of Collateral. The Borrower reaffirms the liens,
---------------------------
security interests and pledges granted pursuant to the Loan Documents to secure
the obligations of each thereunder.
7. Other Representations By Borrower and Guarantors. The Borrower
------------------------------------------------
and each Guarantor represents and confirms that (a) no Default or Event of
Default has occurred and is continuing and the Lender has not given its consent
to or waived any Default or Event of Default and (b) the Credit Agreement and
the other Loan Documents are in full force and effect and enforceable against
the Borrower and each Guarantor in accordance with the terms thereof. The
Borrower and each Guarantor represents and confirms that as of the date hereof,
each has no claim or defense (and the Borrower and each Guarantor hereby waives
every claim and defense) against the Lender arising out of or relating to the
Credit Agreement and the other Loan Documents or the making, administration or
enforcement of the Loans and the remedies provided for under the Loan Documents.
8. No Waiver By Lender. The Borrower and each Guarantor
-------------------
acknowledges that (a) by the execution by each of this Agreement, the Lender is
not waiving any Default, whether now existing or hereafter occurring, disclosed
or undisclosed, by the Borrower under the Loan Documents and (b) the Lender
reserves all rights and remedies available to it under the Loan Documents and
otherwise.
4
<PAGE>
The parties have executed this Agreement as of the date first above
written.
Borrower:
--------
BUTLER SERVICE GROUP, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Michael C. Hellriegel
Title: SeniorVice President - Finance
Parent:
------
BUTLER INTERNATIONAL, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Michael C. Hellriegel
Title: Senior Vice President - Finance
Subsidiaries:
------------
BUTLER TECHNOLOGY SOLUTIONS, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
BUTLER TELECOM, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
BUTLER SERVICES, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
5
<PAGE>
BUTLER UTILITY SERVICE, INC.
By /s/ Michael C. Hellriegel
-------------------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
Lender:
------
GENERAL ELECTRIC CAPITAL CORPORATION
By /s/ Peggy Erlenkotter
-------------------------------------------
Name: Peggy Erlenkotter
Title: Duly Authorized Signatory
6
<PAGE>
EXHIBIT 10.37(b)
SECOND AMENDMENT AGREEMENT
--------------------------
AGREEMENT, dated as of August 31, 1998, among BUTLER SERVICE GROUP, INC., a
New Jersey corporation, BUTLER INTERNATIONAL, INC., a Maryland corporation, the
"Subsidiaries" signatory hereto, and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation.
Background
----------
A. Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Amended and Restated Credit Agreement dated as of
November 7, 1997, between Butler Service Group, Inc. and General Electric
Capital Corporation (as amended, modified or supplemented from time to time, the
"Credit Agreement").
----------------
B. The Borrower has requested that the Lender, among other things, (i)
increase, from $25,000,000 to $35,000,000, the Acquisition Loan Commitment and
(ii) modify the interest rates payable under the Loans.
C. The Lender has agreed to the Borrower's requests subject to the terms
and conditions of this Agreement.
Agreement
---------
In consideration of the Background, which is incorporated by reference, the
parties, intending to be legally bound, agree as follows:
1. Modifications. All the terms and provisions of the Credit
-------------
Agreement and the other Loan Documents shall remain in full force and effect
except as follows:
(a) The figure "$25,000,000" contained in the "Background" section of
the Credit Agreement is deleted and the figure "$35,000,000" is substituted
therefor.
(b) Section 2.1(b)(ii) of the Credit Agreement is deleted and the
------------------
following is substituted therefor:
(ii) Ability to Borrow and Reborrow. Until the Acquisition
------------------------------
Loan Commitment Termination Date, as 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. With respect to each
Acquisition Loan, the Borrower may from time to time request that
the Lender "restore" to the Acquisition Loan Commitment all
amounts which the
<PAGE>
Borrower has repaid under the Acquisition Loans pursuant to
subsection (iv) below and, upon such restoration, the Borrower
---------------
shall have the right, subject to the first sentence of this
subsection (ii), to request that the Lender make Acquisition
---------------
Loans from such restored amounts without the imposition of any
additional fee to the Borrower, provided that in no event shall
aggregate outstanding Acquisition Loans exceed the Acquisition
Loan Commitment.
(c) The third sentence of Section 2.1(b)(iv) of the Credit Agreement
------------------
is deleted and the following is substituted therefor:
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-eight (28), 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 Maturity Date and (y) the
occurrence of an Event of Default.
(d) Section 3.1(b) of the Credit Agreement is deleted and the
--------------
following is substituted therefor:
(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, two hundred fifty basis points (2.50%) above
the Index Rate.
(e) Section 3.2(c) of the Credit Agreement is deleted and the
--------------
following is substituted therefor:
(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. Notwithstanding the foregoing, the Borrower
shall not be obligated to pay the Early Termination Fee if (x)
the Borrower has presented
2
<PAGE>
to the Lender in writing a detailed request for a modification of
certain of the terms and conditions of the Loan Documents (the
"Request"), (y) the Lender, within 30 days after receipt of the
-------
Request, notifies the Borrower that it is unwilling to modify the
Loan Documents in accordance with the Request, and (z) the
Borrower, within 60 days after the Lender's notification, effects
a refinance of the Obligations on substantially the terms and
conditions contained in the Request.
(f) The amount "one and one-half percent (1.5%)" contained in Section
-------
3.9 (c) of the Credit Agreement is deleted and the amount "one and one-quarter
- -------
percent (1.25%)" is substituted therefor.
(g) The definition of "Acquisition Loan Commitment" contained in Annex
-----
A to the Credit Agreement is deleted and the following is substituted therefor:
- -
"Acquisition Loan Commitment" means the commitment of the
---------------------------
Lender to make Acquisition Loan Advances in an aggregate
principal amount up to $35,000,000, as such amount may be
adjusted, if at all, from time to time in accordance with the
Agreement.
(h) The date "July 1, 2001" contained in the definition of
"Acquisition Loan Commitment Termination Date" contained in Annex A to the
-------
Credit Agreement is deleted and the date "November 1, 2001" is substituted
therefor.
(i) The following is added after the definition of "Acquisition Loan
Commitment Termination Date" contained in Annex A to the Credit Agreement:
-------
"Acquisition Loan Maturity Date" means July 1, 2002.
------------------------------
(j) The amount "$15,000,000" contained in the definition of
"Acquisition Loan Note" in Annex A to the Credit Agreement is deleted and the
-------
amount "$35,000,000" is substituted therefor.
(k) The definition of "Applicable Margin" contained in Annex A to the
-------
Credit Agreement is deleted and the following is substituted therefor:
"Applicable Margin" means the rate per annum set forth under the
-----------------
relevant column heading below corresponding to the Borrower's attainment of the
following:
3
<PAGE>
<TABLE>
<CAPTION>
Fixed Charge Interest Charge Coverage Applicable
Tangible Net Worth Coverage Ratio Ratio Margin
- ------------------- -------------- ------------------------ ----------
<S> <C> <C> <C>
(i) $24,000,000 or less Greater than or equal Greater than or equal to 1.50%
to 1.3 to 1.0 1.5 to 1.0
(ii) Greater than Greater than or equal Greater than or equal to 1.35%
$24,000,000 but to 1.3 to 1.0 1.5 to 1.0
less than or
equal to
$26,000,000
(iii) Greater than Greater than or equal Greater than or equal to 1.25%
$26,000,000 but to 1.3 to 1.0 1.5 to 1.0
less than or
equal to
$32,000,000
(iv) Greater than Greater than or equal Greater than or equal to 1.15%
$32,000,000 but to 1.3 to 1.0 1.5 to 1.0
less than or
equal to
$37,000,000
(v) Greater than Greater than or equal Greater than or equal to 1.00%
$37,000,000 to 1.3 to 1.0 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 2.00%. For purposes of the
foregoing, any change in the Applicable Margin based on the Borrower's
attainment of all of the financial tests listed across from (i), (ii), (iii),
(iv) or (v) 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 financial 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 $28,000,000, 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 1.25%).
(l) The date "July 1, 2001" contained in the definition of "Working
Capital Loan Commitment Termination Date" in Annex A to the Credit Agreement is
-------
deleted and the date "July 1, 2003" is substituted therefor.
2. Modification Fee. In consideration of the Lender's execution,
----------------
delivery and performance of this Agreement, including, without limitation, the
increase of the Acquisition Loan Commitment, the Borrower is simultaneously
paying to the Lender the amount of $100,000 in immediately available funds (the
"Modification Fee").
----------------
4
<PAGE>
3. Conditions Precedent. The Lender's obligations under this
--------------------
Agreement are contingent upon the Lender's receipt of the following, all in
form, scope and content acceptable to the Lender in its sole discretion:
(a) Amendment Agreement. This Agreement duly executed by the
-------------------
parties hereto;
(b) Allonge. The Second Allonge to Acquisition Loan Note, duly
-------
drawn to the order of the Lender;
(c) Modification Fee. The payment to the Lender of the
----------------
Modification Fee;
(d) Opinion of Counsel. The opinion of counsel to the Borrower
------------------
and its Affiliates;
(e) Board Resolutions. A certificate of the Secretary or an Assistant
-----------------
Secretary of the Borrower certifying the resolutions adopted by the Borrower's
Board of Directors approving the increase in borrowing as more fully set forth
in this Agreement; and
(f) Other. Such other agreements and instruments as the Lender
-----
shall require.
4. Reaffirmation By Borrower. The Borrower acknowledges and agrees,
-------------------------
and reaffirms, that it is legally, validly and enforceably indebted to the
Lender under the Notes without defense, counterclaim or offset, and that it is
legally, validly and enforceably liable to the Lender for all costs and expenses
of collection and attorneys' fees related to or in any way arising out of this
Agreement, the Credit Agreement, the Notes and the other Loan Documents. The
Borrower hereby restates and agrees to be bound by all covenants contained in
the Credit Agreement and the other Loan Documents and hereby reaffirms that all
of the representations and warranties contained in the Credit Agreement remain
true and correct in all material respects. The Borrower represents that except
as set forth in the Credit Agreement, there are not pending or to the Borrower's
knowledge threatened, legal proceedings to which the Borrower or any of the
Guarantors is a party, or which materially or adversely affect the transactions
contemplated by this Agreement or the ability of the Borrower or any of the
Guarantors to conduct its business. The Borrower acknowledges and represents
that the resolutions of the Borrower dated on or about November 7, 1997, remain
in full force and effect and have not been amended, modified, rescinded or
otherwise abrogated.
5. Reaffirmation by Guarantors. Each of the Guarantors acknowledges
---------------------------
that each is legally and validly indebted to the Lender under the Guaranty of
each without defense, counterclaim or offset. Each of the Guarantors affirms
that the Guaranty of each
5
<PAGE>
remains in full force and effect and acknowledges that the Guaranty of each
encompasses, without limitation, the Obligations, as modified herein.
6. Reaffirmation of Collateral. The Borrower and each of the
---------------------------
Guarantors reaffirms the liens, security interests and pledges granted pursuant
to the Loan Documents to secure the obligations of each thereunder.
7. Other Representations By Borrower and Guarantors. The Borrower
------------------------------------------------
and each Guarantor represents and confirms that (a) no Default or Event of
Default has occurred and is continuing and the Lender has not given its consent
to or waived any Default or Event of Default and (b) the Credit Agreement and
the other Loan Documents are in full force and effect and enforceable against
the Borrower and each Guarantor in accordance with the terms thereof. The
Borrower and each Guarantor represents and confirms that as of the date hereof,
each has no claim or defense (and the Borrower and each Guarantor hereby waives
every claim and defense) against the Lender arising out of or relating to the
Credit Agreement and the other Loan Documents or the making, administration or
enforcement of the Loans and the remedies provided for under the Loan Documents.
8. No Waiver By Lender. The Borrower and each Guarantor
-------------------
acknowledges that (a) by the execution by each of this Agreement, the Lender is
not waiving any Default, whether now existing or hereafter occurring, disclosed
or undisclosed, by the Borrower under the Loan Documents and (b) the Lender
reserves all rights and remedies available to it under the Loan Documents and
otherwise.
6
<PAGE>
The parties have executed this Agreement as of the date first above
written.
Borrower:
--------
BUTLER SERVICE GROUP, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Michael C. Hellriegel
Title: SeniorVice President - Finance
Parent:
------
BUTLER INTERNATIONAL, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Michael C. Hellriegel
Title: Senior Vice President - Finance
Subsidiaries:
------------
BUTLER TECHNOLOGY SOLUTIONS, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
BUTLER TELECOM, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
BUTLER SERVICES, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
7
<PAGE>
BUTLER UTILITY SERVICE, INC.
By /s/ Michael C. Hellriegel
---------------------------------
Name: Michael C. Hellriegel
Title: Senior Vice President and Chief
Financial Officer
Lender:
------
GENERAL ELECTRIC CAPITAL CORPORATION
By /s/ Martin Greenberg
---------------------------------
Name: Martin Greenberg
Title: Duly Authorized Signatory
8
<PAGE>
EXHIBIT 10.40
SECURED NON-RECOURSE PROMISSORY NOTE
January 28, 1998 $168,278.74
FOR VALUE RECEIVED, Hugh G. McBreen, an individual residing at 15 Kensington
Dr., N. Barrington, IL 60010 ("Payor"), hereby promises to pay to Butler
International, Inc., a Maryland corporation ("Payee" or the "Company"), or its
assigns, the principal amount of one hundred sixty-eight thousand two hundred
seventy-eight dollars and 74 cents ($168,278.74). Certain capitalized terms
used in this Secured Non-Recourse Promissory Note (the "Note") are defined in
Section 3 below.
This Note is being made by Payor in order to finance the Payor's purchase of
(i) 20,000 shares of common stock, par value $.001 per share, of the Company
(the "Common Stock") from the Company pursuant to a warrant agreement made
between the Payor and the Company on May 26, 1993; (ii) 10,000 shares of Common
Stock from the Company pursuant to the 1992 Stock Option Plan for Non-employee
Directors; and (iii) 8,333 shares of Common Stock from the Company pursuant to
the 1990 Directors Stock Option Plan.
This Note is secured by the Pledged Collateral under the terms of the Stock
Pledge Agreement and is entitled to the benefits thereof.
1. Payment of Note.
(a) Maturity Date. The entire unpaid principal balance of this Note (together
with interest accrued thereon) shall become due and payable on the seventh
anniversary of the date of this Note;
(b) Interest. No interest shall accrue on this Note; and
(c) Non-Recourse Obligations. Notwithstanding anything to the contrary stated
herein, Payee agrees that for payment of this Note it will look solely to
the Pledged Collateral or such other collateral, if any, it may now or
hereafter be given to secure the payment of this Note, and no other assets
of Payor shall be subject to levy, execution or other enforcement procedure
for the satisfaction of the remedies of Payee, or for any payment required
to be made under this Note.
2. Events of Default.
(a) Definition. For purposes of this Note, an Event of Default shall be deemed
to have occurred if:
(i) Payor fails to pay when due any amount (whether interest, principal or
other amount) then due or payable on this Note for a period of thirty (30)
days after the holder of this Note notifies Payor of such failure;
<PAGE>
(ii) Payor fails to perform or observe any other provision contained in this
Note or the Stock Pledge Agreement and such failure continues unremedied
for a period of thirty (30) days after the holder of this Note notifies
Payor of such breach; or
(iii) Payor makes an assignment for the benefit of creditors or admits in
writing his inability to pay his debts generally as they become due; or an
order, judgment or decree is entered adjudicating Payor bankrupt or
insolvent; or any order for relief with respect to Payor is entered under
the Bankruptcy Code; or Payor petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator, or commences
any proceeding relating to himself under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against Payor and either (a) Payor in
writing indicates his approval thereof, consents thereto or acquiesces
therein or (b) such petition, application or proceeding is not dismissed
within ninety (90) days.
(b) Consequences of Events of Default.
(i) If any Event of Default (other than the type described in paragraph
2(a)(iii) hereof) has occurred, the holder of this Note may demand (by
written notice delivered to Payor) immediate payment of all or any portion
of the outstanding principal amount of this Note, which amount shall
become due and payable upon such demand. If an Event of Default of the
type described in paragraph 3(a) (iii) has occurred, then all of the
outstanding principal amount of this Note shall automatically be
immediately due and payable without any action on the part of the holder
of this Note.
(ii) Each holder of this Note shall also have any other rights which such
holder may have been afforded under this Note or the Stock Pledge
Agreement at any time and any other rights which such holder may have
pursuant to applicable law.
3. Certain Defined Terms. As used in this Note, the following terms shall have
the following meanings:
"Bankruptcy Code" means the Bankruptcy Code of 1978, as amended.
"Pledged Collateral" means the Common Stock pledged by Payor under the Stock
Pledge Agreement as security for Payor's performance of this obligations under
this Note.
"Stock Pledge Agreement" means the Stock Pledge Agreement dated the date hereof
between Payor and the Company.
4. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of this Note may not be amended and Payor may not take any action
prohibited herein, or omit to perform any act required to be performed by him
herein, unless Payor has obtained the
2
<PAGE>
prior written consent of the holder of this Note.
5. Cancellation. After all obligations for the payment of money arising under
this Note have been paid in full, this Note will be surrendered to Payor for
cancellation.
6. Notices; Place of Payment. Any notice hereunder shall be in writing and
shall be delivered by recognized courier, facsimile or certified mail, return
receipt requested, and shall be conclusively deemed to have been received by a
party hereto and to be effective on the day on which delivered or facsimiled to
such party at its address set forth below (or at such other address as such
party shall specify in writing):
If to Payor: Hugh G. McBreen
15 Kensington Dr.
N. Barrington, IL 60010
If to Payee: Butler International, Inc.
110 Summit Avenue
Montvale, New Jersey 07645
Attn: Chief Financial Officer
All payments to be made under this Note are to be delivered to the holder at
such address or to the attention of such person as the holder may designate by
prior written notice to Payor. At the request of the holder of this Note, all
payments shall be made by wire transfer of immediately available funds to an
account which the holder may designate from time to time.
7. Waiver of Presentment, Demand, Dishonor.
(a) Payor hereby waives presentment for payment, protest, demand, notice of
protest, notice of nonpayment and diligence with respect to this Note, and
waives and renounces all rights to the benefits of any statute of
limitations or any moratorium, appraisement, exemption, or homestead now
provided or that hereafter may be provided or allowed under the Bankruptcy
Code, both as to himself and as to all of his property, whether real or
personal, against the enforcement and collection of the obligations
evidenced by this Note and any and all extensions, renewals and
modifications hereof.
(b) No failure on the part of any holder of this Note to exercise any right or
remedy hereunder with respect to Payor, whether before or after the
happening of an Event of Default, shall constitute waiver of any such Event
of Default or of any other Event of Default by such holder or on behalf of
any other holder. No failure to accelerate the debt of Payor evidenced
hereby by reason of an Event of Default or indulgence granted from time to
time shall be construed to be a waiver of the right to insist upon prompt
payment thereafter, or shall be deemed to be a novation of this Note or a
reinstatement of such debt evidenced hereby or a waiver of such right of
3
<PAGE>
acceleration or any other right, or be construed so as to preclude the
exercise of any right any holder of this Note may have, whether by the laws
of the state governing this Note, by agreement or otherwise, and Payor
hereby expressly waives the benefit of any statute or rule of law or equity
that would produce a result contrary to or in conflict with the foregoing.
8. Governing Law. The validity, construction and interpretation of this Note
shall be governed by and construed in accordance with the internal laws of the
State of New Jersey.
9. Transfer; Assignment. This Note may not be negotiated, assigned or
transferred by Payor at any time, except with Payee's prior written consent.
This Note may not be negotiated, assigned or transferred by Payee except in
connection with the sale of all or substantially all of Payee's assets.
10. Entire Agreement. This Secured Non-Recourse Promissory Note and the Stock
Pledge Agreement contain the entire agreement of the parties and supersedes all
other agreements, understandings and representations, oral or otherwise, between
the parties with respect to the matters contained herein. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, administrators, fiduciaries, next of kin
and executors. Section headings used herein are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Agreement may be executed in any number of counterparts with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, Payor has executed and delivered this Secured Non-Recourse
Promissory Note on the date first written above.
/s/ Hugh G. McBreen
------------------------------------
Hugh G. McBreen
4
<PAGE>
EXHIBIT 10.41
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT, dated as of January 28, 1998, made by and between Hugh
G. McBreen, an individual residing at 15 Kensington Dr., N. Barrington, Illinois
60010 (the "Pledgor"), to Butler International, Inc., a Maryland corporation,
(the "Pledgee" or the "Company").
W I T N E S S E T H:
WHEREAS, the Pledgor is the record and beneficial owner of (i) 20,000 shares
of the issued and outstanding shares of common stock, $.001 par value, of the
Company (the "Common Stock"), acquired in connection with the Pledgor's exercise
of certain stock warrants granted pursuant to an agreement between the Company
and the Pledgor dated May 26, 1993, (ii) 10,000 shares of Common Stock acquired
in connection with the Pledgor's exercise of a certain stock option granted
pursuant to the 1992 Stock Option Plan for Non-Employee Directors; and (iii)
8,333 shares of Common Stock acquired in connection with the Pledgor's exercise
of a certain stock option granted pursuant to the 1990 Directors Stock Option
Plan, and Pledgor is also the record and beneficial owner of 48,929 additional
shares of Common Stock and 617,200 shares of Series B 7% Cumulative Convertible
Preferred Stock (collectively, the "Pledged Shares");
WHEREAS, the Pledgor has agreed to secure, to the extent hereinafter set
forth, the payment in full and the performance of the obligations of the Pledgor
to the Pledgee under a non-recourse promissory note, dated as of the date
hereof, in the amount of $168,278.74 (such promissory note as it may hereafter
be amended or otherwise modified from time to time, the "Note"); and the
capitalized terms used herein, and not otherwise defined herein, are used with
the meanings ascribed to them in the Note); and
WHEREAS, the Pledgor hereby pledges and grants a lien and security interest to
Pledgee in the Pledged Shares to secure the Pledgor's obligations under the
Note.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loan under the Note, the Pledgor hereby agrees as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to
the Pledgee a security interest in the Pledged Shares and certificates
representing the Pledged Shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, and all proceeds
thereof, additions thereto and changes therein (the "Pledged Collateral").
SECTION 2. Security for Obligations; Non-Recourse Obligations. (a) This
Agreement secures the payment of all liabilities, obligations and indebtedness
of any and every kind and nature
1
<PAGE>
heretofore, now or hereafter owing, arising, due or payable from the Pledgor to
the Pledgee pursuant to the Note, however evidenced, created, incurred, acquired
or owing, whether primary or secondary, direct or indirect, joint or several,
contingent or fixed, or otherwise, including without limitation, obligations of
performance, and whether arising under any other agreements, documents or
instruments entered into in connection with the Note, now or hereafter given by
the Pledgor to the Pledgee and whether arising by book entry, agreement or
operation of law and whether or not evidenced by promissory notes or other
evidences of indebtedness (all such obligations of the Pledgor being the
"Obligations").
(b) It is expressly understood and agreed that it is the intention of the
parties that the Obligations of the Pledgor under the Note are non-recourse
obligations of the Pledgor and that the Pledgee's right to recover against the
Pledgor hereunder in respect of such Obligations shall be limited solely to the
Pledged Collateral.
SECTION 3. Delivery and Release of Pledged Collateral. (a) All certificates
or instruments representing or evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of the Pledgee pursuant hereto and shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall hold the Pledged
Collateral in the form in which it is delivered to the Pledgee unless and until
the occurrence and continuation of an Event of Default under the Note (unless
such Event of Default is waived by the Pledgee) or as otherwise provided in
Section 3(b) below. Upon the occurrence and continuance of an Event of Default
under the Note, the Pledgee shall have the right, at any time in its discretion
and without notice to the Pledgor, to transfer to or to register in the name of
the Pledgee or any of its nominees any or all of the Pledged Collateral, subject
only to the revocable rights specified in Section 6(a) below. In addition, the
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing Pledged Collateral for certificates or instruments of
smaller or larger denominations.
(b) On March 31, 1998, and on each March 31, June 30 and September 30
thereafter for the term of this Agreement (each such date a "Determination
Date"), the Pledgee shall reasonably determine the aggregate fair market
value of the Pledged Collateral (the "Market Value"). If on such
Determination Date the Market Value exceeds two hundred percent (200%) of
the aggregate principal amount of the Note on such Determination Date (the
"Base Value"), Pledgee shall, unless otherwise requested by Pledgor,
automatically release to the Pledgor such portion of the Pledged Collateral
the aggregate fair market value of which equals the Market Value less 200%
of the Base Value, free and clear of any and all encumbrances hereunder,
and such portion shall no longer constitute Pledged Collateral. For
purposes of this paragraph 3(b), "fair market value" of the Common Stock
shall mean the closing price of the Common Stock as quoted on NASDAQ at the
end of the last business day preceding the Determination Date as reported
in the New York edition of The Wall Street Journal, and the "fair market
value" of the Series B 7% Cumulative Convertible Preferred Stock shall be
determined with reference to the fair market value of the Common Stock and
the conversion ratio then in effect with respect to the Series B 7%
2
<PAGE>
Cumulative Convertible Preferred Stock.
SECTION 4. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledgor is the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, adverse claim, security interest, option or other
charge or encumbrance, except for the security interest created by this
Agreement.
(b) The pledge of the Pledged Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the Pledged Collateral,
securing the payment of the Obligations.
(c) Neither the execution or delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, nor the compliance with or performance
of the terms and conditions of this Agreement by the Pledgor is prevented by,
limited by, conflicts with or will result in the breach or violation of or a
default under the terms, conditions or provisions of (i) any mortgage, security
agreement, indenture, evidence of indebtedness, loan or financing agreement,
trust agreement, stockholder agreement, or other agreement or instrument to
which the Pledgor is a party or by which he is bound or (ii) any provision of
law, any order of any court or administrative agency or any rule or regulation
applicable to the Pledgor, subject to applicable state and federal securities
laws.
(d) This Agreement constitutes the legal, valid and binding obligation of the
Pledgor, enforceable in accordance with its terms.
(e) There are no actions, suits or proceedings (whether or not purportedly on
behalf of the Pledgor) pending or, to the best knowledge of the Pledgor,
threatened affecting the Pledgor that involve the Pledged Collateral.
(f) All consents or approvals, if any, required as a condition precedent to
or in connection with the due and valid execution, delivery and performance by
the Pledgor of this Agreement have been obtained, subject to applicable state
and federal securities laws.
SECTION 5. Further Assurances. The Pledgor agrees that at any time and from
time to time, at the expense of the Pledgor, the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Pledgee may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Pledgee to exercise and enforce its rights and
remedies hereunder, subject to applicable state and federal securities laws,
with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Dividends, Etc. (a) So long as no Event of
Default under
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the Note shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement or the Note.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends and interest paid, in respect of the Pledged Collateral; provided,
however, that any and all:
(A) dividends and interest paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise distributed
in respect of, or in exchange for, any Pledged Collateral (whether resulting
from a subdivision, combination or reclassification of the outstanding capital
stock of the Company, or any merger, consolidation, acquisition or other
exchange of assets or securities to which the Company may be a party, or any
conversion, call or redemption, or otherwise);
(B) dividends and other distributions paid or payable in cash in respect of
any Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus; and
(C) cash paid, payable or otherwise distributed in respect of principal of,
or in redemption of, or in exchange for, any Pledged Collateral,
shall be, at the option and request of the Pledgee, forthwith delivered to the
Pledgee to hold as Pledged Collateral and shall, if received by the Pledgor, be
received in trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor, and be forthwith delivered to the Pledgee as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
(iii) The Pledgee shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise the
voting and other rights which he is entitled to exercise pursuant to paragraph
(i) above and to receive the dividends or interest payments which he is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default under
the Note, and at the election of Pledgee:
(i) All rights of the Pledgor to exercise the voting and other consensual
rights which he would otherwise be entitled to exercise pursuant to Section
6(a)(i) and to receive the dividends and interest payments which he would
otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall
cease for the period subsequent to the Event of Default, and all such rights
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<PAGE>
shall thereupon become vested in the Pledgee who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are received by the Pledgor
contrary to the provisions of paragraph (i) of this Section 6(b) shall be
received in trust for the benefit of the Pledgee, shall be segregated from other
funds of the Pledgor and shall be forthwith paid over to the Pledgee and Pledged
Collateral in the same form as so received (with any necessary endorsement).
(c) In the event that during the term of this Agreement subscription warrants
or other rights or options shall be issued in connection with the Pledged
Collateral, all such stock warrants, rights and options shall forthwith be
assigned by the Pledgor to the Pledgee and said stock warrants, rights and
options shall be, and, to the extent exercised by Pledgor, all new stock issued
pursuant thereto shall be pledged by Pledgor to Pledgee to be held as, and shall
be deemed to be part of, the "Pledged Collateral" under the terms of this
Agreement in the same manner as the shares of stock originally pledged
hereunder.
SECTION 7. Transfers and Other Liens; Additional Shares. The Pledgor agrees
that he will not (i) sell or otherwise dispose of, or grant any option with
respect to, any of the Pledged Collateral, or (ii) create or permit to exist any
lien, security interest, or other charge or encumbrance upon or with respect to
any of the Pledged Collateral, except for the security interest under this
Agreement.
SECTION 8. Litigation Respecting Pledged Shares. In the event any action,
suit or other proceeding at law, in equity, in arbitration or before any other
authority involving or affecting the Pledged Collateral becomes known to or is
contemplated by the Pledgor, the Pledgor shall give the Pledgee immediate notice
thereof and if the Pledgor is contemplating such action, suit or other
proceeding, the Pledgor shall receive the written consent of the Pledgee prior
to commencing any such action, suit or other proceeding.
SECTION 9. Pledgee Appointed Attorney-in-Fact. (a) If an Event of Default
shall occur and be continuing under the Note (unless such Event of Default is
waived by the Pledgee), Pledgor hereby appoints the Pledgee (and any officer or
agent of the Pledgee with full power of substitution and revocation) the
Pledgor's true and lawful attorney-in-fact, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor or otherwise, from time to
time in the Pledgee's discretion to take any action and to execute any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, (i) to receive,
endorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same; and (ii)
to transfer the Pledged Collateral on the books of the Company, in whole or in
part, to the name of the Pledgee or such other person or persons as the Pledgee
may designate; take possession of and endorse any one or more checks, drafts,
bills of exchange, money orders or any other documents received on account of
the Pledged
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Collateral; collect, sue for and give acquittances for moneys due on account of
the foregoing; withdraw any claims, suits, or proceedings pertaining to or
arising out of the foregoing; execute and record or file on behalf of the
Pledgor any evidence of a security interest contemplated by this Agreement or
any refiling, continuation or extension thereof; take any other action
contemplated by this Agreement; and sign, execute, acknowledge, swear to,
verify, deliver, file, record and publish any one or more of the foregoing.
(b) The powers of attorney which shall be granted pursuant to Section 9(a)
and all authority thereby conferred shall be granted and conferred solely to
protect the Pledgee's interests in the Pledged Collateral and shall not impose
any duty upon the attorney-in-fact to exercise such powers. Such powers of
attorney shall be irrevocable prior to the performance in full of the
Obligations and shall not be terminated prior thereto or affected by any act of
the Pledgor or other person or by operation of law, including, but not limited
to, the dissolution, death, disability or incompetency of any person, the
termination of any trust, or the occurrence of any other event, and if the
Pledgor or any other person should be dissolved or die or become disabled or
incompetent or any other event should occur before the performance in full of
the Obligations and termination of this Agreement, such attorney-in-fact shall
nevertheless be fully authorized to act under such powers of attorney as if such
dissolution, death, disability or incompetency or other event had not occurred
and regardless of notice thereof.
(c) Each person who shall be a transferee of the beneficial ownership of the
Pledged Collateral, by the acceptance of such a transfer, shall be deemed to
have irrevocably appointed the Pledgee, with full power of substitution and
revocation, such person's true and lawful attorney-in-fact in such person's name
and otherwise to do any and all acts permitted to, and to exercise any and all
powers herein conferred upon, such attorney-in-fact.
SECTION 10. Reasonable Care. The Pledgee shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Pledgee accords its own property, it being understood that the
Pledgee shall not have any responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Pledgee has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
SECTION 11. Remedies Upon Event of Default. (a) Subject to Section 2(b)
hereof, if any Event of Default under the Note shall have occurred and be
continuing (unless such Event of Default is waived by the Pledgee), for the
period subsequent to the Event of Default:
(i) The Pledgee may receive and retain all payments of any kind with respect
to the Pledged Collateral and may notify the obligors or other parties, if any,
interested in any items of Pledged Collateral of the interest of the Pledgee
therein and of any action proposed to be taken with respect thereto, and inform
any of those parties that all payments otherwise payable to the Pledgor
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with respect thereto shall be made to the Pledgee until all amounts due under
the Note have been paid in full;
(ii) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "Code") in effect in the State of New Jersey at
that time, and the Pledgee may also, without notice except as specified below,
sell the Pledged Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of the Pledgee's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Pledgee may deem commercially reasonable. The Pledgor agrees
that, to the extent notice of sale shall be required by law, at least ten days'
notice to the Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Pledgee shall not be obligated to make any sale of Pledged Collateral
regardless of notice of sale having been given. The Pledgee may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned;
(iii) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral may, in the
discretion of the Pledgee, by held by the Pledgee as collateral for, and/or then
or at any time thereafter applied in whole or in part by the Pledgee against,
all or any part of the Obligations in such order as the Pledgee shall elect.
Any surplus of such cash or cash proceeds held by the Pledgee and remaining
after payment in full of all the Obligations shall be paid over to the Pledgor
or to whomsoever may be lawfully entitled to receive such surplus; and
(iv) The Pledgee may otherwise use or deal from time to time with the Pledged
Collateral, in whole or in part, in all respects as if the Pledgee were the
outright owner thereof.
(b) Except as set forth in Section 11(a)(iii), the Pledgee shall have the
sole right to determine the order in which Obligations shall be deemed
discharged by the application of the Pledged Collateral or any other property or
money held hereunder or any amount realized thereon. Any requirement of
reasonable notice imposed by law shall be deemed met if such notice is in
writing and is mailed, telegraphed or hand delivered to the Pledgor at least
three days prior to the sale, disposition or other event giving rise to such
notice requirement.
(c) The Pledgee shall collect the cash proceeds received from any sale or
other disposition or from any other source contemplated by subsection (a) above
and shall apply the full proceeds in accordance with the provisions of this
Agreement.
(d) Notwithstanding the foregoing, none of the provisions of this Section 11
shall confer on
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the Pledgee any rights or privileges that are not permissible under applicable
law. The Pledgee may effect the provisions of this Section 11 only in compliance
with all applicable federal and state securities laws.
(e) In connection with the provisions of this Agreement, the Pledgor from
time to time shall promptly execute and deliver, or cause to be executed and
delivered, to the Pledgee such documents and instruments, shall join in such
notices and shall take, or cause to be taken, such other lawful actions as the
Pledgee shall deem reasonably necessary or desirable to enable it to exercise
any of the rights with respect to the Pledged Collateral granted to it pursuant
to this Agreement.
SECTION 12. Waivers and Amendments, Etc. The rights and remedies given
hereby are in addition to all others however arising, but it is not intended
that any right or remedy be exercised in any jurisdiction in which such exercise
would be prohibited by law. No action, failure to act or knowledge of the
Pledgee shall be deemed to constitute a waiver of any power, right or remedy
hereunder, nor shall any single or partial exercise thereof preclude any further
exercise thereof or the exercise of any other power, right or remedy. Any
waiver or consent respecting any covenant, representation, warranty or other
term or provision of this Agreement shall be effective only in the specified
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Pledgee at any time or times to require performance
of, or to exercise its rights with respect to, any representation, warranty,
covenant or other term or provision of this Agreement in no manner shall affect
its right at a later time to enforce any such provision. No notice to or demand
on a party in any case shall entitle such party to any other or further notice
or demand in the same, similar, or other circumstances. Any right or power of
the Pledgee hereunder respecting the Pledged Collateral and any other property
or money held hereunder may at the option of the Pledgee be exercised as to all
or any part of the same and the term "Pledged Collateral" wherever used herein,
unless the context clearly requires otherwise, shall be deemed to mean (and
shall be read as) the "Pledged Collateral and any other property or money held
hereunder or any part thereof". This Agreement shall not be amended nor shall
any right hereunder be deemed waived except by a written agreement expressly
setting forth the amendment or waiver and signed by the party against whom or
which such amendment or waiver is sought to be charged.
SECTION 13. Notices. All notices hereunder shall be given and deemed
received as set forth in the Note.
SECTION 14. Continuing Security Interest and Reinstatement. (a) This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) be binding upon the Pledgor, his heirs, successors and assigns,
and (ii) inure to the benefit of the Pledgee and its successors, transferees and
assigns. Upon the payment in full or performance of the Obligations, the
Pledgor shall be entitled to the return, upon his request and at his expense, of
such of the Pledged Collateral as shall not have been released, sold or
otherwise applied pursuant to the terms
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of the Agreement.
(b) If at any time after payment in full by the Pledgor of all Obligations
and termination of the pledge granted in this Agreement, any payments on
Obligations theretofore made by the Pledgor must be disgorged by the Pledgee for
any reason whatsoever, this Agreement and the pledge granted hereunder shall be
reinstated as to all disgorged payments as though such payments had not been
made, and the Pledgor shall sign and deliver to Pledgee all documents and things
necessary to reperfect the terminated pledge.
SECTION 15. Severability. In the event that any provision of this Agreement
shall be determined to be superseded, invalid or otherwise unenforceable
pursuant to applicable law, such determination shall not affect the validity of
the remaining provisions of this Agreement, and the remaining provisions of this
Agreement shall be enforced as if the invalid provision were deleted.
SECTION 16. Survival of Representations, Etc. All representations,
warranties, covenants and other agreements made herein shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until all amounts due under the Note have been paid in full. This
Agreement shall remain and continue in full force and effect without regard to
any modification, execution, renewal, amendment or waiver of any provision of
the Note.
SECTION 17. Termination and Return of Pledged Stock. This Agreement shall
continue in full force and effect until all of the Obligations shall have been
paid and satisfied or until the release, discharge or termination of the Note,
whichever last occurs. Upon the termination of this Agreement, the Pledgee
shall cause to be transferred to Pledgor all of the Pledged Collateral and any
money, property and rights received by Pledgor pursuant thereto, to the extent
Pledgee has not released, taken, sold or otherwise realized upon the same
pursuant to its rights and obligations hereunder.
SECTION 18. Transfer and Assignment. The Pledgee may transfer the Pledged
Collateral and any other property or money held hereunder to any transferee of
the obligations or any part thereof. The transferee shall thereupon succeed to
all of the Pledgee's rights hereunder with respect to the Pledged Collateral so
transferred. Thereafter, the Pledgee shall have no obligation to Pledgor with
respect to the Pledged Collateral so transferred. The Pledgee shall, however,
retain all of its rights and powers with respect to any part of the Pledged
Collateral not transferred. Every agent or nominee of the Pledgee shall have the
benefit of this agreement as if named herein and may exercise all of the rights
and powers given to the Pledgee hereunder.
SECTION 19. Entire Agreement. This Agreement and the Secured Non-Recourse
Promissory Note contain the entire agreement of the parties and supersedes all
other agreements, understandings and representations, oral or otherwise, between
the parties with respect to the
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matters contained herein. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, administrators, fiduciaries, next of kin and executors. Section headings
used herein are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof. This Agreement may be executed in
any number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 20. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New Jersey
without giving effect to its conflict of laws provisions. Unless otherwise
defined herein or in the Note, terms defined in Article 9 of the Uniform
Commercial Code in the State of New Jersey are used herein as therein defined.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ Hugh G. McBreen
--------------------------------------
Hugh G. McBreen
BUTLER INTERNATIONAL, INC.
By: /s/ Edward M. Kopko
-----------------------------------
Edward M. Kopko
Chairman and CEO
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EXHIBIT 10.48
SECURED NON-RECOURSE PROMISSORY NOTE
October 13, 1998 $181,000.00
FOR VALUE RECEIVED, Frederick H. Kopko, Jr., an individual residing at 4901 S.
Ellis Avenue, Chicago, Illinois 60615 ("Payor"), hereby promises to pay to
Butler International, Inc., a Maryland corporation ("Payee" or the "Company"),
or its assigns, the principal amount of one hundred eighty-one thousand dollars
exactly ($181,000.00). Certain capitalized terms used in this Secured Non-
Recourse Promissory Note (the "Note") are defined in Section 3 below.
This Note is being made by Payor in order to finance the Payor's purchase of
50,000 shares of common stock, par value $.001 per share, of the Company (the
"Common Stock") from the Company pursuant to a warrant agreement made between
the Payor and the Company on May 26, 1993.
This Note is secured by the Pledged Collateral under the terms of the Stock
Pledge Agreement and is entitled to the benefits thereof.
1. Payment of Note.
(a) Maturity Date. The entire unpaid principal balance of this Note (together
with interest accrued thereon) shall become due and payable on the seventh
anniversary of the date of this Note;
(b) Interest. No interest shall accrue on this Note; and
(c) Non-Recourse Obligations. Notwithstanding anything to the contrary stated
herein, Payee agrees that for payment of this Note it will look solely to
the Pledged Collateral or such other collateral, if any, it may now or
hereafter be given to secure the payment of this Note, and no other assets
of Payor shall be subject to levy, execution or other enforcement procedure
for the satisfaction of the remedies of Payee, or for any payment required
to be made under this Note.
2. Events of Default.
(a) Definition. For purposes of this Note, an Event of Default shall be deemed
to have occurred if:
(i) Payor fails to pay when due any amount (whether interest, principal or
other amount) then due or payable on this Note for a period of thirty (30)
days after the holder of this Note notifies Payor of such failure;
(ii) Payor fails to perform or observe any other provision contained in this
Note or the Stock Pledge Agreement and such failure continues unremedied
for a period of thirty (30) days after the holder of this Note notifies
Payor of such breach; or
<PAGE>
(iii) Payor makes an assignment for the benefit of creditors or admits in
writing his inability to pay his debts generally as they become due; or an
order, judgment or decree is entered adjudicating Payor bankrupt or
insolvent; or any order for relief with respect to Payor is entered under
the Bankruptcy Code; or Payor petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator, or commences
any proceeding relating to himself under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction; or any such petition or application is filed, or
any such proceeding is commenced, against Payor and either (a) Payor in
writing indicates his approval thereof, consents thereto or acquiesces
therein or (b) such petition, application or proceeding is not dismissed
within ninety (90) days.
(b) Consequences of Events of Default.
(i) If any Event of Default (other than the type described in paragraph
2(a)(iii) hereof) has occurred, the holder of this Note may demand (by
written notice delivered to Payor) immediate payment of all or any portion
of the outstanding principal amount of this Note, which amount shall
become due and payable upon such demand. If an Event of Default of the
type described in paragraph 3(a) (iii) has occurred, then all of the
outstanding principal amount of this Note shall automatically be
immediately due and payable without any action on the part of the holder
of this Note.
(ii) Each holder of this Note shall also have any other rights which such
holder may have been afforded under this Note or the Stock Pledge
Agreement at any time and any other rights which such holder may have
pursuant to applicable law.
3. Certain Defined Terms. As used in this Note, the following terms shall have
the following meanings:
"Bankruptcy Code" means the Bankruptcy Code of 1978, as amended.
"Pledged Collateral" means the Common Stock pledged by Payor under the Stock
Pledge Agreement as security for Payor's performance of this obligations under
this Note.
"Stock Pledge Agreement" means the Stock Pledge Agreement dated the date hereof
between Payor and the Company.
4. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of this Note may not be amended and Payor may not take any action
prohibited herein, or omit to perform any act required to be performed by him
herein, unless Payor has obtained the prior written consent of the holder of
this Note.
5. Cancellation. After all obligations for the payment of money arising under
this Note
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have been paid in full, this Note will be surrendered to Payor for cancellation.
6. Notices; Place of Payment. Any notice hereunder shall be in writing and
shall be delivered by recognized courier, facsimile or certified mail, return
receipt requested, and shall be conclusively deemed to have been received by a
party hereto and to be effective on the day on which delivered or facsimiled to
such party at its address set forth below (or at such other address as such
party shall specify in writing):
If to Payor: Frederick H. Kopko, Jr.
4901 South Ellis Avenue
Chicago, Illinois 60615
If to Payee: Butler International, Inc.
110 Summit Avenue
Montvale, New Jersey 07645
Attn: Chief Financial Officer
All payments to be made under this Note are to be delivered to the holder at
such address or to the attention of such person as the holder may designate by
prior written notice to Payor. At the request of the holder of this Note, all
payments shall be made by wire transfer of immediately available funds to an
account which the holder may designate from time to time.
7. Waiver of Presentment, Demand, Dishonor.
(a) Payor hereby waives presentment for payment, protest, demand, notice of
protest, notice of nonpayment and diligence with respect to this Note, and
waives and renounces all rights to the benefits of any statute of
limitations or any moratorium, appraisement, exemption, or homestead now
provided or that hereafter may be provided or allowed under the Bankruptcy
Code, both as to himself and as to all of his property, whether real or
personal, against the enforcement and collection of the obligations
evidenced by this Note and any and all extensions, renewals and
modifications hereof.
(b) No failure on the part of any holder of this Note to exercise any right or
remedy hereunder with respect to Payor, whether before or after the
happening of an Event of Default, shall constitute waiver of any such Event
of Default or of any other Event of Default by such holder or on behalf of
any other holder. No failure to accelerate the debt of Payor evidenced
hereby by reason of an Event of Default or indulgence granted from time to
time shall be construed to be a waiver of the right to insist upon prompt
payment thereafter, or shall be deemed to be a novation of this Note or a
reinstatement of such debt evidenced hereby or a waiver of such right of
acceleration or any other right, or be construed so as to preclude the
exercise of any right any holder of this Note may have, whether by the laws
of the state governing this Note, by agreement or otherwise, and Payor
hereby expressly waives the benefit of any statute or rule of law or equity
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<PAGE>
that would produce a result contrary to or in conflict with the foregoing.
8. Governing Law. The validity, construction and interpretation of this Note
shall be governed by and construed in accordance with the internal laws of the
State of New Jersey.
9. Transfer; Assignment. This Note may not be negotiated, assigned or
transferred by Payor at any time, except with Payee's prior written consent.
This Note may not be negotiated, assigned or transferred by Payee except in
connection with the sale of all or substantially all of Payee's assets.
10. Entire Agreement. This Secured Non-Recourse Promissory Note and the Stock
Pledge Agreement contain the entire agreement of the parties and supersedes all
other agreements, understandings and representations, oral or otherwise, between
the parties with respect to the matters contained herein. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, administrators, fiduciaries, next of kin
and executors. Section headings used herein are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Agreement may be executed in any number of counterparts with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, Payor has executed and delivered this Secured Non-Recourse
Promissory Note on the date first written above.
/s/ Frederick H. Kopko, Jr.
------------------------------------
Frederick H. Kopko, Jr.
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EXHIBIT 10.49
STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT, dated as of October 13, 1998, made by and between
Frederick H. Kopko, Jr., an individual residing at 4901 South Ellis Avenue,
Chicago, Illinois 60615 (the "Pledgor"), to Butler International, Inc., a
Maryland corporation, (the "Pledgee" or the "Company").
W I T N E S S E T H:
WHEREAS, the Pledgor is the record and beneficial owner of 50,000 shares of
the issued and outstanding shares of common stock, $.001 par value, of the
Company (the "Common Stock"), acquired in connection with the Pledgor's exercise
of certain stock warrants granted pursuant to an agreement between the Company
and the Pledgor dated May 26, 1993, along with 82,534 additional shares of
Common Stock and 710,428 shares of Series B 7% Cumulative Convertible Preferred
Stock (collectively, the "Pledged Shares");
WHEREAS, the Pledgor has agreed to secure, to the extent hereinafter set
forth, the payment in full and the performance of the obligations of the Pledgor
to the Pledgee under a non-recourse promissory note, dated as of the date
hereof, in the amount of $181,000 (such promissory note as it may hereafter be
amended or otherwise modified from time to time, the "Note"); and the
capitalized terms used herein, and not otherwise defined herein, are used with
the meanings ascribed to them in the Note); and
WHEREAS, the Pledgor hereby pledges and grants a lien and security interest to
Pledgee in the Pledged Shares to secure the Pledgor's obligations under the
Note.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the loan under the Note, the Pledgor hereby agrees as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to
the Pledgee a security interest in the Pledged Shares and certificates
representing the Pledged Shares, and all dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, and all proceeds
thereof, additions thereto and changes therein (the "Pledged Collateral").
SECTION 2. Security for Obligations; Non-Recourse Obligations. (a) This
Agreement secures the payment of all liabilities, obligations and indebtedness
of any and every kind and nature heretofore, now or hereafter owing, arising,
due or payable from the Pledgor to the Pledgee pursuant to the Note, however
evidenced, created, incurred, acquired or owing, whether primary or secondary,
direct or indirect, joint or several, contingent or fixed, or otherwise,
including without limitation, obligations of performance, and whether arising
under any other agreements, documents
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or instruments entered into in connection with the Note, now or hereafter given
by the Pledgor to the Pledgee and whether arising by book entry, agreement or
operation of law and whether or not evidenced by promissory notes or other
evidences of indebtedness (all such obligations of the Pledgor being the
"Obligations").
(b) It is expressly understood and agreed that it is the intention of the
parties that the Obligations of the Pledgor under the Note are non-recourse
obligations of the Pledgor and that the Pledgee's right to recover against the
Pledgor hereunder in respect of such Obligations shall be limited solely to the
Pledged Collateral.
SECTION 3. Delivery and Release of Pledged Collateral. (a) All certificates
or instruments representing or evidencing the Pledged Collateral shall be
delivered to and held by or on behalf of the Pledgee pursuant hereto and shall
be in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Pledgee. The Pledgee shall hold the Pledged
Collateral in the form in which it is delivered to the Pledgee unless and until
the occurrence and continuation of an Event of Default under the Note (unless
such Event of Default is waived by the Pledgee) or as otherwise provided in
Section 3(b) below. Upon the occurrence and continuance of an Event of Default
under the Note, the Pledgee shall have the right, at any time in its discretion
and without notice to the Pledgor, to transfer to or to register in the name of
the Pledgee or any of its nominees any or all of the Pledged Collateral, subject
only to the revocable rights specified in Section 6(a) below. In addition, the
Pledgee shall have the right at any time to exchange certificates or instruments
representing or evidencing Pledged Collateral for certificates or instruments of
smaller or larger denominations.
(b) On December 31, 1998, and on each March 31, June 30 and September 30
thereafter for the term of this Agreement (each such date a "Determination
Date"), the Pledgee shall reasonably determine the aggregate fair market
value of the Pledged Collateral (the "Market Value"). If on such
Determination Date the Market Value exceeds two hundred percent (200%) of
the aggregate principal amount of the Note on such Determination Date (the
"Base Value"), Pledgee shall, unless otherwise requested by Pledgor,
automatically release to the Pledgor such portion of the Pledged Collateral
the aggregate fair market value of which equals the Market Value less 200%
of the Base Value, free and clear of any and all encumbrances hereunder,
and such portion shall no longer constitute Pledged Collateral. For
purposes of this paragraph 3(b), "fair market value" of the Common Stock
shall mean the closing price of the Common Stock as quoted on NASDAQ at the
end of the last business day preceding the Determination Date as reported
in the New York edition of The Wall Street Journal, and the "fair market
value" of the Series B 7% Cumulative Convertible Preferred Stock shall be
determined with reference to the fair market value of the Common Stock and
the conversion ratio then in effect with respect to the Series B 7%
Cumulative Convertible Preferred Stock.
SECTION 4. Representations and Warranties. The Pledgor represents and
warrants as follows:
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(a) The Pledgor is the legal and beneficial owner of the Pledged Collateral
free and clear of any lien, adverse claim, security interest, option or other
charge or encumbrance, except for the security interest created by this
Agreement.
(b) The pledge of the Pledged Collateral pursuant to this Agreement creates a
valid and perfected first priority security interest in the Pledged Collateral,
securing the payment of the Obligations.
(c) Neither the execution or delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, nor the compliance with or performance
of the terms and conditions of this Agreement by the Pledgor is prevented by,
limited by, conflicts with or will result in the breach or violation of or a
default under the terms, conditions or provisions of (i) any mortgage, security
agreement, indenture, evidence of indebtedness, loan or financing agreement,
trust agreement, stockholder agreement, or other agreement or instrument to
which the Pledgor is a party or by which he is bound or (ii) any provision of
law, any order of any court or administrative agency or any rule or regulation
applicable to the Pledgor, subject to applicable state and federal securities
laws.
(d) This Agreement constitutes the legal, valid and binding obligation of the
Pledgor, enforceable in accordance with its terms.
(e) There are no actions, suits or proceedings (whether or not purportedly on
behalf of the Pledgor) pending or, to the best knowledge of the Pledgor,
threatened affecting the Pledgor that involve the Pledged Collateral.
(f) All consents or approvals, if any, required as a condition precedent to
or in connection with the due and valid execution, delivery and performance by
the Pledgor of this Agreement have been obtained, subject to applicable state
and federal securities laws.
SECTION 5. Further Assurances. The Pledgor agrees that at any time and from
time to time, at the expense of the Pledgor, the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or desirable, or that the Pledgee may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Pledgee to exercise and enforce its rights and
remedies hereunder, subject to applicable state and federal securities laws,
with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Dividends, Etc. (a) So long as no Event of
Default under the Note shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof for
any purpose not inconsistent with
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the terms of this Agreement or the Note.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends and interest paid, in respect of the Pledged Collateral; provided,
however, that any and all:
(A) dividends and interest paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise distributed
in respect of, or in exchange for, any Pledged Collateral (whether resulting
from a subdivision, combination or reclassification of the outstanding capital
stock of the Company, or any merger, consolidation, acquisition or other
exchange of assets or securities to which the Company may be a party, or any
conversion, call or redemption, or otherwise);
(B) dividends and other distributions paid or payable in cash in respect of
any Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus; and
(C) cash paid, payable or otherwise distributed in respect of principal of,
or in redemption of, or in exchange for, any Pledged Collateral,
shall be, at the option and request of the Pledgee, forthwith delivered to the
Pledgee to hold as Pledged Collateral and shall, if received by the Pledgor, be
received in trust for the benefit of the Pledgee, be segregated from the other
property or funds of the Pledgor, and be forthwith delivered to the Pledgee as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
(iii) The Pledgee shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise the
voting and other rights which he is entitled to exercise pursuant to paragraph
(i) above and to receive the dividends or interest payments which he is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default under
the Note, and at the election of Pledgee:
(i) All rights of the Pledgor to exercise the voting and other consensual
rights which he would otherwise be entitled to exercise pursuant to Section
6(a)(i) and to receive the dividends and interest payments which he would
otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall
cease for the period subsequent to the Event of Default, and all such rights
shall thereupon become vested in the Pledgee who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends and interest payments.
(ii) All dividends and interest payments which are received by the Pledgor
contrary
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to the provisions of paragraph (i) of this Section 6(b) shall be received in
trust for the benefit of the Pledgee, shall be segregated from other funds of
the Pledgor and shall be forthwith paid over to the Pledgee and Pledged
Collateral in the same form as so received (with any necessary endorsement).
(c) In the event that during the term of this Agreement subscription warrants
or other rights or options shall be issued in connection with the Pledged
Collateral, all such stock warrants, rights and options shall forthwith be
assigned by the Pledgor to the Pledgee and said stock warrants, rights and
options shall be, and, to the extent exercised by Pledgor, all new stock issued
pursuant thereto shall be pledged by Pledgor to Pledgee to be held as, and shall
be deemed to be part of, the "Pledged Collateral" under the terms of this
Agreement in the same manner as the shares of stock originally pledged
hereunder.
SECTION 7. Transfers and Other Liens; Additional Shares. The Pledgor agrees
that he will not (i) sell or otherwise dispose of, or grant any option with
respect to, any of the Pledged Collateral, or (ii) create or permit to exist any
lien, security interest, or other charge or encumbrance upon or with respect to
any of the Pledged Collateral, except for the security interest under this
Agreement.
SECTION 8. Litigation Respecting Pledged Shares. In the event any action,
suit or other proceeding at law, in equity, in arbitration or before any other
authority involving or affecting the Pledged Collateral becomes known to or is
contemplated by the Pledgor, the Pledgor shall give the Pledgee immediate notice
thereof and if the Pledgor is contemplating such action, suit or other
proceeding, the Pledgor shall receive the written consent of the Pledgee prior
to commencing any such action, suit or other proceeding.
SECTION 9. Pledgee Appointed Attorney-in-Fact. (a) If an Event of Default
shall occur and be continuing under the Note (unless such Event of Default is
waived by the Pledgee), Pledgor hereby appoints the Pledgee (and any officer or
agent of the Pledgee with full power of substitution and revocation) the
Pledgor's true and lawful attorney-in-fact, with full authority in the place and
stead of the Pledgor and in the name of the Pledgor or otherwise, from time to
time in the Pledgee's discretion to take any action and to execute any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, (i) to receive,
endorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same; and (ii)
to transfer the Pledged Collateral on the books of the Company, in whole or in
part, to the name of the Pledgee or such other person or persons as the Pledgee
may designate; take possession of and endorse any one or more checks, drafts,
bills of exchange, money orders or any other documents received on account of
the Pledged Collateral; collect, sue for and give acquittances for moneys due on
account of the foregoing; withdraw any claims, suits, or proceedings pertaining
to or arising out of the foregoing; execute and record or file on behalf of the
Pledgor any evidence of a security interest contemplated by this Agreement or
any refiling, continuation or extension thereof; take any other action
contemplated by this Agreement; and sign, execute, acknowledge, swear to,
verify, deliver, file, record and publish
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any one or more of the foregoing.
(b) The powers of attorney which shall be granted pursuant to Section 9(a)
and all authority thereby conferred shall be granted and conferred solely to
protect the Pledgee's interests in the Pledged Collateral and shall not impose
any duty upon the attorney-in-fact to exercise such powers. Such powers of
attorney shall be irrevocable prior to the performance in full of the
Obligations and shall not be terminated prior thereto or affected by any act of
the Pledgor or other person or by operation of law, including, but not limited
to, the dissolution, death, disability or incompetency of any person, the
termination of any trust, or the occurrence of any other event, and if the
Pledgor or any other person should be dissolved or die or become disabled or
incompetent or any other event should occur before the performance in full of
the Obligations and termination of this Agreement, such attorney-in-fact shall
nevertheless be fully authorized to act under such powers of attorney as if such
dissolution, death, disability or incompetency or other event had not occurred
and regardless of notice thereof.
(c) Each person who shall be a transferee of the beneficial ownership of the
Pledged Collateral, by the acceptance of such a transfer, shall be deemed to
have irrevocably appointed the Pledgee, with full power of substitution and
revocation, such person's true and lawful attorney-in-fact in such person's name
and otherwise to do any and all acts permitted to, and to exercise any and all
powers herein conferred upon, such attorney-in-fact.
SECTION 10. Reasonable Care. The Pledgee shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Pledgee accords its own property, it being understood that the
Pledgee shall not have any responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Pledgee has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
SECTION 11. Remedies Upon Event of Default. (a) Subject to Section 2(b)
hereof, if any Event of Default under the Note shall have occurred and be
continuing (unless such Event of Default is waived by the Pledgee), for the
period subsequent to the Event of Default:
(i) The Pledgee may receive and retain all payments of any kind with respect
to the Pledged Collateral and may notify the obligors or other parties, if any,
interested in any items of Pledged Collateral of the interest of the Pledgee
therein and of any action proposed to be taken with respect thereto, and inform
any of those parties that all payments otherwise payable to the Pledgor with
respect thereto shall be made to the Pledgee until all amounts due under the
Note have been paid in full;
(ii) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and
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remedies of a secured party on default under the Uniform Commercial Code (the
"Code") in effect in the State of New Jersey at that time, and the Pledgee may
also, without notice except as specified below, sell the Pledged Collateral or
any part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Pledgee's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the Pledgee
may deem commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to the Pledgor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Pledgee shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Pledgee may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned;
(iii) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale of, collection from, or
other realization upon all or any part of the Pledged Collateral may, in the
discretion of the Pledgee, by held by the Pledgee as collateral for, and/or then
or at any time thereafter applied in whole or in part by the Pledgee against,
all or any part of the Obligations in such order as the Pledgee shall elect.
Any surplus of such cash or cash proceeds held by the Pledgee and remaining
after payment in full of all the Obligations shall be paid over to the Pledgor
or to whomsoever may be lawfully entitled to receive such surplus; and
(iv) The Pledgee may otherwise use or deal from time to time with the Pledged
Collateral, in whole or in part, in all respects as if the Pledgee were the
outright owner thereof.
(b) Except as set forth in Section 11(a)(iii), the Pledgee shall have the
sole right to determine the order in which Obligations shall be deemed
discharged by the application of the Pledged Collateral or any other property or
money held hereunder or any amount realized thereon. Any requirement of
reasonable notice imposed by law shall be deemed met if such notice is in
writing and is mailed, telegraphed or hand delivered to the Pledgor at least
three days prior to the sale, disposition or other event giving rise to such
notice requirement.
(c) The Pledgee shall collect the cash proceeds received from any sale or
other disposition or from any other source contemplated by subsection (a) above
and shall apply the full proceeds in accordance with the provisions of this
Agreement.
(d) Notwithstanding the foregoing, none of the provisions of this Section 11
shall confer on the Pledgee any rights or privileges that are not permissible
under applicable law. The Pledgee may effect the provisions of this Section 11
only in compliance with all applicable federal and state securities laws.
(e) In connection with the provisions of this Agreement, the Pledgor from
time to time shall promptly execute and deliver, or cause to be executed and
delivered, to the Pledgee such
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documents and instruments, shall join in such notices and shall take, or cause
to be taken, such other lawful actions as the Pledgee shall deem reasonably
necessary or desirable to enable it to exercise any of the rights with respect
to the Pledged Collateral granted to it pursuant to this Agreement.
SECTION 12. Waivers and Amendments, Etc. The rights and remedies given
hereby are in addition to all others however arising, but it is not intended
that any right or remedy be exercised in any jurisdiction in which such exercise
would be prohibited by law. No action, failure to act or knowledge of the
Pledgee shall be deemed to constitute a waiver of any power, right or remedy
hereunder, nor shall any single or partial exercise thereof preclude any further
exercise thereof or the exercise of any other power, right or remedy. Any
waiver or consent respecting any covenant, representation, warranty or other
term or provision of this Agreement shall be effective only in the specified
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Pledgee at any time or times to require performance
of, or to exercise its rights with respect to, any representation, warranty,
covenant or other term or provision of this Agreement in no manner shall affect
its right at a later time to enforce any such provision. No notice to or demand
on a party in any case shall entitle such party to any other or further notice
or demand in the same, similar, or other circumstances. Any right or power of
the Pledgee hereunder respecting the Pledged Collateral and any other property
or money held hereunder may at the option of the Pledgee be exercised as to all
or any part of the same and the term "Pledged Collateral" wherever used herein,
unless the context clearly requires otherwise, shall be deemed to mean (and
shall be read as) the "Pledged Collateral and any other property or money held
hereunder or any part thereof". This Agreement shall not be amended nor shall
any right hereunder be deemed waived except by a written agreement expressly
setting forth the amendment or waiver and signed by the party against whom or
which such amendment or waiver is sought to be charged.
SECTION 13. Notices. All notices hereunder shall be given and deemed
received as set forth in the Note.
SECTION 14. Continuing Security Interest and Reinstatement. (a) This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) be binding upon the Pledgor, his heirs, successors and assigns,
and (ii) inure to the benefit of the Pledgee and its successors, transferees and
assigns. Upon the payment in full or performance of the Obligations, the
Pledgor shall be entitled to the return, upon his request and at his expense, of
such of the Pledged Collateral as shall not have been released, sold or
otherwise applied pursuant to the terms of the Agreement.
(b) If at any time after payment in full by the Pledgor of all Obligations
and termination of the pledge granted in this Agreement, any payments on
Obligations theretofore made by the Pledgor must be disgorged by the Pledgee for
any reason whatsoever, this Agreement and the pledge granted hereunder shall be
reinstated as to all disgorged payments as though such payments had not been
made, and the Pledgor shall sign and deliver to Pledgee all documents and things
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necessary to reperfect the terminated pledge.
SECTION 15. Severability. In the event that any provision of this Agreement
shall be determined to be superseded, invalid or otherwise unenforceable
pursuant to applicable law, such determination shall not affect the validity of
the remaining provisions of this Agreement, and the remaining provisions of this
Agreement shall be enforced as if the invalid provision were deleted.
SECTION 16. Survival of Representations, Etc. All representations,
warranties, covenants and other agreements made herein shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until all amounts due under the Note have been paid in full. This
Agreement shall remain
and continue in full force and effect without regard to any modification,
execution, renewal, amendment or waiver of any provision of the Note.
SECTION 17. Termination and Return of Pledged Stock. This Agreement shall
continue in full force and effect until all of the Obligations shall have been
paid and satisfied or until the release, discharge or termination of the Note,
whichever last occurs. Upon the termination of this Agreement, the Pledgee
shall cause to be transferred to Pledgor all of the Pledged Collateral and any
money, property and rights received by Pledgor pursuant thereto, to the extent
Pledgee has not released, taken, sold or otherwise realized upon the same
pursuant to its rights and obligations hereunder.
SECTION 18. Transfer and Assignment. The Pledgee may transfer the Pledged
Collateral and any other property or money held hereunder to any transferee of
the obligations or any part thereof. The transferee shall thereupon succeed to
all of the Pledgee's rights hereunder with respect to the Pledged Collateral so
transferred. Thereafter, the Pledgee shall have no obligation to Pledgor with
respect to the Pledged Collateral so transferred. The Pledgee shall, however,
retain all of its rights and powers with respect to any part of the Pledged
Collateral not transferred. Every agent or nominee of the Pledgee shall have
the benefit of this
agreement as if named herein and may exercise all of the rights and powers given
to the Pledgee hereunder.
SECTION 19. Entire Agreement. This Agreement and the Secured Non-Recourse
Promissory Note contain the entire agreement of the parties and supersedes all
other agreements, understandings and representations, oral or otherwise, between
the parties with respect to the matters contained herein. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, administrators, fiduciaries, next of kin
and executors. Section headings used herein are for convenience only and shall
not affect the meaning or construction of any of the provisions hereof. This
Agreement may be executed in any number of counterparts with the same effect as
if the signatures thereto and hereto were upon the same instrument.
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SECTION 20. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of New Jersey
without giving effect to its conflict of laws provisions. Unless otherwise
defined herein or in the Note, terms defined in Article 9 of the Uniform
Commercial Code in the State of New Jersey are used herein as therein defined.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ Frederick H. Kopko, Jr.
-------------------------------------
Frederick H. Kopko, Jr.
BUTLER INTERNATIONAL, INC.
By: /s/ Edward M. Kopko
--------------------------------
Edward M. Kopko
Chairman and CEO
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EXHIBIT 13.1
FINANCIAL SECTION OF 1998 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company recorded earnings of $9.8 million for the year ended December 31,
1998, compared with $8.7 million for the year ended December 31, 1997, and $4.8
million for the year ended December 31, 1996. Pre-tax earnings for 1998
increased by 77%, to $14.0 million, compared to the $7.9 million recorded in
1997. The 1997 results include a tax benefit of $2.0 million as described
below. Basic earnings per share were $1.49 in 1998, compared with $1.37 in
1997, and $.76 in 1996. On a diluted basis, earnings per share increased to
$1.26 per share in 1998, from $1.16 achieved in 1997 and $.67 recorded in 1996.
Improved business mix and increased volume in the Company's information
technology ("IT") services operation, Butler Technology Solutions ("BTS"), lead
the way to the increased earnings in 1998. These increases were generated by
recent acquisitions, as well as strong internal growth. Also contributing
strongly to the improved earnings was substantial growth in the Company's
Telecommunications Services ("BTI") operation. As a result of the improved
business mix, as well as an overall increase in billing rates, gross margins
increased to 19.3% in 1998, versus 15.8% in 1997 and 14.6% in 1996.
Net sales were $444.1 million for the year ended December 31, 1998, compared
with $425.0 million recorded in 1997, and $409.4 million for the year ended
December 31, 1996. In 1998, sales from the BTS unit increased by 134%, which
was the result of volume provided by companies acquired in 1998, as well as
strong internal growth. The Company's BTI operation grew by 16%, while the lower
margin Technical Group ("BTG") business decreased as had been expected, with
revenues declining by 12% from 1997. Revenues from the Fleet Services ("BFS")
unit also declined as had been anticipated due to a restructuring of a major
contract, which did not negatively impact profitability. The growth in 1997 as
compared to 1996, was attributable to a 16% increase in the BTS operation and a
15% increase in the BTI unit, which more than offset an anticipated decrease of
1% in the Contract Technical Services portion of the BTG business. One client
accounted for approximately 11.7% of the Company's net sales in 1998. This BTG
client accounted for approximately 13% of net sales in 1997 and 6.4% of net
sales in 1996. Sales from this client are expected to decrease considerably in
1999. However, this decrease is expected to be more than offset by increased
net sales in the higher margin BTS and BTI units.
Selling, general and administrative ("SG&A") expenses increased to $62.9
million for the year ended December 31, 1998, compared with $52.1 million and
$46.0 million for the years ended December 31, 1997 and 1996, respectively.
The 1998 increase is a direct result of acquisitions and 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, 1998, interest expense was $4.7 million,
compared with $4.2 million and $5.2 million for the years ended December 31,
1997 and December 31, 1996, respectively. The increase in 1998 was due to
higher borrowings primarily to fund acquisitions, partially offset by lower
interest rates. The $1.0 million interest reduction in 1997 was principally due
to reduced borrowings.
In 1998 and 1997, the Company recorded income tax benefits of $.7 million and
$2.0 million, respectively, which resulted from the recording of deferred tax
assets related to the expected future tax benefit of certain loss
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carryforwards and temporary differences in accordance with the provisions of
Financial Accounting Standards Board ("FASB") SFAS 109. By December 31, 1998 the
Company had substantially realized the benefits of its U.S. loss and credit
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are generated from operations and
borrowings under its revolving credit facility and acquisition line of credit.
(See "Financing Activities"). Availability under the revolving credit facility
is based upon the amount of eligible receivables. As of December 31, 1998,
$27.3 million was outstanding under the revolving credit facility, and an
additional $5.5 million was used to collateralize letters of credit. Proceeds
from the revolving 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. As of December 31, 1998, (Pounds)955,647 was outstanding under the
U.K. facility. The acquisition line of credit provides the Company with up to
$35.0 million to finance its acquisition program. As of December 31, 1998,
$25.4 million was outstanding under the acquisition facility.
Cash and cash equivalents remained constant at $0.9 million as of December 31,
1998 as compared to December 31, 1997. The major components of cash inflows
during 1998 were from increased borrowings of $32.4 million, primarily for the
funding of acquisitions, net income before depreciation and amortization of
$14.2 million, and an increase in accrued liabilities of $2.9 million. Cash
outflows consisted of $35.2 million related to acquisitions, an increase in
accounts receivable and other assets totaling $11.2 million, and capital
expenditures of $3.4 million.
During the year ended December 31, 1998, the Company realized $0.3 million of
net proceeds from the exercise of outstanding common stock purchase warrants and
options. As a result, 128,166 common shares were issued by the Company during
the year.
The Company has a seven year mortgage for its corporate office facility in
Montvale, New Jersey. 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 outstanding balance of the loans
at December 31, 1998 was $6.4 million.
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
was approximately $6,600 and was included in interest expense. The fair value
of the Company's interest rate swap agreement as of December 31, 1998 would
require a payment by the Company of approximately $331,000 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
The Company has a credit agreement with General Electric Capital Corporation
("GECC"), which was amended in August, 1998, that provides a revolving credit
facility for loans up to $50.0 million, including $9.0
<PAGE>
million for letters of credit and an additional acquisition facility for up to
$35.0 million. The sum of the aggregate amount of loans outstanding under the
revolving 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, 1998, was 6.55%, or 125 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
1998 was 7.26%. The acquisition facility bears interest at 250 basis points
above the 30 day commercial paper rate, the interest rate in effect at December
31, 1998 was 7.8% and the average rate in effect for 1998 was 8.25%. The Company
has guaranteed all obligations incurred or created under the credit agreement.
The Company is in compliance with the required affirmative and financial
covenants.
ACQUISITIONS
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley information technology ("IT") company
headquartered in Fremont, CA. The purchase price includes $5.1 million paid in
cash ($4.1 million charged against the Company's acquisition line and $1.0
million against the revolving credit facility), plus 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 a staff of approximately 90 full-time employees.
On April 1, 1998, the Company acquired the operations of Norwood Computer
Services, Inc. ("Norwood") an IT services company headquartered in Hicksville,
NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn
down on the acquisition line and $1.7 charged to the revolving credit facility),
plus a contingent payout of $1.3 million that was paid in March 1999. Norwood
has been serving a wide range of mid-sized and Fortune 500 companies in the New
York metropolitan area since 1978 and generates approximately $17 million in
annual revenues through a staff of approximately 120 consultants.
On June 2, 1998, the Company's Telecommunication Services operation
acquired WCC Telephone Services, Inc. ("WCC") a California based
telecommunications services company. WCC specializes in central office services
for customers such as Pacific Bell and Northern Telecom. It generates annual
sales of approximately $2 million. This business has been merged with the
existing Butler Telecom business in Southern California. The purchase price
includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition
line and $0.4 million charged to the revolving credit facility), plus a
contingent payout based on the earnings of WCC for the next year.
Also, on June 2, 1998, the Company's Technology Solutions operation
acquired certain assets of the Reston, VA branch operations of Automated
Concepts, Inc. This business generates annual sales of approximately $3
million. Employees and consultants of this operation have been merged with the
existing Butler office in McLean, VA. The purchase price was $550,000 of which
$440,000 was drawn down on the acquisition line and $110,000 was charged to the
revolving credit facility plus a contingent payout based on earnings for one
year.
On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a
Chicago area IT services business. The purchase price was $10.3 million ($8.2
charged to the acquisition line and $2.1 charged against the revolving credit
facility). DPI has provided a variety of IT support services to a wide range
<PAGE>
of customers in the Chicago marketplace for the past eleven years. Its offerings
include contract programming, software consulting, IT staffing and Year 2000
project work. DPI currently generates approximately $10 million in annual
revenues through its staff of 80 consultants.
On August 5, 1998, the Company completed the acquisition of ISL
International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ.
The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn
down on acquisition line and $1.5 charged to the revolving credit facility),
plus a multi-year contingent payout based on the future earnings of ISL. ISL
has provided services to a wide range of companies in the metropolitan New York
area since 1978. It generates approximately $20 million in annual revenues
through a staff of approximately 150 consultants.
In connection with these 1998 acquisitions, the Company acquired
substantially all of the operating assets and assumed certain liabilities of the
acquired businesses. The transactions were recorded using the purchase method
of accounting. Excess cost over net assets of businesses acquired has been
recorded as goodwill and is being amortized over forty years. Sales included in
the Company's financial statements from the businesses acquired for the year
ended December 31, 1998 were $39.2 million. In 1999, the Company estimates
payments of approximately $4.3 million in conjunction with contingent earn-out
provisions of businesses acquired in 1997 and 1998.
The Company continues to review potential acquisition candidates in the
information technology and telecommunications service industries. There are no
acquisition transactions currently pending.
YEAR 2000 COMPLIANCE
Description:
At midnight on December 31, 1999, many computer systems may not be able to
distinguish the Year 2000 from the Year 1900. This is because computer software
has, until recently, been written utilizing two digits rather than four to
express years. This programming flaw may debilitate computer systems worldwide,
because date-sensitive applications may recognize the Year 2000 as 1900, or not
at all. This may cause miscalculations or system failures. This situation has
become known as the Y2K problem, or the Millennium Bug.
Compliance:
The Company has established a Y2K Oversight Committee to ensure compliance
of all internal systems.
Beginning in 1995, the Company began the strategic process of upgrading and
replacing all of its financial systems. The new systems are all Y2K-compliant,
server driven operating systems. With regard to computerized systems, the
Company has nearly completed its Y2K compliance, and is currently testing its
ability to correctly identify and process the Year 2000. This process is
expected to be complete by the end of the second quarter of 1999. All desktop
and laptop computers have been, or are in the process of being checked for Y2K
readiness. Computers that are not compliant are being replaced. This process
will be completed in the second quarter of 1999. All PC operating systems are
being upgraded. All telecommunications and PBX systems have been evaluated and
are expected to be compliant in early 1999. All building systems (e.g.,
elevators, HVAC) were also reviewed. The majority of these systems are day-
dependent, not date-dependent, so they should not be impacted by Y2K. The
Company has been contacting major clients and vendors to evaluate their Y2K
compliance plans and readiness, to determine whether a Y2K event will have a
significant impact on the Company.
<PAGE>
Costs:
Due to the scheduled conversion of the Company's financial systems there are
no specific Y2K costs related to those areas. The costs incurred to date to
upgrade non-compliant PCs is approximately $137,000, of which $24,000 has been
expensed and $113,000 has been recorded to property and equipment. The
estimated cost to complete the PC upgrade is approximately $50,000. The cost to
upgrade or replace non-compliant telecommunication systems to date has been
approximately $28,000.
Worst-Case Scenarios:
The following worst-case scenarios could have an impact on the Company if
they were to occur: The Company could be negatively impacted if several of its
larger clients were affected by either their inability to retain contract
employees supplied by the Company or by their inability to process payables
promptly. This may become a benefit to the Company because it has the ability
to provide Y2K solutions to the affected customers. The Company would incur
additional financing costs during any extended receivable period. The Company
could also be adversely affected if financial institutions were unable to wire
payroll funds. Such an occurrence would require the Company to issue paper
checks which may not be well received by its contract employees.
Contingency Planning:
The Company has developed a contingency plan that would enable it to print
checks manually and mail them to all employees in the event of a bank problem.
Appropriate contingency plans are being developed to deal with potential client
or vendor Y2K events.
Summary:
Based on the activities reviewed above, the Company expects all internal
systems to be Y2K compliant by June 30, 1999. The Company does not believe that
the Y2K issues will have a material adverse effect on its financial condition or
results of operations. It is anticipated that the Y2K issue is not substantial
with respect to the Company's property and equipment, though the Company is
continuing to assess and modify computer systems, facilities and business
processes to provide for their continuing functionality.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This standard shall be effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. The Company
is currently evaluating the impact, if any, of this standard 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,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 910 $ 914
Accounts receivable, net of allowance for
uncollectible accounts of $3,309 and $1,465 65,349 54,827
Inventories 441 2,196
Other current assets 6,193 4,687
------------- --------------
Total current assets 72,893 62,624
Property and equipment, net 16,527 15,613
Other assets 2,711 1,907
Excess cost over net assets of businesses
acquired, net of accumulated amortization
of $10,805 and $9,004 57,981 24,572
------------- --------------
Total assets $ 150,112 $ 104,716
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 30,163 $ 28,153
Current portion of long-term debt 5,895 920
------------- --------------
Total current liabilities 36,058 29,073
------------- --------------
Revolving credit facility 27,251 20,985
Other long-term debt 27,684 6,517
Other long-term liabilities 3,920 3,052
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
3,014,564 in 1998 and 2,814,133 in 1997 (Aggregate
liquidation preference $3,015 in 1998 and $2,814 in 1997) 3 3
Common stock: par value $.001 per share,
authorized 83,333,333; issued 6,506,043 in 1998
and 6,380,023 in 1997 7 6
Additional paid-in capital 95,244 94,710
Accumulated deficit (39,922) (49,566)
Cumulative foreign currency translation adjustment (133) (64)
------------- --------------
Total stockholders' equity 55,199 45,089
------------- --------------
Total liabilities and
stockholders' equity $ 150,112 $ 104,716
============= ==============
</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,
--------------------------------------------------
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Net sales $ 444,146 $ 424,964 $ 409,353
Cost of sales 358,254 357,852 349,762
------------- ------------ -------------
Gross margin 85,892 67,112 59,591
Depreciation and amortization 4,278 2,881 3,001
Selling, general and administrative expenses 62,872 52,142 45,991
------------- ------------ -------------
Operating income 18,742 12,089 10,599
Interest expense (4,717) (4,168) (5,215)
------------- ------------ -------------
Income before income taxes 14,025 7,921 5,384
Income tax expense (benefit) 4,181 (812) 593
------------- ------------ -------------
Net income $ 9,844 $ 8,733 $ 4,791
============= ============ =============
Net income per share:
Basic $ 1.49 $ 1.37 $ 0.76
Diluted $ 1.26 $ 1.16 $ 0.67
Average number of common shares and dilutive
common share equivalents outstanding
Basic 6,454 6,253 6,087
Diluted 7,794 7,511 7,166
</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,
--------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,844 $ 8,733 $ 4,791
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and excess purchase
price amortization 4,278 2,881 3,001
Amortization of deferred financing
and employee stock purchase
plan loans 106 82 681
Foreign currency translation (69) (73) 116
(Increase) decrease in assets,
increase (decrease) in liabilities:
Accounts receivable (10,522) 1,444 8,242
Inventories 1,755 96 (1,931)
Other current assets (1,506) (3,524) 824
Other assets (910) (851) (1,166)
Current liabilities 2,057 7,097 (8,420)
Other long term liabilities 868 (296) (329)
------------ ------------ ------------
Net cash provided by operating activities 5,901 15,589 5,809
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,391) (2,989) (1,399)
Cost of businesses acquired (35,210) (1,990) (512)
Expenses paid in conjunction with
discontinued operations (47) (89) (117)
Proceeds from sale of certain UK operations - - 5,454
------------ ------------ ------------
Net cash (used in) provided by investing activities (38,648) (5,068) 3,426
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under
financing agreements 32,408 (10,667) (10,650)
Net proceeds from the exercise of
common stock warrants and options 359 831 709
Repurchase common stock (24) - (162)
------------ ------------ ------------
Net cash provided by (used in) financing activities 32,743 (9,836) (10,103)
------------ ------------ ------------
Net (decrease) increase in cash (4) 685 (868)
Cash at beginning of period 914 229 1,097
------------ ------------ ------------
Cash at end of period $ 910 $ 914 $ 229
============ ============ ============
</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
PREFERRED STOCK COMMON 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, 1995 2,451,898 $ 2 5,993,783 $ 6 $ 92,882 $ (107) $(62,727) $ 30,056
Comprehensive income:
Net income - - - - - - 4,791 4,791
Current Year Foreign Currency
Adjustments - - - - - 116 - 116
--------
Total comprehensive income 4,907
--------
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) -
---------- ------ ------------ ------- ----------- ------------ ----------- ------------
Balance at December 31, 1996 2,627,025 3 6,144,168 6 93,673 9 (58,112) 35,579
Comprehensive income:
Net income - - - - - - 8,733 8,733
Current Year Foreign Currency
Adjustments - - - - - (73) - (73)
--------
Total comprehensive income 8,660
--------
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) -
---------- ------ ------------ ------- ----------- ------------ ----------- ------------
Balance at December 31, 1997 2,814,133 3 6,380,023 6 94,710 (64) (49,566) 45,089
Comprehensive income:
Net income - - - - - - 9,844 9,844
Current Year Foreign Currency
Adjustments - - - - - (69) - (69)
--------
Total comprehensive income 9,775
--------
Repurchase and retire shares - - (2,146) - (24) - - (24)
Loans issued for exercise
of options - - - - (349) - - (349)
Issuances of Common Stock - - 128,166 1 707 - - 708
Dividends Paid 200,431 - - - 200 - (200) -
---------- ------ ------------ ------- ----------- ------------ ----------- ------------
Balance at December 31, 1998 3,014,564 $ 3 6,506,043 $ 7 $ 95,244 $ (133) $(39,922) $ 55,199
========== ====== ============ ======= =========== ============ =========== ============
</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 is a leading provider of strategic outsourcing, project management
and staff augmentation services. These services are provided through four ISO
9002 certified business segments, Technology Solutions, Telecom Services, Fleet
Services and the Technical Group.
Technology Solutions provides a complete and broad range of information
technology ("IT") expertise. Utilizing established resources, technology
practice areas, quality systems and its award winning proprietary Butler
Recruiting and Sales System (BRASS) database, it provides customers with the
best possible solutions to meet and exceed their IT objectives.
Telecom Services provides technical personnel and management services to
communications companies worldwide. Services range from basic copper and voice
networks to the latest optical fiber and broadband technologies. It also offers
customers extensive central office, CATV, wireless and cellular services.
Training, orientation and skills upgrading is provided to meet the individual
needs of each customer. Additionally, Telecom Services specializes in CAD and
manual record conversions, averaging over 350,000 drawings per year.
Fleet Services provides customized fleet operations services to major ground
fleet-holders nationwide. Services range from vehicle maintenance to total
fleet management services.
The Technical Group provides skilled technical and engineering personnel,
project management as well as total outsourcing solutions. Serving a wide range
of industries from aerospace to pharmaceuticals to energy and electronics, the
Company offers client companies candidates in approximately 2,000 job
classifications including engineers, designers and technical writers.
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
<PAGE>
and ten years except for the Company's headquarters 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.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the short term maturity of these
instruments. The carrying amount of current and long-term debt approximates
fair values based on the fact that the related interest rates fluctuate with
market rates.
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 comprehensive income.
Earnings Per Common 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).
1998 1997 1996
------ ------ ------
Basic Earnings per Share:
Income available to
common shareholders $9,644 $8,546 $4,615
------ ------ ------
Weighted average common
shares outstanding 6,454 6,253 6,087
------ ------ ------
Basic earnings per
common share $ 1.49 $ 1.37 $ .76
====== ====== ======
<PAGE>
Diluted Earnings per Share:
Income available to
common shareholders
assuming conversion $9,844 $8,733 $4,791
------ ------ ------
Weighted average common
shares outstanding 6,454 6,253 6,087
Common stock equivalents 524 456 330
Assumed conversion of
preferred stock 816 802 749
------ ------ ------
Total weighted average
common shares 7,794 7,511 7,166
------ ------ ------
Diluted earnings per
common share $ 1.26 $ 1.16 $ 0.67
====== ====== ======
NOTE 2 - PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows (in thousands):
1998 1997
--------- ---------
Land $ 5,662 $ 5,662
Buildings 4,168 4,168
Motor vehicles and equipment 7,750 7,123
Computer hardware and software 12,378 10,269
Leasehold improvements 2,011 1,716
-------- --------
31,969 28,938
Less accumulated depreciation (15,442) (13,325)
-------- --------
Property and equipment, net $ 16,527 $ 15,613
======== ========
Depreciation expense for the years ended December 31, 1998, 1997, and 1996 was
$2,477, $1,721, and $1,944, respectively.
NOTE 3 - CURRENT LIABILITIES:
Accounts payable and accrued liabilities are summarized as follows (in
thousands):
1998 1997
------- -------
Insurance-related payables $ 7,313 $ 5,029
Accounts payable 5,677 7,146
Accrued compensation 3,893 3,656
Taxes other than income taxes 3,610 2,967
Accrued pension and 401(k)
contributions 3,075 2,378
Income taxes payable 1,021 948
Deferred compensation 416 546
Accrued acquisition payouts 455 600
Other 4,703 4,883
------- -------
Accounts payable and
accrued liabilities $30,163 $28,153
======= =======
<PAGE>
NOTE 4 - LONG-TERM DEBT:
Long-term debt is summarized as follows (in thousands):
1998 1997
------- -------
Credit Facility, due July, 2001 $27,251 $20,985
Acquisition Facility, due, July, 2002 25,436 0
UK Credit Facility 1,598 611
Notes payable related to headquarters
facility 6,545 6,826
------- -------
60,830 28,422
Less current portion (5,895) (920)
------- -------
Long-term debt $54,935 $27,502
======= =======
Credit Facility
The Company has a credit agreement with General Electric Capital
Corporation ("GECC") which provides a revolving credit facility for loans up to
$50.0 million, including $9.0 million for letters of credit, and an acquisition
facility for up to $35.0 million. The Company has guaranteed all obligations
incurred or created under the credit agreement. The Company is in compliance
with the required affirmative and financial covenants.
As of December 31, 1998, $27.3 million was outstanding under the revolving
credit facility and an additional $5.5 million was used to collateralize letters
of credit. The interest rate in effect at December 31, 1998, was 6.55% or 125
basis points above the 30 day commercial paper rate. The average interest rate
during 1998 was 7.26%. Interest reductions are available based upon the Company
achieving certain financial results.
At December 31, 1998, $25.4 million was outstanding under the acquisition
facility with an effective interest rate of 7.8%, or 250 basis points above the
30 day commercial paper rate. The average interest rate in 1998 was 8.25%.
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 currently 8%. The
balance outstanding as of December 31, 1998 was (Pounds)955,647 or approximately
$1.6 million.
Facility Mortgage
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 through 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.
The Company has a 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 is repayable based on a 4
year schedule. The variable interest rate on these loans is one month Libor
plus 225 basis points. The outstanding balance of the loans was $6.4 million at
December 31, 1998.
The Company entered into an interest rate swap arrangement with its mortgage
holder on its $6.75 million mortgage notes. The Company makes
<PAGE>
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. In 1998, the net loss from the exchange
of interest rate payments was approximately $6,600 and was included in interest
expense. The fair value of the Company's interest rate swap agreement as of
December 31, 1998, would require a payment by the Company of approximately
$331,000 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 1998, 1997 and 1996, the Company received proceeds of $298,400, $561,704
and $618,588, respectively, from the exercise of 80,000, 155,008 and 143,714
common stock purchase warrants. At December 31, 1998, the Company had 65,000
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 $293,799, $465,598 and $123,750 in 1998,
1997 and 1996, respectively, from the exercise of 48,166, 80,847 and 37,500
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 1998, 1997 and 1996, dividends in-kind amounting to $200,431,
$187,108, and $175,127, 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.
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 Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation", the Company's net income would have been reduced by approximately
$512,000, $421,000 and $311,000 for 1998, 1997 and 1996, respectively. Basic
earnings per share would have been reduced by approximately $.08, $.07, and $.05
for 1998, 1997 and 1996, respectively. Diluted earnings per share would have
been reduced by $.07 for 1998, $.06 for 1997 and $.04 for 1996. The weighted
average fair value of options granted during 1998, 1997 and 1996 are estimated
to be $11.53, $5.13 and $3.71,
<PAGE>
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following assumptions for 1998, 1997 and 1996, respectively: volatility
of 45%, 35%, and 43%; risk free interest rates of 5.33%, 6.43%, and 6.76%;
assumed forfeiture rates of 14.8%, 15.8% and 13.2%; and, expected lives of 6.70,
6.72 and 6.76 years for 1998, 1997 and 1996, respectively.
Changes in stock options outstanding are as follows:
1998 1997 1996
------------- ------------- --------------
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding balance
at beginning of
year 682,066 $6.79 694,913 $5.95 582,246 $5.09
Granted 70,500 25.02 88,000 12.50 195,000 7.74
Exercised (48,166) 6.10 (80,847) 5.76 (37,500) 3.30
Canceled (3,000) 9.63 (20,000) 7.00 (44,833) 4.85
------- ------- -------
Outstanding at
end of year 701,400 $8.66 682,066 $6.79 694,913 $5.95
======= ======= =======
Options exercisable
at end of year 584,484 $8.10 501,316 $6.20 483,000 $5.62
======= ======= =======
The following table summarizes information about stock options at December 31,
1998:
Options Outstanding Options Exercisable
--------------------------------- -----------------------
Weighted Weighted Weighted
Range of average average Number average
Exercise Outstanding remaining exercise exercisable exercise
Prices at 12/31/98 life Price at 12/31/98 Price
- ------------- ----------- ---------- -------- ----------- --------
$3.13 - $7.00 342,000 4.3 years $4.78 328,250 $4.77
7.13 - 10.02 215,900 7.3 years $7.97 151,900 $8.08
11.00 - 26.50 143,500 9.1 years $18.91 104,334 $18.60
----------- -----------
Total 701,400 6.2 years $8.66 584,484 $8.10
=========== ===========
During 1998, the Company purchased 6,986 shares of its common stock on the
open market and awarded such shares to certain employees in conjunction with
their employment agreements. These awards have a vesting period of
approximately two to four years. Compensation expense is being recorded over
the vesting period. The expense recorded in 1998 was approximately $22,000.
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 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. No
loans were forgiven during 1998.
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLANS:
Defined Benefit Plan
The Company has a defined benefit pension plan ("DBP"). 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.
Change in pension benefit obligation (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Benefit obligations at
beginning of year $ 1,907 $ 2,924
Interest cost 128 212
Change in assumptions - (1,115)
Benefits paid (13) (114)
------- -------
Benefit obligation at
end of year 2,022 1,907
------- -------
Change in plan assets (in thousands):
Fair value of plan assets
beginning of year 3,225 2,891
Return on plan assets 289 475
Plan expenses - (27)
Benefits paid (13) (114)
------- -------
Fair value of plan assets at
end of year 3,501 3,225
------- -------
Funded status 1,479 1,318
Unrecognized net gain (1,263) (1,330)
------- -------
Prepaid (accrued) benefit cost $ 216 $ (12)
======= =======
</TABLE>
Assumptions used in determining net pension expense were:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -----
<S> <C> <C> <C>
Discount rate 6.75% 7.25% 7.25%
Rates of increase in
compensation levels N/A N/A 4.00%
Expected long-term rate
of return on assets 9.00% 9.00% 9.00%
Components of net periodic benefit cost (in thousands):
1998 1997 1996
------- ------- -----
Service cost $ - $ - $ 432
Interest cost 128 212 250
Return on assets (290) (233) (194)
Recognized net actuarial gain (67) - 99
------- ------- -----
Net periodic benefit cost $ (229) $ (21) $ 587
======= ======= =====
</TABLE>
<PAGE>
At December 31, 1998, approximately 38% of plan ass ets were held in fixed
income investments and 62% in equity investments compared to 25% in fixed
investments and 75% in equity investments at December 31, 1997.
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 $357,000
and $315,000 in 1998 and 1997, respectively. No contributions were made to the
plan in 1996.
NOTE 10 - INCOME TAXES:
The components of income tax expense (benefit) were as follows
(in thousands):
1998 1997 1996
------ ------ -----
Current taxes:
Federal $ 3,387 $ 234 $ 130
State 1,502 913 463
Foreign - - -
------- ------ -------
Total Current 4,889 1,147 593
Deferred tax benefit (708) (1,959) -
------- ------ -------
Total income tax
expense (benefit) $ 4,181 $ (812) $ 593
======= ====== =======
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1997 are as follows (in thousands):
Current Deferred Tax Assets: 1998 1997
------- --------
Reserves for doubtful accounts $ 356 $ 461
Accruals not currently deductible 3,152 2,477
Net operating loss carryforwards 1,369 3,166
Tax credit carryforwards 0 968
Other 2,059 1,375
Valuation allowance (1,369) ( 4,588)
------- --------
Net current deferred tax asset
(included in other current assets) $ 5,567 $ 3,859
======= ========
As of December 31, 1997, the Company believed that it was more likely than
not that a portion of the U.S. net operating loss and other carryforwards would
be realized. Therefore, the estimated future tax benefit of carryforwards as
reflected in the Company's December 31, 1997 deferred tax assets of $8.4 million
was partially recognized. By December 31, 1998, the Company has had three
consecutive years of financial profitability and has substantially realized the
benefits of the U.S. operating loss and other carryforwards. As the Company now
believes that it is more likely than not that most of the December 31, 1998
deferred assets will be realized, the valuation allowance has been further
reduced and income tax benefits have been recorded for these changes.
U.K. net operating loss carryforwards of approximately $4.5 million from
1996 and 1995 are available to reduce future U.K. taxable income. U.K.
<PAGE>
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 currently believed
to be likely in the foreseeable future.
A reconciliation between the income tax expense (benefit) computed by
applying the federal statutory rate to income from operations before income
taxes to the actual expense (benefit) is as follows (in thousands):
1998 1997 1996
------- ------- -------
Income tax expense at
statutory rate $ 4,909 $ 2,693 $ 1,831
Amortization of excess of
cost over net assets of
businesses acquired 294 227 214
Utilization of net operating
loss and credit carryforwards (2,067) (2,960) (2,025)
Net changes in deferred taxes,
including reduction in
valuation allowance (708) (1,959) -
State income tax expense, net
of federal tax benefit 1,472 895 454
Other, including foreign rate
differential 281 292 119
------- ------- -------
Provision (benefit)
for income taxes $ 4,181 $ (812) $ 593
======= ======= =======
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, 1998 are as follows (in thousands):
1999 $4,254
2000 1,887
2001 967
2002 466
2003 152
Thereafter 0
------
Total $7,726
======
Substantially all of the leases provide for increases based upon use of
utilities and lessors' operating expenses. Net rent expense for the years ended
December 31, 1998, 1997 and 1996 was approximately $4.5 million, $4.0 million
and $3.9 million, respectively.
In 1995, the Company filed a complaint against CIGNA Property and Casualty
Insurance Company regarding 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. In 1997, the
Company entered into an agreement with CIGNA which, in the absence of a
settlement, would 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. In August 1998, the Company exercised its
option to settle the remaining disputed amounts with CIGNA for $1.5 million plus
interest of $255,000. This settlement had no impact on current year operating
results.
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
<PAGE>
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, 1998,
approximately $2.9 million was outstanding under such notes, which included
notes totaling $349,279 executed by two non-employee directors in 1998 for the
purchase 88,333 shares of the Company's common stock.
During 1998, 1997 and 1996, the Company paid or accrued $732,000, $745,000
and $519,000, respectively, in fees and expenses to McBreen, McBreen & Kopko,
its outside counsel.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1998, 1997 and 1996, the Company received approximately $11,000,
$168,000 and $62,000, 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, 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996
------ ------ ------
Interest $3,868 $3,635 $4,767
Income taxes $4,757 $719 $144
NOTE 14 - SEGMENTS:
Sales and operating profits by segment (in thousands):
Sales:
1998 1997 1996
--------- --------- ---------
Technology Solutions $ 85,029 $ 36,361 $ 31,293
Telecom Services 79,654 68,908 60,349
Fleet Services 61,735 73,072 60,054
Technical Group 217,728 246,623 257,657
-------- -------- --------
Consolidated total $444,146 $424,964 $409,353
======== ======== ========
Operating Profits:
1998 1997 1996
-------- -------- --------
Technology Solutions $ 10,011 $ 4,253 $ 3,705
Telecom Services 12,917 10,221 7,529
Fleet Services 3,245 818 326
Technical Group 12,918 13,371 13,045
Unallocated amounts (20,349) (16,574) (14,006)
-------- -------- --------
Consolidated total $ 18,742 $ 12,089 $ 10,599
======== ======== ========
The Company primarily operates in the United States. The Technical Group
operations does include the results of its United Kingdom ("UK") subsidiary.
Net sales from the UK operation were $16.1 million, $11.9 million and $21.3
million in 1998, 1997 and 1996, respectively. Operating profits (loss) from the
UK subsidiary were $506,000, $331,000 and ($793,000) in 1998, 1997 and 1996,
respectively.
<PAGE>
The Company provides services to over 1,600 clients. In 1998 one client
accounted for 11.7% of the Company's net sales. This client, which is included
in the Technical Group segment, accounted for approximately 13.0% of net sales
in 1997 and 6.4% of net sales in 1996.
The Company's assets are reviewed by management on a consolidated basis
because it is not meaningful to allocate assets to the various segments.
Unallocated amounts of operating profits consist of corporate expenses,
certain general and administrative expenses from field operations and goodwill
amortization.
NOTE 15 - ACQUISITIONS:
On March 3, 1998, the Company acquired the operations of Argos Adriatic
Corporation ("Argos"), a Silicon Valley information technology ("IT") company
headquartered in Fremont, CA. The purchase price includes $5.1 million paid in
cash ($4.1 million charged against the Company's acquisition line and $1.0
million against the revolving credit facility), plus 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 a staff of approximately 90 full-time employees.
On April 1, 1998, the Company acquired the operations of Norwood Computer
Services, Inc. ("Norwood") an IT services company headquartered in Hicksville,
NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn
down on the acquisition line and $1.7 charged to the revolving credit facility),
plus a contingent payout of $1.3 million that was paid in March 1999. Norwood
has been serving a wide range of mid-sized and Fortune 500 companies in the New
York metropolitan area since 1978 and generates approximately $17 million in
annual revenues through a staff of approximately 120 consultants.
On June 2, 1998, the Company's Telecommunication Services operation
acquired WCC Telephone Services, Inc. ("WCC") a California based
telecommunications services company. WCC specializes in central office services
for customers such as Pacific Bell and Northern Telecom. It generates annual
sales of approximately $2 million. This business has been merged with the
existing Butler Telecom business in Southern California. The purchase price
includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition
line and $0.4 million charged to the revolving credit facility), plus a
contingent payout based on the earnings of WCC for the next year.
Also, on June 2, 1998, the Company's Technology Solutions operation
acquired certain assets of the Reston, VA branch operations of Automated
Concepts, Inc. This business generates annual sales of approximately $3
million. Employees and consultants of this operation have been merged with the
existing Butler office in McLean, VA. The purchase price was $550,000 of which
$440,000 was drawn down on the acquisition line and $110,000 was charged to the
revolving credit facility plus a contingent payout based on earnings for one
year.
On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a
Chicago area IT services business. The purchase price was $10.3 million ($8.2
charged to the acquisition line and $2.1 charged against the revolving credit
facility). DPI has provided a variety of IT support services to a wide range of
customers in the Chicago marketplace for the past eleven years. Its offerings
include contract programming, software consulting, IT staffing and
<PAGE>
Year 2000 project work. DPI currently generates approximately $10 million in
annual revenues through its staff of 80 consultants.
On August 5, 1998, the Company completed the acquisition of ISL
International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ.
The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn
down on acquisition line and $1.5 charged to the revolving credit facility),
plus a multi-year contingent payout based on the future earnings of ISL. ISL
has provided services to a wide range of companies in the metropolitan New York
area since 1978. It generates approximately $20 million in annual revenues
through a staff of approximately 150 consultants.
In connection with these 1998 acquisitions, the Company acquired
substantially all of the operating assets and assumed certain liabilities of the
acquired businesses. The transactions were recorded using the purchase method
of accounting. Excess cost over net assets of businesses acquired has been
recorded as goodwill and is being amortized over forty years. Sales included in
the Company's financial statements from the businesses acquired for the year
ended December 31, 1998 were $39.2 million.
The accompanying consolidated statements of income reflect the operating
results of the acquisitions since the effective date of their respective
acquisitions. Pro forma unaudited results of the Company and the acquisitions
for the years ended December 31, 1998 and 1997, assuming the acquisitions had
been made as of January 1, 1998 and 1997, are summarized below (in thousands
except per share amounts):
1998 1997
-------- --------
Net sales $471,374 $476,172
Pre-tax income 14,938 8,073
Net income 10,485 8,862
Diluted earnings per share $1.35 $1.18
These pro forma results have been prepared for comparative purposes only and
include certain adjustments such as goodwill amortization resulting from the
acquisitions and increased interest expense on the acquisition related debt.
They do not purport to be indicative of the results of operations which would
have resulted had the combinations been in effect on January 1, 1998 and 1997 or
of future results of operations of the consolidated entities.
<PAGE>
NOTE 16 - INTERIM FINANCIAL INFORMATION:
(in thousands, except per share data) (unaudited)
1998 QUARTERS FIRST SECOND THIRD FOURTH
Operations:
Net Sales $106,723 $112,948 $112,755 $111,720
Gross Margin 18,208 20,962 22,644 24,078
Net income 1,229 2,709 2,909 2,997
======== ======== ======== ========
Per share data:
Basic earnings
per share $ 0.18 $ 0.41 $ 0.44 $ 0.45
======== ======== ======== ========
Diluted earnings
per share $ 0.16 $ 0.35 $ 0.37 $ 0.38
======== ======== ======== ========
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 (a)
======== ======== ======== ========
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
======== ======== ======== ========
(a) Includes a tax benefit of $1,959.
<PAGE>
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, 1998 and December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and December 31, 1997, and the results of their operations and
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ------------------------
Parsippany, New Jersey
February 26, 1999
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION:
(in thousands, except per share data) (unaudited)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Operations Data:
Net sales $444,146 $424,964 $409,353 $433,564 $393,250
Gross margin $ 85,892 $ 67,112 $ 59,591 $ 56,495 $ 53,617
Net income (loss) $ 9,844 $ 8,733a $ 4,791 $ (7,914)b $ 1,659
Per Share Data:
Net income (loss) per share:
Basic $ 1.49 $ 1.37 $ 0.76 $(1.36) $ 0.26
Diluted $ 1.26 $ 1.16 $ 0.67 N/A $ 0.25
Weighted average number of
Shares outstanding:
Basic 6,454 6,253 6,087 5,943 5,430
Diluted 7,794 7,511 7,166 N/A 6,639
Balance Sheet Data:
Working capital $ 36,835 $ 33,551 $ 32,041 $ 34,103 $ 48,155
Total assets $150,112 $104,716 $ 99,180 $110,572 $107,810
Long-term debt $ 54,935 $ 27,502 $ 31,342 $ 40,480 $ 45,746
Total liabilities $ 94,913 $ 59,627 $ 63,601 $ 80,516 $ 70,412
Stockholders'
Equity $ 55,199 $ 45,089 $ 35,579 $ 30,056 $ 37,398
</TABLE>
(a) 1997 includes a tax benefit of $1,959.
(b) 1995 includes $2,680 of non-recurring charges.
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 5, 1999, there were approximately
1,800 holders of record of Common Stock. Not reflected in the number of record
holders are persons who beneficially own shares of Common Stock held in nominee
or street name.
HIGH LOW
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 $22.88 $16.38
Second Quarter 27.38 21.13
Third Quarter 26.50 17.25
Fourth Quarter 26.50 15.00
1999
First Quarter (Through March 5, 1999) $26.44 $19.13
No cash dividends were declared on the Company's Common Stock during the
years ended December 31, 1998 and 1997. The Company has no present intention of
paying cash dividends during the year ending December 31, 1999.
<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
Data Performance, Inc. BSG 100 Illinois
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-
69799, No. 333-69801, 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
February 26, 1999, appearing in and incorporated by reference in this Annual
Report on Form 10-K of Butler International, Inc., for the year ended December
31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Parsippany, New Jersey
March 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUTLER
INTERNATIONAL, INC. FORM 10-K FOR PERIOD ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 910
<SECURITIES> 0
<RECEIVABLES> 68,658
<ALLOWANCES> 3,309
<INVENTORY> 441
<CURRENT-ASSETS> 72,893
<PP&E> 31,969
<DEPRECIATION> 15,442
<TOTAL-ASSETS> 150,112
<CURRENT-LIABILITIES> 36,058
<BONDS> 0
0
3
<COMMON> 7
<OTHER-SE> 55,189
<TOTAL-LIABILITY-AND-EQUITY> 150,112
<SALES> 444,146
<TOTAL-REVENUES> 444,146
<CGS> 358,254
<TOTAL-COSTS> 358,254
<OTHER-EXPENSES> 65,092
<LOSS-PROVISION> 2,058
<INTEREST-EXPENSE> 4,717
<INCOME-PRETAX> 14,025
<INCOME-TAX> 4,181
<INCOME-CONTINUING> 9,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,844
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.26
</TABLE>
