SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: February 28, 1997 Commission File No. 0-15587
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EA Engineering, Science, and Technology, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
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(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
11019 McCormick Road, Hunt Valley, Maryland 21031
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code (410) 584-7000
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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
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NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK
OUTSTANDING AT APRIL 11, 1997 6,210,200
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Page 1 of 19
1
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
Page
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets - Assets................................. 4
Consolidated Balance Sheets - Liabilities and Stockholders' Equity... 5
Consolidated Statements of Operations................................ 6
Consolidated Statements of Cash Flows................................ 7
Notes to Consolidated Financial Statements........................... 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................13
PART II - OTHER INFORMATION..............................................16
EXHIBIT 1
Schedule of Weighted Average Shares Outstanding....................18
EXHIBIT 27
Financial Data Schedule............................................19
2
<PAGE>
PART I - FINANCIAL INFORMATION
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. & Subsidiaries (the "Company") have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In management's opinion, the interim
financial data presented includes all adjustments (which include only normal
recurring adjustments) necessary for a fair presentation. Certain information
and footnote disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to understand the
information presented. It is suggested that these consolidated financial
statements be read in conjunction with the Company's August 31, 1996
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K dated November 22, 1996.
3
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
----------- ----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 1,633,700 $ 1,308,600
Accounts receivable, net........................ 14,202,800 12,692,700
Costs and estimated earnings in excess of
billings on uncompleted contracts............ 5,531,600 12,482,200
Prepaid expenses and other...................... 3,979,000 1,576,900
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Total Current Assets......................... 25,347,100 28,060,400
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PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment............... 12,280,100 12,784,500
Leasehold improvements.......................... 3,600,600 3,677,800
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15,880,700 16,462,300
Less-Accumulated depreciation and amortization.. (13,244,800) (13,337,400)
----------- -----------
Net Property and Equipment................... 2,635,900 3,124,900
----------- -----------
OTHER ASSETS....................................... 1,723,400 2,143,200
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Total Assets................................. $29,706,400 $33,328,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
----------- ------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable................................. $3,355,700 $ 6,061,000
Short-term borrowings............................ 3,140,700 --
Accrued expenses................................. 1,008,100 1,019,200
Accrued salaries, wages and benefits............. 3,242,900 3,183,400
Income taxes payable............................. -- --
Current portion of long-term debt................ 988,500 644,600
Billings in excess of costs and estimated
earnings on uncompleted contracts............. 1,120,900 1,197,700
----------- -----------
Total Current Liabilities..................... 12,856,800 12,105,900
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LONG-TERM DEBT, net of current portion............. 523,300 2,664,500
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Total Liabilities 13,380,100 14,770,400
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares
authorized; 6,205,500 and 6,175,000 shares
issued and outstanding........................ 62,100 61,800
Preferred stock, $.01 par value; 8,000,000 shares
authorized; none issued....................... -- --
Capital in excess of par value................... 10,860,800 10,796,300
Retained earnings................................ 5,403,400 7,700,000
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Total Stockholders' Equity.................... 16,326,300 18,558,100
----------- -----------
Total Liabilities and Stockholders' Equity. $29,706,400 $33,328,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C>
Total revenue........................... $17,537,400 $19,192,800 $39,715,900 $ 42,132,900
Less - Subcontractor costs.............. (6,005,500) (4,735,600) (13,201,900) (10,262,700)
----------- ----------- ----------- -----------
Net revenue......................... 11,531,900 14,457,200 26,514,000 31,870,200
----------- ----------- ----------- -----------
Operating expenses:
Direct salaries and other operating. 14,659,000 14,849,400 28,544,400 30,471,600
General and administrative.......... 844,500 876,300 1,576,000 1,672,900
----------- ----------- ----------- -----------
Total operating expenses......... 15,503,500 15,725,700 30,120,400 32,144,500
----------- ----------- ----------- -----------
Loss from operations.................... (3,971,600) (1,268,500) (3,606,400) (274,300)
Interest expense, net................... (167,300) (115,700) (221,300) (216,900)
---------- ------------- ---------- -----------
Loss before income taxes................ (4,138,900) (1,384,200) (3,827,700) (491,200)
Benefit from income taxes............... (1,655,600) (553,700) (1,531,100) (196,500)
---------- ---------- ---------- -----------
Net loss................................ $(2,483,300) $ (830,500) $(2,296,600) $ (294,700)
========== ========== ========== ===========
Net loss per share...................... $(0.40) $(0.13) $(0.37) $(0.05)
====== ===== ====== =====
Weighted average shares outstanding..... 6,200,200 6,123,700 6,192,600 6,113,400
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
February 28, February 28,
1997 1996
----------- -----------
<S> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net Loss................................................ $(2,296,600) $ (294,700)
Noncash expenses included in net income (loss) -
Depreciation and amortization....................... 802,400 791,700
Current Benefit from income taxes................... (1,531,100) (196,500)
Net (increase) decrease in noncash assets -
Accounts receivable, net............................ (1,510,100) 3,891,200
Costs and estimated earnings in excess of
billings on uncompleted contracts................. 6,950,600 (1,717,400)
Prepaid expenses and other assets................... (749,200) (312,500)
Net increase (decrease) in nondebt liabilities -
Accounts payable and accrued expenses............... (2,656,900) (1,878,800)
Refunds of income taxes............................. 337,500 --
Payments of income taxes............................ (39,500) (431,300)
Billings in excess of costs and estimated
earnings on uncompleted contracts................. (76,800) 112,000
----------- -----------
Net cash flows used for operating activities........ (769,700) (36,300)
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Proceeds from long-term debt and short-term borrowings.. 1,794,200 --
Proceeds from issuance of common stock.................. 64,800 125,600
Reduction of long-term debt and short-term borrowings... (450,800) (382,700)
----------- -----------
Net cash flows from (used for) financing
activities........................................ 1,408,200 (257,100)
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of equipment, net.............................. (313,400) (403,600)
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Net cash flows used for investing activities......... (313,400) (403,600)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 325,100 (697,000)
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CASH AND CASH EQUIVALENTS, beginning of period.............. 1,308,600 3,813,900
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CASH AND CASH EQUIVALENTS, end of period.................... $1,633,700 $ 3,116,900
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1996
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation--
The accompanying consolidated financial statements present the accounts of
EA Engineering, Science, and Technology, Inc. (EA) and its wholly-owned
subsidiary, EA Financial, Inc., and its wholly-owned subsidiaries, EA Global,
Inc., and EA Engineering, Science, and Technology de Mexico, S.A. de C.V. (EA de
Mexico). The entities are collectively referred to herein as the "Company." All
significant intercompany transactions have been eliminated in consolidation.
Revenue Recognition--
The Company is a multidisciplinary environmental services and consulting
engineering organization providing a wide range of consulting, engineering,
remediation, and analytical services. These services are generally performed
under time and material, fixed price and cost plus fixed fee contracts which
vary in length from one month to ten years.
The Company accounts for contract revenues and costs under fixed price
contracts using the percentage-of-completion method. The
percentage-of-completion is determined using the "cost-to-cost" method for each
contract cost component. Under this method, direct labor and other contract
costs incurred to date are compared to periodically revised estimates of the
total of each contract cost component at contract completion to determine the
percentage of revenues to be recognized. Revenues from time and material and
cost plus fixed fee contracts are recognized currently as the work is performed.
Provision for estimated losses on uncompleted contracts, to the full extent of
the loss, is made during the period in which the Company first becomes aware
that a loss on a contract is probable.
Contract costs and estimated earnings recognized in excess of amounts
billed are classified as current assets under "costs and estimated earnings in
excess of billings on uncompleted contracts." Billings in excess of contract
costs and estimated earnings are classified as current liabilities under
"billings in excess of costs and estimated earnings on uncompleted contracts."
Generally, contracts provide for the billing of costs incurred and
estimated fees on a monthly basis. Amounts included in "costs and estimated
earnings in excess of billings on uncompleted contracts" in the accompanying
financial statements will be billed within twelve months of the balance sheet
date.
Major Clients--
For the six months ended February 28, 1997 and 1996, various agencies of
the federal government provided 46% and 45% of net revenue, and as of February
28,
8
<PAGE>
1997 accounted for approximately 30% of the Company's accounts receivable and
costs and estimated earnings in excess of billings on uncompleted contracts.
Cash and Cash Equivalents--
Cash equivalents consist of obligations and money market instruments with a
purchased original maturity of three months or less, stated at cost, which
approximates market.
Property and Equipment--
Property and equipment are depreciated using the straight-line method over
their estimated useful lives ranging from 3 to 10 years. Leasehold improvements
are amortized over the shorter of the estimated useful life or the term of the
lease.
Segment Information--
The Company operates within one industry segment, providing a wide range of
consulting, engineering, remediation, and analytical services.
Risks and Uncertainties--
Reliance on major government contracts subjects the Company to risks
associated with public budgetary restrictions and uncertainties, discrepancies
between awarded contract amounts and actual revenues, and cancellation at the
option of the government. The Company attempts to mitigate these risks by
staffing only to meet reasonably anticipated average workloads, by using
subcontractors to handle peak workloads, and by obtaining termination benefit
contract provisions. Cancellation of any of the Company's major government
contracts, however, could have a material adverse effect on the Company.
Use of Estimates--
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses in the financial statements and in the disclosures of contingent assets
and liabilities. While actual results could differ from these estimates,
management believes that actual results will not be materially different from
amounts provided in the accompanying consolidated financial statements.
Reclassifications--
Certain prior year balances have been reclassified to conform with current
year presentation.
Supplemental Disclosures of Cash Flow Information--
Cash paid during the six months ended February 29, 1997 and 1996 for
interest was $42,700 and $137,300, respectively. Retirements of property and
equipment for the same periods were $895,000 and $0, respectively.
9
<PAGE>
Accounting for Income Taxes--
Deferred income taxes are recorded to reflect the tax consequences on
future years for differences between the tax basis of assets and liabilities and
their financial reporting amounts.
Note 2. BANK FINANCING ARRANGEMENTS:
As of February 28, 1997, short-term borrowings under the Company's $10
million line of credit arrangement with Signet Bank were $3,140,700. However,
the Company was not in compliance with certain loan covenants under this credit
agreement. The Company has obtained waivers from Signet related to these
covenants and has entered into a new credit arrangement with an expiration date
of November 30, 1997. At February 28, 1997, debt under the previous financing
arrangements has been reclassified as short-term borrowings. The new facility,
which became effective April 18, 1997, is secured by certain receivables and
property and equipment and bears interest at a rate of 3 points above the prime
rate. Borrowings are limited to $6 million, or a borrowing base computation
consisting of a percentage of certain accounts receivable and costs and
estimated earnings in excess of billings on uncompleted contracts, whichever is
lower. Borrowings can exceed the borrowings base by $750,000 for short-term
periods. The interest rate on the excess borrowings will be 13 points above the
prime rate.
For the three months ended February 28, 1996, there were no short-term
borrowings. The maximum short-term borrowings outstanding during the same period
in fiscal 1997 were $5,490,900 and the average outstanding month-end balance was
$1,065,900. The weighted average interest rate during the period and at February
28, 1997 was 8.6% and 8.3%, respectively. The weighted average interest rate has
been calculated based upon the actual daily interest expense and the daily
average balance outstanding.
In addition, as a result of the non-compliance with certain financial
covenants, Signet has amended the maturity date for the notes payable agreement
for leasehold improvements and certain laboratory equipment to November 30,
1997.
10
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 28,
-----------------
1997 1996
---- ----
<S> <C>
Note payable to Signet Bank in monthly install-
ments of interest only; interest at prime or
LIBOR plus 150 basis points through January
1997, repaid in connection with revolving
credit facility refinancing...................... $ -- $3,000,000
Notes payable to Signet Bank in equal monthly
installments of $43,650, plus interest at
250 points above LIBOR through November 1997,
with unpaid balance due on November 30, 1997,
secured by leasehold improvements and certain
of EA's analytical laboratory equipment.......... 650,000 1,415,500
Note payable to a commercial bank payable in equal
monthly installments of $29,600, plus interest at
9.1% through December 1999, secured by certain
computer equipment............................... 861,800 --
---------- ----------
Total long-term debt............................... 1,511,800 4,415,500
Less-current portion............................... (988,500) (765,500)
---------- ----------
Long-term portion.................................. $ 523,300 $3,650,000
========== ==========
</TABLE>
Note 3. NET INCOME (LOSS) PER SHARE:
Net income (loss) per share amounts are based on the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are calculated using the treasury stock method.
In February 1997, the FASB issued Statement No. 128 (SFAS 128), "Earnings
Per Share," which establishes new standards for computing and presenting
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Management
has not yet determined whether the implementation of SFAS 128 will have any
impact on the Company's per share amounts.
Note 4. PROFIT SHARING AND EMPLOYEE INCENTIVE PLANS:
EA maintains a defined contribution plan covering all employees who are at
least 21 years of age and have completed one year of credited service, as
defined by the plan. The plan provides for discretionary employer contributions
for each fiscal year, in amounts determined annually by the Board of Directors,
and for voluntary employee contributions. The plan also includes a 401(k)
provision, allowing for Company matching contributions.
11
<PAGE>
Note 5. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS:
The Company maintains a Stock Option Plan which provides for the grant of
incentive and nonqualified stock options to certain key employees and officers
of the Company. The exercise price of an option granted under the Plan may not
be less than the fair market value of the underlying shares of Common Stock on
the date of the grant. A total of 368,082 options are issued and outstanding as
of February 28, 1997 having an average exercise price of $3.059. There were
204,530 shares available for issuance as of February 28, 1997.
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees the opportunity to purchase shares of the Company's Common Stock
through voluntary payroll deductions. Under the Plan, eligible employees may
purchase shares monthly through payroll deductions at 95% of current market
value at the time of purchase. The Company pays all administrative expenses
related to employee purchases. A total of 173,086 shares remain authorized for
distribution under the Plan as of February 28, 1997.
The Company maintains two Non-Employee Director Stock Option Plans (1995 and
1993) which provide for the granting of nonqualified stock options to its three
non-employee directors. The exercise price of the 33,000 options, which were
outstanding as of February 28, 1997, ranged between $2.375 and $6.125, which
equaled the fair market value at the date of grant. A total of 35,500 options
remain reserved for the Director Stock Option Plans as of February 28, 1997.
Note 6. SUBSEQUENT EVENT
On March 25, 1997 the Company announced a major organizational realignment
to reposition itself in the marketplace. In connection with the restructuring,
the Company expects to incur charges of up to $3 million related to severance,
planned reduction in office space, the suspension of the implementation of a new
project/financial system, and other related costs.
This restructuring included a reduction of approximately 125 staff.
12
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's results of operations are significantly affected by the timing
of the award of contracts, the timing of performance on contracts, and the
extent to which the Company's employees are performing billable tasks as opposed
to engaging in preparing bid proposals and other required non-billable
activities. Due to these factors, the results of operations for interim periods
are not necessarily indicative of the results of operations for longer periods
and interim period comparisons may not be as meaningful as comparisons over
longer periods.
Three Months Ended February 28, 1997
Net revenue for the three months ended February 28, 1997 was $11,531,900, a
decrease of 20.2% from $14,457,200 for the same period in 1996. The decrease was
attributable to lower contract volume in industrial, state, and local government
agency activities. Additionally, price competition remains intense within the
environmental services industry, further surpressing net revenue levels compared
to the prior year's second quarter.
Direct salaries and other operating costs decreased to $14,659,000 from
$14,849,400, representing 127.1% and 102.7% of net revenue for the three months
ended February 28, 1997 and 1996, respectively. As a percentage of net revenue,
the increase was attributable to decreased staff utilization related to the
reduction in available work and unrecoverable costs on certain projects.
General and administrative costs decreased to $844,500 from $876,300, and
increased to 7.3% from 6.1% of net revenue, respectively.
As a result of the above factors, the loss from operations for the three
months ended February 28, 1997 was $3,971,600 or 34.4% of net revenue compared
to the previous year's loss from operations of $1,268,500 or 8.8% of net revenue
for the three months ended February 28, 1996. Interest expense, net, increased
$51,600 for the three months ended February 28, 1997, compared to the prior
year. The increase was primarily attributable to an interest payment made in
connection with Maryland tax settlement.
The benefit from income taxes was $1,655,600 for the three months ended
February 28, 1997 compared to a benefit from income taxes of $553,700 for the
three months ended February 28, 1996, representing effective rates of 40% for
both years.
Net loss for the three months ended February 28, 1997 was $2,483,300, 21.5%
of net revenue, compared to net loss of $830,500, 5.7% of net revenue for the
three months ended February 28, 1996.
13
<PAGE>
Six Months Ended February 28, 1997
Net revenue for the six months ended February 28, 1997 was $26,514,000, a
decrease of 16.8% from $31,870,200 for the same period in 1996. The decrease was
attributable to lower contract volume associated with the Department of Defense
activities, industrial, state, and local government, and federal non-DOD agency
activities. Additionally, price competition remains intense within the
environmental services industry, further surpressing net revenue levels compared
to the prior year's second quarter.
Direct salaries and other operating costs decreased to $28,544,400 from
$30,471,600, representing 107.7% and 95.6% of net revenue for the six months
ended February 28, 1997 and 1996, respectively. As a percentage of net revenue,
the increase was attributable to decreased staff utilization.
General and administrative costs decreased to $1,576,000 from $1,672,900,
and increased to 5.9% and 5.2% of net revenue, respectively.
As a result of the above factors, the loss from operations for the six
months ended February 28, 1997 was $3,606,400 or 13.6% of net revenue compared
to the previous year's loss from operations of $274,300 or .9% of net revenue
for the six months ended February 28, 1996. Interest expense, net, increased
$4,400 for the six months ended February 28, 1997, compared to the prior year.
The benefit from income taxes was $1,531,100 for the six months ended
February 28, 1997 compared to the benefit from income taxes of $196,500 for the
six months ended February 28, 1996, representing effective rates of 40% for both
years.
Net loss for the six months ended February 28, 1997 was $2,296,600, 8.7% of
net revenue, compared to the previous year's second quarter loss of $294,700,
.9% of net revenue for the six months ended February 28, 1996.
Liquidity and Capital Resources
Cash and cash equivalents increased by $325,100 for the six months ended
February 28, 1997. The increase principally resulted from a decrease in accounts
receivable, noncash charges, and proceeds from long-term debt.
The Company's capital expenditures, consisting primarily of purchases of
equipment and leasehold improvements, were approximately $313,400 and $403,600
for the six months ended February 28, 1997 and 1996, respectively.
At February 28, 1997, the Company had outstanding long-term debt, including
current portion, of $1,511,800. This represents a net decrease of $2,785,800
from the August 31, 1996 balance of $3,309,100. The decrease is primarily the
result of: (1) the reclassification of line of credit borrowings and certain
notes payable to current liabilities, and (2) repayments of $450,900 on
long-term debt. This decrease was partially offset by new borrowings of $929,900
for project/financial system and related computer equipment.
As of February 28, 1997, short-term borrowings under the Company's $6
million line of credit arrangement with Signet Bank were $3,140,700. However,
the
14
<PAGE>
Company was not in compliance with certain loan covenants under this credit
agreement. The Company has obtained waivers from Signet related to these
covenants and has entered into a new credit arrangement with an expiration date
of November 30, 1997. At February 28, 1997, all debt under the previous
financing arrangement has been reclassified as short-term borrowings. The new
facility, which became effective April 18, 1997, is secured by certain
receivables and property and equipment and bears interest at a rate of 3 points
above the prime rate. Borrowings are limited to $6 million, or a borrowing base
computation consisting of a percentage of certain accounts receivable and costs
and estimated earnings in excess of billings on uncompleted contracts, whichever
is lower. Borrowings can exceed the borrowings base by $750,000 for short-term
periods. The interest rate on the excess borrowings will be 13 points above
prime rate.
In addition, as a result of the non-compliance with certain financial
covenants, Signet has amended the maturity date for the notes payable agreement
for leasehold improvements and certain laboratory equipment to November 30,
1997.
The Company's existing funds, cash from operations, and the available
portion of its $6.0 million credit arrangement are expected to be sufficient to
meet the Company's present cash needs. The Company also has access to certain
capital equipment financing arrangements through various equipment suppliers.
The Company also believes it has the ability to raise capital through public or
private placement of debt and will pursue such options as the need arises to
expand business services, facilities, or acquire equipment in conjunction with a
review of the most cost effective means for the Company and its stockholders.
The Company's credit arrangements now have an expiration date of November
30, 1997. The Company will be pursuing additional longer-term credit
arrangements and management believes that such efforts will result in increased
availability.
On March 25, 1997, as a result of the Company's losses for the second
quarter, the Company announced a major organizational realignment to reposition
itself in the marketplace. In connection with the restructuring, the Company
expects to incur charges of up to $3 million related to severance, planned
reduction in office space, the suspension of the implementation of a new
project/financial system, and other related costs.
This restructuring, which included a reduction of approximately 125 staff,
along with earlier layoffs in January and February 1997, is expected to
significantly reduce operating and administrative costs in future periods.
While the Company believes that there is sufficient market demand to absorb
its available contracting capacity, there can be no assurance that this demand
will exist or continue. Although the Company has the ability to reduce its
professional staff in periods of reduced demand, it may choose not to make full
reductions in such periods, with resulting adverse effects on operations.
15
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6
(a) Exhibits
The following exhibits are filed herewith:
Exhibit
No. Description
------- -------------------------------------
10.1 Employment Agreement, dated March 17,
1997, between the Company and Donald A.
Deieso
10.2 Amended and Restated Loan and Security
Agreement, dated April 18, 1997,
between the Company and Signet Bank
10.3 Modification of Promissory Notes, dated
April 18, 1997 between the Company and
Signet Bank
(b) Reports on Form 8-K
None
16
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EA Engineering, Science, and
Technology, Inc. & Subsidiaries
-------------------------------
(Registrant)
April 18, 1997 By: /s/ Donald A. Deieso
- ----------------- -------------------------------
(Signature)
Donald A. Deieso
-------------------------------
President and
Chief Executive Officer
-------------------------------
(Title)
April 18, 1997 By: /s/ Joseph A. Spadaro
- ----------------- -------------------------------
(Signature)
Joseph A. Spadaro
-------------------------------
Executive Vice President,
Chief Financial Officer
-------------------------------
(Title)
17
EXHIBIT 1
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
SCHEDULE OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28, February 28, February 28, February 28,
1997 1996 1997 1996
------------ ----------- ----------- ------------
<S> <C>
Weighted average shares of common stock 6,200,200 6,123,700 6,192,600 6,113,400
Impact of dilutive stock options of
401,100 and 222,600 as of February 28,
1997 and February 28, 1996, respectively -- -- -- --
--------- --------- --------- ---------
Weighted average shares of common stock 6,200,200 6,123,700 6,192,600 6,113,400
========= ========= ========= =========
</TABLE>
18
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT, dated February 17, 1997, by and between Donald A. Deieso
("Executive") and EA Engineering, Science, and Technology, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Company desires to employ Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement"); and
WHEREAS, Executive desires to accept such employment and enter into such
an Agreement,
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereby agree as follows:
1. Position.
(a) Executive shall serve as the Chief Executive Officer and President
of the Company and have the general powers and duties of supervision and
management usually vested in the office of Chief Executive Officer of the
Company. In such position, Executive shall have such duties and authority as
shall be determined from time to time by the Board of Directors of the Company
(the "Board") in its sole discretion. The Executive will be appointed to the
Board at the time he assumes his duties; and the Company will use its best
efforts to cause Executive to be elected to the Board at the next annual meeting
of the shareholders of the Company. Executive agrees to serve on the Board and
its committees without additional compensation. In the performance of his
duties, Executive shall comply with the policies and procedures of the Company
(presently in effect or as may be reasonably modified or established hereafter)
and be subject to the direction of the Board.
(b) During the term of his employment hereunder, Executive will devote
all of his business time and best efforts to the performance of his duties
hereunder and will not engage in any other business, profession or occupation
for compensation or otherwise which would conflict with the rendition of such
services, either directly or indirectly, without the prior written consent of
the Board. Notwithstanding any provision of this Agreement to the contrary, any
breach of the provisions of this Section l(b) shall permit the Company to
terminate the employment of Executive for Cause.
(c) To the best of Executive's knowledge, Executive represents and
warrants that he is not a party to any agreement, contract, or understanding,
whether of employment or otherwise, which would in any way restrict or prohibit
him from undertaking or performing his employment and other obligations in
accordance with the terms and conditions of this Agreement. Executive further
agrees to indemnify and hold harmless the Company and its past and present
officers, directors, employees, agents, owners, stockholders, representatives,
and attorneys from and against and in respect of any and all claims alleging
that (a) Executive is so restricted or prohibited or (b) the Company has
committed a wrongful act in negotiating with, and employing the services of,
Executive.
<PAGE>
2. Term of Employment. The term of Executive's employment under this
Agreement shall commence on the date hereof and shall continue thereafter unless
and until terminated as provided in Section 9 of this Agreement (the "Employment
Term").
3. Compensation. The Company shall pay Executive an annual gross base
salary (the "Base Salary") at the annual initial rate of Two Hundred Seventy-
Five Thousand Dollars ($275,000), payable in accordance with the Company's usual
payment practices. The Executive shall be entitled to such increases in his Base
Salary as may be determined from time to time in the sole discretion of the
Board. At such times and in such manner as is acceptable to the Company,
Executive may elect to defer receipt of up to fifteen percent (15%) of his Base
Salary to future fiscal years. The parties agree to execute such additional
documents as may be necessary to implement this deferral arrangement in
accordance with the U.S. Internal Revenue Code and regulations promulgated
thereunder.
4. Bonus and Stock Options.
(a) With respect to each fiscal year during the Employment Term,
Executive shall be eligible to receive, in addition to his Base Salary, a bonus
for services rendered during such fiscal year, which Bonus shall be determined
by the Board in its sole discretion. Guidelines for the earning of this Bonus
will be agreed to by the Board and the Executive at the beginning of each fiscal
year. In each fiscal year, Executive may be paid a bonus of up to fifty percent
(50%) of Executive's Base Salary in such fiscal year, which bonus shall be paid
in cash. However, for his first fiscal year of service during the Employment
Term, Executive shall be paid a bonus of not less than Fifty Thousand Dollars
($50,000). This bonus, at the company's option, will be paid on August 31, 1997
or September 1, 1997, which bonus will be paid in cash. At such times and in
such manner as is acceptable to the Company, Executive may elect to defer
receipt of all or part of his bonus, if any, in a particular fiscal year to
future fiscal years. The parties agree to execute such additional documents as
may be necessary to implement this deferral arrangement in accordance with the
U. S. Internal Revenue Code and regulations promulgated thereunder.
(b) (i) Upon commencing employment with the company, and subject to the
approval of the Compensation Committee of the Board ("Committee"), Executive
will be awarded options to purchase Two Hundred Thousand (200,000) shares of the
Company's Common Stock ("Common Stock"), which will have an exercise price based
on the per share fair market value of the Common Stock on the date the Committee
approves the award.
(ii) Of these options, Fifty Thousand (50, 000) will be fully
vested upon award by the Committee and the balance will be vested over the next
three years in equal increments of Fifty Thousand (50,000) per year. At the
beginning of the second year of the Employment Term, if Executive is still
employed by the Company under the terms of this Agreement, and subject to the
approval of the Committee, Executive will be awarded options to purchase One
Hundred Fifty Thousand (150,000) shares of Common Stock which options will vest
in accordance with the following schedule as long as Executive is still employed
by the Company on the vesting date:
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<PAGE>
(A) twenty-five percent (25%) one (1) year after
the date of the award by the Committee;
(B) twenty-five percent (25%) two (2) years after
the date of the award by the committee;
(C) twenty-five percent (25%) three (3) years after
the date of the award by the Committee; and
(D) twenty-five percent (25%) four (4) years after
the date of the award by the Committee,
and which options will have an exercise price based on the per share fair market
value of the Common stock on the date in the fiscal year in which the Committee
approves the award.
(iii) At the beginning of the third year of the Employment
Term, if Executive is still employed by the Company under the terms of this
Agreement, and subject to the approval of the Committee, Executive will be
awarded options to purchase Fifty Thousand (50,000) shares of Common Stock which
options will vest in accordance with the following schedule as long as Executive
is still employed by the Company on the vesting date:
(A) twenty-five percent (25%) one (1) year after
the date of the award by the Committee;
(B) twenty-five percent (25%) two (2) years after
the date of the award by the committee;
(C) twenty-five percent (25%) three (3) years after
the date of the award by the committee; and
(D) twenty-five percent (25%) four (4) years after
the date of the award by the Committee,
and which options will have an exercise price based on the per share fair market
value of the Common Stock on the date in the fiscal year in which the Committee
approves the award. With respect to the stock options to be awarded at the
beginning of the second and third years of the Employment Term, and subject to
the approval of the Committee, the quantity of stock options to be awarded and
their exercise prices will be adjusted in the event of and to reflect the impact
of any major recapitalization of the Company.
(c) Nothing in Section 4(b) precludes the Committee, in its sole
discretion, from awarding Executive stock options in addition to those stock
options enumerated in Section 4(b).
(d) All stock options awarded to Executive under Section 4(b) are
subject to the terms of the Company's stock option plan pursuant to which the
stock options are awarded; provided, however, that if the Executive's employment
is terminated by the Company in accordance with Section 9(c) hereof, the
Executive will have a period of five (5) years from the date of such termination
within which to exercise any option that has become vested by
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<PAGE>
the date of such termination.
5. Housing Allowance. The Company recognizes that the Executive will not
relocate his residence from New Jersey to the Baltimore metropolitan area until
his daughter finishes high school. Hence, the Company will furnish the Executive
at its expense with an appropriate apartment in the Hunt Valley area of
Maryland. At the time of the Executive's relocation to the Baltimore
metropolitan area, the Company will provide Executive with a relocation package
of expense reimbursement that is appropriate to a person of similar executive
position.
6. Vacation. Executive shall be entitled to four (4) weeks vacation in
each calendar year, which amount will be prorated in those calendar years in
which he is employed by the Company for only part of the calendar year.
7. Employee Benefits. Executive shall be provided employee benefits
(including fringe benefits, pension and profit sharing plan participation and
life, health, accident and disability insurance) (collectively "Employee
Benefits") on the same basis as those benefits are generally made available to
senior executives of the Company. In addition, to the extent not otherwise
provided for in this Agreement, Executive shall be entitled to participate in
all plans providing benefits to the senior executives including incentive
compensation, stock option, stock appreciation, stock bonus and other
compensable plans extended by the Company from time to time to senior corporate
officers.
8. Business Expenses and Perquisites.
(a) Reasonable travel, entertainment and other business expenses
incurred by Executive in the performance of his duties hereunder shall be
reimbursed by the Company in accordance with Company policies.
(b) The Company shall provide to Executive during the term of this
Agreement the use of an automobile for which the Company shall assume the cost
of insurance, taxes, maintenance and business related operating expenses upon
presentation by Executive of documentation supporting such expenses. Executive
shall bear the costs of personal use of the vehicle and such use shall be
governed by the U.S. Tax Code provisions regulating business and personal use of
a Company car.
9. Termination of Employment.
(a) For Cause by the Company. Executive's employment hereunder may be
terminated by the Company for "Cause" at any time during the Employment Term.
For purposes of this Agreement, "Cause" shall mean (i) Executive's willful and
continued failure substantially to perform his duties hereunder (other than as a
result of total or partial incapacity due to physical or mental illness), (ii)
dishonesty or breach of trust in the performance of Executive's duties hereunder
which is materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries or affiliates, (iii) any act or
omission on Executive's part constituting a felony under the laws of the United
States or any state thereof that has an adverse impact on Executive's character,
suitability, or fitness to remain as the Chief Executive Officer of the Company,
or (iv) any other willful act or omission
4
<PAGE>
which is materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries or affiliates. For purposes of this
section 9(a), no act or failure to act on the part of Executive shall be deemed
"willful" unless done, or omitted to be done, by Executive not in good faith and
without reasonable belief that the act or omission of Executive was in, or not
opposed to, the best interest of the Company. If Executive is terminated by the
Company for Cause, he shall be entitled only to receive his Base Salary through
the date of termination. All other benefits due Executive following Executive's
termination of employment pursuant to this Section 9(a) shall be determined in
accordance with the plans, policies and practices of the Company.
(b) Disability or Death. Executive's employment hereunder shall
terminate upon his death and if Executive becomes physically or mentally
incapacitated and is therefore unable for a period of two (2) consecutive months
or for an aggregate of three (3) months in any twelve (12) consecutive month
period to perform his duties (such incapacity is hereinafter referred to as
"Disability"). Any question as to the existence of the Disability of Executive
as to which Executive and the Company cannot agree shall be determined in
writing by a qualified independent physician mutually acceptable to Executive
and the Company. If Executive and the Company cannot agree as to a qualified
independent physician, each shall appoint such a physician and those two
physicians shall select a third who shall make such determination in writing.
The determination of Disability made in writing to the Company and Executive
shall be final and conclusive for all purposes of the Agreement. Upon
termination of Executive's employment hereunder for either Disability or death,
Executive or his estate (as the case may be) shall continue to receive the
payment to which Executive is entitled pursuant to Section 3 hereof (hereinafter
the "Contract Payments") for a period of twelve (12) months from the date of
termination for either Disability or death. All other benefits due Executive
following Executive's termination for either Disability or death shall be
determined in accordance with the plans, policies and practices of the Company.
(c) Without Cause by the Company. Executive's employment hereunder may
be terminated by the Company without Cause (other than by reason of Disability
or death) at any time during the Employment Term. If Executive is terminated by
the Company without cause (other than by reason of Disability or death),
Executive shall continue to receive the Contract Payments for a period of
eighteen (18) months from the date of Executive's termination pursuant to this
Section 9(c). All other benefits due Executive following Executive's termination
of employment by the Company without Cause (other than by reason of Disability
or death) shall be determined in accordance with the plans, policies and
practices of the Company, except that Executive shall not be entitled to any
separation or severance pay under any such plans, policies and practices.
(d) Termination by Executive.
(i) If Executive terminates his employment with the Company for
any reason (other than the reason set forth in Section 9(d)(ii)), Executive
shall be entitled to the same payment he would have received if his employment
had been terminated by the Company for Cause.
5
<PAGE>
(ii) If, within thirty (30) days after a "Change of Control,"
Executive terminates his employment with the Company because of the "Change of
Control," Executive shall be entitled to receive the Contract Payments for a
period of two (2) years from the date of Executive's termination pursuant to
this section 9(d)(ii). For purposes of this Agreement, "Change of Control" shall
mean the occurrence of the following event with respect to the Company: a change
of a nature that would be required to be reported, by persons or entities
subject to the reporting requirements of Section 13(d) of the Securities and
Exchange Act of 1934 (the "Exchange Act"), in Schedule 13D of Regulation 13DG,
or any successor provisions thereto, promulgated under the Exchange Act;
provided that a Change of Control shall be deemed to have occurred only if any
"person" (as that term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 issued under the
Exchange Act), directly or indirectly, of securities of the Company representing
forty-five percent (45%) or more of the combined voting power of the Company's
then outstanding securities.
(e) Notice of Termination. Any purported termination of employment by
the Company or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 14(g) hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. Executive shall give the Company at least fifteen (15) days advance
written notice of his intention to terminate his employment (under Section 9(d))
and no such termination shall be effective unless that notice has been given. In
the event Executive gives notice of his intention to terminate his employment,
the Company is entitled to accelerate his termination to an earlier date and
such termination shall still be deemed a termination by Executive governed by
Section 9(d).
(f) If during the period of continued payments provided in Section 9(c)
hereof, Executive shall become self-employed or employed by a third party, the
Company shall be responsible only to pay Executive the excess, if any, of the
Contract Payments over the compensation Executive is receiving from other
sources.
10. Confidentiality. Executive will not at any time (whether during or after
his employment with the Company) disclose or use for his own benefit or purposes
or the benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation, or other business organization, entity or
enterprise, other than the Company and any of its subsidiaries or affiliates,
any trade secrets, information, data, or other confidential information relating
to customers, development programs, costs, marketing, trading, investment, sales
activities, promotion, credit and financial data, manufacturing processes,
financing methods, plans, or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided, that the foregoing
shall not apply to information which is not unique to the Company, or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or
6
<PAGE>
therefrom, in any way relating to the business of the Company and its
subsidiaries and affiliates, except that he may retain personal notes, notebooks
and diaries. Executive further agrees that he will not retain or use for his
account at any time any trade name, trademark or other proprietary business
designation used or owned in connection with the business of the Company or its
subsidiaries and affiliates.
11. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 1(b), Section 10 would be inadequate and, in recognition
of this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available.
12. Arbitration.
(a) Except as provided in Section 13(b) immediately below, any and all
claims arising out of or relating to (i) this Agreement, (ii) any breach of any
provision of this Agreement, (iii) Executive's employment at any time with the
Company, and/or (iv) the termination of Executive's employment with the Company
shall be settled by arbitration. Such arbitration proceeding shall be conducted
pursuant to the Employment Dispute Resolution Rules of the American Arbitration
Association ("AAA,") then in effect, by a single arbitrator and shall be held in
Baltimore City, Maryland. The cost of the arbitration proceeding and the
reasonable costs and attorneys, fees of the prevailing party shall be paid by
the non-prevailing party, with the dollar amount of these costs and fees to be
fixed by the arbitrator. The judgment upon the award rendered by the arbitrator
may be entered in any court having competent jurisdiction thereof.
(b) Nothing in Section 13(a) immediately above shall be construed or
interpreted to preclude the Company from filing suit in a court of competent
jurisdiction in order to enforce its rights and remedies under Sections 1(b),
10, 11 and/or 12 of this Agreement. In any such suit, the court is empowered to
and shall resolve any dispute as to whether the claims asserted by the Company
are within the scope of Sections 1(b), 10, 11 and/or 12 of this Agreement, and
the court shall not refer such dispute to arbitration under Section 13(a)
immediately above.
(c) With respect to the claims of Executive that are within the scope
of Section 13 (a) above, if Executive has the same, similar, or related claims
against any of the Company's employee benefit plans, trusts, committees, or
boards or against any past or present officers, directors, employees, agents,
owners, stockholders, trustees, fiduciaries, administrators, sponsors,
representatives, or attorneys of the Company, its subsidiaries, or its
affiliates or the Company's employee benefit plans, trusts, committees, or
boards (collectively referred to as the "Other Defendants,"), and if Executive
seeks to litigate such claims against the Other Defendants in a civil action or
any other proceeding including before an administrative agency), Executive
agrees that any or all of said Other Defendants may compel Executive to
arbitrate his claims against them pursuant to the terms of this Section 13.
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(d) The arbitrator selected by the parties pursuant to the AAA rules
shall have expertise in private industry employee relations and shall hear and
determine the case promptly. The burden of persuasion shall at all times be upon
the party seeking relief.
13. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company and fully supersedes any and all prior restrictions, agreements,
statements, representations, promises, inducements, warranties, covenants or
understandings, written or oral, between Executive and the company with respect
to the subject matter herein. There are no restrictions, agreements, statements,
representations, promises, inducements, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
of such party's rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive
and shall be assignable by the Company only with the consent of Executive.
(f) Successors, Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees of the
parties hereto. This Agreement shall also inure to the benefit of the Other
Defendants and their respective heirs, executors, administrators, successors,
assigns, and legal representatives.
(g) Notice. For the purpose of this Agreement notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when telecopied, delivered, or mailed by United
States registered mail, return receipt requested, postage prepaid addressed to
the respective addresses set forth on the execution page of this Agreement,
provided that all notices to the Company shall be directed to the attention of
the Board with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in accordance
herewith except that notice of change of address shall be effective only upon
receipt. Notice by telecopier will be effective only if and when receipt is
confirmed by the sender by telephoning and speaking directly with the intended
recipient or, in the absence of the intended recipient, in the
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case of the Company, the regular secretary of the intended recipient, and in the
case of Executive, a member of his family at his residence.
(h) Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such federal, state and local taxes as may be
required to be withheld pursuant to any applicable law or regulation.
(i) Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
(j) Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretations of this Agreement.
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
11109 McCormick Road
Hunt Valley, Maryland 21031
By /s/ Loren D. Jensen
____________________________________
Loren D. Jensen, Chairman
By /s/ Donald A. Deieso
____________________________________
Donald A. Deieso
9 Nottingham Road
Edison, New Jersey 08820
9
Exhibit 10.2
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Securing: $6,000,000 Revolving Line of Credit
$1,800,000 Term Loan
$1,600,000 Term Loan
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement") is made this 18th day of April, 1997, by EA ENGINEERING SCIENCE
AND TECHNOLOGY, INC. (the "Borrower") in favor of SIGNET BANK (the "Lender").
RECITALS
R-1. The Lender made a revolving credit loan to the Borrower pursuant
to a Loan Agreement dated October 31, 1996 (the "Loan Agreement"). The Revolving
Credit Loan is evidenced by a Promissory Note dated October 31, 1996 in the
original principal amount of $10,000,000. As of April 17, 1997, there is due
under such note principal of Three Million Five Hundred Thousand Dollars
($3,500,000) and interest of Eight Thousand Two Hundred Thirty-Eight and 16/100
Dollars ($8,238.16), plus attorneys' fees and other costs which are payable
under such note.
R-2. The Lender made a term loan to the Borrower which is evidenced by
a Promissory Note dated November 25, 1991 in the original principal amount of
$1,600,000. As of April 17, 1997, there is due under such note principal of One
Hundred Seventy-Seven Thousand Seven Hundred Seventy-Seven and 92/100 Dollars
($177,777.92) and interest of Nine Hundred Forty-Eight and 38/100 Dollars
($948.38), plus attorneys' fees and other costs which are payable under such
note.
R-3. The Lender made a term loan to the Borrower which is evidenced by
a Promissory Note dated November 21, 1991 in the original principal amount of
$1,800,000. As of April 17, 1997, there is due under such note principal of Four
Hundred Twenty-Eight Thousand Five Hundred Seventy-One and 52/100 Dollars
($428,571.52) and interest of Two Thousand Five Hundred Ninety-Three and 48/100
Dollars ($2,593.48), plus attorneys' fees and other costs which are payable
under such note.
R-4. The Borrower also is indebted to the Lender in the principal
amount of $5,000, which indebtedness arises pursuant to Irrevocable Stand-By
Letter of Credit No. S-2250 issued by the Lender for the benefit of the Division
of Engineering, County of Essex, Department of Public Works, 900 Bloomfield
Avenue, Verona, New Jersey (the "Letter of Credit") and is evidenced by a Letter
of Credit Application and Agreement dated October 16, 1995 (the "Letter of
Credit Agreement").
R-5. The loans described in Recitals R-1 through R-4 above are secured
by, among other things, a Security Agreement dated March 27, 1997 by the
Borrower in favor of the Lender,
<PAGE>
whereby the Borrower granted to the Lender a security interest in the Collateral
as defined therein (the "Security Agreement").
R-6. The Borrower is in violation of certain financial covenants and
ratios contained in the Loan Agreement.
R-7. The Borrower has requested that the Lender make certain
modifications to the loans described in Recitals R-1 through R-4 including
waiving certain financial covenants and ratios and the Lender has agreed to do
so upon the condition that this Agreement amending and restating the Loan
Agreement and the Security Agreement in their entireties be executed and
delivered by the Borrower to the Lender.
NOW, THEREFORE, in consideration of the agreements, covenants and
conditions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree to amend and restate the Loan Agreement and the Security Agreement in
their entireties as follows:
SECTION 1
DEFINITIONS
1.01 Certain Defined Terms: All accounting terms not specifically defined herein
shall have the meanings assigned to them as determined by Generally Accepted
Accounting Principles ("GAAP"), consistently applied. As used herein, the
following terms, when initial capital letters are used, shall have the
respective meanings set forth below, except as otherwise expressly provided:
"Account Debtor" means any "account debtor," as such term is defined in
Section 9-105(1)(a) of the UCC (hereinafter defined).
"Borrower's Obligations" means (a) the Borrower's prompt payment to the
Lender of (i) any and all sums due to the Lender under the Loans (hereinafter
defined), or otherwise in accordance with the terms of the Notes, (ii) any and
all sums advanced by the Lender to preserve, protect, or perfect the Collateral
(hereinafter defined) and the value of the Collateral, or to preserve, protect
or perfect the Lender's Security Interest (hereinafter defined) in the
Collateral, and (iii) the expenses of any exercise by the Lender of the Lender's
rights in consequence of any default hereunder, and (b) the Borrower's
performance of all of the terms and provisions of the Loan Documents.
"Borrowing Base" means at any date the lesser of (a) $6,000,000 or (b)
eighty percent (80%) of the value of the Eligible Billed Receivables
(hereinafter defined) plus twenty-five percent (25%) of the value of the
Eligible UnBilled Receivables (hereinafter defined).
"Borrowing Base Certificate" means a certificate of the Borrower in a
form satisfactory to the Lender containing a computation of the Borrowing Base,
in the form attached as Exhibit A.
-2-
<PAGE>
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the State of Maryland are authorized by law to close.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by the Borrower.
"Closing Date" means the date on which all of the closing conditions
described in Section 2 hereof have been fully satisfied.
"Collateral" is defined in Section 3 hereof.
"Contracts" means all contracts, undertakings or other agreements
(other than Chattel Paper, Documents (hereinafter defined) or Instruments
(hereinafter defined)) in or under which the Borrower may now or hereafter have
any right, title or interest, including, without limitation, with respect to a
Receivable (hereinafter defined), any agreement relating to the terms of payment
or the terms of performance thereof.
"Documents" means any "document," as such term is defined in Section
9-105(1)(f) of the UCC, now owned or hereafter acquired by the Borrower.
"Eligible Billed Receivable" means a receivable of the Borrower that
conforms and continues to conform to the following criteria to the satisfaction
of the Lender in its discretion:
(i) the receivable arises from a bona fide outright sale or
lease by the Borrower of goods or from services performed by the Borrower in the
ordinary course of the Borrower's business and the delivery or performance has
been completed and unconditionally accepted by the Account Debtor;
(ii) the Borrower has possession of, or has delivered to
the Lender, receipts or other documentation satisfactory to the Lender in its
discretion evidencing delivery and acceptance;
(iii) the receivable is based upon an enforceable order or
contract, written or oral, for goods delivered or for services performed and the
same were shipped, held, or performed in accordance with the order or contract;
(iv) the receivable is not subject to any security interest,
lien, assignment or encumbrance except in favor of the Lender, and the Borrower
has the full and unqualified power to assign and grant a security interest in it
to the Lender as security and collateral for the payment of the Borrower's
Obligations;
(v) the receivable is not subject to any potential claim of a
surety or bonding company;
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(vi) the amount shown on the books of the Borrower and on any
invoice, certificate, schedule or statement delivered to the Lender is owing to
the Borrower, and no partial payment has been received unless reflected in any
such submission;
(vii) the receivable is not subject to any claim of reduction,
counterclaim, setoff, recoupment, or other defense in law or in equity, or any
claim for credits, allowances, or adjustments by the account debtor because of
returned, inferior, or damaged goods or unsatisfactory services, or for any
other reason;
(viii) the receivable is not payable from any Account Debtor
located outside of the United States unless the transaction giving rise to the
receivable is supported by a letter of credit, acceptance or other credit
enhancement acceptable to the Lender;
(ix) the receivable does not arise from any sale on approval
or consignment, and it is not otherwise subject to any repurchase or return
agreement;
(x) the receivable is not owing by any Account Debtor for
which the Lender has deemed 25% in amount of the Account Debtor's other
receivables due to the Borrower to not conform with the criteria set forth under
the definitions of Eligible Billed Receivable or Eligible Billed Receivable in
this Agreement;
(xi) the receivable does not arise out of a contract with, or
order from, an Account Debtor that, by its terms, forbids or makes void or
unenforceable the assignment by the Borrower to the Lender of the Receivable;
(xii) the Account Debtor has not returned or refused to retain
or otherwise notified the Borrower of any dispute concerning, or claimed
nonconformity of, any of the goods or services from the sale or lease of which
the receivable arose;
(xiii) the receivable is not payable by an Account Debtor with
respect to which fifty percent (50%) or more of the dollar amount of that
Account Debtor's receivables to the Borrower are more than ninety (90) days due
from the date of invoice;
(xiv) the receivable is not evidenced by chattel paper or
instruments unless the Lender has agreed in writing that it may be deemed
eligible, and all originals of the chattel paper or instruments have been
endorsed and delivered to the Lender; and
(xv) the receivable complies with any additional criteria set
forth from time to time by the Lender.
"Eligible UnBilled Receivable" means an Eligible Billed Receivable
except that the receivable has not been invoiced and no more than sixty (60)
days have elapsed from the date of delivery or performance.
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"Equipment" means all of the Borrower's now owned and hereafter
acquired or arising equipment (as defined in Article 9 of the UCC) wherever
located and whether in the possession of the Borrower, the Lender, or a third
party, and including, but not limited to, trade fixtures, shelving, signage,
display cases, machinery, office equipment and supplies, computers and related
equipment, furniture, furnishings, tools, tooling, jigs, fixtures, manufacturing
implements, video equipment, trucks, trailers, vehicles, motor vehicles,
engines, and containers, and if any of the foregoing are stored with any other
person, all of the Borrower's rights relating to the storage and retrieval
thereof and access thereto.
"Expiration Date" means November 30, 1997, which is the date of
termination of the Lender's commitment to make the Revolving Credit Loans and
the date on which the Revolving Credit Note, the First Term Note and the Second
Term Note are due and payable in full.
"First Term Note" means the Promissory Note dated November 25, 1991 in
the original principal amount of $1,600,000 from the Borrower to the Lender, as
amended by a Modification of Note of even date herewith.
"General Intangibles" means any "general intangibles," as such term is
defined in Section 9-106 of the UCC, now owned or hereafter acquired by the
Borrower and, in any event, includes, without limitation, all customer lists,
trademarks, patents, rights in intellectual property, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions
(whether patented or patentable or not) and technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials and records, goodwill, rights
of indemnification and all right, title and interest which the Borrower may now
or hereafter have in or under any Contract, now owned or hereafter acquired by
the Borrower.
"Instrument" means any "instrument," as such term is defined in Section
9-105(1)(i) of the UCC, now owned or hereafter acquired by the Borrower, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Inventory" means all of the Borrower's now owned and hereafter
acquired inventory, and all products, replacements, and substitutions therefor
and thereof, and all accessions thereto.
"Loan Documents" means collectively, the Loan Agreement and the
Security Agreement, as amended and restated by this Agreement, the Revolving
Credit Note (hereinafter defined), the First Term Note, the Second Term Note
(hereinafter defined), the Letter of Credit Agreement, any other instrument or
agreement previously, simultaneously or hereafter executed and delivered by the
Borrower or any person as evidence of, security for, guarantee of, or in
connection with, the Borrower's Obligations, and any and all amendments,
modifications, renewals, extensions, consolidations, replacements or
substitutions of any of them.
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"Loans" means the loans evidenced by the Revolving Credit Note, the
First Term Note, the Second Term Note and the Letter of Credit Agreement (as
defined in Recital 4 above).
"Notes" means collectively the Revolving Credit Note, the First Term
Note, the Second Term Note and the Letter of Credit Agreement.
"Permitted Use" means the use of the proceeds of the loan evidenced by
the Revolving Credit Note by the Borrower for the normal and ordinary operating
expenses of the Borrower.
"Prime Rate" means the rate announced by the Lender from time to time
as its prime rate, as such rate may change from time to time with changes to
occur on the date the Lender's prime rate changes. The Lender's prime rate is
one of several interest rate bases used by the Lender. The Lender lends at rates
above and below the Lender's prime rate, and the Borrower acknowledges that the
Lender's prime rate is not represented or intended to be the lowest or most
favorable rate of interest offered by the Lender.
"Proceeds" or "proceeds" means "proceeds," as such term is defined in
Section 9-306(1) of the UCC, and, in any event, shall include, without
limitation, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to the Borrower from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to the Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
Governmental Authority), and (c) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Receivables" means any "account," as such term is defined in Section
9-106 of the UCC, now owned or hereafter acquired by the Borrower and, in any
event, includes, without limitation, (a) all accounts receivable, book debts and
other forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to the Borrower (including, without limitation, under any
trade name, style or division thereof) whether arising out of goods sold or
services rendered by the Borrower or from any other transaction, whether or not
the same involves the sale of goods or services by the Borrower (including,
without limitation, any such obligation which might be characterized as an
account or contract right under the UCC), (b) all of the Borrower's rights in,
to and under all purchase orders or receipts now owned or hereafter acquired by
it for goods or services, and all of the Borrower's rights to any goods
represented by any of the foregoing (including, without limitation, unpaid
seller's rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), (c) all moneys due or to
become due to the Borrower under all contracts for the sale of goods or the
performance of services or both by the Borrower (whether or not yet earned by
performance on the part of the Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of the
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purchase orders and contracts, and (d) all collateral security and guarantees
of any kind given by any Person with respect to any of the foregoing.
"Revolving Credit Note" means the Promissory Note dated October 31,
1996 in the original principal amount of $10,000,000 from the Borrower to the
Lender, as amended and restated by an Amended and Restated Promissory Note of
even date herewith, which among other things, reduces the principal amount from
$10,000,000 to $6,000,000.
"Revolving Credit Loan" and "Revolving Credit Loans" are defined in
Section 2.01 below.
"Second Term Note" means the Promissory Note dated November 21, 1991 in
the original principal amount of $1,800,000 from the Borrower to the Lender, as
amended by a Modification of Note of even date herewith.
"Security Interest" means the lien and security interest granted by the
Borrower by this Agreement in and to its right, title and interest in the
Collateral.
"Temporary Overadvance" and "Temporary Overadvances" are defined in
Section 2.02 hereof.
"UCC" is defined in Section 4.04 hereof.
SECTION 2
THE LOANS
2.01 Revolving Credit Loans.
(a) The Lender has made a revolving credit loan (each a "Revolving
Credit Loan" and collectively the "Revolving Credit Loans") to the Borrower
evidenced by the Revolving Credit Note. The aggregate principal amount at any
one time outstanding under the Revolving Credit Note shall not exceed the
Borrowing Base, except as set forth in Section 2.02 below; within such limit,
the Borrower may borrow, repay and reborrow hereunder to the Expiration Date.
(b) Interest is payable under the Revolving Credit Note on the first
day of each month at a rate equal to three percent (3%) above the Prime Rate in
effect from time to time (based on a year of 360 days) (the "Base Rate"), such
interest rate to change automatically as of the effective date of each change in
the Prime Rate, provided that interest shall be payable at a rate equal to the
Base Rate plus ten percent (10%) on that amount of the Revolving Credit Loan
which exceeds the Borrowing Base.
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(c) The date and amount of each Revolving Credit Loan and the date and
amount of each payment or prepayment of principal of the Revolving Credit Note
shall be noted by the Lender on the schedule attached to such Revolving Credit
Note; provided, however, that the failure to make or an error in making any such
notation, shall not limit or otherwise affect the obligations or rights of the
Borrower hereunder or under such Revolving Credit Note.
(d) The Revolving Credit Loans shall be in an aggregate principal
amount of $20,000 or an integral multiple thereof. The Borrower shall, not later
than 12:00 Noon, EST, one Business Day prior to each proposed borrowing (which
shall be a Business Day), give the Lender written or telegraphic notice or
telephonic notice promptly confirmed in writing of the proposed Revolving Credit
Loan to be made under Section 2.01 hereof, specifying the total amount of the
proposed borrowing. Subject to the other terms and conditions of this Agreement,
the proceeds of the Revolving Credit Loans shall be made available by the
Lender, not later than 3:00 P.M., EST, on the date specified in such notice, at
the principal office of the Lender, 7 St. Paul Street, Baltimore, Maryland, in
immediately available funds.
(e) If at any time, the aggregate principal amount of the Revolving
Credit Loans shall exceed the Borrowing Base or the Borrowing Base plus the
Temporary Overadvances as set forth in Section 2.02 below, the Borrower,
immediately upon written or oral notice from the Lender, pay to the Lender an
amount equal to the difference between the outstanding principal amount of the
Revolving Credit Loans and the Borrowing Base or the Borrowing Base plus the
Temporary Overadvances, as applicable. On the Expiration Date, the Borrower
shall pay to the Lender in full the outstanding aggregate principal amount of
the Revolving Credit Loans, all accrued unpaid interest and all other sums due
in connection therewith.
(f) The Borrower shall pay to the Lender within five (5) days of a
request from the Lender a fee to cover the Lender's monitoring of the Revolving
Credit Loans. Such monitoring fee shall be approximately $20,000 per year and a
pro-rata portion shall be payable on a quarterly basis or more frequently, in
the Lender's sole discretion. The amounts paid by the Borrower on account of
such monitoring fee shall not be applied against any unpaid principal balance,
accrued but unpaid interest or any other sums due under the Revolving Credit
Loan other than such monitoring fee. Such monitoring fee is part of the
Borrower's Obligations.
(g) The obligation of the Lender to continue to make Revolving Credit
Loans hereunder is subject to the accuracy of the representations and warranties
herein contained, to the performance by the Borrower of its agreements to be
performed hereunder on or before the date of each such Revolving Credit Loan and
to the satisfaction of the following further conditions:
(i) The representations and warranties of the Borrower
contained in this Agreement or otherwise made in writing by or on behalf of the
Borrower in connection herewith shall be true, correct and complete on the date
of each Revolving Credit Loan hereunder with the same force and effect as though
such representations and warranties had been made on and as of such date.
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(ii) At the time of making each Revolving Credit Loan
hereunder, there shall not have occurred and be continuing or existing any Event
of Default or any condition, event, act or omission which, with the giving of
notice or the lapse of time, or both, would constitute an Event of Default.
(iii) At the time of making each Revolving Credit Loan
hereunder there shall be delivered to the Lender a certificate, dated the date
of such loan, signed by the chief executive officer or the chief financial
officer of the Borrower, certifying, in such detail as the Lender may request,
satisfaction of the conditions specified in (i) and (ii) above.
(iv) At the time of making each Revolving Credit Loan
hereunder, there shall be delivered to the Lender a Borrowing Base Certificate
executed by the chief financial officer or chief accounting officer of the
Borrower and such other information and materials as the Lender may reasonably
request, all of which shall be in form and substance satisfactory to the Lender.
2.02 Temporary Overadvance. Commencing on the date of this Agreement through
November 30, 1997, the Bank agrees to make Revolving Credit Loans to the
Borrower under the Revolving Credit Note in amounts not to exceed the Borrowing
Base plus $750,000 (each, a "Temporary Overadvance" and collectively, the
"Temporary Overadvances"), provided, however, that the unpaid balance of the
Revolving Credit Loan shall not exceed the Borrowing Base on the date which is
two (2) weeks from any such Temporary Overadvance. In the event that the unpaid
balance of the Revolving Credit Loan exceeds the Borrowing Base on the date
which is two (2) weeks from any such Temporary Overadvance, the Borrower shall
pay to the Lender the amount by which the unpaid balance of the Revolving Credit
Loan exceeds the Borrowing Base on such date.
2.03 Term Loans. The Lender has made the loans to the Borrower evidenced by the
First Term Note and the Second Term Note, with interest payable as set forth
therein. The First Term Note and the Second Term Note mature on the Expiration
Date, at which time the outstanding aggregate principal amount, all accrued
unpaid interest and all other sums due thereunder are due and payable in full.
2.04 Prepayments and Other Payments.
(a) The Borrower shall have the right to prepay the Revolving Credit
Note, the First Term Note and the Second Term Note in whole at any time or in
part, from time to time, without premium or penalty. Partial prepayments may be
applied by the Lender in such manner as the Lender may determine in its sole and
absolute discretion.
(b) The Borrower shall pay the Lender a late payment charge equal to
five percent (5%) of the amount of any installment (or portion thereof) of
principal or interest on the Revolving Credit Note, the First Term Note or the
Second Term Note which is not paid within ten (10) days after the date on which
such payment shall have become due and payable, whether at scheduled maturity or
by acceleration, declaration or otherwise.
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2.05 Payment and Performance. The Borrower will pay the Borrower's Obligations
as and when due and payable and will perform, comply with, and observe the terms
and conditions of the Loan Documents to be performed, complied with, and
observed by the Borrower.
SECTION 3
COLLATERAL
3.01 Collateral. To secure payment of the Borrower's Obligations, the Borrower
grants to the Lender a Security Interest in the following property of the
Borrower (collectively, the "Collateral"):
(a) all Chattel Paper
(b) all Equipment,
(c) all Inventory,
(d) all Receivables,
(e) all Contracts and any and all claims of the Borrower
for damages arising out of or for breach of or a
default under any Contract and the right of the
Borrower to perform or to compel performance under
any Contract and to exercise all remedies thereunder;
(f) all Documents;
(g) all General Intangibles;
(h) all Instruments,
(i) all records relating to or pertaining to any of the
Collateral; and
(j) all deposit accounts of the Borrower, together with
all moneys now or hereafter deposited therein, all
interest and other income thereon, and all cash and
non-cash proceeds thereof.
3.02 Proceeds of Collateral. The Security Interest provided for herein shall
apply to the Proceeds of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits and products of, each of
the foregoing.
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SECTION 4
COVENANTS, REPRESENTATIONS AND WARRANTIES
4.01 General Covenants, Representations and Warranties. The Borrower
covenants with, and represents and warrants to, the Lender as follows:
(a) Good Standing. The Borrower is a corporation, duly organized and
existing, in good standing, under the laws of the State of Delaware and has the
power to own its property and to carry on its business and is in good standing
in each jurisdiction in which the transaction of its business makes such
qualification necessary. All copies of the charter, by-laws, corporate
resolutions, and any organizational documents of the Borrower shown to the
Lender are true, accurate and complete and no action has been taken in
diminution or abrogation thereof.
(b) Authority. The Borrower has full power and authority to enter into
this Agreement and to perform and comply with the terms, conditions and
agreements set forth herein, which has been duly authorized by all proper and
necessary action of the Borrower. No consent or approval of any shareholder or
member or other third party, and no consent, approval, filing, registration with
or notice to any governmental authority on the part of the Borrower or any other
person is required as a condition (i) to the validity of this Agreement or the
performance by the Borrower of its obligations hereunder; (ii) for the grant by
the Borrower of a Security Interest in the Collateral pursuant to this
Agreement; or (iii) for the perfection or maintenance of the Security Interest
created hereby (including the first priority nature of such Security Interest).
(c) Binding Agreement. This Agreement and the other Loan Documents
constitute the valid and legally binding obligation of the Borrower, enforceable
in accordance with their respective terms.
(d) Litigation. Except as set forth on Exhibit B attached hereto, there
are no actions, claims, suits or proceedings pending (and to the knowledge of
the Borrower, there are none threatened or reasonably anticipated) against or
affecting the Borrower, at law or in equity, or before or by any governmental
authority, and there is no possibility of any judgment, liability or award which
may reasonably be expected to result in any material adverse change in the
business, operations, properties, assets or condition (financial or otherwise)
of the Borrower. The Borrower is not in default with respect to any governmental
requirement or with respect to any judgment, order, writ, injunction, decree,
rule, award or regulation of any governmental authority. If any such action,
claim, suit or proceeding shall arise or be filed or be made at any time during
which this Agreement shall be in effect, the Borrower shall give the Lender
prompt notice thereof.
(e) Borrower's Legal Compliance. To the Borrower's best knowledge,
information and belief, the Borrower's execution, delivery of and performance
under this Agreement will not violate or result in a violation of any provision
of any applicable statute, regulation or order of, or
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any restriction imposed by, the United States of America or any state or
municipality under the jurisdiction of the United States of America, or any
authorized official, board, department, instrumentality or agency thereof. The
Borrower will at times comply in all material respects with all applicable
federal, state and local laws, rules and regulations, and will comply with
the orders of any court or other governmental authority having jurisdiction.
(f) Borrower's Contractual Compliance. The Borrower's execution,
delivery of and performance under this Agreement will not breach, violate or
cause a default under any agreement, deed of trust, note or other instrument to
which the Borrower may be a party, or by which the Borrower or any of the
Borrower's property is bound. Further, such execution, delivery and performance
will not result in the creation or imposition of any lien upon any of the
Borrower's property or assets (other than in favor of the Lender), nor result in
nor require the acceleration of any of the Borrower's indebtedness.
(g) Accuracy of Information. All information contained in any financial
statement, application, schedule, report or any other document given by the
Borrower in connection with this Agreement or the Borrower's Obligations is in
all respects true and accurate and the Borrower has not omitted to state any
material fact or any fact necessary to make such information not misleading.
(h) Taxes. The Borrower has filed or caused to be filed, and will
continue to file or cause to be filed, all federal, state and local income,
excise, property and other tax returns which are required to be filed by the
Borrower. All such returns are and will be true and correct, and the Borrower
has paid or caused to be paid, and will continue to pay or cause to be paid, all
taxes (to the extent that such taxes have or will become due, including but not
limited to, all F.I.C.A. payments and withholding taxes) as shown on such
returns or on any assessment received by the Borrower.
(i) Use of Proceeds. The proceeds of the Revolving Credit Loan will be
used solely for the Permitted Use.
4.02 Affirmative Covenants of the Borrower. Until payment and performance
in full of all of the Borrower's Obligations under the Loan Documents, the
Borrower will:
(a) Furnish Financial Statements. Maintain at all times a system
of accounting satisfactory to the Lender and furnish to the Lender at such time
or times as specified by the Lender such financial statements as may be required
by the Lender, including, but not limited to, the following:
(i) Daily Reports. On a daily basis, such information
as may be required by the Lender, covering the previous day;
(ii) Monthly Reports. As soon as available but in no event
more than fifteen (15) Business Days after the end of each
month a balance sheet, a profit and loss
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statement and a statement of cash flows for the Borrower,
covering the previous month;
(iii) Quarterly Reports. As soon as available but in no
event more than forty-five (45) days after the end of each
quarter a balance sheet, a profit and loss statement and a
statement of cash flows for the Borrower, covering the
previous quarter;
(iv) Annual Reports. As soon as available but in no event
more than ninety (90) days after the end of each fiscal year
of the Borrower financial statements of the Borrower prepared
in accordance with GAAP, consistently applied, including a
balance sheet, a profit and loss statement and a statement of
cash flows for the Borrower, covering the previous fiscal
year, fully reviewed and certified by independent certified
public accountants satisfactory to the Lender.
(v) Tax Returns. Within thirty (30) days after the
date of the filing of its annual federal tax return, deliver
to the Lender a copy of that federal tax return.
(vi) Other Information. Promptly furnish to the Lender
such information regarding the operations, business, affairs,
and financial condition of the Borrower as the Lender may from
time to time reasonably request.
(c) Borrowing Base Certificate. The Borrower shall provide to the
Lender at the time of making each of the Revolving Credit Loans hereunder and in
any event no less frequently than on a weekly basis, a Borrowing Base
Certificate executed by the chief financial officer or chief accounting officer
of the Borrower.
(d) Accounts Receivable and Account Payable Agings. At the time of
making each of the Revolving Credit Loans hereunder and in any event no less
frequently than on a weekly basis, the Borrower shall provide:
(i) a report listing all Receivables of the Borrower as of the
last Business Day of such week, which report shall include a detailed listing of
or the amount and age of each Receivable, the original date of each invoice and
such other information as the Lender may require in order to verify the Eligible
Billed Receivables and the Eligible UnBilled Receivables, all in reasonable
detail and in form satisfactory to the Lender; and
(ii) a report listing all accounts payable of the Borrower
(including a detailed aging of payables by total and a summary aging of payables
by vendor) in reasonable detail and in form satisfactory to the Lender.
(e) Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 1.30 to 1.00 (pre-tax).
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(f) Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.5 to 1.00 (pre-tax).
(g) Income. Maintain not less than the following income level: maintain
not less than pre-tax income greater than or equal to ($900,000) as of May 31,
1997, $500,000 as of August 30, 1997 and $700,000 as of November 30, 1997,
all exclusive of restructuring charges.
(h) Tangible Net Worth. Maintain a minimum Tangible Net Worth of not
less than $13,500,000 from the date of this Agreement until all sums due under
the Notes are paid in full. All computations made to determine compliance with
the requirements of this paragraph and paragraphs (e), (f) and (g) immediately
preceding this paragraph shall be made in accordance with GAAP, consistently
applied, and certified by the Borrower as being true and correct.
(i) Maintaining Records; Granting Access to Properties and Inspections.
Maintain financial records and, at all reasonable times and as often as the
Lender may reasonably request but only after twenty-four (24) hours prior notice
(which can be oral or written) to the Borrower, permit any representative
authorized by the Lender: (a) to visit and inspect any of the properties or
assets of the Borrower (including, without limitation, its books of account,
records, computer tapes, correspondence and other papers); (b) to make extracts
therefrom; and (c) to discuss the Borrower's affairs, finances and accounts with
the Borrower's officers or partners, and the independent certified public
accountants or other parties who shall prepare statements for or on behalf of
the Borrower. The Lender shall perform such inspections so as not to
unreasonably interfere with the Borrower's business.
(j) Maintenance of Licenses and Permits. Keep in full force and
effect all licenses and permits necessary to the proper conduct of the business
of the Borrower.
(k) Maintain Property. Keep all property used or useful in its
business in good repair, working order and condition, and from time to time
make all necessary or desirable repairs, renewals or replacements thereof.
(l) Adverse Change. Promptly notify the Lender in writing of any
condition or event that constitutes (or which, with the lapse of time, the
giving of notice, or both, would constitute) an Event of Default, and promptly
inform the Lender of any material adverse change in the Borrower's financial
condition.
(m) Audit. Permit the Lender to conduct an audit of its business at
any time, which audit shall be at the Borrower's expense.
(n) Reports on Refinancing Efforts. Provide to the Lender on a monthly
basis commencing on September 1, 1997 a report on the status of the Borrower's
efforts to refinance the Loans.
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4.03 Covenants, Representations and Warranties Regarding the Collateral. The
Borrower covenants with, and represents and warrants to, the Lender as follows:
(a) Ownership of Collateral. The Borrower owns all of the Collateral
and has good and marketable title to the Collateral free and clear of all liens,
security interests, and other encumbrances except for those in favor of the
Lender. No effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any recording office.
(b) No Sale, Lease, or Exchange. The Borrower will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part thereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Borrower may, in the ordinary course of its
business, and in the absence of an Event of Default hereunder, exercise its
rights under and receive payment from its Receivables. The Borrower shall
promptly, at its own expense, discharge any such lien if the same shall arise at
any time with respect to the Collateral.
(c) Defend Title and Furnish Further Assurances. The Borrower will
defend its title to the Collateral against all persons and will, upon request of
the Lender, (i) furnish such further assurances of title as may be required by
the Lender, and (ii) deliver and execute or cause to be delivered and executed,
in form and content satisfactory to the Lender, any financing, continuation,
termination, or security interest filing statement, security agreement, or other
document as the Lender may request in order to perfect preserve, maintain, or
continue the perfection of the Lender's Security Interest in the Collateral
and/or its priority. The Borrower will pay the costs of filing any financing,
continuation, termination, or Security Interest filing statement as well as any
recordation or transfer tax required by law to be paid in connection with the
filing or recording of any such statement.
(d) Validity of Documents. As of the time when each of its Receivables
arises, the Borrower shall be deemed to have represented and warranted that such
Receivable, and all records, papers and documents relating thereto (if any) are
genuine and in all respects what they purport to be, and that all papers and
documents (if any) relating thereto (i) will represent the genuine, legal, valid
and binding obligation of the Account Debtor evidencing indebtedness unpaid and
owed by the respective Account Debtor arising out of the performance of labor or
services or the sale or lease and delivery of the merchandise listed therein, or
both (ii) will be the only original writings evidencing and embodying such
obligation of the Account Debtor named therein (other than copies created for
general accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms and (iv) will be in
compliance and will conform in all material respects with all applicable
federal, state and local laws and applicable laws of any relevant foreign
jurisdiction.
(e) Maintenance of Records. The Borrower will keep and maintain at its
own cost and expense reasonably satisfactory and complete records of its
Receivables, including, but not
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limited to, the originals of all documentation with respect thereto, records of
all payments received, all credits granted thereon, any tickets returned and all
other dealings therewith, and the Borrower will make the same available on the
Borrower's premises to the Lender for inspection, at the Borrower's own cost and
expense, at any and all reasonable times upon demand. Upon the occurrence and
during the continuance of an Event of Default and at the request of the Lender,
the Borrower shall, at its own cost and expense, deliver all tangible evidence
of its Receivables (including, without limitation, all Documents evidencing the
Receivables) and such books and records to the Lender or to its representatives
(copies of which evidence and books and records may be retained by the
Borrower). If the Lender so directs, the Borrower shall legend, in form and
manner reasonably satisfactory to the Lender, the Receivables and related
Documents with an appropriate reference to the fact that such Receivable and
related Documents have been assigned to the Lender and that the Lender has a
Security Interest therein.
(f) No Rescission or Cancellation of Indebtedness. The Borrower shall
not rescind nor cancel any indebtedness evidenced by any Receivable, or modify
any term thereof or make any adjustment with respect thereto, or extend or renew
the same, or compromise or settle any material dispute, claim, suit or legal
proceeding relating thereto, or sell any Receivable, or interest therein,
without the prior written consent of the Lender, except that, so long as no
Event of Default is then in existence, the Borrower may make in the ordinary
course of business such modifications, adjustments, extensions, renewals,
compromises or settlements of any Receivable which the Borrower finds
appropriate in accordance with its sound business judgment. The Borrower will
duly fulfill all material obligations on its part to be fulfilled under or in
connection with the Collateral and will do nothing to impair the rights of the
Lender in the Collateral.
(g) Collection of Receivables. The Borrower shall endeavor to cause to
be collected from the Account Debtor named in each of its Receivables, as and
when due (including, without limitation, amounts which are delinquent, such
amounts to be collected in accordance with generally accepted lawful collection
procedures) any and all amounts owing under or on account of such Receivables,
and apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balance of such Receivables, except that, so long as no Event of
Default is then in existence, the Borrower may allow in the ordinary course of
business as adjustments to amounts owing under its Receivables (i) an extension
or renewal of the time or times of payment, or settlement for less than the
total unpaid balance, which the Borrower finds appropriate in accordance with
sound business judgment and (ii) a refund or credit due as a result of returned
unused goods or improperly performed services. The reasonable costs and expenses
(including, without limitation, attorneys' fees) of collection, whether incurred
by the Borrower or the Lender, shall be borne by the Borrower.
(h) Comply with Contracts. It is expressly agreed by the Borrower that,
anything herein to the contrary notwithstanding, the Borrower shall remain
liable under each of the Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and the Borrower shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract to the extent the
failure to do so would have a material adverse effect. The Lender shall not have
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any obligation or liability under any Contract by reason of or arising out of
this Agreement or the granting of a Security Interest in any Contract to the
Lender or the receipt by the Lender of any payment relating to any Contract
pursuant hereto, nor shall the Lender be required or obligated in any manner to
perform or fulfill any of the obligations of the Borrower under or pursuant to
any Contract, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any Contract, or to present or file any claim or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(i) Place of Business and Location of Collateral. Exhibit C hereto
correctly states (i) the Borrower's present name and all other names (including
trade names) under which it has conducted any business or other activity since
inception, (ii) the principal place of business and the chief executive office
of the Borrower and (iii) the places where the Borrower keeps the Collateral (or
the physical evidences thereof) and its records regarding the Collateral. The
Borrower will not change its name, identity, corporate structure or chief place
of business in any manner which might make any financing or continuation
statement filed in connection herewith seriously misleading within the meaning
of ss. 9-402(7) of the Uniform Commercial Code as the same, from time to time,
shall be in effect in the State of Maryland (or in any other jurisdiction where
any of the Collateral is located) (the "UCC") (or any other then applicable
provision of the UCC) unless the Borrower shall have given the Lender at least
30 days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary to amend such
financing statement or continuation statement so that it is not seriously
misleading.
(j) No Change of Name or Address. The Borrower has not, within the past
four months, changed (i) its name or identity or its corporate charter, by
reorganization or otherwise or (ii) the addresses at which the Collateral is
located or its principal place of business or chief executive office from the
addresses therefor set forth on Exhibit C hereto other than as shown on Exhibit
C. The Borrower's legal name is set forth at the head of this Agreement, and the
Borrower does not have, and does not have the right to use, any other trade
names.
(k) Care of Collateral. The Borrower shall maintain and preserve the
Collateral in good condition and will not cause or permit anything to be done to
the Collateral that may impair its value or that may violate the terms of any
insurance covering the Collateral or any part thereof. The Lender shall have no
duty to, and the Borrower hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any account, Document or
Instrument or to preserve rights against prior parties to the Collateral.
(l) Insurance. The Borrower shall insure such of the Collateral as
specified by the Lender against such casualties and risks in such form and
amount as may from time to time be required by the Lender. All insurance
proceeds shall be payable to the Lender and all policies of insurance shall be
furnished to the Lender. The Borrower will pay all premiums due or to become due
for such insurance and hereby assigns to the Lender any returned or unearned
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premiums which may be due upon cancellation of insurance coverage. The Lender is
hereby irrevocably (a) appointed the Borrower's attorney-in-fact (which
appointment is coupled with an interest) to endorse any draft or check which may
be payable to the Borrower in order to collect such returned or unearned
premiums or the proceeds of insurance and (b) authorized to apply such insurance
proceeds in the same manner and order as the proceeds of sale or other
disposition of the Collateral are to be applied hereunder.
(m) Taxes. The Borrower shall pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.
(n) Federal Assignment of Claims Act. If any part of the Collateral
hereunder arises out of a contract or contracts with the United States of
America or any department, agency, or instrumentality thereof, the Borrower
shall notify immediately the Lender in writing and execute any instruments or
take any steps required by the Lender within five (5) days of the Lender's
request in order that all moneys due or to become due under such contract or
contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act. This provision shall apply only to those
contracts under which $500,000 or more remains to be paid or has the potential
for being paid.
(o) Financing Statements. The Security Interest intended to be created
hereby is a valid, duly perfected, first priority security interest in the
Collateral, securing the payment and performance of the Borrower's Obligations.
UCC-1 financing statements in appropriate form are intended to be or have been
filed in the State of Maryland and in the other jurisdictions where the
Collateral is located (these financing statements are in addition to the
financing statements previously filed in the State of Maryland with respect to
the Security Agreement, which financing statements shall continue in effect).
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SECTION 5
RIGHTS OF LENDER AND DUTIES OF BORROWER
5.01 Receivables. Upon the occurrence of any Event of Default and upon notice
from the Lender, the Borrower shall take such action in collecting the
Receivables as the Lender may request. If the Lender so directs, the Borrower
shall collect such sums in its name, but for and on behalf of the Lender. All
sums collected by the Borrower, including prepayments and cash payments, shall
be the property of the Lender and shall stand as security for the Borrower's
Obligations and the performance by the Borrower of all of the terms and
provisions of the Loan Documents.
(a) Rights of the Lender. The Lender may at any time and from time to
time after the occurrence of an Event of Default hereunder, and the Borrower
hereby irrevocably appoints the Lender as its attorney-in-fact (which
appointment is coupled with an interest), with power of substitution, in the
name of the Lender or in the name of the Borrower or otherwise, for the use and
benefit of the Lender, but at the cost and expense of the Borrower and without
notice to the Borrower:
(i) notify the Account Debtors obligated on any of the
Collateral to make payments thereon directly to the Lender, and to take control
of the cash and non-cash proceeds of any such Collateral;
(ii) require the Borrower to deposit or cause to be deposited
to a bank account (the "Collateral Account") all checks, drafts, cash, and other
remittances in payment or on account of payment of such Receivables
(collectively, the "Items of Payment"). The Borrower shall deposit the Items of
Payment for credit to the Collateral Account within two (2) business days of the
receipt thereof, and in precisely the form received, except for the endorsement
of the Borrower where necessary to permit the collection of the Items of
Payment, which endorsement the Borrower hereby agrees to make. Pending such
deposit, the Borrower will not commingle any of the Items of Payment with any of
its other funds or property but will hold them separate and apart.
(iii) charge to any banking account of the Borrower with the
Lender any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof;
(iv) compromise, extend, or renew any of the Collateral or
deal with the same as it may deem advisable;
(v) release, make exchanges or substitutions for, or surrender
all or any part of the Collateral;
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(vi) remove from the Borrower's place of business all books,
records, ledger sheets, correspondence, invoices, and documents relating to or
evidencing any of the Collateral or, without cost or expense to the Lender, make
such use of the Borrower's place(s) of business as may be reasonably necessary
to administer, control, and collect the Collateral;
(vii) repair, alter, or supply goods, if any, necessary to
fulfill in whole or in part the purchase order of any Account Debtor;
(viii) demand, collect, give receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral;
(ix) institute and prosecute legal and equitable proceedings
to enforce collection of, or realization upon, any of the Collateral;
(x) settle, renew, extend, compromise, compound, exchange, or
adjust claims with respect to any of the Collateral or any legal proceedings
brought with respect thereto;
(xi) endorse the name of the Borrower upon any Items of
Payment relating to the Collateral or upon any proof of claim in bankruptcy
against an Account Debtor; and
(xii) receive and open all mail addressed to the Borrower and,
if an Event of Default exists hereunder, notify postal authorities to change the
address for the delivery of mail to the Borrower to such address as the Lender
may designate; and
(b) Duties of the Borrower. In the event that the Lender exercises any
of its rights in subsection (a) above, the Borrower will:
(i) make no material change to the terms of any account that
constitutes part of the Collateral hereunder without the prior written
permission of the Lender;
(ii) on demand, make available in form acceptable to the
Lender shipping documents and delivery receipts evidencing the shipment of goods
which gave rise to an account that constitutes part of the Collateral hereunder,
completion certificates, or other proof of the satisfactory performance of
services which gave rise to an account that constitutes part of the Collateral
hereunder, copies of the invoices for an account, and the Borrower's copy of any
written contract or order from which an account that constitutes part of the
Collateral hereunder arose; and
(iii) when requested, regularly advise the Lender whenever an
Account Debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an account that constitutes a part of the Collateral
hereunder, and of any delay in delivery or performance, or claims made, in
regard to any account that constitutes part of the Collateral hereunder, and
will comply with any instructions which the Lender may give regarding the sale
or other disposition of such returns.
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5.02 Performance by Lender. If the Borrower fails to perform, observe, or comply
with any of the conditions, terms, or covenants contained in this Agreement, the
Lender, without notice to or demand upon the Borrower and without waiving or
releasing any of the Borrower's Obligations or any Event of Default (as
hereinafter defined), may (but shall be under no obligation to) at any time
thereafter perform such conditions, terms, or covenants for the account and at
the expense of the Borrower, and may enter upon any place of business or other
premises of the Borrower for that purpose and take all such action thereon as
the Lender may consider necessary or appropriate for such purpose. All sums paid
or advanced by the Lender in connection with the foregoing and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at a per annum rate of interest which
is equal to the then rate of interest charged on the principal of the Borrower's
Obligations, plus two percent (2%) per annum, from the date of payment until
repaid in full, shall be paid by the Borrower to the Lender on demand and shall
constitute and become a part of the Borrower's Obligations secured hereby.
SECTION 6
EVENTS OF DEFAULT & REMEDIES UPON DEFAULT
6.01 Events of Default. The occurrence of any one or more of the following
events shall constitute an event of default (an "Event of Default") under this
Agreement:
(a) Failure to Pay Indebtedness. Failure of the Borrower to pay any
of the Borrower's Obligations as and when due and payable;
(b) Nonperformance of Covenants. Failure of the Borrower to perform,
observe, or comply with any of the provisions of this Agreement or of the other
Loan Documents, subject to any applicable grace or cure periods;
(c) Default under any Loan Document. The occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents;
(d) Misrepresentation of Borrower. If any information contained in any
financial statement, application, schedule, report, or any other document given
by the Borrower, in connection with the Borrower's Obligations, or with the
performance of any of the terms and provisions of the Loan Documents, with the
Collateral, or with any of the Loan Documents, is not in all respects true and
accurate or if the Borrower omitted to state any material fact or any fact
necessary to make such information not misleading;
(e) Failure to Pay Debts When Due. If the Borrower is generally not
paying debts as such debts become due;
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(f) Bankruptcy of Borrower. The filing of any petition for relief under
the Bankruptcy Code or any similar Federal or state statute by the Borrower or
if the Borrower is served with any petition for relief under the Bankruptcy Code
or any similar Federal or state statute and such petition is not dismissed
within sixty (60) days after the date on which the Borrower is served with such
a petition;
(g) Appointment of Receiver. The appointment of a receiver or custodian
for, the making of a general assignment for the benefit of creditors by, or the
insolvency of the Borrower;
(h) Dissolution, Merger, Consolidation, Termination. The dissolution,
merger, consolidation, or reorganization of the Borrower, except as permitted
in Section 4.03(d) above;
(i) Material Adverse Change. The determination in good faith by the
Lender that a material adverse change has occurred in the financial condition of
the Borrower from the condition set forth in the most recent financial statement
of the Borrower heretofore furnished to the Lender, or from the financial
condition of the Borrower as heretofore most recently disclosed to the Lender in
any other manner; or
(j) Temporary Overadvances. If the unpaid balance of the Revolving
Credit Loan exceeds the Borrowing Base on the date which is two (2) weeks from
any Temporary Overadvance and the Borrower fails immediately to pay to the Bank
the amount by which the unpaid balance of the Revolving Credit Loan exceeds the
Borrowing Base on such date.
6.02 Rights and Remedies Upon Default. Within three (3) business days following
notice of the occurrence of an Event of Default as set forth in Subsections
6.01(a) or (j) above, and the Borrower's failure to cure such Event of Default
within three (3) business days following such notice, or within seven (7)
business days following notice of the occurrence of an Event of Default as set
forth in Subsections 6.01(b) (other than the failure of the Borrower to comply
with the financial covenants and ratios set forth in Subsections 4.02(e), (f),
(g) or (h) above, for which there shall be no notice and cure period), (c), (d),
(e) or (i) above, and the Borrower's failure to cure such Event of Default
within seven (7) business days following such notice, or upon the occurrence of
an Event of Default as set forth in Subsections 6.01(b) (with respect to the
failure of the Borrower to comply with the financial covenants and ratios set
forth in Subsections 4.02(e), (f), (g) or (h) above), (f), (g), or (h) above
(and in addition to all of its other rights, powers, and remedies under this
Agreement), the Lender may, at its option, and without notice to the Borrower:
(a) Accelerate Indebtedness. Declare the unpaid balance of Borrower's
Obligations to be immediately due and payable;
(b) File Suit. File suit against the Borrower on the Notes, this
Agreement, or on any of the other Loan Documents;
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(c) Set-off. Set-off any amounts in any account or represented by any
certificate with the Lender in the name of the Borrower or in which the Borrower
has an interest; or
(d) Exercise All Rights and Remedies. Exercise any of the rights and
remedies of a secured party under the Uniform Commercial Code as adopted in the
State of Maryland or any of the other jurisdictions where the Collateral is
located and under other applicable laws.
The occurrence or non-occurrence of an Event of Default shall in no
manner impair the ability of the Lender to demand payment of any portion of the
Borrower's Obligations which are payable on demand. Upon the occurrence of an
Event of Default hereunder, the Borrower, upon demand by the Lender, shall
assemble the Collateral and make it available to the Lender at a place
designated by the Lender which is mutually convenient to both parties. Upon the
occurrence of an Event of Default hereunder, the Lender or its agents may enter
upon the Borrower's premises to take possession of the Collateral, to remove it,
to render it unusable, or to sell or otherwise dispose of it, all without
judicial process or proceedings.
Any written notice of the sale, disposition, or other intended action
by the Lender with respect to the Collateral which is required by applicable
laws and is sent by certified mail, postage prepaid, to the Borrower at the
address of the Borrower specified below, or such other address of the Borrower
which may from time to time be shown on the Lender's records, at least ten (10)
days prior to such sale, disposition, or other action shall constitute
reasonable notice to the Borrower. The Borrower shall pay on demand all costs
and expenses including, without limitation, reasonable attorneys' fees and
expenses incurred by or on behalf of the Lender (a) in enforcing the Borrower's
Obligations and the performance by the Borrower of all of the terms and
provisions of the Loan Documents, and (b) in connection with the taking,
holding, preparing for sale or other disposition, selling, managing, collecting,
or otherwise disposing of the Collateral. All of such costs and expenses
(collectively, the "Liquidation Costs") together with interest thereon at a per
annum rate of interest which is equal to the rate of interest charged on the
principal of the Borrower's Obligations, plus two percent (2%) per annum, from
the date of payment until repaid in full, shall be paid by the Borrower to the
Lender on demand and shall constitute and become a part of the Borrower's
Obligations secured hereby. Any proceeds of sale or other disposition of the
Collateral will be applied by the Lender to the payment of Liquidation Costs and
Expense Payments, and any balance of such proceeds will be applied by the Lender
to the payment of the remaining Borrower's Obligations in such order and manner
of application as the Lender may from time to time in its sole discretion
determine.
6.03 Deficiency. If the sale or other disposition of the Collateral fails to
fully satisfy the Borrower's Obligations, the Borrower shall remain liable to
the Lender for any deficiency.
6.04 Remedies Cumulative. Each right, power, and remedy of the Lender as
provided for in this Agreement or in the other Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning
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of the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies.
SECTION 7
MISCELLANEOUS
7.01 Not a Waiver. No failure or delay by the Lender to insist upon the strict
performance of any term, condition, covenant, or agreement of this Agreement or
of the other Loan Documents, or to exercise any right, power, or remedy
consequent upon a breach thereof, shall constitute a waiver of any such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Borrower's Obligations, the
Lender shall not be deemed to have waived the right to require payment when due
of all other Borrower's Obligations or to declare an Event of Default for
failure to effect such payment of any such other Borrower's Obligations. The
Borrower waives presentment, notice of dishonor, and notice of non-payment with
respect to accounts that constitute part of the Collateral.
7.02 Consent to Assignment of Loans and Disclosure of Loan Documents. The
Borrower consents to the sale and assignment by the Lender of any or all of its
interest in the Loans (or any of them) at any time in the Lender's sole and
absolute discretion. Within 15 days after any such sale or assignment, the
Lender shall provide the Borrower with notice of the name of the individual or
entity purchasing the Loans. In conjunction with such assignment, the Borrower
consents to the disclosure of any and all books, records, files, loan
agreements, notes, deeds of trust, guaranties, financing statements, assignments
of leases, statements, ledger cards, signature cards, corporate and/or
partnership documents, financial statements, leases, appraisals, environmental
audits, hazard and liability insurance policies, title insurance policies, loan
payment histories, income tax returns, credit analyses, notes, correspondence,
internal memoranda, checks, deposit account records and other documents relating
to the Loans to prospective assignees.
7.03 Release. The Borrower hereby releases and forever discharges the Lender and
its officers, directors, agents, servants, employees, affiliates, successors and
assigns from all sums of money, accounts, actions, suits, proceedings, claims,
liabilities, causes of action, and demands whatsoever, known or unknown, past or
present which it had, now has or may have against the Lender with respect to the
Loans.
7.04 Waiver of Jury Trial. The Borrower and the Lender waive all rights to trial
by jury of any suits, claims, counterclaims, and actions of any kind arising
under or relating to this agreement. The Borrower and the Lender acknowledge
that this is a waiver of a legal right and represent that this waiver is made
knowingly and voluntarily. The Borrower and the Lender agree that all such
suits, claims, counterclaims, and actions shall be tried before a judge of a
court of competent jurisdiction, without a jury.
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7.05 Legal Construction. The Borrower irrevocably submits to the jurisdiction of
any state or federal court sitting in the State of Maryland over any suit,
action, or proceeding arising out of or relating to this Agreement. The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection that
the Borrower may now or hereafter have to the laying of venue of any such suit,
action, or proceeding brought in any such court and any claim that any such
suit, action, or proceeding brought in any such court has been brought in an
inconvenient forum. Final judgment in any such suit, action, or proceeding
brought in any such court shall be conclusive and binding upon the Borrower and
may be enforced in any court in which the Borrower is subject to jurisdiction by
a suit upon such judgment provided that service of process is effected upon the
Borrower as provided in this Agreement or as otherwise permitted by applicable
law.
7.06 Service of Process. The Borrower hereby agrees and consents that, in
addition to any methods of service or process provided for under applicable law,
all service of process in any such suit, action or proceeding in any state
court, or any United States federal court, sitting in the state specified above,
may be made by certified or registered mail, return receipt requested, directed
to Cleaveland D. Miller, Esquire, Semmes, Bowen & Semmes, 250 W. Pratt Street,
16th Floor, Baltimore, Maryland 21201, the agent hereby designated and appointed
by the Borrower as the Borrower's agent for service of process, at the
Borrower's address for notice stated below, or at a subsequent address of which
Lender received actual notice from the Borrower in accordance with the Loan
Documents, and service so made shall be complete five (5) days after the same
shall have been so mailed. Nothing herein shall affect the right of Lender to
serve process in any manner permitted by law or limit the right of Lender to
bring proceedings against the Borrower in any other court or jurisdiction.
7.07 No Changes. Neither this Agreement nor any term, condition, covenant, or
agreement hereof may be changed, waived, discharged, or terminated orally but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge, or termination is sought.
7.08 Uniform Commercial Code. Unless varied by this Agreement, all terms used
herein which are defined by the Uniform Commercial Code as adopted in the State
of Maryland or in any other jurisdiction where the Collateral is located shall
have the same meaning hereunder as that meaning assigned to them by the Uniform
Commercial Code as so adopted.
7.09 Survival. All representations, warranties, covenants and agreements made in
the Loan Documents shall continue in full force and effect for so long as any of
the Borrower's Obligations remain outstanding and unpaid.
7.10 Notices. Unless otherwise provided for herein, all notices, demands,
requests or other communications which may be (or are required to be) given by
any party to any other party under this Agreement must be in writing and shall
be deemed to have been properly given, as to the Lender, when received by the
Lender at:
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<PAGE>
Signet Bank
7 St. Paul Street
5th Floor
Baltimore, Maryland 21202
Attention: Andrzej Koplewski, Senior Vice President
with copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Charles Center South
Baltimore, Maryland 21201
Attention: Richard M. Kremen, Esquire
and as to the Borrower, when received by the Borrower at the Borrower's address
as it appears on Exhibit C (or at such other place as the Borrower may designate
in writing), with a copy to:
Semmes, Bowen & Semmes
250 West Pratt Street
Baltimore, Maryland 21201
Attention: Kevin M. O'Connell, Esquire
7.11 Fees and Expenses of Collection and Enforcement. The Borrower shall
reimburse the Lender for all reasonable attorneys' fees, costs and expenses
advanced or incurred in collecting and enforcing the Borrower's Obligations
and/or the Loan Documents, and/or in successfully defending or prosecuting any
actions or proceedings arising out of or relating to this or any other
transaction with the Borrower. Until paid in full, all such fees, costs and
expenses to be paid by the Borrower shall bear interest from the date such fees,
costs or expenses are advanced or incurred by the Lender, at the then highest
rate of interest charged on the principal of any of the Borrower's Obligations.
7.12 Terms Binding. All of the terms, conditions, stipulations, warranties,
representations, and covenants of this Agreement shall apply to and be binding
upon and inure to the benefit of the Borrower and the Lender and each of their
respective heirs, executors, personal representatives, successors and assigns,
but the Borrower shall not have the right to assign this Agreement to any person
or entity.
7.13 Invalidity of Certain Provisions. If any term or provision (or any part of
any term or provision) contained in this Agreement or in any of the Loan
Documents, or if the application thereof to any person or circumstances, shall
to any extent or for any reason be held or deemed to be invalid, illegal or
unenforceable in any respect, the remainder of such term or
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<PAGE>
provision, or the application thereof to persons or circumstances other than
those as to which such term or provision has been held or deemed to be invalid
or unenforceable, shall not be affected thereby, and shall instead be valid and
enforceable to the fullest extent permitted by law.
7.14 Merger and Integration. This Agreement and the other Loan Documents contain
the entire agreement of the parties with respect to the matters covered and the
transactions contemplated hereby and thereby, and no other agreement, statement,
or promise made by any party hereto, or by any employee, officer, agent or
attorney of any party hereto, which is not contained herein or therein, shall be
valid or binding.
7.15 Gender, etc. Whenever used herein, where the context so requires, the
singular shall include the plural, the plural shall include the singular, and
the use of the masculine, feminine or neuter gender shall include all genders.
7.16 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be considered to be an original, but all of which together
shall constitute one and the same instrument.
7.16 Further Assurance and Corrective Instruments. The Borrower agrees that it
will from time to time execute and deliver (or cause to be executed and
delivered) such supplements hereto and such further instruments as may
reasonably be required for carrying out the intention of the parties to, or
facilitating the performance of, this Agreement or any of the other Loan
Documents.
7.18 Governing Law. The provisions of this Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Maryland
(except as to any Collateral which is located in another jurisdiction) as the
same may be in effect from time to time.
7.19 Costs and Expenses. Contemporaneously with the execution of this Agreement,
the Borrower shall pay to the Lender all costs and expenses incurred by the
Lender in connection with the Loans, including without limitation all attorneys'
fees.
7.20 No Novation. The parties hereto covenant and agree that the execution of
this Agreement is not intended to and shall not cause or result in a novation
with regard to the Notes and that the existing indebtedness of the Borrower to
the Lender evidenced by the Notes is continuing, without interruption, and has
not been discharged by a new agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and sealed, with the intent that this be a sealed
instrument, on the day and year first above mentioned.
WITNESS/ATTEST: EA ENGINEERING SCIENCE AND
TECHNOLOGY, INC.
/s/ Silvia T. Peterson By: /s/ Joseph A. Spadaro
_______________________________ _________________________(SEAL)
Executive Vice President
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<PAGE>
Name:
Title:
SIGNET BANK
By: /s/ Andrzej Koplewski
_______________________________ _________________________(SEAL)
Andrzej Koplewski
Senior Vice President
-28-
<PAGE>
EXHIBIT A
----------
ACTIVITY REPORT
<TABLE>
SIGNET BANK/MARYLAND REPORT NO._________
DATE_______________
<CAPTION>
Receivables Inventory OTHER OTHER
----------- ---------- ----------- -----------
<S> <C>
Collateral................... ___________ __________ ___________ ___________
Previously Reported.......... ___________ __________ ___________ ___________
Gross Sales/Purchases........ ___________ __________ ___________ ___________
Credit memos/returns......... ___________ __________ ___________ ___________
(+) Dr adjustments........... ___________ __________ ___________ ___________
(-) Cr adjustments........... ___________ __________ ___________ ___________
Net Collections/Withdrawals.. ___________ __________ ___________ ___________
Discounts.................... ___________ __________ ___________ ___________
New Collateral Balance....... ___________ __________ ___________ ___________
Less:
Receivables aged +90 days.... ___________ __________ ___________ ___________
Other:___________________.... ___________ __________ ___________ ___________
Acceptable Collateral Base... ___________ __________ ___________ ___________
Loan Limitations............. Lesser of Lesser of Lesser of Lesser of
$0 $0 $0 $0
OR _________0% ________0% _________0% _________0%
Maximum Loan Values.......... ___________ __________ ___________ ___________
Total Loan Values or Line.... ___________
Less: Reserves............... ___________
NET MAXIMUM LOAN VALUE....... ___________
REPAYMENT ACCOUNT Previous Loan Balance ___________
BALANCE PRIOR DAY............ ___________ Loan Payment ___________
TODAY'S NET COLLECTIONS...... ___________ Loan Request ___________
SUB-TOTAL.................... ___________ New Loan Balance ___________
LOAN REPAYMENT............... ___________ Net Availability ___________
NET BALANCE.................. ___________
</TABLE>
CERTIFICATION
Pursuant to the Loan and Security Agreement and Rider(s) and/or Supplement(s)
thereton, and other documents as may be applicable thereto, in effect between
Borrower and Lender ("Loan Documents"), Borrower represents and warrants to
Lender that, to Borrower's knowledge and belief after diligent inquiry: (a) all
of the information contained in this Activity Report and in the invoices,
purchase orders, schedules, reports and other documents delivered to Lender
herewith is true and complete in all material respects: and (b) all purchase
orders, accounts, contract rights, chattel paper and other receivables of
Borrower created or acquired by Borrower since the date of the last Activity
Report delivered to Lender, and all inventory of Borrower created or acquired
since the date of the last Activity Report delivered to Lender, are reported in
this Activity Report and are evidenced by the invoices, purchase orders,
scheduled, reports and other documents delivered to Lender herewith.
REQUEST FOR ADVANCE
Borrower requests an advance of _________________ pursuant to the Loan Documents
in effect between Borrower and Lender.
BORROWER'S NAME
REVEIWED BY: ______________________ ____________________________
DATE RECEIVED: ____________________ Authorized Signature
-29-
<PAGE>
EXHIBIT B
---------
1. Capponi v. EA Engineering, Science, and Technology, Inc., Contra
Costa County (Ca.) Superior Court, Case Number C96-03891.
2. Keller v. EA Engineering, Science, and Technology, Inc., Civil
Action No. C96-3489 DLJ (U.S.D.C.N.D. Ca.).
3. Lower v. EA Engineering, Science, and Technology, Inc., Circuit
Court for Baltimore City, Case Number 96271041/CL 217982.
-30-
<PAGE>
EXHIBIT C
The Borrower's present name and all other names (including
trade names) under which it has conducted any business or other activity since
inception are as follows:
EA Engineering, Science, and Technology, Inc.
EA Laboratories, Inc.
EA Global, Inc.
EA Engineering, Science, and Technology
de Mexico, S.A. de C.V.
EA Financial, Inc.
EA
EA Remediation Technologies, Inc.
EA RTI
EA Mueller, Inc.
Ecological Analysts, Inc.
EA Midwest
The Borrower's principal place of business and the place where
books and records are kept regarding the Collateral is:
11019 McCormick Road
Hunt Valley, MD 21031
The Borrower keeps the Collateral (or the physical evidences
thereof) at the following business locations:
4401 Business Park Blvd., Suite 26
Anchorage, AK 99503
3540 International Way
Fairbanks, AK 99701
3468 Mt. Diablo Blvd., Suite B-100
Lafayette, CA 94549
3841 N. Freeway Blvd., Suite 145
Sacramento, CA 95834
New Castle Corporate Commons
92 Read's Way, Suite 109
New Castle, DE 19720
8800 University Pky., Suite C-1
Pensacola, FL 32514
Hawaii Kai Corporate Plaza
6600 Kalanianaola Hwy., Suite 200
Honolulu, HI 96825
444 Lake Cook Rd., Suite 18
Deerfield, IL 60015
15 Loveton Circle
Sparks, MD 21152
19 Loveton Circle
Sparks, MD 21152
Sharon Commerce Center
2 Commercial St., Suite 106
Sharon, MA 02067
121 South 13th St., Suite 701
Lincoln, NE 68508
Two Oak Way
Berkeley Heights, NJ 07922
3 Washington Center
Newburgh, NY 12550
115 Twin Oaks Drive
Syracuse, NY 13206
1420 Valwood Pkwy., Suite 170
Carrollton, TX 75006
7330 San Pedro, Suite 536
San Antonio, TX 78216
155 108th Ave., N.E., Suite 400
Bellevue, WA 98004
8401 Colesville Rd.
Suite 500, Box 21
Silver Spring, MD 20910
Londres #190, Suite 308
Col. Juarez, Mexico, D.F. 06600
-31-
Exhibit 10.3
AMENDED AND RESTATED PROMISSORY NOTE
$6,000,000
THIS AMENDED AND RESTATED PROMISSORY NOTE (this "Note") is made this
18th day of April, 1997 by EA ENGINEERING SCIENCE AND TECHNOLOGY, INC. (the
"Borrower") in favor of SIGNET BANK (the "Lender").
Recitals
R-1. The Lender made a revolving credit loan to the Borrower pursuant
to a Loan Agreement dated October 31, 1996 (the "Original Loan Agreement"). The
Revolving Credit Loan is evidenced by a Promissory Note dated October 31, 1996
in the original principal amount of $10,000,000 (the "Original Note").
R-2. The Original Note is secured by, among other things, a Security
Agreement dated March 27, 1997 by the Borrower in favor of the Lender, whereby
the Borrower granted to the Lender a security interest in the Collateral as
defined therein (the "Original Security Agreement").
R-3. As of April 17, 1997, there is due under the Original Note
principal of Three Million Five Hundred Thousand Dollars ($3,500,000) and
interest of Eight Thousand Two Hundred Thirty-Eight and 16/100 Dollars
($8,238.16), plus attorneys' fees and other costs which are payable under the
Original Note.
R-4. The Borrower is in violation of certain financial covenants and
ratios contained in the Original Loan Agreement.
R-5. The Borrower has requested that the Lender make certain
modifications to the loan evidenced by the Original Note including waiving
certain financial covenants and ratios and the Lender has agreed to do so upon
the terms and conditions set forth in an Amended and Restated Loan Agreement and
Security Agreement of even date herewith, which amends and restates the Original
Loan Agreement and the Original Security Agreement in their entireties (the
Original Loan Agreement and the Original Security Agreement, as amended and
restated thereby, are called the "Loan Agreement").
R-6. As a condition of entering into the Loan Agreement, the Lender has
required that the Borrower execute and deliver a restatement of the Original
Note and amendments to certain other notes, as described in the Loan Agreement.
R-7. Therefore, the Borrower is executing this Note amending and
restating the Original Note in its entirety as hereinafter more fully set forth.
<PAGE>
R-8. This Note shall evidence the terms of repayment of an indebtedness
equal to the principal amount of Six Million Dollars ($6,000,000) with interest
and costs as described herein. All of the terms of the Original Note shall be
merged herein.
R-9. The Borrower warrants that the statements set forth in these
Recitals are true and correct and that the Borrower has no claim, counter-claim,
set-off or defense to the Original Note or to the collection of the indebtedness
evidenced thereby.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the Borrower and the Lender agree that the Original Note is amended and restated
with respect to the indebtedness evidenced hereby, but without novation, as
follows:
REVOLVING CREDIT NOTE
$6,000,000 Baltimore, Maryland
FOR VALUE RECEIVED, EA ENGINEERING SCIENCE AND TECHNOLOGY,
INC. (the "Borrower"), promises to pay to the order of SIGNET BANK, its
successors and assigns (the "Lender"), the principal sum of SIX MILLION DOLLARS
($6,000,000) (the "Principal Sum"), or so much thereof as has been advanced,
together with interest computed daily on the outstanding principal balance
hereunder, at an annual interest rate, and in accordance with the payment
schedule, indicated below.
1. Interest Rate. This Note shall bear interest as follows:
Commencing on the date hereof, interest shall accrue on the
unpaid Principal Sum at a fluctuating rate of interest equal to the Prime Rate
(as hereinafter defined) of the Lender plus three percent (3%) per annum (the
"Base Rate"), such interest rate to change automatically as of the effective
date of each change in the Prime Rate, provided that interest shall be payable
at a rate equal to the Base Rate plus ten percent (10%) on that amount of the
unpaid Principal Sum which exceeds the Borrowing Base (as defined in an Amended
and Restated Loan and Security Agreement of even date herewith between the
Borrower and the Lender (the "Loan Agreement")).
The term "Prime Rate" means the rate announced by the Lender
from time to time as its prime rate, as such rate may change from time to time
with changes to occur on the date the Lender's prime rate changes. The Lender's
prime rate is one of several interest rate bases used by the Lender. The Lender
lends at rates above and below the Lender's prime rate, and the Borrower
acknowledges that the Lender's prime rate is not represented or intended to be
the lowest or most favorable rate of interest offered by the Lender.
Interest shall be computed for the actual number of days which
have elapsed, on the basis of a 360-day year.
-2-
<PAGE>
Notwithstanding any provision of this Note, the Lender does
not intend to charge and the Borrower shall not be required to pay any amount of
interest or other charges in excess of the maximum permitted by the applicable
law of the State of Maryland; if any higher rate ceiling is lawful, then that
higher rate ceiling shall apply. Any payment in excess of such maximum shall be
refunded to the Borrower or credited against principal, at the option of the
Lender.
2. Advances. The Lender may lend, advance or make financial
accommodations to or for the Borrower from time to time in such amounts as the
Borrower may request from the Lender pursuant to the Loan Agreement, and all of
such amounts shall be evidenced by this Note and shall be repayable in
accordance with the terms of this Note. The date and amounts of each advance
made by the Lender to the Borrower and each payment made by the Borrower to the
Lender shall be recorded by the Lender on the books and records of the Lender,
which books and records, absent manifest error, shall be presumed correct and
accurate.
3. Payments.
(a) Interest shall be payable monthly on the first day of
each month commencing on the first day of May, 1997.
(b) In the event that the unpaid Principal Sum exceeds the
Borrowing Base on the date which is two (2) weeks from the date of any Temporary
Overadvance (as defined in the Loan Agreement), the Borrower shall pay to the
Lender the amount by which the unpaid Principal Sum exceeds the Borrowing Base
on such date.
4. Maturity. Unless sooner paid, the unpaid Principal Sum, together
with interest accrued and unpaid thereon, and all other unpaid sums due
hereunder, shall be due and payable in full on November 30, 1997.
5. Default Interest. Upon the occurrence of an Event of Default (as
hereinafter defined) the unpaid Principal Sum shall bear interest thereafter
until such Event of Default is cured at a rate which is at all times equal to
two percent (2%) per annum in excess of the rate or rates of interest otherwise
payable hereunder.
6. Late Charges. In the event that any payment due under the terms of
this Note is not received by the Lender within ten (10) days of the date such
payment is due (inclusive of the date when due), the Borrower shall pay to the
Lender on demand a late charge equal to five percent (5%) of such payment.
7. Application and Place of Payments. All payments made on account of
this Note, including prepayments, shall be applied first to the payment of any
late charge then due hereunder, second to the payment of accrued and unpaid
interest then due hereunder, and the remainder, if any, shall be applied to the
unpaid Principal Sum. All payments on account of this Note shall be paid in
lawful money of the United States of America in immediately available funds
during regular business hours of the Lender at 7 St. Paul Street, Baltimore,
-3-
<PAGE>
Maryland or at such other times and places as the Lender may at any time and
from time to time designate in writing to the Borrower.
8. Loan Documents. The term "Loan Documents" as used in this Note shall
mean collectively this Note, the Loan Agreement and any other instrument or
agreement previously, simultaneously or hereafter executed and delivered by the
Borrower or any person as evidence of, security for, guarantee of, or in
connection with this Note or the Principal Sum evidenced hereby.
9. Security. This Note is secured by, among other things, the Loan
Agreement.
10. Events of Default. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an "Event
of Default" and collectively, the "Events of Default") under the terms of this
Note:
(a) The failure of the Borrower to pay to the Lender when due
any and all amounts payable by the Borrower to the Lender under the terms of
this Note; or
(b) The occurrence of a default or an Event of Default under
the terms and conditions of any of the other Loan Documents; or
(c) The occurrence of a default or an Event of Default under
the terms and conditions of a Promissory Note dated November 25, 1991 in the
original principal amount of $1,600,000, as amended by a Modification of Note of
even date herewith, or a Promissory Note dated November 21, 1991 in the original
principal amount of $1,800,000, as amended by a Modification of Note of even
date herewith.
11. Remedies. Upon the occurrence of an Event of Default, at the option
of the Lender, all amounts payable by the Borrower to the Lender under the terms
of this Note shall immediately become due and payable by the Borrower to the
Lender without notice to the Borrower or any person, and the Lender shall have
all of the rights, powers, and remedies available under the terms of this Note,
any of the other Loan Documents and all applicable laws. The Borrower and all
endorsers, guarantors, and other parties who may now or in the future be
primarily or secondarily liable for the payment of the indebtedness evidenced by
this Note hereby severally waive presentment, protest and demand, notice of
protest, notice of demand and of dishonor and non-payment of this Note and
expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
12. Confessed Judgment. If an Event of Default shall occur hereunder or
under the Loan Agreement, the Borrower hereby authorizes any clerk of any court
of record or any attorney to enter in any court of competent jurisdiction in the
State of Maryland or any other state or territory of the United States judgment
by confession against the Borrower in favor of the holder of this Note for the
entire principal amount of this Note then remaining unpaid with
-4-
<PAGE>
interest thereon, together with attorneys' fees equal to fifteen percent (15%)
of the unpaid Principal Sum for each confession of judgment and court costs,
hereby waiving and releasing, to the extent permitted by law, all errors and
defenses and all rights of exemption, appeal, stay of execution, inquisition and
extension upon any levy on real estate or personal property to which each such
obligor may otherwise be entitled under the laws of the United States or of any
state or possession of the United States now in force or which may hereafter be
passed. No single exercise of the foregoing power to confess judgment shall be
deemed to exhaust the power, whether or not any such exercise shall be held by
any court to be invalid, voidable or void, but the power shall continue
undiminished, and it may be exercised from time to time as often as the holder
of this Note shall elect, until such time as the holder of this Note shall have
received payment in full of all indebtedness of the Borrower to the holder of
this Note.
13. Consent to Jurisdiction. The Borrower irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of Maryland over
any suit, action, or proceeding arising out of or relating to this Note. The
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection that the Borrower may now or hereafter have to the laying of venue of
any such suit, action, or proceeding brought in any such court and any claim
that any such suit, action, or proceeding brought in any such court has been
brought in an inconvenient forum. Final judgment in any such suit, action, or
proceeding brought in any such court shall be conclusive and binding upon the
Borrower and may be enforced in any court in which the Borrower is subject to
jurisdiction by a suit upon such judgment provided that service of process is
effected upon the Borrower as provided in this Note or as otherwise permitted by
applicable law.
14. Service of Process. The Borrower hereby consents to process being
served in any suit, action, or proceeding instituted in connection with this
Note by (i) the mailing of a copy thereof by certified mail, postage prepaid,
return receipt requested, to the Borrower and (ii) serving a copy thereof upon
Cleaveland D. Miller, Esquire, Semmes, Bowen & Semmes, 250 W. Pratt Street, 16th
Floor, Baltimore, Maryland 21201, the agent hereby designated and appointed by
the Borrower as the Borrower's agent for service of process. The Borrower
irrevocably agrees that such service shall be deemed to be service of process
upon the Borrower in any such suit, action, or proceeding. Nothing in this Note
shall affect the right of the Lender to serve process in any manner otherwise
permitted by law and nothing in this Note will limit the right of the Lender
otherwise to bring proceedings against the Borrower in the courts of any
jurisdiction or jurisdictions.
15. Waiver of Trial by Jury. The Borrower and the Lender hereby waive
trial by jury in any action or proceeding to which the Borrower and the Lender
may be parties, arising out of or in any way pertaining to (a) this Note or (b)
the other Loan Documents. It is agreed and understood that this waiver
constitutes a waiver of trial by jury of all claims against all parties to such
actions or proceedings, including claims against parties who are not parties to
this Note. This waiver is knowingly, willingly and voluntarily made by the
Borrower, and the Borrower hereby represents that no representations of fact or
opinion have been made by any individual to induce this waiver
-6-
<PAGE>
of trial by jury or to in any way modify or nullify its effect. The Borrower
further represents that it has been represented in the signing of this Note
and in the making of this waiver by independent legal counsel, selected of
its own free will, and that it has had the opportunity to discuss this waiver
with counsel.
16. Expenses. The Borrower promises to pay to the Lender on demand
by the Lender all costs and expenses incurred by the Lender in connection with
the collection and enforcement of this Note, including, without limitation,
all attorneys' fees and expenses and all court costs.
17. Notices. Any notice, request, or demand to or upon the Borrower or
the Lender shall be deemed to have been properly given or made when delivered
in accordance with Section 7.10. of the Loan Agreement.
18. Partial Invalidity. If any provision of this Note (or any part of
any provision) is held by a court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision (or remaining part of the
affected provision) of this Note; but this Note shall be construed as if such
invalid, illegal, or unenforceable provision (or part thereof) had not been
contained in this Note, but only to the extent it is invalid, illegal, or
unenforceable.
19. Captions. The captions herein set forth are for convenience only
and shall not be deemed to define, limit, or describe the scope or intent of
this Note.
20. Governing Law. The provisions of this Note shall be construed,
interpreted and enforced in accordance with the laws of the State of Maryland
as the same may be in effect from time to time.
21. Miscellaneous. Each right, power, and remedy of the Lender as
provided for in this Note or any of the other Loan Documents, or now or
hereafter existing under any applicable law or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Loan Documents or now or hereafter
existing under any applicable law, and the exercise or beginning of the exercise
by the Lender of any one or more of such rights, powers, or remedies shall not
preclude the simultaneous or later exercise by the Lender of any or all such
other rights, powers, or remedies. No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant, or agreement of
this Note or any of the other Loan Documents, or to exercise any right, power,
or remedy consequent upon a breach thereof, shall constitute a waiver of any
such term, condition, covenant, or agreement or of any such breach, or preclude
the Lender from exercising any such right, power, or remedy at a later time or
times. By accepting payment after the due date of any amount payable under the
terms of this Note, the Lender shall not be deemed to waive the right either to
require prompt payment when due of all other amounts payable under the terms of
this Note or to declare an Event of Default for the failure to effect such
prompt payment of any such other amount. No course of dealing or
-6-
<PAGE>
conduct shall be effective to amend, modify, waive, release, or change any
provisions of this Note.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal as of the date first written above.
WITNESS/ATTEST: EA ENGINEERING SCIENCE AND
TECHNOLOGY, INC.
/s/ Silvia T. Peterson By: /s/ Joseph A. Spadaro
_______________________________ _________________________(SEAL)
Name: Joseph A. Spadaro
Title: Executive Vice President
-7-
<PAGE>
MODIFICATION OF PROMISSORY NOTE
THIS MODIFICATION OF PROMISSORY NOTE (this "Modification") is made this
18th day of April, 1997 between EA ENGINEERING SCIENCE AND TECHNOLOGY, INC. (the
"Borrower") and SIGNET BANK (the "Lender").
Preliminary Statements; Certain Defined Terms
A. The Lender made a loan (the "Loan") evidenced by a Promissory Note
dated November 21, 1991 in the original principal amount of $1,800,000 (the
"Note"). A copy of the Note is attached as Exhibit A.
B. The Note is secured by, among other things, a Security Agreement
dated March 27, 1997 by the Borrower in favor of the Lender, whereby the
Borrower granted to the Lender a security interest in the Collateral as defined
therein (the "Original Security Agreement").
C. The Note, the Original Security Agreement and all other documents
evidencing, securing, guaranteeing or otherwise related to the Loan are
collectively called the "Loan Documents."
D. As of April 17, 1997, there is due under the Note principal of Four
Hundred Twenty-Eight Thousand Five Hundred Seventy-One and 52/100 Dollars
($428,571.52) and interest of Two Thousand Five Hundred Ninety-Three and 48/100
Dollars ($2,593.48), plus attorneys' fees and other costs which are payable
under the Note.
E. The Borrower is in violation of certain financial covenants and
ratios contained in a Loan Agreement dated October 31, 1996 (the "Original Loan
Agreement"), which relates to another debt owed by the Borrower to the Lender.
F. The Borrower has requested that the Lender make certain
modifications with respect to such other debt including waiving certain
financial covenants and ratios and the Lender has agreed to do so upon the terms
and conditions set forth in an Amended and Restated Loan Agreement and Security
Agreement of even date herewith, which amends and restates the Original Loan
Agreement and the Original Security Agreement in their entireties (the Original
Loan Agreement and the Original Security Agreement, as amended and restated
thereby, are called the "Loan Agreement").
G. As a condition of entering into the Loan Agreement, the Lender
has required that the Borrower execute and deliver this Modification.
<PAGE>
H. Therefore, the Borrower is executing this Modification amending the
Note as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Borrower and the Lender agree as follows:
1. The Note is amended to shorten the maturity date from November 21,
1998 to November 30, 1997. The Borrower acknowledges that the installments of
principal payable under the Note will not fully amortize the principal by the
maturity date of the Note, as modified hereby, and that the remaining principal
balance, together with all accrued and unpaid interest and other sums due under
the Note, will be due on the maturity date of the Note, as modified hereby.
2. If an Event of Default shall occur under the Loan Agreement, the
Borrower hereby authorizes any clerk of any court of record or any attorney to
enter in any court of competent jurisdiction in the State of Maryland or any
other state or territory of the United States judgment by confession against the
Borrower in favor of the holder of the Note for the entire principal amount of
the Note then remaining unpaid with interest thereon, together with attorneys'
fees equal to fifteen percent (15%) of the unpaid Principal Sum for each
confession of judgment and court costs, hereby waiving and releasing, to the
extent permitted by law, all errors and defenses and all rights of exemption,
appeal, stay of execution, inquisition and extension upon any levy on real
estate or personal property to which each such obligor may otherwise be entitled
under the laws of the United States or of any state or possession of the United
States now in force or which may hereafter be passed. No single exercise of the
foregoing power to confess judgment shall be deemed to exhaust the power,
whether or not any such exercise shall be held by any court to be invalid,
voidable or void, but the power shall continue undiminished, and it may be
exercised from time to time as often as the holder of the Note shall elect,
until such time as the holder of the Note shall have received payment in full of
all indebtedness of the Borrower to the holder of the Note.
3. The Borrower irrevocably submits to the jurisdiction of any state or
federal court sitting in the State of Maryland over any suit, action, or
proceeding arising out of or relating to the Note. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection that the Borrower
may now or hereafter have to the laying of venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit, action,
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action, or proceeding brought in any
such court shall be conclusive and binding upon the Borrower and may be enforced
in any court in which the Borrower is subject to jurisdiction by a suit upon
such judgment provided that service of process is effected upon the Borrower as
provided in the Note or as otherwise permitted by applicable law.
-2-
<PAGE>
4. The Borrower hereby consents to process being served in any suit,
action, or proceeding instituted in connection with the Note by (i) the mailing
of a copy thereof by certified mail, postage prepaid, return receipt requested,
to the Borrower and (ii) serving a copy thereof upon Cleaveland D. Miller,
Esquire, Semmes, Bowen & Semmes, 250 W. Pratt Street, 16th Floor, Baltimore,
Maryland 21201, the agent hereby designated and appointed by the Borrower as the
Borrower's agent for service of process. The Borrower irrevocably agrees that
such service shall be deemed to be service of process upon the Borrower in any
such suit, action, or proceeding. Nothing in the Note shall affect the right of
the Lender to serve process in any manner otherwise permitted by law and nothing
in the Note will limit the right of the Lender otherwise to bring proceedings
against the Borrower in the courts of any jurisdiction or jurisdictions.
5. Nothing in this Modification changes any interest rate or other
term or condition applicable to the Note prior to the date of this Modification.
6. This Modification does not extinguish the outstanding indebtedness
evidenced by the Note. Nothing herein contained shall be construed as a
substitution or novation of the original indebtedness or of the instruments
securing the same, which shall remain in full force and effect, except as
modified hereby or by instruments executed concurrently herewith. The Note as
modified hereby remains in full force and effect in accordance with its terms
and constitutes a binding obligation of the Borrower to the Lender. No further
modifications shall be effective unless in writing and signed by the Lender.
7. The Borrower acknowledges and agrees that the indebtedness evidenced
by the Note is owed to the Lender without any setoffs, claims or defenses of any
kind, and the Borrower forever waives and relinquishes any and all defenses and
claims, of any kind, known or unknown, that the Borrower may have against the
Lender with regard to the Loan.
8. The Borrower and the Lender voluntarily and intentionally mutually
waive any right each may have to a trial by jury in any action, proceeding, or
litigation directly or indirectly arising out of, under or in connection with
this Modification, the Note, any other Loan Documents or any transactions
contemplated thereby.
9. The Borrower shall reimburse the Lender for all reasonable
attorneys' fees, costs and expenses advanced or incurred in collecting and
enforcing the Note and/or the other Loan Documents, and/or in successfully
defending or prosecuting any actions or proceedings arising out of or relating
to the Note and/or the other Loan Documents. Until paid in full, all such fees,
costs and expenses to be paid by the Borrower shall bear interest from the date
such fees, costs or expenses are advanced or incurred by the Lender, at the then
applicable rate of interest on the Note.
10. This Modification may be executed in counterparts and each shall be
effective as an original.
-3-
<PAGE>
11. This Modification represents the entire agreement of the parties
hereto as it relates to the contents hereof; all prior oral and written
communications are merged herein.
12. The provisions of this Modification shall be construed, interpreted
and enforced in accordance with the laws of the State of Maryland as the same
may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed, or caused to be
executed, this Modification of Promissory Note under seal effective as of the
date first above written.
WITNESS/ATTEST: EA ENGINEERING SCIENCE AND
TECHNOLOGY, INC.
/s/ Silvia T. Peterson By: /s/ Joseph A. Spadaro
_______________________________ _________________________(SEAL)
Name: Joseph A. Spadaro
Title: Executive Vice President
SIGNET BANK
By: /s/ Andrzej Koplewski
_______________________________ _________________________(SEAL)
Andrzej Koplewski
Senior Vice President
-4-
<PAGE>
MODIFICATION OF PROMISSORY NOTE
THIS MODIFICATION OF PROMISSORY NOTE (this "Modification") is made this
18th day of April, 1997 between EA ENGINEERING SCIENCE AND TECHNOLOGY, INC. (the
"Borrower") and SIGNET BANK (the "Lender").
Preliminary Statements; Certain Defined Terms
A. The Lender made a loan (the "Loan") evidenced by a Promissory Note
dated November 25, 1991 in the original principal amount of $1,600,000 (the
"Note"). A copy of the Note is attached as Exhibit A.
B. The Note is secured by, among other things, a Security Agreement
dated March 27, 1997 by the Borrower in favor of the Lender, whereby the
Borrower granted to the Lender a security interest in the Collateral as defined
therein (the "Original Security Agreement").
C. The Note, the Original Security Agreement and all other documents
evidencing, securing, guaranteeing or otherwise related to the Loan are
collectively called the "Loan Documents."
D. As of April 17, 1997, there is due under the Note principal of One
Hundred Seventy-Seven Thousand Seven Hundred Seventy-Seven and 92/100 Dollars
($177,777.92) and interest of Nine Hundred Forty-Eight and 38/100 Dollars
($948.38), plus attorneys' fees and other costs which are payable under the
Note.
E. The Borrower is in violation of certain financial covenants and
ratios contained in a Loan Agreement dated October 31, 1996 (the "Original Loan
Agreement"), which relates to another debt owed by the Borrower to the Lender.
F. The Borrower has requested that the Lender make certain
modifications with respect to such other debt including waiving certain
financial covenants and ratios and the Lender has agreed to do so upon the terms
and conditions set forth in an Amended and Restated Loan Agreement and Security
Agreement of even date herewith, which amends and restates the Original Loan
Agreement and the Original Security Agreement in their entireties (the Original
Loan Agreement and the Original Security Agreement, as amended and restated
thereby, are called the "Loan Agreement").
G. As a condition of entering into the Loan Agreement, the Lender
has required that the Borrower execute and deliver this Modification.
<PAGE>
H. Therefore, the Borrower is executing this Modification amending the
Note as set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Borrower and the Lender agree as follows:
1. If an Event of Default shall occur under the Loan Agreement, the
Borrower hereby authorizes any clerk of any court of record or any attorney to
enter in any court of competent jurisdiction in the State of Maryland or any
other state or territory of the United States judgment by confession against the
Borrower in favor of the holder of the Note for the entire principal amount of
the Note then remaining unpaid with interest thereon, together with attorneys'
fees equal to fifteen percent (15%) of the unpaid Principal Sum for each
confession of judgment and court costs, hereby waiving and releasing, to the
extent permitted by law, all errors and defenses and all rights of exemption,
appeal, stay of execution, inquisition and extension upon any levy on real
estate or personal property to which each such obligor may otherwise be entitled
under the laws of the United States or of any state or possession of the United
States now in force or which may hereafter be passed. No single exercise of the
foregoing power to confess judgment shall be deemed to exhaust the power,
whether or not any such exercise shall be held by any court to be invalid,
voidable or void, but the power shall continue undiminished, and it may be
exercised from time to time as often as the holder of the Note shall elect,
until such time as the holder of the Note shall have received payment in full of
all indebtedness of the Borrower to the holder of the Note.
2. The Borrower irrevocably submits to the jurisdiction of any state or
federal court sitting in the State of Maryland over any suit, action, or
proceeding arising out of or relating to the Note. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection that the Borrower
may now or hereafter have to the laying of venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit, action,
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action, or proceeding brought in any
such court shall be conclusive and binding upon the Borrower and may be enforced
in any court in which the Borrower is subject to jurisdiction by a suit upon
such judgment provided that service of process is effected upon the Borrower as
provided in the Note or as otherwise permitted by applicable law.
3. The Borrower hereby consents to process being served in any suit,
action, or proceeding instituted in connection with the Note by (i) the mailing
of a copy thereof by certified mail, postage prepaid, return receipt requested,
to the Borrower and (ii) serving a copy thereof upon Cleaveland D. Miller,
Esquire, Semmes, Bowen & Semmes, 250 W. Pratt Street, 16th Floor, Baltimore,
Maryland 21201, the agent hereby designated and appointed by the Borrower as the
Borrower's agent for service of process. The Borrower irrevocably agrees that
such service shall be deemed to be service of process upon the Borrower in any
such suit, action, or proceeding. Nothing in the Note shall affect the right of
the Lender to serve process
-2-
<PAGE>
in any manner otherwise permitted by law and nothing in the Note will limit the
right of the Lender otherwise to bring proceedings against the Borrower in
the courts of any jurisdiction or jurisdictions.
4. Nothing in this Modification changes any interest rate or other term
or condition applicable to the Note prior to the date of this Modification.
5. This Modification does not extinguish the outstanding indebtedness
evidenced by the Note. Nothing herein contained shall be construed as a
substitution or novation of the original indebtedness or of the instruments
securing the same, which shall remain in full force and effect, except as
modified hereby or by instruments executed concurrently herewith. The Note as
modified hereby remains in full force and effect in accordance with its terms
and constitutes a binding obligation of the Borrower to the Lender. No further
modifications shall be effective unless in writing and signed by the Lender.
6. The Borrower acknowledges and agrees that the indebtedness evidenced
by the Note is owed to the Lender without any setoffs, claims or defenses of any
kind, and the Borrower forever waives and relinquishes any and all defenses and
claims, of any kind, known or unknown, that the Borrower may have against the
Lender with regard to the Loan.
7. The Borrower and the Lender voluntarily and intentionally mutually
waive any right each may have to a trial by jury in any action, proceeding, or
litigation directly or indirectly arising out of, under or in connection with
this Modification, the Note, any other Loan Documents or any transactions
contemplated thereby.
8. The Borrower shall reimburse the Lender for all reasonable
attorneys' fees, costs and expenses advanced or incurred in collecting and
enforcing the Note and/or the other Loan Documents, and/or in successfully
defending or prosecuting any actions or proceedings arising out of or relating
to the Note and/or the other Loan Documents. Until paid in full, all such fees,
costs and expenses to be paid by the Borrower shall bear interest from the date
such fees, costs or expenses are advanced or incurred by the Lender, at the then
applicable rate of interest on the Note.
9. This Modification may be executed in counterparts and each shall be
effective as an original.
10. This Modification represents the entire agreement of the parties
hereto as it relates to the contents hereof; all prior oral and written
communications are merged herein.
11. The provisions of this Modification shall be construed, interpreted
and enforced in accordance with the laws of the State of Maryland as the same
may be in effect from time to time.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed, or caused to be
executed, this Modification of Promissory Note under seal effective as of the
date first above written.
WITNESS/ATTEST: EA ENGINEERING SCIENCE AND
TECHNOLOGY, INC.
/s/ Silvia T. Peterson By: /s/ Joseph A. Spadaro
___________________________ _________________________(SEAL)
Name: Joseph A. Spadaro
Title: Executive Vice President
SIGNET BANK
By: /s/ Andrzej Koplewski
___________________________ _________________________(SEAL)
Andrzej Koplewski
Senior Vice President
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 1,633,700
<SECURITIES> 0
<RECEIVABLES> 14,202,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,347,100
<PP&E> 15,880,700
<DEPRECIATION> 13,244,800
<TOTAL-ASSETS> 29,706,400
<CURRENT-LIABILITIES> 12,856,800
<BONDS> 0
0
0
<COMMON> 62,100
<OTHER-SE> 16,264,200
<TOTAL-LIABILITY-AND-EQUITY> 29,706,400
<SALES> 39,715,900
<TOTAL-REVENUES> 39,715,900
<CGS> 28,544,400
<TOTAL-COSTS> 30,120,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,531,100
<INCOME-PRETAX> (3,827,700)
<INCOME-TAX> (1,531,100)
<INCOME-CONTINUING> (1,531,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,296,600)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
