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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE
JUNE 30, 1996 NO. 1-9309
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VERSAR INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-0852979
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
6850 VERSAR CENTER, SPRINGFIELD, VIRGINIA 22151
(Address of principal executive offices) (Zip code)
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(703) 750-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of September 3, 1996 was approximately $7,804,674.
The number of shares of Common Stock outstanding as of September 3,
1996 was 4,996,053.
The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on
Pages 21 through 25 hereof.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed with the
Securities and Exchange Commission with respect to the 1996 Annual Meeting of
Stockholders scheduled to be held on November 14, 1996 are incorporated by
reference into Part III thereof.
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PART I
ITEM 1. BUSINESS
BACKGROUND & PERSPECTIVE
Versar, Inc. ("Versar" or "the Company"), founded in 1969, is a
nationally recognized environmental engineering and consulting firm. From a
network of 17 offices nationwide, Versar specializes in providing environmental
risk and infrastructure management services to industry, government, and
commercial clients.
For the past five years, management has focused on rebuilding and
restructuring Versar by establishing a focus and direction for the Company,
increasing sales volume, reducing the overhead cost structure, disposing of
highly leveraged real estate, divesting of unprofitable laboratory operations,
reducing high legal fees and increasing cash flow.
Versar has successfully completed its rebuilding and restructuring
efforts by completing the refinancing in January 1996 of its former real estate
operations spun-off to shareholders in June 1994. We have just completed our
ninth consecutive profitable quarter and increased our funded backlog by 36
percent in fiscal year 1996. In addition, our sales volume has increased to
$44 million or 13 percent over fiscal year 1995 and profitability improved by
more than 100 percent.
Versar has recently been ranked by Engineering New Record as 68th out
of the top 200 environmental firms in gross revenue and 17th out of the top 50
based on growth in new contracts in 1995 in the United States.
A BUSINESS APPROACH TO ENVIRONMENTAL MANAGEMENT
Management, while continuing to strengthen the Company's basic
operations in all areas of the organization, is also assessing the changing
market conditions and repositioning Versar for continued growth and enhanced
profitability. The 1990s continue to be a period of change as Government and
industry re-size their organizations and re-focus their operations on ways to
improve productivity and reduce costs. Versar believes that with this change
will come new business decision-making that no longer sees environment, health
and safety issues as a "cost of doing business," but rather a way to "achieve
economic benefit and competitive advantage" by preventing pollution, conserving
raw resources and protecting their workforce.
Versar is at the forefront in helping its clients capture the benefits
of this new approach to business. Having long recognized the limitations of
regulatory driven environmental, health and safety programs, Versar has focused
on the economic benefits of an alternative approach to environmental
management. This approach places the customers business objectives at the
center of the decision-making process, and then addresses the environmental,
health and safety issues in such a way that they compliment those objectives
while complying with the regulations. Beyond simple compliance, it challenges
Versar's expertise to develop alternatives that enhance the client's
productivity and reduce the unit cost of operations.
Versar is consolidating all of its services under the umbrella of
Strategic Environmental Management (SEM). SEM involves a shift from dealing
with the effects of regulations and waste generation in a reactive manner to
working proactively with clients to address new ways of dealing with wastes and
associated environmental expenditures. This involves moving upstream to
identify process inefficiencies which create waste and increase environmental
management costs. Environmental consulting and engineering services and
technologies are applied to minimize waste thereby reducing raw material and
eliminating disposal costs. With our background knowledge of regulations,
Versar helps clients comply with existing and future environmental standards.
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Manufacturers today are taking advantage of technology to improve
environmental performance and bolster profits. In doing so, companies are
turning to solutions that address pollution prevention as an integral part of
plant operations and control.
Versar, together with its alliance partners Honeywell and Pavilion
Technologies, offers the Environmental Compliance Management System (ECMS).
The uniquely integrated solution employs a variety of state-of-the-art
technologies and services to control operations -- not pollution.
This comprehensive solution addresses and serves the full range of
compliance and management requirements and balances environmental concerns with
economic objectives. This approach maximized environmental performance while
minimizing compliance costs. The result is cost-effective compliance and
increased profits from optimizing process and production operations. Versar's
ECMS is an important element of Honeywell's TOTALPLANT open solutions --
integrated and industry-focused applications. The ECMS is hosted on the new
generation of Honeywell's TDC 3000 industrial automation system or SCAN 3000
control system.
Technology is providing the tools that allow us to treat environmental
performance as a competitive advantage rather than a cost burden, by
integrating it into operational continuous improvement programs. Making this
shift requires a change in the way we think about the issue. We must evaluate
and implement pollution prevention measures from a business perspective. The
key to a long-term pollution prevention strategy will be our ability to
evaluate our performance and to mainstream environmental management functions
into the operations of our plants.
Over the last three years, Versar has substantially increased its
total contract backlog to $325 million, much of which is in the cutting edge
areas of pollution prevention, compliance management, and resource management
support services to Government and industry. Versar will continue to grow as
it expands its services to respond to the growing movement in Government and
industry toward privatization and out-sourcing of environmental infrastructure
services.
In 1996, Versar made its first investment in environmental
infrastructure management with the acquisition of Valu Add Management Services
(Valu Add). Valu Add brings extensive knowledge and experience to the Versar
team in consulting to industry, state, local, and foreign governments on
alternative approaches to optimize the management of their environmental
infrastructure and to consider alternative management options for capital
facility financing and operation.
In fiscal year 1997, Versar will be looking to build on this new
capability and further expand its service offerings to provide in-plant
continuing services to its clients through potential mergers and acquisitions.
ESTABLISHING THE FOUNDATION FOR THE FUTURE
Five years ago, Versar had many difficult issues to face. The Company
was highly leveraged; had many legal issues to deal with, and its cost
structure was significantly out of line with the sales volume. The Company
dealt with these issues as described below.
DEBT RETIREMENT AND COMPLETION OF REAL ESTATE SPIN-OFF
In fiscal year 1991, the Company had over $27 million in debt. Versar
was the most leveraged of all the publicly traded environmental engineering and
consulting firms, both from the perspective of total liabilities to equity as
well as debt to equity. The Company was faced with two problems: poor working
capital management and highly leveraged real estate debt. From fiscal years
1991 and through 1994, Versar was successful in reducing receivables as a
percentage of gross revenues by 15%. This helped the Company to cut in half
the outstanding debt by the end of fiscal year 1994.
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In June 1994, the Company attempted to spin-off the real estate
operations to its shareholders, yet Versar continued to guarantee the debt of
approximately $12.4 million and could not complete the spin-off due to the
guarantee. However, in January 1996, Sarnia was able to refinance the existing
debt and reduce Versar's guarantee from $12.4 million to $1.5 million. The
Company has taken a reserve against the guarantee, which will be reversed into
equity as the debt is paid down. With the refinancing, Versar was able to
complete the spin-off and significantly improve its balance sheet and bring in
line its financial ratios with its competitors.
LITIGATION
Since 1991, the Company has successfully resolved a number of
lawsuits. Due to the resolution of these lawsuits, legal costs have been
reduced by over $500,000 per year. These lawsuits presented a significant
drain of working capital and management time. While no assurance can be given
that a significant legal matter will not arise in the future, management has
devoted significant efforts to develop policies and procedures and program
management training to help mitigate future legal issues. See Item 3, Legal
Proceedings, for a discussion of current litigation involving the Company.
COST REDUCTIONS
The Company had several cost issues to deal with over the past five
years. They include staffing, computer systems, and occupancy expense. While
staffing will always remain the backbone of the consulting business,
administrative and technical staffing had to be balanced to the Company's
current and future sales volume. The company reduced administrative staff,
consolidated many duplicate functions, and consolidated its finance activities.
In addition, the Company reduced computer costs by over $1.5 million and
occupancy expense by over $1 million in its headquarters location in
Springfield, Virginia.
BUILDING THE BUSINESS BASE FOR FUTURE GROWTH
During fiscal year 1995, Versar won 15 large federal, state and
commercial contracts, which has boosted the Company's total backlog to $306
million. In fiscal year 1996, we increased total backlog to $325 million. Of
such backlog, approximately $32 million is funded, with the remaining $293
million of the backlog in unfunded contract capacity. Our challenge going
forward is to fully develop these new contracts and enhance the value of our
services by focusing on economic incentives and the application of new
technologies. For a further description regarding the Company's total backlog,
see "BACKLOG". The Company believes that its total backlog helps solidify its
business base and creates a framework for possible future growth.
By having these contracts in place, the key to Versar's future revenue
growth will be to develop these contracts by obtaining task orders to utilize
the contracts capacities fully. While funding of these contracts is not
assured due to federal budgetary cutbacks and changes in government and
industry priorities, management is taking steps to develop task orders under
these contracts in order to realize the maximum revenues.
CONSULTING CORE BUSINESS
Versar works in partnership with government and industry by becoming
an involved member of its clients' organization, a client-centered approach
that builds client relationships, sets priorities, ensures proper allocation
and control of resources, supports and encourages synergistic activities among
the various elements of the organization, and monitors results. Our goal is to
help our clients build environmental performance into each aspect of their
organizational activities to enhance both their environmental performance and
improve their bottom line. Versar achieves this goal by helping clients to be
more active in preventing pollution, better manage the spectrum of
environmental compliance, and apply innovative and cost-effective approaches to
remediation or corrective action of past problems in our environment.
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Today's environmental challenges require an integrated
multidisciplinary team actively assisting clients in making informed decisions
and implementing them at the least cost. These challenges are driven by:
- Complex and changing environmental regulations and the
need for a more strategic approach to meet national
and international environmental challenges in a way
that allows industry to be profitable and competitive
in a world market.
- Increased emphasis on compliance management and
recognition that pollution prevention and waste
minimization are a necessary part of the long-term
solution to local and national environmental
challenges.
- Competition for limited resources and a need for new
and better technology to achieve pollution prevention
and remediation goals more cost effectively.
Versar helps its clients meet these challenges through its distinction
as a full-service firm that emphasizes:
- STRATEGIC PLANNING AND POLLUTION PREVENTION. These
are Versar's trademark services capitalizing on its
combined strengths in regulatory policy, information
management, pollution control and treatment technology
that emphasize pollution prevention.
- TOTAL COMPLIANCE MANAGEMENT. A strategic approach and
process of continuous improvement that permits senior
management to view environmental compliance
expenditures as business investments--an
"Environmental Balance Sheet." Versar consults at the
highest levels of industry and government where policy
decisions are made.
- CORRECTIVE/REMEDIAL ACTION. Program management and
integration services for corrective/remedial action
are necessary to assist our clients in getting better
results at lower costs. Versar is forging long-term
strategic relationships with technology based,
architect and engineering and construction firms to
provide a fully-integrated
consulting/engineering/construction capability.
STRATEGIC PLANNING AND POLLUTION PREVENTION
The Pollution Prevention Act of 1990 is the legislative driver that
initially forced regulators, industry, and government to look at alternative
approaches to environmental management. Provisions of the Resource
Conservation and Recovery Act (RCRA), the Clean Water Act, and the Clean Air
Act Amendments of 1990 also emphasize pollution prevention. Pollution
prevention planning is emerging as a new environmental ethic as regulators
strive to develop better incentives for voluntary reduction of emissions and
industries struggle to find better ways to meet environmental challenges in
today's world economy.
In 1991, the Environmental Protection Agency (EPA) issued a Pollution
Prevention Strategy that has led to several nationwide programs, such as the
33/50 Program, the Green Lights Program, and revisions to Emergency Planning
and Community Right-To-Know Act (EPCRA) including the Toxic Release Inventory
(TRI) Form R's, for reporting by industry on pollution prevention plans and
progress. Also, on August 3, 1993, President Clinton signed Executive Order
12856, which requires all federal facilities to reduce their emissions by 50
percent by 1999. The order further requires agencies to comply with EPCRA,
including annual submissions of TRI Form R reports.
More recently, State legislation and local ordinances have been
adopted to encourage pollution prevention. In the past five years, most states
have enacted some form of pollution prevention legislation that affects the way
some industries operate.
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Five years ago, Versar began emphasizing a strategic approach to
environmental management that focuses on the economic benefit and business
advantage of solving environmental problems from inside the plant or operation
rather than the end-of-pipe. This approach is founded on a pollution
prevention ethic, and a process of continuous improvement in operations that
eliminate unnecessary overhead, enhances productivity, and improves the bottom
line.
Versar has been actively involved in pollution prevention since 1985.
The Company has developed a core department of senior process and environmental
engineers who specialize in waste reduction engineering and design. Versar was
instrumental in developing the original Waste Minimization Opportunity
Assessment Manual for the EPA. This manual was subsequently adopted by many
industrial firms as the standard for pollution prevention audits. Versar
provides training to plant managers and engineers on how to focus on pollution
problems and identify effective pollution prevention activities. Versar works
with the managers on methods to audit their operations and identify the problem
areas. Versar has conducted several training workshops for industry and
Department of Defense (DOD), resulting in several significant process changes
being made by participating managers at their facilities. The DOD is
increasing its emphasis in the area of pollution prevention as a way to deal
with increasing pressures on the Federal budget and deficit reduction as the
military downsizes and realigns its mission. Several of Versar's new contracts
are specifically focused on pollution prevention and compliance management.
These include Wright-Patterson Air Force Base Aeronautical Systems Center, Air
Force Education and Training Command, and the Navy NFESC in Port Huenume,
California, and Weapons Systems Acquisition through the Air Force Human System
Center.
TOTAL COMPLIANCE MANAGEMENT
Versar is helping many of its clients make the change to an
incentive-based approach to compliance, limiting their liabilities to protect
their assets, while at the same time helping them remain competitive and
improve their profitability. Understanding the environmental consequences of
industrial processes starts with having the capability to monitor environmental
emissions and performance of all process elements.
Versar has developed specialized products to help its clients monitor
their operations, meet regulatory reporting requirements, and make more
informed decisions on investments that will enhance performance while reducing
environmental costs over the long term:
- Environmental Compliance Management System (ECMS) --
Versar's commercially available software, ECMS, is a
comprehensive, integrated information management system.
ECMS assists Versar's clients in managing environmental
data and generating regulatory reports, such as the Form
R, Discharge Monitoring Report, and Hazardous Waste
Manifest. ECMS stores monitoring data from environmental
compliance programs, provides reports for state and
federal agencies, projects potential compliance problems,
tracks environmental permits, and provides an automated
calendar of activities. Several Fortune 100 companies use
ECMS to manage their environmental data. Versar also has
used the system to manage compliance monitoring and
reporting at federal facilities.
- SARA Corporate System -- This Versar software product
allows the collection, management, and analysis of
corporate SARA Title III Form R data. The system
aggregates all Form R information for all chemical
releases, which allows prioritization of business
decisions. Form R data is used by industry for emergency
planning and demonstrating progress in emissions
reductions to regulatory agencies and the public.
Versar has entered into a "strategic alliance" with Honeywell
Industrial Automative and Control Group, aimed at supporting clients in
integrating environmental performance monitoring into plant operations by
linking Versar's ECMS with Honeywell's "Total Plant" TC 3000X master
controller. Our goal is to use this alliance to demonstrate that improved
economy and environmental performance can be achieved via pollution prevention
and risk reduction strategies through better plant control.
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Thus far, Versar has successfully linked its ECMS system to
Honeywell's TDC 3000X process controller so that plant operators can monitor
environmental performance in real time. We made our first major sale this past
year through Honeywell. We have also recently completed several small pilot
contracts. Honeywell is preparing formally to roll out to its clients its new
TCD 3000X with an Environmental Module, this fall. We expect the demand for
this kind of product integration to grow as the EPA and the states move forward
with its Enhanced Monitoring regulations.
COMPLIANCE ASSESSMENTS -- A key element in helping a client manage its
environmental, health and safety concerns is to establish a plan and conduct
comprehensive site/facilities assessments. Versar conducts a wide range of
assessments and audits of industrial and government facilities. We also have
initiated efforts to assist our clients in implementing the Standard ISO 9000
and pending ISO 14000 series requirements both to position the firm to provide
technical consulting services worldwide and to assist our clients in developing
and expanding overseas markets. We also now offer a turnkey "Total Compliance
Management" service to our customers with the goal of serving as their
environmental manager as they downsize and outsource more of their
environmental work.
Versar conducts nearly a thousand transactional environmental audits
annually for commercial and government clients. Many are performed at multiple
sites nationwide under urgent deadlines. Versar also conducts large-scale
environmental compliance assessments of major operating facilities for
government and industry. Versar has for many years provided compliance
management support to the DOD. As an example, for the Aeronautical Systems
Center (ASC) of the U.S. Air Force, Versar has routinely performed
environmental assessments at 11 government-owned, contractor-operated
facilities to monitor and improve environmental compliance and management. The
assessments followed the guidelines of the Air Force's Environmental Compliance
and Management Program (ECAMP), which is an intensive multimedia assessment
protocol for evaluating a facility's environmental management activities and
compliance status. Versar will continue to provide compliance, as well as
pollution prevention and engineering support, to ASC under our new $49 million
multiyear contract at Wright-Patterson AFB. We also expect to provide similar
services to the Air Force Education and Training Command as well as other DOD
facilities worldwide under our new $50 million Air Force Armstrong Laboratory
multiyear contract.
AIR QUALITY SERVICES -- Versar offers the following air services:
emissions inventories and inventory tracking, air toxics/risk assessments,
dispersion modeling, permitting/compliance status, and design and installation
of control technology. Special capabilities include Risk Management Planning
(RMP) services which are required under Section 112(r) of the Clean Air Act
Amendments of 1990. Versar also has experience with cost of air compliance
analysis which involves economic engineering analysis of control technologies.
This experience, coupled with strong air P2 and emission trading capabilities,
provides our clients with a wide range of options to choose from in responding
to any air issue. Versar has worked with over 100 industrial clients on air
quality matters, including mining, electric utilities, chemical manufacturing,
food processing, steel manufacturing, oil refineries, and other industries. We
have worked with industry groups in evaluating the impact of regulations and
helped them identify cost-effective strategies for complying with regulations.
Versar is helping industry groups to evaluate the impact of regulations and
helping them develop cost-effective strategies for compliance. Strategies vary
from recommending control technologies to achieving air P2 and creating
emissions trading opportunities. Versar has developed practical, innovative
approaches for estimating emissions, performing urban-scale dispersion modeling
analyses, and evaluating emerging control strategies for effectiveness and cost
efficiency.
Versar supported the DOD in determining the optimum strategy for
complying with the 1990 Clean Air Act Amendments (CAAA) for Army, Navy, and Air
Force bases. We have subsequently conducted emission inventories at over 40
installations and are in the process of supporting Title V permits for DOD
installations worldwide under our new $40 million multiyear contract with the
Norfolk District of the Army Corps of Engineers and the $50 million multiyear
contract with the Air Force's Armstrong Laboratory. Representing industry,
Versar participated in EPA roundtable discussions that helped focus the
development of new regulations implementing the new amendments. For the State
of Maryland, Versar prepared a regional assessment of the benefits of the
amended
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CAAA with respect to nitrate deposition in the Chesapeake Bay. As in the past,
Versar continues to provide permitting and compliance support to various
commercial, industry, and utility clients across the nation.
Research into air and meteorological issues has been a part of
Versar's business since its inception. Air research has included development
of new dispersion models that can better predict plume behavior. Air research
has also involved determining pollutant deposition patterns in support of the
Chesapeake Bay program. Meteorological research has included development of
artificial intelligence (AI) decision support systems for clients such as DOD
and utilities. Versar maintains a full weather center which has provided
support to a wide-variety of clients ranging from utilities and industry to
DOD.
INDOOR ENVIRONMENTAL AND ENERGY SERVICES -- Indoor air quality and
human comfort are two of the most important characteristics of the indoor
environment affecting human health as well as worker productivity. Research
indicates that pollutant levels in the air inside our homes and offices may be
two to five times higher than the air outside. Because people generally spend
75 to 90 percent of their time indoors, the quality of indoor air has become a
serious concern.
Versar's subsidiary, GEOMET Technologies, Inc., is one of the
pioneering firms in the area of indoor air quality, providing research and
technical services to government, industry, and private clients since the early
1970s. In support of its research programs, GEOMET has developed a wide range
of measurement and analysis capabilities that include radon, volatile organic
compounds (VOCs), biological aerosols, carbon monoxide, nitrogen dioxide,
particles, formaldehyde, inorganics, energy consumption, comfort factors, air
infiltration, and pressured differentials. Indoor air quality, comfort, and
energy studies have been performed in various types of environments, including
single-family homes, apartments, mobile homes, public access buildings,
laboratories, trains, and airline cabins.
GEOMET also provides energy conservation audit and support services.
Clients range from small businesses and utilities to the Federal government.
GEOMET is currently under contract to the General Services Administration to
provide comprehensive energy conservation services at GSA facilities within the
National Capitol Region and recently began work in support of EPA's Energy Star
Program. The Energy Star effort focuses on energy use and conservation
opportunities in buildings, plus environmental aspects of energy conservation.
GEOMET recently completed a successful program for the U.S. Postal Service
which included energy audits at 25 USPS facilities throughout the United
States.
PERSONAL PROTECTION EQUIPMENT/CHEMDEMIL
Support of the U.S. Army's efforts in Chemical Weapons
Demilitarization is an important business area for GEOMET. Current projects
include development of two different Personal Protective Equipment (PPE)
ensembles for use in the depots where chemical weapons are stockpiled and in
activities where exposure to chemical agents is likely, such as laboratory work
and emergency response. The ensembles include a protective suit, clean air
source, radio communications, and an individual cooling system for the worker.
GEOMET is a commercial supplier to remedial action contractors and others of
PPE specially qualified for chemical protection. As a member of the Small
Burials Contract Team, GEOMET is involved in the disposal of residual chemical
weapons material at sites throughout the United States. GEOMET's program, now
in its second year, includes outfitting and operating the mobile laboratory
which will support the disposal operations, design of air monitoring and
warning systems, specification of the PPE to be used, and other assignments
dealing with environmental compliance, development of operational procedures,
and program management.
CORRECTIVE/REMEDIAL ACTION
Versar applies both its strong regulatory foundation and its
experience base in compliance management to help clients take appropriate
corrective or remedial action in dealing with contamination and pollution
problems. Versar
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offers a strategic approach to accelerate cleanup and to reduce costs and
liability. For example, Versar completed a pilot demonstration at Langley,
AFB, in a partnering process whereby the federal and state regulators, the
Base, and other stakeholders agree on issues, the approach to their resolution,
and the use of alternative means of providing project oversight to reduce both
the time and cost of cleanup. Versar's project teams combine the best of its
regulatory, technology, design, and construction management expertise for each
project to ensure that the most cost-effective solutions are developed to meet
regulatory requirements. One integrated field team can support a project from
characterization of the site or problem through implementation of corrective
action or cleanup.
Versar emphasizes a turnkey approach to the investigation, design, and
remedial action process as much as practicable, whether it is a Resource
Conservation and Recovery Act; Comprehensive Environmental Response,
Compensation, and Liability Act; Clean Water Act; state "Brownfields" or other
response action. Examples of Versar's corrective/remedial action activities
include remedial planning and implementation, comprehensive tank management
services, and civil/infrastructure services.
REMEDIAL PLANNING AND IMPLEMENTATION -- Versar has extensive
experience in conducting multimedia investigations to characterize
environmental contamination. It has performed subsurface contaminant
investigations at multiple sites under contracts to the U.S. Army, Air Force,
Navy, Coast Guard, Department of Energy, several states, and numerous private
corporations. Versar's personnel have broad experience in sampling, analysis,
and monitoring of multimedia pollutants. We bring to a client an integrated
field, analytical and assessment program to help clients make informed
decisions. We conduct investigations in support of risk assessments,
feasibility studies and engineering design and construction oversight. We
maintain an extensive network of relationships with technology-based firms to
aide in accelerated cleanup and the most cost-effective solutions.
Versar is in its third year of a 5-year, $50 million national contract
for the Air Force Center of Environmental Excellence (AFCEE), performing
environmental support services from preliminary assessment and site
investigations through design and construction oversight. The Company
currently has assignments at Lowry AFB in Colorado; Brooks AFB in Texas;
Wurtsmith AFB in Michigan; Grissom AFB in Indiana; and Homestead AFB in
Florida. Versar is also a prime contractor for environmental remedial action
support work for the Army Environmental Center, the San Francisco International
Airport Authority, and the Army Corps of Engineers.
COMPREHENSIVE TANK MANAGEMENT SERVICES -- Since 1983, Versar has
provided the full range of tank services required by tank owners. The heart of
Versar's approach is an innovative risk rating and prioritization procedure
that is used to cost-effectively schedule tank upgrading and replacement
programs for clients with tanks at multiple locations. Versar has successfully
applied the tank action planning process for clients with up to hundreds of
tanks each.
Versar prepares construction bid packages for tank replacements
tailored to individual clients' needs and preferences. The Company also
provides construction management services to verify to our clients that tank
installations conform to the bid package requirements. To better meet its
clients' needs, Versar has augmented its traditional strengths in geotechnical
investigations/remediation services with 1) preparation of plans and
specifications for new tank installations and 2) construction oversight to
ensure that these specifications are achieved.
Versar is now in its seventh year of a multi-year tank upgrading
program for a major telecommunications company, involving 600 Underground
Storage Tanks (USTs) at more than 100 locations across a multi-state region.
Versar is providing comprehensive tank services including: 1) scheduling and
cost estimating; 2) design; 3) construction management; 4) release
investigations/remediation and 5) all permitting and regulatory coordination.
CIVIL/INFRASTRUCTURE SERVICES -- Versar continues to provide
traditional design services for commercial, state, DOD, and Department of
Energy (DOE) clients. One of Versar's Rocky Mountain Region principal clients
is the State of Utah Department of Transportation, for which Versar has several
major design projects for expressway upgrades, new interchanges, and
environmental support work.
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BACKLOG
As of June 30, 1996, total backlog for Versar, including unfunded
tasks and orders, was approximately $325 million, as compared to approximately
$306 million as of June 30, 1995. Funded backlog for Versar was approximately
$32 million, an increase of 36 percent compared to approximately $23.5 million
as of June 30, 1995. Funded backlog is the incremental funding authorization
of contracts and task orders based on firm contractual obligations. Unfunded
backlog includes contracts and contract vehicles, including option periods, in
which specific work tasks and funding have not been authorized and for which
Versar and the client are contractually obligated to perform. Funded backlog
amounts have historically resulted in revenues; however, no assurance can be
given that all amounts included in funded backlog will ultimately be realized
as revenue.
MARKETS AND CUSTOMERS
Versar markets its services and technologies to governmental and
industrial customers throughout the United States. Versar also services
customers in Canada, the Pacific Trust Territories, and the Caribbean and will
pursue international projects on a case-by-case basis, e.g., plant facilities
or overseas operations of our U.S. clients. Versar's sales are technical in
nature and involve senior technical and management professionals, supported by
Versar's marketing group. The Company uses a coordinated system of in-house
sales staff and marketing managers, organized regionally. In fiscal year 1996,
sales of approximately 34% of Versar's services and technologies were to
private sector customers and 66% to governmental customers. Of the sales to
governmental customers, 57% was to the Department of Defense and 13% was to the
Environmental Protection Agency (EPA), through various contracts. Versar
serves governmental customers both as a prime contractor and as a
subcontractor.
Versar has experienced no difficulty in obtaining supplies and
materials used in its operations and relies on a broad range of suppliers, the
loss of any of which would not have an adverse effect on the Company.
COMPETITION
Versar faces substantial competition in each market in which it
operates. Versar competes primarily on its scientific, technological, and
engineering expertise. To the extent that non-proprietary or conventional
technologies are used, Versar also relies upon its experience and the
experience of its subsidiary, GEOMET, as a basis for competition. Many
companies, some of which have greater resources than Versar, participate in
Versar's markets, and no assurance can be given that other companies, some of
which may also have greater resources than Versar, will not enter its markets.
Almost all contracts for Versar's services and technologies are
obtained through competitive bidding. Industrial customers typically purchase
these services and technologies after a thorough evaluation of price, service,
experience, and quality. Although price is an important factor, it is not
necessarily the determining factor, because contracts are often awarded in part
on the basis of the efficiency of products and services.
Government entities typically award contracts on the basis of
technical qualifications and price. For technical services contracts, the
majority of which are cost-plus-fixed-fee arrangements, technical
qualifications are the primary factor followed by price competitiveness. In
many of its technical service markets, Versar competes with many local,
regional, and national firms on the basis of experience, reputation, and price.
EMPLOYEES
At June 30, 1996, Versar had approximately 381 full-time employees, of
which approximately 324 were engineers, scientists, and other professionals.
Eighty percent of the Company's professional employees have a bachelors degree,
31% have a masters degree, and 5% have doctorate degrees.
10
<PAGE> 11
MARKET DRIVING FORCES AND THE FUTURE
The environmental business has historically been driven by
environmental legislation and the enforcement of environmental regulations.
The likelihood of environmental noncompliance over the years has increased as
legislation and implementing regulations have become more stringent. Because
of this increased risk, environmental risk management has become a critical and
complex process. The costs of noncompliance, including fines and cleanup, can
be substantial. Environmental laws and regulations affect nearly every
industrial and commercial activity, as well as the agencies of the Federal
government and state and local governments charged with their enforcement.
Going forward, Versar believes environmental laws will be more focused on a
risk-based as opposed to a technology based approach allowing more flexibility
in their interpretation and providing incentives for innovation and "common
sense" approach to environmental management. Versar also believes the 1990s
mark the beginning of a cultural change by both government and industry in
recognizing that pollution prevention and active compliance management are a
necessary part of the long-term solution to the cleanup of our common
environment, the protection of the public health and safety, and the
preservation of our natural resources. Versar has positioned itself to take
advantage of this market shift.
ITEM 2. PROPERTIES
The Company's executive office is located in a building in
Springfield, Virginia, a suburb of Washington, D.C., leased from Sarnia
Corporation, which was spun-off by the Company to its shareholders in June
1994. On June 29, 1994, Versar initially rented 99,588 and 8,918 square feet
of space from Sarnia at a rate of $13.49 and $8.00 per foot, respectively. In
June 1995, Versar reduced the 99,588 square foot space to 73,371 square feet.
In June 1996, Versar reduced this leased space to 68,239 square feet. The rent
is subject to a 4% escalation per year. Both lease streams are subject to
adjustment on June 1, 1999 and 2004. In these years, the lease streams will be
adjusted to the current fair value. This value will set the base rate of the
lease streams in the year of adjustment. The adjusted lease stream is subject
to the contracted escalation in future years.
As of September 1, 1996, the Company had under lease an aggregate of
approximately 190,000 square feet of office and laboratory space in the
following locations: Springfield, VA; Tempe, AZ; Alameda and Fair Oaks, CA;
Northglenn, CO; Miami, FL; Lombard, IL; North Andover, MA; Eden Prairie, MN;
Columbia, Gaithersburg, and Germantown, MD; Cincinnati, OH; Bristol, PA; San
Antonio, TX, and American Fork, UT. These leases are generally for terms of
five years or less.
Versar believes that its facilities are suitable and adequate for its
current and foreseeable operational and administrative needs.
ITEM 3. LEGAL PROCEEDINGS
On June 28, 1990, Gary R. Windolph, a former officer and director of
Versar Architects & Engineers, Inc. ("VA&E", formerly ARIX Corporation, a
former subsidiary of Versar, which was merged into the parent in July 1993) and
a former officer of Versar, filed an action in the District Court for the City
and County of Denver, State of Colorado, entitled Gary R. Windolph v. ARIX
Corporation, Versar, Inc., et al., Case NO. 90-CV-7155. On October 21, 1991,
the jury returned verdicts for Mr. Windolph on two defamation claims against
the Company and awarded him damages in the amount of $200,000. The jury also
returned verdicts for Mr. Windolph on certain of his statutory and common law
securities claims and awarded damages in the amount of $1.00 each on all such
claims. On January 6, 1992, the Court ruled that, based upon the evidence
presented at trial, the $200,000 awarded to Mr. Windolph by the jury was
excessive as a matter of law and ordered a new damage trial on those claims.
The retrial of damages on these claims ended on October 21, 1992 with the jury
returning a verdict against Versar in the total amount of $1,000,001 including
$500,000 for damages to Mr. Windolph's reputation and $500,001 for personal
humiliation, mental anguish and suffering.
11
<PAGE> 12
Versar promptly filed appropriate post-trial motions seeking either a
new trial or the entry of judgment in an amount less than the jury's verdict.
On January 10, 1993, the Court granted Versar's motion, in part, and gave the
plaintiff the choice of accepting the entry of judgment in the amount of
$75,000, or retrying for a third time the amount of damages for the defamation
claim. The Court also decided, as a matter of law, that the maximum amount Mr.
Windolph could recover was $250,000 due to a statutory limit on non-economic
damages. At the same time, the Court ordered the parties to participate in
good faith in a mandatory settlement conference to try to settle this matter.
The parties were unable to reach a settlement as a result of the settlement
conference held in April, 1993, and the plaintiff rejected the opportunity to
have judgment entered for $75,000 or proceed with a new trial. On June 16,
1993, the trial court entered final judgment on all outstanding issues.
Both parties appealed to the Colorado Court of Appeals. On May 25,
1995 the Court issued its decision affirming in part, reversing in part and
remanding a part of the case to the trial court. The Court of Appeals reversed
the trial court's dismissal of Windolph's promissory estoppel claim, and
remanded with directions for a new trial on that matter only. The Court of
Appeals affirmed the trial court as to all other matters, including the trial
court's refusal to enter judgment in Windolph's favor on the two jury verdicts
relating to the defamation claim. Both parties filed motions for rehearing
with the Court of Appeals, which were denied on August 10, 1995.
In September 1995, Windolph sought review of this case by the Colorado
Supreme Court which was denied on February 20, 1996. The case is now before
the trial court to proceed on the promissory estoppel claim only. A bench
trial without jury is set for January 27, 1997. Based upon the Court of
Appeals' decision and consultation with outside council, management believes an
adverse outcome of this lawsuit will not have a material impact on Versar's
consolidated financial condition and results of operations.
As part of the agreement to sell its laboratory assets and operations
to Kemron Environmental Services, Inc. (Kemron) in July 1994, Versar agreed to
refer its analytical laboratory work for a period of 48 months after the
closing date to Kemron subject to certain limitations and exclusions including
federal procurement requirements and the ability of Kemron to perform the
required services. On July 31, 1996, Kemron filed an action in the Circuit
Court of Fairfax County, Commonwealth of Virginia, entitled Kemron
Environmental Services, Inc. vs. Versar Laboratories, Inc. and Versar, Inc.,
Law No. L154205. Kemron alledged the defendents breached certain warranties
that Versar would refer laboratory work to Kemron in the Asset Acquisition
Agreement and alledged damages in the amount of not less than $3,000,000.
Versar has retained counsel and plans to defend this matter
vigorously. The management of the Company has begun a full evaluation of the
Company's defense and potential exposure.
Versar and its subsidiaries are parties to various other legal actions
arising in the normal course of business. The Company believes that the
ultimate unfavorable resolution of these other legal actions will not have a
material adverse effect on its consolidated financial condition and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of fiscal year 1996.
12
<PAGE> 13
EXECUTIVE OFFICERS
The current executive officers of Versar, and their ages as of September 1,
1996, their current offices or positions and their business experience for the
past five years are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Benjamin M. Rawls 55 Chairman, Chief Executive
Officer and President
Thomas S. Rooney 62 Executive Vice President and
Chief Operating Officer
Robert L. Durfee 60 Executive Vice President,
President, GEOMET Technologies, Inc.
Lawrence A. White 53 Executive Vice President,
Corporate Development
Lawrence W. Sinnott 34 Vice President,
Chief Financial Officer and Treasurer
James C. Dobbs 51 Vice President, General Counsel and
Secretary
Gayaneh Contos 60 Senior Vice President
</TABLE>
BENJAMIN M. RAWLS, M.B.A., joined Versar as President and Chief
Executive Officer in April 1991. He became Chairman of the Board in November
1993. From 1988 to April 1991, Mr. Rawls was President and Chief Executive
Officer of Rawls Associates, Inc., a management consulting firm. Mr. Rawls was
President and Chief Executive Officer of R-C Holding, Inc. (now Air & Water
Technologies Corporation) from 1987 to 1988 and was Chairman of Metcalf & Eddy,
Inc., a subsidiary of Research-Cottrell, Inc., from 1984 to 1988.
THOMAS S. ROONEY, P.E., B.S.C.E., joined Versar in 1991 as Executive
Vice President and Chief Operating Officer. From 1989 to 1991, Mr. Rooney was
the President of Rooney Consulting, Inc., an environmental engineering company
in Haddonfield, New York. Between 1987 and 1989, he was President of Orfa
Corporation, a company that built and operated plants that recycle municipal
solid waste into useful end products.
ROBERT L. DURFEE, Ph.D., is a co-founder of Versar and has been
President of GEOMET Technologies, Inc., a subsidiary of the Company, since
1991. Prior to that, Dr. Durfee managed all environmental services provided by
Versar, Inc.
LAWRENCE A. WHITE, P.E., M.E.A., joined Versar in 1992 as Executive
Vice President, Corporate Development. From 1990 to 1992, Mr. White was the
Senior Vice President, Corporate Development for Dynamac Corporation in the
firm's marketing, sales, proposals, and client development areas and Group Vice
President of Roy F. Weston, Inc. between 1983 and 1990, where he managed major
programs and served as principal consultant to numerous government and
industrial clients.
13
<PAGE> 14
LAWRENCE W. SINNOTT, CPA, B.S., joined Versar in 1991 as Assistant
Controller. In 1992, he became Corporate Controller. In 1993, he was elected
Treasurer and Corporate Controller. In 1994, he became Vice President, Chief
Financial Officer and Treasurer. From 1989 to 1991, he was Controller of a
venture capital company, Defense Group, Inc.
JAMES C. DOBBS, J.D.,L.L.M., joined Versar in 1992 as Vice President,
General Counsel, and Secretary. From 1984 to 1992, Mr. Dobbs was employed by
Metcalf & Eddy, Inc. as Vice President and General Counsel where he was
responsible for providing legal and regulatory advice to senior management.
GAYANEH CONTOS, B.S., joined Versar in 1974, was elected Vice
President in 1985 and a Senior Vice President in 1989. Since 1980, she has
been responsible for supervising the majority of the Company's contracts with
EPA.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Company's common stock is traded on the American Stock Exchange,
under the symbol VSR. At June 30, 1996, the Company had 792 stockholders of
record, excluding stockholders whose shares were held in nominee name. The
quarterly high and low sales prices as reported during fiscal years 1996 and
1995 are presented below.
<TABLE>
<CAPTION>
Fiscal Year High Low
- ----------------------------- -------- --------
<S> <C> <C> <C>
1996 4th Quarter . . . . . . . . . . . . . . . . . $ 4.688 $ 2.625
3rd Quarter . . . . . . . . . . . . . . . . . 3.563 2.750
2nd Quarter . . . . . . . . . . . . . . . . . 4.063 3.125
1st Quarter . . . . . . . . . . . . . . . . . 4.813 3.000
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year High Low
- ----------------------------- -------- --------
<S> <C> <C> <C>
1995 4th Quarter . . . . . . . . . . . . . . . . . $ 3.438 $ 2.625
3rd Quarter . . . . . . . . . . . . . . . . . 3.125 2.000
2nd Quarter . . . . . . . . . . . . . . . . . 4.000 2.563
1st Quarter . . . . . . . . . . . . . . . . . 3.938 2.875
</TABLE>
No cash dividends have been paid by Versar since it began public
trading of its stock in 1986. The Board of Directors intends to retain any
future earnings for use in the Company's business and does not anticipate
paying cash dividends in the foreseeable future. Under the terms of the
Company's revolving line of credit, approval would be required from the
Company's primary bank for the payment of any dividends.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be
read in conjunction with Versar's Consolidated Financial Statements and notes
thereto beginning on page F-2 of this report. The financial data is as
follows:
<TABLE>
<CAPTION>
For the Years Ended June 30,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ------------ ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
related data:
Gross Revenue . . . . . . . . . . $ 44,283 $ 39,090 $ 42,764 $ 43,012 $ 48,519
Net Service Revenue . . . . . . . 31,919 29,347 31,032 32,980 35,325
Operating Income (Loss) . . . . . 872 560 (1,269) 853 (1,663)
Income (Loss) from Continuing
Operations . . . . . . . . . . 992 458 (2,658) (590) (262)
Net Income (Loss) . . . . . . . . 992 458 (4,367) (1,093) (996)
Income (Loss) per Share from Continuing
Operations . . . . . . . . . . $ .19 $ .09 $ (.59) $ (.14) $ (.07)
Net Income (Loss) per Share . . . $ .19 $ .09 $ (.97) $ (.27) $ (.25)
Weighted Average Shares Outstanding 5,248 4,834 4,481 4,093 3,945
Consolidated Balance Sheet related data:
Working Capital . . . . . . . . . $ 7,629 $ 5,425 $ 5,261 $ 7,627 $ 8,513
Current Ratio . . . . . . . . . . 2.14 1.64 1.68 1.98 1.76
Total Assets . . . . . . . . . . 16,979 28,195 27,782 31,922 37,733
Current Portion of Long-Term Debt 323 335 1,201 1,198 2,072
Long-Term Debt . . . . . . . . . 2 4 17 13,494 15,518
Mortgage Debt of Sarnia . . . . . --- 12,062 12,403 --- ---
----------- -------- ---------- ----------- -----------
Total Debt, excluding bank line of credit 325 12,401 13,621 14,692 17,590
Stockholders' Equity . . . . . . $ 7,776 $ 6,290 $ 5,261 $ 8,690 $ 8,951
</TABLE>
Certain amounts in years prior to fiscal year 1994 have been
reclassified to reflect Versar Laboratories, Inc. and Gammaflux, Inc. as
discontinued operations for comparative purposes. In addition, Versar has
included the results of operations and financial position of Sarnia through
January 1, 1996. Sarnia was spun-off to stockholders in fiscal year 1994, but
continued to be reflected in Versar's financial statements due to the guarantee
of all of Sarnia's debt by Versar. After the completion of Sarnia's
refinancing of its debt, Versar's guarantee was reduced from $12.4 million to
$1.5 million and the divestiture was considered complete for accounting
purposes. See Notes B and E of the Notes to Consolidated Financial Statements
for further information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Versar's gross revenues for fiscal year 1996 totalled $44,283,000, or
$5,193,000 (13%) above fiscal year 1995 gross revenue of $39,090,000. Gross
revenue for fiscal year 1995 was $3,674,000 (9%) below that reported in fiscal
year 1994. Gross revenue excludes laboratory, real estate and manufacturing
revenues from operations.
15
<PAGE> 16
Discontinued subsidiaries of Versar Laboratories, Inc. and Gammaflux, Inc. have
been presented as discontinued operations in Versar's Consolidated Financial
Statements. The increase in Versar's revenue in the last fiscal year was due
to task orders being performed in the Company's Midwest and Rocky Mountain
regions in support of the Air Force Center for Environmental Excellence
contract. As reflected in the table on page 17, government revenue represented
66% of the total revenue in 1996, compared to 64% in 1995 and 62% in 1994.
Purchased services and materials for fiscal year 1996 totalled
$12,364,000 or $2,621,000 (27%) higher than fiscal year 1995 purchased
services. Purchased services for fiscal year 1995 were $1,989,000 (17%) lower
than reported for fiscal year 1994. The increase in 1996 was principally due
to the increase in gross revenue as mentioned above. The decrease in 1995 was
due to the winding down of the Company's USATHAMA and EPA OMMSQA contracts.
Direct costs of services and overhead include the cost to Versar of
direct and overhead staff, including recoverable overhead costs and unallowable
costs that are directly attributable to overhead. The percentage of these
costs to net service revenue slightly increased to 81.4% in 1996 compared to
81.0% in 1995 and 82.2% in 1994. In 1996, the net service percentage remained
relatively stable compared to 1995. The decrease in the percentage of costs in
1995 compared to 1994 is attributable to improved labor utilization primarily
in the Company's Rocky Mountain and Pacific regions.
Selling, general and administrative expenses approximated 15.5% of net
service revenue in 1996, compared to 17.0% in 1995 and 16.6% in 1994. The
decrease is attributable to the higher volume of net revenue while the
selling, general and administrative expenses were maintained at 1995 levels.
Other (income) expense include costs and revenues that are not
directly attributable to contracts. In 1996, the Company recognized
non-compete income from the sale of its majority-owned subsidiary Gammaflux,
Inc. of $28,000 compared to $47,000 in fiscal year 1995, and $78,000 in fiscal
year 1994. In 1995 the remaining $214,000 of other (income) expense was due to
the reversal of $174,000 of anticipated costs that were ultimately not incurred
as a result of winning new contracts and the reduction of other operating
reserves of $40,000. In fiscal year 1994, the remaining $1,161,000 of other
costs were for other real estate losses of $400,000, $305,000 of transaction
costs associated with the spin-off of Sarnia, and $456,000 for software and
service contracts which were determined to be of limited future value.
Losses on Sarnia operations of $142,000 were recorded in the first six
months of fiscal year 1996 compared to losses of $270,000 in fiscal year 1995.
See Note B in the consolidated financial statements. The losses were recorded
as a separate line item due to the spin-off of Versar's real estate entity to
shareholders on June 30, 1994, which was completed as of January 25, 1996.
Operating income for 1996 was $872,000, an increase of $312,000 over
fiscal year 1995. The increase is primarily due to the lower selling, general
and administrative expenses as a percentage of net service revenue as discussed
above. Fiscal year 1995 operating income increased by $1,829,000 due to
decreased other costs and direct costs of services and overhead.
Interest expense in 1996 was $96,000, a decrease of $62,000 from 1995.
The decrease is due to reduced debt in fiscal year 1996. Interest expense in
1995 was $158,000, an increase of $101,000 from 1994 due to the assumption of
$1,000,000 of debt from Sarnia, which was paid in full in fiscal year 1995.
Versar's benefit for income taxes for fiscal year 1996 was $216,000
compared to a benefit of $56,000 in 1995. The Company reduced the valuation
against the deferred tax assets due to the improved earnings and future
earnings potential. In fiscal year 1994, the Company recorded a $1,309,000 tax
expense as a result of the spin-off of Sarnia as Versar's tax assets could no
longer be offset with Sarnia's tax liabilities. Refer to Note G of the Notes
to Financial Statements.
16
<PAGE> 17
Losses from discontinued operations for 1994 were $2,265,000. The
loss was attributable to the provision of $1,600,000 recorded by the Company
during the third quarter of fiscal year 1994 to discontinue the laboratory
operations.
In the first quarter of 1994, the Company recognized $556,000 of
income with the adoption of SFAS No. 109, "Accounting for Income Taxes," which
required the Company to compute deferred taxes using the liability method.
In summary, Versar's net income was $992,000 in fiscal year 1996,
compared to net income of $458,000 in fiscal year 1995 and a net loss of
$4,367,000 in fiscal year 1994.
REVENUE
Versar provides environmental risk management services to various
industries, government and commercial clients. A summary of revenue generated
from the Company's client base is as follows:
<TABLE>
<CAPTION>
For the Years Ended June 30,
-----------------------------------------------------------------------------------
1996 1995 1994
----------------------- ---------------------- -----------------------
(In thousands, except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Government
EPA $ 3,787 9% $ 5,375 14% $ 6,151 15%
State & Local 6,733 15% 4,607 12% 7,797 18%
Department
of Defense 16,479 37% 13,194 34% 11,260 26%
Other 2,035 5% 1,707 4% 1,312 3%
Commercial 15,249 34% 14,207 36% 16,244 38%
--------- -------- -------- ----- -------- -----
Gross Revenue $ 44,283 100% $ 39,090 100% $ 42,764 100%
========= ======== ======== ===== ======== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The company's operating activities provided $967,000 of cash in 1996
primarily from operations. Non-cash expenses of $684,000 for depreciation and
amortization were offset by the reduced liabilities from discontinued
operations.
Accounts receivable increased by 6% in fiscal year 1996 primarily due
to increased revenues of 13%.
The Company utilized short-term bank financing to supplement its
ability to meet day-to-day operating cash requirements. At June 30, 1996, the
Company had $7,629,000 of working capital, compared to $5,425,000 in 1995.
Working capital increased by 41% due to the removal of Sarnia's assets and
liabilities from the Company's balance sheet as a result of Sarnia's
refinancing of its mortgages and due to improved earnings of the Company.
Versar maintains a bank line of credit for working capital purposes
with Riggs National Bank (Riggs). Prior to January 25, 1996, the line provided
for advances up to $1,500,000. On January 25, 1996, Versar obtained a new line
of credit with Riggs National Bank which provides for advances up to
$3,000,000. Borrowings on the line are at the prime rate of interest plus 1/2%
(8.75% at June 30, 1996). A fee of 1/4% on the unused portion of the line of
credit is also charged. The line is guaranteed by the Company and each
subsidiary individually and is collectively secured by accounts receivable,
equipment and intangibles, plus all insurance policies on property constituting
collateral. Borrowing availability under the bank line of credit is restricted
to the borrowing base of qualifying receivables less $1,500,000. Unused
borrowing availability at June 30, 1996 was $2,508,000. Advances under the
line are due upon demand or on December 31, 1996. The Company must also obtain
Riggs' approval
17
<PAGE> 18
prior to paying dividends. Additionally, the loan has certain covenants
related to maintenance of financial ratios. The Company was in compliance with
the financial covenants at June 30, 1996. Management believes that cash
generated by operations and borrowings available from the line of credit will
be adequate to meet the working capital needs for fiscal year 1997.
As previously reported, Versar has guaranteed certain debt of Sarnia
Corporation. At June 30, 1995, Versar guaranteed the total mortgage debt of
Sarnia Corporation (Sarnia) (formerly Versar Virginia, Inc., which was spun-off
to Versar shareholders on June 30, 1994) which was approximately $12,062,000.
On January 25, 1996, Sarnia refinanced its outstanding debt. Sarnia obtained a
first mortgage of $9,000,000 with I.D.S. Life Insurance Company, a $500,000
second mortgage with Riggs and a $1,500,000 seven year term loan with Riggs.
As a result of the refinancing, Versar's guarantee of Sarnia's debt has
decreased from approximately $12,400,000 to $1,500,000. Sarnia issued $750,000
of its Series A Cumulative Convertible Preferred Stock to a group of private
investors. Versar has established a reserve of $1,500,000 against the loan.
As the term loan is repaid, the reserve will be reduced and added to Versar's
equity.
IMPACT OF ACCOUNTING STANDARDS NOT YET EFFECTIVE
In March 1995, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121). SFAS 121 is effective for fiscal year 1997, and requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 will not have a material effect on the
financial position of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was issued in October, 1995 and is
effective for fiscal years beginning after December 15, 1995. The Statement
encourages, but does not require, adoption of the fair value based method of
accounting for employee stock options and other stock compensation plans. The
Company has opted to account for its stock option plan in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." By doing so, the
Company, beginning in fiscal year 1997, will be required to make proforma
disclosure of net income and earnings per share as if the fair value based
method for accounting defined in SFAS 123 had been applied.
IMPACT OF INFLATION
Versar seeks to protect itself from the effects of inflation. The
majority of contracts the Company performs are for a period of one year or less
or are cost plus fixed-fee type contracts and, accordingly, are less
susceptible to the effects of inflation. Multi-year contracts provide for
projected increases in labor and other costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data begin on
page F-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the
Company is to be contained in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders, which is expected to be filed with the Commission not
later than 120 days after the end of the Company's 1996 fiscal year and is
incorporated herein by reference.
Information required by this item with respect to executive officers
of the Company is included in Part I of this report and is incorporated herein
by reference.
For the purpose of calculating the aggregate market value of the
voting stock of Versar held by non-affiliates as shown on the cover page of
this report, it has been assumed that the directors and executive officers of
the Company and the Company's Employee Savings and Stock Ownership Plan are the
only affiliates of the Company. However, this is not an admission that all
such persons are, in fact, affiliates of the Company.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by these items is incorporated herein by
reference to the Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders which is expected to be filed with the Commission not later than
120 days after the end of the Company's 1996 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) Financial Statements:
The consolidated financial statements and financial
statement schedules of Versar Inc. and Subsidiaries are filed as part
of this report and begin on page F-1.
a) Report of Independent Public Accountants
b) Consolidated Balance Sheets as of June 30, 1996 and
1995
c) Consolidated Statements of Operations for the Years
Ended June 30, 1996, 1995, and 1994
d) Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1996, 1995, and
1994
e) Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995, and 1994
f) Notes to Consolidated Financial Statements
19
<PAGE> 20
(2) Financial Statement Schedules:
a) Schedule II - Valuation and Qualifying Accounts for the
years ended June 30, 1996, 1995, and 1994
All other schedules, except those listed above, are omitted
because they are not applicable or the required information
is shown in the consolidated financial statements or notes
thereto.
(3) Exhibits:
The exhibits to this Form 10-K are set forth in a separate
Exhibit Index which is included on pages 21 through 26 of
this report.
(B) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter
of the Company's fiscal year 1996.
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- -----------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Versar, Inc. filed as an exhibit to the
Registrant's Registration Statement on Form S-1 effective November 20, 1986
(File No. 33-9391) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A)
3.2 Bylaws of Versar, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A)
4 Specimen of Certificate of Common Stock of Versar, Inc, . . . . . . . . . . . . . . . . . (A)
10.3 Agreement dated July 31, 1990 between the Registrant and the U.S.
Army Natick RD&E Center and as modified through May 23,1991 . . . . . . . . . . . . . . (G)
10.10 Incentive Stock Option Plan *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (B)
10.11 Executive Tax and Investment Counseling Program. . . . . . . . . . . . . . . . . . . . . . (A)
10.12 Nonqualified Stock Option Plan *. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (B)
10.13 Employee Incentive Plan, as amended *. . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
10.14 Incentive Stock Option Plan of Gammaflux, Inc., a subsidiary of the Registrant . . . . . . (D)
10.15 Letter agreement dated June 28, 1991 among the Registrant,
Geomet Technologies, Inc., and Charles I. Judkins, Jr. . . . . . . . . . . . . . . . . . . (G)
10.17 Deferred Compensation Agreements dated as follows:
July 1, 1987 between the Registrant and the following persons:
Charles I. Judkins, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C)
July 1, 1988 between the Registrant and Gayaneh Contos . . . . . . . . . . . . . . . . . . (F)
10.26 Executive Medical Plan dated August 21, 1991, effective July 1, 1991 . . . . . . . . . . . (G)
10.28 The Riggs National Bank of Washington, D.C.'s consent dated June 4, 1991 to the
sale of substantially all of the assets of Gammaflux, Inc., a partially owned
subsidiary of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.31 Judgment against Versar Architects Engineers Inc. (formally Arix Corp.),
dated February 19, 1991 with regards to City of Sterling, Colorado, Arix Corp,
Utility Control Equipment Corporation and Ralston Properties . . . . . . . . . . . . . . . (G)
10.32 Versar Architects and Engineers, Inc. voluntary petition for protection
under Chapter 11 of the Bankruptcy Code dated June 19, 1991 . . . . . . . . . . . . . . . (G)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- -----------
<S> <C> <C>
10.33 Structure and Agreement for use of Cash Collateral and Adequate Protection
dated August 2, 1991 between Versar Architects and Engineers, Inc. and the
Riggs National Bank of Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.34 Asset Purchase Agreement dated June 5, 1991 related to the sale of substantially all of
the assets of Gammaflux, Inc., a majority owned subsidiary of the Registrant . . . . . . . (G)
10.35 Promissory Note dated June 5, 1991 between Gammaflux, Inc., a majority owned
subsidiary of the Registrant and CHC Acquisition Partners, L.P. . . . . . . . . . . . . . (G)
10.36 Noncompetition Agreement dated June 5, 1991 between the Registrant and
CHC Acquisition Partners, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.38 Agreement dated September 24, 1990 between Geomet Technologies Inc., a
subsidiary of the Registrant and the U.S. Army Troop Support Command as
modified through March 25, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G), (H)
10.39 Agreement dated September 30, 1988 between Geomet Technologies Inc., a
subsidiary of the Registrant and the U.S. Army Troop Support Command
Natick Research, Development and Engineering Center as modified
through April 26, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H),(I)
10.40 Option Exchange Offer dated April 16, 1991 between the Registrant and
participants of the Incentive Stock Option Plan and the Nonqualified
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (G)
10.41 Securities and Exchange Commission response dated September 23, 1991
to certain question regarding the Registrant's Option Exchange Offer . . . . . . . . . . . (G)
10.44 Agreement dated March 30, 1990 between the Registrant, the Department
of the Army, U.S. Army Toxic and Hazardous Materials Agency, as modified
through March 29, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H),(I)
10.47 Bankruptcy Court-approved Settlement Agreement and Mutual Release
between Versar Architects and Engineers, Inc. and the City of
Sterling, Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H)
10.48 Versar Architects and Engineers, Inc. Plan of Reorganization and
Disclosure Statement filed with the United States Bankruptcy Court
on August 25, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (H)
10.49 Agreement dated March 27, 1992 among Versar, Inc., Fluxagamm, Inc.,
Maurice I. Stein and Gammaflux, L.P. accelerating payment of certain
notes, non-competition, and stock repurchase agreements . . . . . . . . . . . . . . . . (H)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- -----------
<S> <C> <C>
10.52 Incentive Stock Option Plan of Versar, Inc. dated December 1, 1992 * . . . . . . . . . . . (I)
10.54 Versar Architects & Engineers, Inc. Order Confirming First Amended Plan
of Reorganization dated March 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.56 Employment Agreement revised May 1, 1994 between the Registrant and
Thomas S. Rooney * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I),(K)
10.58 Agreement dated March 10, 1993 between the Registrant and the Environmental
Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I)
10.60 Employment Agreement dated May 1, 1994 between the Registrant and Benjamin
M. Rawls * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.64 Asset Purchase Agreement dated July 29, 1994 between Registrant and Kemron
Environmental Services, Inc. of certain assets of the registrants wholly-owned subsidiary
Versar Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.65 Information Statement for the Distribution to Shareholders of Versar, Inc., the
Outstanding Shares of its Wholly-owned Subsidiary, Sarnia Corporation,
dated June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (J)
10.66 Agreement dated January 13, 1994 between the Registrant and the Department of
the Air Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.67 Agreement dated January 18, 1994 between the Registrant and OHM Services
Remediation Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (K)
10.70 Agreement dated July 18, 1995 between the Registrant and the U.S. Air Force
Human Systems Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
10.71 Agreement dated March 29, 1995 between the Registrant and the U.S. Army Norfolk
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
10.72 Agreement dated March 16, 1995 between the Registrant and the U.S. Army Baltimore
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
10.73 Agreement dated April 25, 1995 between the Registrant and the U.S. Army Philadelphia
Corps of Engineers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
10.74 Agreement dated August 10, 1995 between the Registrant and the Environmental
Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- -----------
<S> <C> <C>
10.75 Agreement dated January 31, 1995 between Geomet Technologies, Inc., a subsidiary
of the Registrant and the U.S. Army Soldier Systems Command . . . . . . . . . . . . . . . (M)
10.76 Agreement dated July 13, 1995 between Geomet Technologies, Inc., a subsidiary of
the Registrant and the U.S. General Services Administration . . . . . . . . . . . . . . . (M)
10.77 The Riggs National Bank of Washington D.C.'s letter dated, September 15, 1995
modifying certain provisions of the Revolving Loan and Security Agreement, dated
April 9, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (M)
10.78 Loan and Security Agreement between the Registrant and the Riggs
National Bank of Washington, D.C dated January 25, 1996. . . . . . . . . . . . . . . . . . 28-54
10.79 Employment Agreement dated September 1, 1996 between the Registrant
and Benjamin M. Rawls* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55-60
10.80 Employment Agreement dated September 1, 1996 between the Registrant
and Thomas S. Rooney* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61-66
10.81 Change of Control Severance Agreement dated September 1, 1996 between
the Registrant and Lawrence W. Sinnott* . . . . . . . . . . . . . . . . . . . . . . . . . 67-70
10.82 Change of Control Severance Agreement dated September 1, 1996 between
the Registrant and James C. Dobbs* . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71-74
11 Statement Re: Computation of Per Share Earnings . . . . . . . . . . . . . . . . . . . . . 75
22 Subsidiaries of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
23 Consent of Arthur Andersen LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
27 Financial Data Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
- --------------------------------------------------------------------------------
* Indicates management contract or compensatory plan or arrangement
24
<PAGE> 25
(A) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form S-1 Registration Statement ("Registration
Statement") effective November 20, 1986 (File No. 33-9391).
(B) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended June
30, 1987 ("FY 1987 Form 10-K") filed with the Commission on September
28, 1987.
(C) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended June
30, 1988 ("FY 1988 Form 10-K") filed with the Commission on September
28, 1988.
(D) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended June
30, 1989 ("FY 1989 Form 10-K") filed with the Commission on September
28, 1989.
(E) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended June
30, 1990 ("FY 1990 Form 10-K") filed with the Commission on September
28, 1990.
(F) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-Q for the quarter ended September 30, 1989 ("1st
Quarter FY 1990 Form 10-Q").
(G) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for the Fiscal Year Ended June
30, 1991 ("FY 1991 Form 10-K") filed with the Commission on October
15, 1991.
(H) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30,
1992 ("FY 1992 Form 10-K") filed with the Commission on September 28,
1992.
(I) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30,
1993 ("FY 1993 Form 10-K") filed with the Commission on September 22,
1993.
(J) Incorporated by reference Sarnia Corporation Information Statement for
distribution to shareholders of Versar, Inc. of the outstanding shares
of its wholly-owned subsidiary, Sarnia Corporation, dated June 30,
1994.
(K) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30,
1994 ("FY 1994 Form 10-K") filed with the Commission on September 27,
1994.
(L) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K/A Annual Report for Fiscal Year Ended June 30,
1994 ("FY 1994 Form 10-K/A") filed with the Commission on May 31,
1995.
(M) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30,
1995 ("FY 1995 Form 10-K") filed with the Commission on September 28,
1995.
Exhibit item numbers are as outlined by item 601 of Regulation S-K.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VERSAR, INC.
------------------------------------------------
(Registrant)
Date: September 16, 1996 /S/ Benjamin M. Rawls
------------------------------------------------
Benjamin M. Rawls
Chairman, Chief Executive Officer,
President, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/ Benjamin M. Rawls Chairman, Chief Executive Officer, September 16, 1996
- -------------------------------- President, and Director
Benjamin M. Rawls
/S/ Robert L. Durfee Executive Vice President and September 16, 1996
- -------------------------------- Director
Robert L. Durfee
/S/ Lawrence W. Sinnott Vice President, Chief Financial September 16, 1996
- -------------------------------- Officer, Treasurer, and
Lawrence W. Sinnott Principal Accounting Officer
/S/ Michael Markels, Jr. Chairman Emeritus and Director September 16, 1996
- --------------------------------
Michael Markels, Jr.
/S/ John P. Horton Director September 16, 1996
- --------------------------------
John P. Horton
/S/ Thomas J. Shields Director September 16, 1996
- --------------------------------
Thomas J. Shields
/S/ John E. Gray Director September 16, 1996
- --------------------------------
John E. Gray
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
/S/ Charles I. Judkins, Jr. Director September 16, 1996
- -----------------------------------
Charles I. Judkins, Jr.
/S/ M. Lee Rice Director September 16, 1996
- -----------------------------------
M. Lee Rice
</TABLE>
27
<PAGE> 28
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Versar, Inc.:
We have audited the accompanying consolidated balance sheets of Versar, Inc.
and its subsidiaries (a Delaware corporation) as of June 30, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Versar, Inc. and
its subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, effective July 1, 1993, the
Company changed its method of accounting for income taxes.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/S/ Arthur Andersen LLP
-----------------------------
Arthur Andersen LLP
Washington, D.C.,
September 16, 1996
F-1
<PAGE> 29
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30,
---------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83 $ 58
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 12,376 11,723
Prepaid expenses and other current assets . . . . . . . . . . . . . 1,365 1,099
Assets of Sarnia transferred . . . . . . . . . . . . . . . . . . . --- 434
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 473 536
------------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 14,297 13,850
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . 2,038 1,457
Assets of Sarnia transferred . . . . . . . . . . . . . . . . . . . . . --- 12,871
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 300 ---
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 17
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,979 $ 28,195
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Liabilities of Sarnia transferred . . . . . . . . . . . . . . . . . $ --- $ 2,133
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 2,098 1,950
Bank line of credit . . . . . . . . . . . . . . . . . . . . . . . . 492 438
Current portion of long-term debt . . . . . . . . . . . . . . . . . 323 335
Accrued salaries and vacation . . . . . . . . . . . . . . . . . . . 1,619 1,390
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 2,136 1,564
Liabilities of discontinued operations, net . . . . . . . . . . . . --- 615
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 6,668 8,425
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4
Liabilities of Sarnia transferred . . . . . . . . . . . . . . . . . . --- 12,450
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . 1,033 1,026
Reserve on guarantee of real estate debt . . . . . . . . . . . . . . . 1,500 ---
------------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 9,203 21,905
------------- ------------
Commitments and contingencies (Note I)
Stockholders' equity
Common stock, $.01 par value; 10,000,000 shares
authorized; 4,994,693 shares and 4,813,236
shares issued and outstanding at June 30, 1996
and 1995, respectively . . . . . . . . . . . . . . . . . . . . . . 50 48
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 13,299 12,816
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (5,573) (6,565)
------------- -------------
7,776 6,299
Less treasury stock, at cost (3,327 shares at
June 30, 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . --- (9)
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 7,776 6,290
------------- ------------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 16,979 $ 28,195
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 30
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
GROSS REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,283 $ 39,090 $ 42,764
Purchased services and materials, at cost . . . . . . . . . . 12,364 9,743 11,732
---------- ---------- ----------
NET SERVICE REVENUE . . . . . . . . . . . . . . . . . . . . . . . 31,919 29,347 31,032
Direct costs of services and overhead . . . . . . . . . . . . 25,973 23,785 25,516
Selling, general, and administrative expenses . . . . . . . . 4,960 4,993 5,158
Other (income) expenses, net . . . . . . . . . . . . . . . . . (28) (261) 1,083
Losses on Sarnia operations . . . . . . . . . . . . . . . . . 142 270 544
---------- ---------- ----------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . 872 560 (1,269)
OTHER EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 96 158 57
Income tax (benefit) expense . . . . . . . . . . . . . . . . . (216) (56) 1,332
---------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 992 458 (2,658)
LOSS FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . --- --- (2,265)
---------- ---------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . 992 458 (4,923)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . . . --- --- 556
---------- ---------- ----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . $ 992 $ 458 $ (4,367)
========== ========== ==========
INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . $ .19 $ .09 $ (.59)
LOSS PER SHARE FROM
DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ (.51)
---------- ---------- ----------
INCOME (LOSS) PER SHARE BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . . . . $ .19 $ .09 $ (1.10)
INCOME PER SHARE FROM
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ .13
---------- ---------- ----------
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . . . . . . . . . $ .19 $ .09 $ (.97)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . 5,248 4,834 4,481
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 31
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Number Capital in Stock-
of Common Excess of Accumulated Treasury holders'
Shares Stock Par Value Deficit Stock Equity
------ ----- --------- ------- ----- ------
Years Ended June 30, 1996, 1995, and 1994
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 . . . . . . . . . . . 4,270 $ 43 $ 11,303 $ (2,656) $ - - $ 8,690
Exercise of stock options . . . . . . . . . . 35 - - 88 - - - - 88
Common stock issued to ESSOP . . . . . . . . 304 3 847 - - - - 850
Net loss . . . . . . . . . . . . . . . . . . - - - - - - (4,367) - - (4,367)
-------- --------- -------- --------- --------- --------
Balance, June 30, 1994 . . . . . . . . . . . 4,609 46 12,238 (7,023) - - 5,261
-------- ---------- -------- --------- --------- --------
Exercise of stock options . . . . . . . . . . 58 1 136 - - - - 137
Common stock issued to ESSOP . . . . . . . . 146 1 442 - - - - 443
Purchase of common stock
for treasury . . . . . . . . . . . . . . (26) - - - - - - (76) (76)
Issuance of treasury stock for stock
awards . . . . . . . . . . . . . . . . . 23 - - - - - - 67 67
Net income . . . . . . . . . . . . . . . . . - - - - - - 458 - - 458
-------- ---------- -------- ---------- --------- --------
Balance, June 30, 1995 . . . . . . . . . . . 4,810 48 12,816 (6,565) (9) 6,290
-------- ---------- -------- --------- -------- --------
Exercise of stock options . . . . . . . . . . 119 1 278 - - - - 279
Common stock issued for Valu Add . . . . . . 30 - - 97 - - - - 97
Common stock issued to ESSOP . . . . . . . . 32 1 108 - - - - 109
Purchase of common stock
for treasury . . . . . . . . . . . . . . (18) - - - - - - (63) (63)
Issuance of treasury stock for stock
awards . . . . . . . . . . . . . . . . . 7 - - - - - - 22 22
Issuance of treasury stock for
ESSOP . . . . . . . . . . . . . . . . . 15 - - - - - - 50 50
Net income . . . . . . . . . . . . . . . . . - - - - - - 992 - - 992
-------- --------- -------- ---------- ------- ---------
Balance, June 30, 1996 . . . . . . . . . . . 4,995 $ 50 $ 13,299 $ (5,573) $ - - $ 7,776
======== ========= ======== ========== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 32
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------
1996 1995 1994
------------ ----------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Income (loss) from continuing operations . . . . . . . . . . . . . . . $ 992 $ 458 $ (2,658)
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . --- --- (2,265)
Cumulative effect of change in accounting principle . . . . . . . . . . --- --- 556
Adjustments to reconcile income (loss) to
net cash provided by operating activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . 684 699 956
Loss on sale of property and equipment . . . . . . . . . . . . . 14 --- ---
Provision for doubtful accounts receivable . . . . . . . . . . . (37) 1 (12)
Common stock issued to ESSOP and Valu Add . . . . . . . . . . . . 216 434 851
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . (250) --- (556)
------------ ----------- ------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619 1,592 (3,128)
------------ ----------- ------------
Changes in assets and liabilities, net of asset dispositions
(Increase) decrease in accounts receivable . . . . . . . . . . . (616) (1,031) 1,767
(Increase) decrease in prepaids and other assets . . . . . . . (598) 287 271
Increase (decrease) in accounts payable . . . . . . . . . . . . . 148 474 (850)
Increase (decrease) in accrued salaries and vacation . . . . . . 228 121 (252)
Increase (decrease) in other liabilities . . . . . . . . . . . . 659 (807) (201)
Net change in assets and liabilities of Sarnia . . . . . . . . . 142 270 1,614
------------ ----------- ------------
Net cash from continuing operations . . . . . . . . . . . . 1,582 906 (779)
Changes in net liabilities of
discontinued operations . . . . . . . . . . . . (615) (176) 921
------------ ----------- ------------
Net cash provided by operating activities . 967 730 142
------------ ----------- ------------
Cash flows from investing activities
Purchases of property and equipment . . . . . . . . . . (1,261) (440) (674)
------------ ----------- ------------
Cash flows from financing activities
Net borrowings on bank line of credit . . . . . . . . . 54 438 ---
Principal payments on long-term debt . . . . . . . . . (14) (879) (184)
Proceeds from issuance of the Company's
common stock . . . . . . . . . . . . . . . . . . . . 279 137 88
------------ ----------- ------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . 319 (304) (96)
------------ ---------- ------------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . 25 (14) (628)
Cash at the beginning of the year . . . . . . . . . . . . . . . . . . . . . 58 72 700
------------ ----------- ------------
Cash at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . $ 83 $ 58 $ 72
============ =========== ============
Supplementary disclosure of non-cash transactions
Issuance of treasury stock, net . . . . . . . . . . . . $ (9) $ 9 $ ---
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 33
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of Versar, Inc. and its subsidiaries ("Versar"
or "the Company"). All significant intercompany balances and transactions have
been eliminated in consolidation. The assets, liabilities, and results of
operations of Sarnia Corporation were included in the Company's financial
statements for fiscal years 1995 and 1994 and through January 1, 1996. The
assets and liabilities have been removed from Versar's balance sheet due to the
refinancing of Sarnia's debt (refer to Note E for further information on the
Sarnia refinancing). Refer to Note B for further information regarding the
financial treatment of the former real estate operations.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Contract Accounting: Contracts in process are stated at the lower of actual
cost incurred plus accrued profits or net estimated realizable value of
incurred costs, reduced by progress billings. The Company records income from
major fixed-price contracts, extending over more than one accounting period,
using the percentage-of-completion method. During performance of such
contracts, estimated final contract prices and costs are periodically reviewed
and revisions are made as required. The effects of these revisions are
included in the periods in which the revisions are made. On cost-plus-fee
contracts, revenue is recognized to the extent of costs incurred plus a
proportionate amount of fee earned, and on time-and-material contracts, revenue
is recognized to the extent of billable rates times hours delivered plus
material and other reimbursable costs incurred. Losses on contracts are
recognized when they become known. Disputes arise in the normal course of the
Company's business on projects where the Company is contesting with customers
for collection of funds because of events such as delays, changes in contract
specifications and questions of cost allowability or collectibility. Such
disputes, whether claims or unapproved change orders in the process of
negotiation, are recorded at the lesser of their estimated net realizable value
or actual costs incurred and only when realization is probable and can be
reliably estimated. Claims against the Company are recognized where loss is
considered probable and reasonably determinable in amount.
It is the Company's policy to provide reserves for the collectibility of
accounts receivable when it is determined that it is probable that the Company
will not collect all amounts due and the amount of reserve requirements can be
reasonably estimated.
Depreciation and amortization: Depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the assets.
Intangible assets: On April 29, 1996, Versar purchased for 30,000 shares the
assets of Valu Add, which was primarily contract vehicles. The purchase
resulted in the Company recording goodwill of $97,500, which will be amortized
over a five year period.
Direct costs of services and overhead: These expenses represent the cost to
Versar of direct and overhead staff, including recoverable overhead costs and
unallowable costs that are directly attributable to overhead.
F-6
<PAGE> 34
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net income (loss) per share: Per share amounts are computed by dividing the
related captions in the Consolidated Statements of Operations by the fully
diluted weighted average number of common shares outstanding during the
applicable period being reported upon.
Income taxes: Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS
109). The adoption of the standard changed the Company's method of accounting
for income taxes from the deferred method (Accounting Principle Board Opinion
No. 11) to the liability method. The liability method requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
other assets and liabilities. The cumulative effect of adopting the new
standard as of July 1, 1993 was a $556,000 credit to the Consolidated
Statements of Operations.
Deferred Compensation: The Company permitted employees to defer a portion of
their compensation, during fiscal years 1988 through 1991, providing for future
annual payments, including interest. Interest is accrued on a monthly basis at
the amount stated in each employee's agreement. The Company recorded
liabilities for deferred compensation of $949,000 and $914,000 at June 30, 1996
and 1995, respectively. Versar purchased key-man life insurance policies to
fund the amounts due under the deferred compensation agreements. The Company
borrows against the cash surrender value of the policies to pay premiums. The
cash surrender value of the policies, net of loans, was $236,000 and $244,000
at June 30, 1996 and 1995, respectively.
Statements of cash flows: For statements of cash flows purposes, all
investments with an original maturity of three months or less are considered to
be cash equivalents.
Impact of Accounting Standards not yet Effective: In March 1995, the Financial
Accounting Standard Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). SFAS 121 is effective for fiscal year
1997, and requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS 121 will not have a material effect on
the financial position of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October, 1995 and is effective for fiscal year 1997. The Statement encourages,
but does not require, adoption of the fair value based method of accounting for
employee stock options and other stock compensation plans. The Company has
opted to account for its stock option plan in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." By doing so, the Company,
beginning in fiscal year 1997, will be required to make proforma disclosure of
net income and earnings per share as if the fair value based method for
accounting defined in SFAS 123 had been applied.
NOTE B ASSET DISPOSITIONS
GAMMAFLUX, INC.: Gammaflux, Inc. (Gammaflux), a majority-owned manufacturing
subsidiary of the Company, sold substantially all of its assets to CHC
Acquisition Partners, L.P., an Illinois limited partnership (CHC), pursuant to
an Asset Purchase Agreement, dated June 5, 1991 (effective May 1, 1991), among
Gammaflux, the Company, CHC, the minority shareholder of Gammaflux, the general
partner of CHC, and the principals of CHC. As a part of the transaction, CHC
agreed to assume certain liabilities of Gammaflux.
F-7
<PAGE> 35
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On May 1, 1992, Versar agreed to the early payout for the note receivable
and the non-competition agreements. The net cash generated from the early
payout was approximately $1,727,000 and was used to reduce debt. Versar and
the previous minority shareholder are still bound by the terms of the
non-compete agreement, and therefore, the Company has deferred certain income
to be recognized over the life of the agreement.
VERSAR LABORATORIES: In the third quarter of fiscal year 1994, management
announced that Versar was going to discontinue further operations of Versar
Laboratories, Inc. (VLI). VLI had lost approximately $800,000 per year from
fiscal years 1991 through 1994. Subsequent to this decision, Kemron
Environmental Services, Inc. purchased the fixed assets of VLI for $250,000 on
August 1, 1994. The Company established a reserve of $1,900,000 for
anticipated shut down costs in March 1994. With the purchase of assets and the
assumption of certain lease obligations, the Company was able to reverse
$300,000 of the reserve in the fourth quarter of fiscal year 1994.
VLI's assets and liabilities are presented as net liabilities of
discontinued operations in the consolidated balance sheets. At June 30, 1995,
current assets of $74,000 were offset by current liabilities of $7,000 and a
shut-down reserve of $682,000, resulting in net liabilities of $615,000. No
material balances existed at June 30, 1996.
The operating results of Versar Laboratories, Inc. have been classified as
discontinued operations for all periods presented in the consolidated financial
statements.
SARNIA CORPORATION: Sarnia, formerly Versar Virginia, Inc., a former
wholly-owned real estate subsidiary of Versar, was spun-off to Versar
shareholders on June 30, 1994. Sarnia was established in 1982 to own and
operate Versar Center, the headquarters buildings of Versar in Springfield,
Virginia. On June 30, 1994, Versar distributed to the holders of its common
stock substantially all of the common stock of Sarnia (the Distribution). The
Distribution provided Versar stockholders one share of Sarnia common stock for
every outstanding share of Versar common stock. The spin-off although a
divestiture for legal and tax purposes was not initially accounted for as a
divestiture for accounting purposes until January 1996, since the spin-off did
not relieve Versar of the risks of ownership due to Versar's guaranty of
Sarnia's $12.4 million debt at June 30, 1994.
Sarnia's results of operations through January 1, 1996 are presented as
single line items in the Consolidated Statements of Operations, and its assets
and liabilities at June 30, 1995 are presented as separate line items in the
Consolidated Balance Sheet.
On January 25, 1996, Sarnia obtained new financing which reduced Versar's
guarantee of Sarnia's indebtedness from $12,400,000 to $1,500,000. Versar has
taken a reserve of $1,500,000 against the guarantee. Therefore, after the
second quarter of fiscal year 1996, Versar will no longer include the results
of operations and financial position of Sarnia in the consolidated financial
statements.
F-8
<PAGE> 36
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
June 30,
-------------------------------
1996 1995
------------- --------------
(In thousands)
<S> <C> <C>
Billed receivables
U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,143 $ 5,239
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,716 3,131
Unbilled receivables
U.S. Government . . . . . . . . . . . . . . . . . . . . . . . . . . 3,029 3,107
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191 1,203
------------- -----------
13,079 12,680
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . (703) (957)
------------- -----------
$ 12,376 $ 11,723
============= ===========
</TABLE>
Unbilled receivables represent amounts earned which have not yet been
billed and other amounts which can be invoiced upon completion of fixed-price
contracts, attainment of certain contract objectives, or completion of federal
and state governments' incurred cost audits. Management anticipates that the
June 30, 1996 unbilled receivables will be substantially billed and collected
in fiscal year 1997.
NOTE D PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Life
in Years June 30,
----------- -----------------------------
1996 1995
------------- --------------
(In thousands)
<S> <C> <C> <C>
Furniture and fixtures . . . . . . . . . . . . . . . . . . 5 $ 1,987 $ 1,935
Equipment . . . . . . . . . . . . . . . . . . . . . . 3 to 10 6,505 6,177
Leasehold improvements . . . . . . . . . . . . . . . . . . Life of lease 1,408 581
----------- -----------
9,900 8,693
Accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . . (7,862) (7,236)
----------- -----------
$ 2,038 $ 1,457
=========== ===========
</TABLE>
Depreciation and amortization of property and equipment included as
expense in the accompanying Consolidated Statements of Operations was $665,000,
$668,000, and $925,000 for the years ended June 30, 1996, 1995, and 1994,
respectively.
Maintenance and repair expenses approximated $268,000, $219,000 and
$354,000 for the years ended June 30, 1996, 1995, and 1994, respectively.
F-9
<PAGE> 37
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
NOTE E DEBT
June 30,
------------------------------
1996 1995
------------------------------
(In thousands)
<S> <C> <C>
Bank line of credit, dated January 25, 1996 . . . . . . . . . $ 492 $ 438
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 339
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . 817 777
Current portion of long-term debt . . . . . . . . . . . . . . (815) (773)
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ 4
========== ==========
</TABLE>
Versar maintained a bank line of credit for working capital purposes
with Riggs National Bank ("Riggs"). Prior to January 25, 1996, the line
provided for advances up to $1,500,000. On January 25, 1996, Versar obtained a
new line of credit with Riggs National Bank which provides for advances up to
$3,000,000. Borrowings on the line are at the prime rate of interest plus 1/2%
(8.75% at June 30, 1996). A fee of 1/4% on the unused portion of the line of
credit is also charged. The line is guaranteed by the Company and each
subsidiary individually and is collectively secured by accounts receivable,
equipment and intangibles, plus all insurance policies on property constituting
collateral. Borrowing availability under the bank line of credit is restricted
to the borrowing base of qualifying receivables less $1,500,000. Unused
borrowing availability at June 30, 1996 was $2,508,000. Advances under the
line are due upon demand or on December 31, 1996. The Company must also obtain
Riggs' approval prior to paying dividends. Additionally, the loan has certain
covenants related to maintenance of financial ratios. The Company was in
compliance with the financial covenants at June 30, 1996. Management believes
that cash generated by operations and borrowings available from the bank line
of credit will be adequate to meet the working capital needs for fiscal year
1997.
As previously reported, Versar has guaranteed certain debt of Sarnia
Corporation. At June 30, 1995, Versar guaranteed the total mortgage debt of
Sarnia Corporation ("Sarnia") (formerly Versar Virginia, Inc., which was
spun-off to Versar shareholders on June 30, 1994) which was approximately
$12,062,000. On January 25, 1996, Sarnia refinanced its outstanding debt.
Sarnia obtained a first mortgage of $9,000,000 with I.D.S. Life Insurance
Company, a $500,000 second mortgage with Riggs and a $1,500,000 seven year term
loan with Riggs. As a result of the refinancing, Versar's guarantee of
Sarnia's debt has decreased from approximately $12,400,000 to $1,500,000.
Sarnia has issued $750,000 of its Series A Cumulative Convertible Preferred
stock to a group of private investors. Versar has established a reserve of
$1,500,000 against the loan. As the term loan is repaid, the reserve will be
reduced and added to Versar's equity.
The revolving bank line of credit amount outstanding based on average
daily balances for the years ended June 30, 1996, 1995, and 1994, approximated
$673,000, $544,000, and $292,000, respectively, and the weighted average
interest rates for such periods were 10.94%, 10.92%, and 8.79%, respectively.
The maximum amount outstanding approximated $1,500,000, $1,375,000, and
$1,120,000 during fiscal years 1996, 1995, and 1994, respectively. Weighted
average interest rates are computed by relating the interest expense to the
average month-end balance.
Interest payments were $89,000, $157,000, and $62,000 for the years
ended June 30, 1996, 1995, and 1994, respectively.
F-10
<PAGE> 38
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F STOCK OPTIONS
The Versar 1992 Stock Option Plan provides employees of the Company
and certain other persons an incentive to remain as employees of the Company
and encourages superior performance for the Company's benefit. Options are
also outstanding from the Incentive Stock Option Plan adopted in 1982 and a
Non-Qualified Option Plan adopted in 1987. Options are granted from these
plans to purchase the Company's common stock.
At June 30, 1996, options to purchase an aggregate of 1,215,790 shares
of common stock were outstanding under the 1992 and 1982 Incentive Stock Option
Plans at per share exercise prices ranging from $2.125 to $3.940 and options
to purchase an aggregate of 372,835 shares were outstanding under the
Non-Qualified Stock Option Plan at per share exercise prices ranging from
$2.375 to $3.563.
Under the Plan, options have been granted and may be granted to key
employees at the fair market value on the date of grant and become exercisable
during the four-year period from the date of the grant at 20% per year.
Unexercised options are cancelled on the fifth anniversary of certain grants
under the 1982 Plan and on the tenth anniversary of the grant under the
remainder of the 1982 and 1992 Plans.
Options under the Incentive Stock Option 1982 and 1992 Plans are as
follows:
<TABLE>
<CAPTION>
Optioned Option Price
Shares Per Share Total
--------- ----------------------- ---------
(In thousands, except per share price)
<S> <C> <C> <C> <C> <C>
Outstanding at June 30, 1993 . . . 971 $ 2.063 to $ 3.940 $ 2,575
Issued . . . . . . . . . . 88 2.563 to 3.938 282
Exercised . . . . . . . . . (35) 2.063 to 3.000 (88)
Cancelled . . . . . . . . . (72) 2.063 to 3.940 (187)
-------- ----------
Outstanding at June 30, 1994 . . . 952 2.063 to 3.940 2,582
Issued . . . . . . . . . . 62 2.000 to 3.375 184
Exercised . . . . . . . . . (30) 2.000 to 2.437 (67)
Cancelled . . . . . . . . . (42) 2.000 to 3.940 (108)
-------- ----------
Outstanding at June 30, 1995 . . . 942 2.063 to 3.940 2,591
Issued . . . . . . . . . . 389 2.813 to 3.625 1,178
Exercised . . . . . . . . . (80) 2.063 to 2.563 (185)
Cancelled . . . . . . . . . (35) 2.063 to 3.940 (96)
-------- ----------
Outstanding at June 30, 1996 . . . 1,216 $ 2.125 to $ 3.940 $ 3,488
======== ==========
</TABLE>
At June 30, 1996, 1995, and 1994, options of 807,408, 667,515, and
508,443 shares were exercisable.
On April 30, 1987, the Board of Directors adopted a Non-Qualified
Stock Option plan. Participants in the plan include employees, independent
contractors, and, in certain circumstances, Directors of the Company. Options
are granted by the Board of Directors at a price not less than 50% of the fair
market value at the date of grant and for a period not to exceed 10 years.
Generally, options are issued at 100% of the market value at the date of grant.
F-11
<PAGE> 39
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Options under the 1987 Non-Qualified Plan are as follows:
<TABLE>
<CAPTION>
Optioned Option Price
Shares Per Share Total
---------- --------------------- ----------
(In thousands, except per share price)
<S> <C> <C> <C> <C>
Outstanding at June 30, 1993 . . . 178 $ 2.375 to $ 2.500 $ 437
Issued . . . . . . . . . . 0 --- to --- 0
Cancelled . . . . . . . . . 0 --- to --- 0
------- ---------
Outstanding at June 30, 1994 . . . 178 2.375 to 2.500 437
Issued . . . . . . . . . . 0 --- to --- 0
Cancelled . . . . . . . . . 0 --- to --- 0
Exercised . . . . . . . . . (28) 2.500 to 2.500 (70)
------- ---------
Outstanding at June 30, 1995 . . . 150 2.375 to 2.500 367
Issued . . . . . . . . . . 264 3.000 to 3.563 804
Cancelled . . . . . . . . . (2) 2.437 to 2.437 (5)
Exercised . . . . . . . . . (39) 2.375 to 2.437 (93)
------- ---------
Outstanding at June 30, 1996 . . . 373 $ 2.375 to $ 3.563 $ 1,073
======= =========
</TABLE>
Non-Qualified stock options of 163,367, 150,000, and 161,200 shares
were exercisable at June 30, 1996, 1995, and 1994, respectively.
NOTE G INCOME TAXES
At June 30, 1996, the Company had, for tax reporting purposes,
approximately $230,000 of business tax credit carryforwards available to offset
future taxes payable through 2002. In addition, the Company had $182,000 of
alternative minimum tax credit carryforwards which can be carried forward
indefinitely. The alternative minimum tax credit carryforward may be used to
offset regular tax liability in future years to the extent it exceeds the
alternative minimum tax liability. These carryforwards are reflected as
deferred tax assets.
F-12
<PAGE> 40
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years ended June 30,
---------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Currently payable
Federal . . . . . . . . . . . . $ 2 $ (67) $ 95
State . . . . . . . . . . . . . 32 11 23
Deferred
Federal . . . . . . . . . . . . (250) --- (536)
State . . . . . . . . . . . . . --- --- ---
Federal tax charge due to Sarnia
spin-off . . . . . . . . . . . --- --- 1,750
-------- ------- -------
$ (216) $ (56) $ 1,332
======== ======= =======
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Employee benefits . . . . . . . $ 564 $ 430
Bad debt reserve . . . . . . . . 239 318
All other reserves . . . . . . . 332 501
Alternative minimum tax credits 182 182
Other business tax credits . . . 230 250
Net operating loss carryforwards --- 233
--------- ----------
Total Deferred Tax Assets . . . . . . 1,547 1,914
Deferred Tax Liabilities:
Depreciation . . . . . . . . . . (65) (118)
Other . . . . . . . . . . . . . (1) ---
--------- ----------
Total Deferred Tax Liabilities (66) (118)
Net Deferred Tax Assets . . . . . 1,481 1,796
Valuation Allowance . . . . . . . . (708) (1,260)
--------- --------
Net Deferred Tax Asset . . . . . . $ 773 $ 536
========= ==========
</TABLE>
At June 30, 1996, Versar had approximately $3.3 million of future tax
deductions to utilize against future taxable income. Due to Versar's
losses in previous years, the Company was unable to record a tax benefit of
$708,000 until the probability to realize these amounts becomes more certain.
F-13
<PAGE> 41
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax (benefit) provision was composed of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
1996 1995 1994
---------- ------------ ---------
(In thousands)
<S> <C> <C> <C>
Expected provision (benefit) at federal
statutory rate . . . . . . . . . . $ 264 $ 137 $ (451)
Change in valuation allowance . . . . . . . (552) (512) --
Increase in valuation allowance due to spin-off -- -- 1,309
State income tax, net of federal benefit . 32 11 23
Losses on Sarnia operations not deductible 48 92 185
Other . . . . . . . . . . . . . . . . . (8) 216 266
-------- -------- -------
$ (216) $ (56) $ 1,332
========= ======== =======
</TABLE>
Income taxes paid for the years ended June 30, 1996, 1995, and 1994
were $7,000, $140,000, and $34,000, respectively.
Tax Impact of Spin-off
The spin-off of Sarnia triggered a taxable event in 1994 through the
recapture of an "Excess Loss Account" (loss recorded for tax purposes in excess
of the investment due to accelerated depreciation). The excess loss account
had a balance of approximately $5 million, which was offset by debt forgiveness
by Versar of approximately $2.4 million, leaving $2.6 million of taxable income
to Versar. At March 31, 1994, Versar had $9.5 million of future tax
deductions, which were reduced by approximately $2.4 million for the debt
forgiveness and applied to the remaining taxable income of $2.6 million
resulting from the spin-off. In addition, approximately $141,000 of general
business credits were utilized in fiscal year 1994.
NOTE H EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Company has established an Employee Savings and Stock Ownership
Plan (ESSOP) for the benefit of its employees and those of its subsidiaries.
To be eligible to participate in the plan, an employee must have been employed
for one year with at least 1,000 hours of service. The plan includes an
Employee Stock Ownership Plan (ESOP) and an Employee Savings Plan (401(k)).
Contributions to the ESOP are made at the discretion of the Company in
the form of the Company's stock or cash, which is invested by the plan's
trustee in the Company's stock. No contributions were made in fiscal years
1996, 1995, and 1994, respectively.
The Employee Savings Plan was adopted in accordance with Section
401(k) of the Internal Revenue Code. Under the plan, participants may elect to
defer up to 15% of salary through contributions to the plan, which are invested
in selected mutual funds or used to buy insurance. The Company will match
qualified contributions with a contribution of 100% of each employee's
contribution up to 4% of the employee's salary. This contribution may be in the
Company's stock or cash, which will be invested by the plan's trustees in the
Company's stock. Company matching contributions approximated $473,000,
$434,000, and $425,000 for fiscal years 1996, 1995, and 1994, respectively.
F-14
<PAGE> 42
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All contributions to the 401(k) Plan vest immediately. Contributions
to the ESOP vest ratably with years of service such that full vesting occurs
after five years of credited service.
GEOMET Technologies, Inc. (Geomet), a wholly-owned subsidiary, has a
profit-sharing retirement plan for the benefit of its employees. Contributions
are made at the discretion of Geomet's Board of Directors. Geomet contributed
$0, $29,000 and $19,000 in fiscal years 1996, 1995 and 1994, respectively.
Vesting occurs over time, such that an employee is 100% vested after seven
years of participation.
VA&E, a former subsidiary of the Company, had a trusteed employee
stock ownership plan for all qualified employees. Employees generally are
eligible for participation after attaining age 21 and completing 1,000 or more
hours of service within a plan year. Benefits vest at the rate of 10% per year
of service for the first two years and 20% per year of service thereafter.
With the acquisition of VA&E by the Company, the plan received 45,042 shares of
the Company's stock in exchange for VA&E shares held. Since VA&E employees are
now eligible for participation in the Company's ESSOP, the VA&E plan has been
terminated and the assets merged with the Company's ESSOP in fiscal year 1995.
NOTE I COMMITMENTS AND CONTINGENCIES
Versar has a substantial number of U.S. Government contracts, the
costs of which are subject to audit by the Defense Contract Audit Agency. All
fiscal years through 1993 have been audited and closed. Management believes
that the effect of disallowed costs, if any, for the periods not yet audited
will not have a material adverse effect on the consolidated financial position
and results of operations.
The Company leases approximately 190,000 square feet of office space,
including space leased from Sarnia, as well as data processing and other
equipment under agreements expiring through 2009. Minimum future obligations
under operating leases are as follows:
<TABLE>
<CAPTION>
Total
Years Ending June 30, Amount
--------------------- -------
(In thousands)
<S> <C>
1997 . . . . . . . . . . . . . . . $ 3,339
1998 . . . . . . . . . . . . . . . 2,826
1999 . . . . . . . . . . . . . . . 2,143
2000 . . . . . . . . . . . . . . . 1,639
2001 . . . . . . . . . . . . . . . 1,196
2002 and thereafter . . . . . . . . 8,327
---------
$ 19,470
=========
</TABLE>
Certain of the lease payments are subject to adjustment for increases
in utility costs and real estate taxes. Total rental expense approximated
$2,467,000, $2,938,000, and $2,986,000 for 1996, 1995, and 1994, respectively.
As part of the agreement to sell its laboratory assets and operations
to Kemron Environmental Services, Inc. (Kemron) in July 1994, Versar agreed to
refer its analytical laboratory work for a period of 48 months after the
closing date to Kemron subject to certain limitations and exclusions including
federal procurement requirements and the ability of Kemron to perform the
required services. On July 31, 1996, Kemron filed an action in the Circuit
Court of Fairfax County, Commonwealth of Virginia, entitled Kemron
Environmental Services, Inc. vs. Versar
F-15
<PAGE> 43
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Laboratories, Inc. and Versar, Inc., Law No. L154205. Kemron alledged the
defendents breached warranties of certain provisions in the Asset Acquisition
Agreement and alledged damages in the amount of not less than $3,000,000.
Management is unable to estimate its ultimate exposure for this matter at this
time.
Versar is a defendant in lawsuits that have arisen in the ordinary
course of its business. Such lawsuits include actions brought by a former
officer of the Company and certain customers and are currently in various
stages of litigation. Management does not believe that the outcome of these
lawsuits will have a material adverse effect on the Company's consolidated
financial position and results of operations.
NOTE J CUSTOMER INFORMATION
A substantial portion of the Company's consulting revenue is derived
from contracts with the U.S. Government as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------
1996 1995 1994
------------ --------------- ------------
(In thousands)
<S> <C> <C> <C>
U.S. Department of Defense $ 16,479 $ 13,194 $ 11,260
U.S. Environmental Protection Agency 3,787 5,375 6,151
Other U. S. Government Agencies 2,035 1,707 1,312
------------- ---------- ----------
Total U.S. Government $ 22,301 $ 20,276 $ 18,723
============= ========== ==========
</TABLE>
The Company's largest contract generated revenues of approximately
$7,951,000 in fiscal year 1996.
No other contracts individually exceeded 10% of total revenues in
fiscal year 1996, 1995, and 1994, respectively.
F-16
<PAGE> 44
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1996 and 1995 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1995
------------------------------------------------- ---------------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
- -------------------------- --------- ------------ ----------- ----------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Revenue . . . . . . . $ 10,597 $ 11,389 $ 11,807 $ 10,490 $ 10,254 $ 10,054 $ 9,364 $ 9,418
Net Service Revenue . . . . 7,951 8,224 8,130 7,614 7,505 7,414 7,279 7,149
Operating income . . . . . 121 245 293 213 176 190 148 46
Net income . . . . . . . . $ 374 $ 213 $ 230 $ 175 $ 205 $ 152 $ 101 $ ---
======== ========= ========== ========== ========= ========= ========= ========
Net income per share . . . $ .07 $ .04 $ .04 $ .03 $ .04 $ .03 $ .02 $ ---
======== ========= ========== ========== ========= ========= ========= ========
Weighted average number of
shares outstanding . . . 5,276 5,216 5,170 5,178 4,837 4,853 4,878 4,824
======== ========= ========== ========== ========= ========= ========= ========
</TABLE>
Quarterly financial data may not equal annual totals due to rounding.
Quarterly earnings per share data will not equal annual total due to
fluctuations in common shares outstanding.
F-17
<PAGE> 45
SCHEDULE II
VERSAR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES CHARGE OFF YEAR
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
1994 $ 1,760,713 $ (12,167) $ (396,937) $ 1,351,609
1995 1,351,609 770 (395,180) 957,199
1996 957,199 (36,710) (217,262) 703,227
</TABLE>
F-18
<PAGE> 1
EXHIBIT 10.78
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of the 25th day of January
1996, is made by and between THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., a
national banking association (the Lender), VERSAR, INC., a Delaware corporation
(the Parent), VERSAR OF OHIO, INC., an Ohio corporation (Ohio), VERSAR RISK
MANAGEMENT, INC., a New York corporation (VRMI), and GEOMET TECHNOLOGIES, INC.,
a Delaware corporation (GEOMET), and any Subsidiary that subsequently becomes a
party to this Agreement in accordance with the provisions set forth below (with
the Parent, Ohio, VRMI, GEOMET and any such Subsidiary being referred to
collectively as the Borrowers, and individually, a Borrower).
RECITALS
A. The Parent owns 100% of the capital stock of the other
Borrowers. The Borrowers are engaged in business on a consolidated and
integrated basis, and the Borrowers' integrated operations include applying for
and making use of credit on a joint basis. Each Borrower derives substantial
direct and indirect benefits from its relationships with the other Borrowers,
including the benefits of enhanced credit availability.
B. The Lender has agreed to make the Loans (hereinafter defined)
provided for in this Agreement available to the Borrowers on a group basis such
that each Borrower is jointly and severally liable for all amounts owing in
connection with the financing, regardless of which Borrower actually receives
the Loan proceeds. The Lender is unwilling to provide this or similar
financing to the Borrowers on an individual basis. Consequently, the Loans
provided by this Agreement would be unavailable to the individual Borrowers
unless all participated in concert hereunder.
C. In light of the foregoing, the Borrowers have joined together
as a syndicate or joint enterprise for the purpose of obtaining the benefit of
the extensions of credit under this Agreement. All parties to this Agreement
acknowledge and agree that the Lender has been induced to enter into this
Agreement and to extend credit under this Agreement in reliance upon the joint
and several liability of the Borrowers. Each Borrower acknowledges and agrees
that it is jointly and severally liable for all borrowings by the group or any
of its members under this Agreement, regardless of whether such Borrower
receives any portion of the proceeds of a particular borrowing.
D. As one of the conditions for extending such credit to all of
the Borrowers jointly and severally, the Lender has required, and the Borrowers
have agreed, that the Borrowers shall grant a perfected lien and security
interest in the Collateral of all the Borrowers as described in Section 3.1 of
this Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Lender and the Borrowers agree as
follows:
Section 1. Definitions. As used in this Agreement, the
following terms shall have the meanings assigned to them below, which meanings
shall be equally applicable to the singular and plural forms of the terms
defined.
"Accounts Receivable" means, collectively, and includes all of the
following, whether now owned or hereafter acquired by any Borrower: all
property included within the definitions of "accounts," "chattel paper,"
"documents" and "instruments" set forth in the UCC; all present and future
rights to payments for goods sold or leased or for services rendered, whether
or not represented by instruments or chattel paper, and whether or not earned
by performance; contract rights; all present and future rights to payments for
computer software,
<PAGE> 2
computer hardware or computer systems sold, leased or licensed; proceeds of any
letter of credit of which any Borrower is a beneficiary; all forms of
obligations whatsoever owed to any Borrower, together with all instruments and
documents of title representing any of the foregoing; all rights in any goods
that any of the foregoing may represent; any and all rights in any returned or
repossessed goods; and all rights, security and guaranties with respect to any
of the foregoing, including, without limitation, any right of stoppage in
transit.
"Affiliate" means, with respect to any specified Person, any other
Person that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of common stock, by contract or otherwise.
"Aging" means a schedule of all outstanding Receivables (including
separate itemizations of notes and leases) of the Borrowers showing the initial
invoice date of each Receivable and the age of the Receivables in intervals of
30 days.
"Agreement" means this Loan and Security Agreement, as the same may be
amended, modified or supplemented from time to time.
"Assignment of Claims Act" means, collectively, the Assignment of
Claims Act of 1940, as amended, 31 U.S.C. Section 3727, 41 U.S.C. Section 15,
any applicable rules, regulations and interpretations issued pursuant thereto,
and any amendments to any of the foregoing.
"Assumption Agreement" means each Assumption Agreement, substantially
in the form of Exhibit A attached to this Agreement, executed by a Subsidiary
that becomes a party to this Agreement, the Revolving Note, and the other Loan
Documents in accordance with the provisions of Section 8.3 below.
"Borrowing Base" means, at the time in question, 80% of Eligible
Billed Receivables; provided, however, that the Borrowing Base shall be reduced
by an amount equal to the aggregate of the face amounts of letters of credit
issued by the Lender for the account of any Borrower, whether such letters of
credit are now outstanding or hereafter issued.
"Borrowing Base Certificate" means a certificate of the Parent
containing a computation of the Borrowing Base and certifying that no Default
or Event of Default has occurred and is continuing, in form and substance
satisfactory to the Lender.
"Borrowers" has the meaning ascribed to such term in the first
paragraph hereof.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required to close under the
laws of the State.
"Capital Lease" means any lease that has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Cash Flow" means, for any fiscal period, the sum of (a) Net Income of
the Borrowers, plus (b) to the extent deducted in determining Net Income,
interest expense, rent expense, operating lease payments, amortization and
depreciation.
"Closing" means the initial disbursement of the Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE> 3
"Collateral" means, collectively, and includes all Accounts
Receivable, Equipment, General Intangibles, Inventory and all other property of
the Borrowers in which a Lien is granted to the Lender pursuant to this
Agreement or any other Loan Document.
"Covenant Compliance Certificate" means a certificate executed by the
chief financial officer of the Parent, substantially in the form of Exhibit B
attached to this Agreement, containing a calculation of the financial covenants
contained in Section 7 hereof and certifying that no Default or Event of
Default has occurred and is continuing.
"Current Assets" means, at any date, the aggregate amount of all
consolidated assets of the Parent and its Subsidiaries (including, but not
limited to, cash, marketable securities, Accounts Receivable and Inventory)
that would be classified as consolidated current assets, all as determined in
accordance with GAAP.
"Current Liabilities" means, at any date, the aggregate amount of all
consolidated liabilities of the Parent and its Subsidiaries (including tax and
other proper accruals) that would be classified as consolidated current
liabilities, determined in accordance with GAAP.
"Customer" means any Person obligated on a Receivable.
"DCAA" means the Defense Contract Audit Agency and any successor
thereto.
"Debt" means, collectively, and includes, with respect to any
specified Person (a) indebtedness or liability for borrowed money or for the
deferred purchase price of property or services; (b) obligations as a lessee
under a Capital Lease; (c) obligations to reimburse the issuer of letters of
credit or acceptances; (d) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business) and other contingent
obligations to purchase, to provide funds for payment, to supply funds to
invest in any other Person or otherwise to assure a creditor against loss; (e)
obligations under interest rate swap agreements or similar agreements; and (f)
obligations secured by any Lien on property owned by the specified Person,
whether or not the obligations have been assumed.
"Default" means any event that, with the giving of notice, the lapse
of time, or both, would constitute an Event of Default.
"Eligible Billed Receivables" means Eligible Receivables that have
been billed to the appropriate Customer and are aged less than 90 days from the
date of the initial invoice. For the purposes of this definition, the term
"initial invoice" shall mean the first invoice relating to the applicable goods
or services, and not any subsequent invoice relating thereto.
"Eligible Receivables" means Accounts Receivable of any Borrower (a)
that represent valid obligations incurred by a Customer for goods shipped or
delivered or services completed under valid contracts of sale, lease or service
that have been formally awarded to a Borrower and for which all required
contract documents have been executed by the Customer and a Borrower and, in
the case of Accounts Receivable owed by the Government, for which funds have
been appropriated and allocated; (b) on which the Customer is not an Affiliate
or Subsidiary of such Borrower; (c) with respect to which such Borrower has no
knowledge or notice of any inability of the Customer to make full payment; (d)
from the face amounts of which have been deducted all payments, setoffs,
amounts subject to adverse claims made in writing to such Borrower, contractual
allowances, bad debt reserves and other credits applicable thereto; (e) that
are subject to no Liens other than those permitted by this Agreement; (f) that
continue to be in full conformity with the representations and warranties made
by such Borrower to the Lender in this Agreement; (g) with respect to which the
Lender is and continues to be satisfied with the credit standing of the
Customer; (h) on which the Customer is not a creditor of such Borrower; (i) on
which the Customer is not a foreign government or an entity organized and
existing under
<PAGE> 4
the laws of a country other than the United States; (j) in which the Lender has
a perfected, first priority security interest; (k) that is payable in United
States Dollars in the United States; and (l) that does not arise out of a bill
and hold sale, a guaranteed sale, a sale and return, a sale on approval or a
consignment transaction; provided, however, and without limiting any other
provisions of this Agreement with respect to the exclusion of Receivables from
the category of Eligible Receivables and the Borrowing Base, that (1) if the
Lender reasonably determines that the collectibility of any Receivable makes it
unacceptable for inclusion in the Borrowing Base and gives written notice to
such Borrower indicating the reasons for such determination, then such
Receivable shall thereafter be excluded from the category of Eligible
Receivables, (2) if more than 50% of the aggregate face amount of Receivables
owed by a Customer are aged more than 90 days from the dates of the initial
invoices, then all Receivables owed by such Customer shall be included in a
separate line item on the Borrowing Base Certificate and, at the Lender's
option, shall be excluded from the category of Eligible Receivables, and (3) in
no case shall Eligible Receivables include any Accounts Receivable representing
or arising out of retainages, holdbacks, revenues recognized or costs incurred
in excess of approved or allowed reimbursement rates, cost overruns,
unauthorized work or work beyond the scope of a contract, rebillings or
contracts secured by surety bonds.
"Equipment" means, collectively, and includes all of the following,
whether now owned or hereafter acquired by any Borrower: all items that are
included within the definitions of "equipment" and "fixtures" as set forth in
the UCC, including, without limitation, computer software, computer hardware,
computer systems, furniture, machinery, vehicles and trade fixtures, together
with any and all accessories, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" means any of the events specified as an "Event of
Default" under this Agreement, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
"Fixed Charges" means, for any fiscal period, the sum of interest
expense, rent expense and payments due under operating leases, all as
determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means collectively and includes all of the
following, whether now owned or hereafter acquired by any Borrower: all
property that is included within the definition of "general intangibles" as set
forth in the UCC; choses in action, causes of action and all other intangible
property of every kind and nature, including, without limitation, corporate or
other business records, inventions, designs, patents, patent applications,
trademarks, trademark applications, trade names, trade secrets, good will,
registrations, copyrights, licenses, franchises, customer lists, tax refunds,
tax refund claims, rights of claims against carriers and shippers, leases and
rights to indemnification.
"Government" means the United States of America or any agency or
instrumentality thereof.
"Guaranty Agreement" means the Guaranty Agreement, of even date
herewith, from the Borrowers in favor of the Lenders, pursuant to which the
Borrowers guarantee the payment of the Sarnia Term Note, as such Guaranty
Agreement may be amended, modified or supplemented from time to time.
"Increased Costs" means any reserve, special deposit, capital adequacy
guideline or similar requirement relating to any extensions of credit or other
assets of the Lender, or the deposits with or other liabilities of the Lender,
that (a) is imposed as a result of any Regulatory Change or as a result of the
application of existing capital adequacy guidelines (including, without
limitation, any Regulatory Change or capital adequacy guideline
<PAGE> 5
that requires that lines of credit established by the Lender be classified as
"risk assets" for purposes of, or otherwise be subject to the provisions of,
any capital adequacy guidelines applicable to the Lender), and (b) increases
the cost to the Lender of making, issuing or maintaining any Loan, reduces the
amount receivable by the Lender in connection with any Loan, or reduces the
rate of return on the Lender's capital as a consequence of its obligations
under this Agreement.
"Interest Payment Date" means the first day of each month.
"Inventory" means, collectively, and includes all of the following,
whether now owned or hereafter acquired by any Borrower: all property included
within the definition of "inventory" set forth in the UCC; all goods, computer
software, computer hardware or computer systems held or intended for sale,
lease or licensing by any Borrower or furnished or to be furnished under
contracts of sale, leasing, licensing or service or used or consumed in the
business of any Borrower; and all raw materials, work in process, finished
goods, materials and supplies of every nature used or usable in connection with
the manufacture, packing, shipping, advertising or sale of any such goods.
"Lender" has the meaning ascribed to such term in the first paragraph
hereof.
"Leverage Ratio" means, at any time, the ratio of Total Liabilities to
Tangible Net Worth.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement, or preferential
arrangement, charge or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement,
any Capital Lease and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the foregoing).
"Loans" means the loans to be made to the Borrowers by the Lender
pursuant to this Agreement.
"Loan Documents" means this Agreement, the Revolving Note, the
Guaranty Agreement and any other document now or hereafter executed or
delivered in connection with the Obligations, in evidence thereof or as
security therefor, including, without limitation, any life insurance
assignment, pledge agreement, security agreement, deed of trust, mortgage,
promissory note or subordination agreement.
"Maximum Amount" means $3,000,000, provided, however, that the
Maximum Amount shall be reduced by an amount equal to the aggregate of the face
amounts of letters of credit issued by the Lender for the account of any
Borrower, whether such letters of credit are now outstanding or hereafter
issued.
"Net Income" means consolidated gross revenues of the Borrowers less
all operating and non-operating expenses of the Borrowers, including all
charges of a proper character and all taxes on income, with all of the
foregoing accounting terms being determined in accordance with GAAP, but
excluding from the foregoing computation any non-cash gain or loss of an
extraordinary nature.
"Obligations" means the Loans, the Revolving Note, the Sarnia Term
Note, the Guaranty Agreement, all indebtedness and obligations of the Borrowers
under this Agreement and the other Loan Documents, as well as all other
obligations, indebtedness and liabilities of the Borrowers to the Lender, now
existing or hereafter arising, of every kind and description, whether or not
evidenced by notes or other instruments, and whether such obligations,
indebtedness and liabilities are direct or indirect, fixed or contingent,
liquidated or unliquidated, due or to become due, secured or unsecured, joint,
several or joint and several, related or unrelated to the Loans, similar or
dissimilar to the indebtedness arising out of this Agreement, of the same or a
different class of indebtedness as the indebtedness arising out of this
Agreement, including, without limitation, any overdrafts in any deposit account
maintained by any Borrower with the Lender, all obligations of any
<PAGE> 6
Borrower with respect to letters of credit issued by the Lender for the account
of any Borrower, any indebtedness of any Borrower that is assigned to the
Lender and any indebtedness of any Borrower to any assignee of this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
"Permitted Acquisition" means any transaction in which a Borrower or a
Subsidiary acquires all or substantially all of the assets or outstanding
capital stock of any Person or merges or consolidates with any Person, provided
that (a) after giving effect thereto, no Default or Event of Default shall
occur, (b) the surviving entity, if not a Borrower, shall become a Borrower
under the terms of this Agreement within five Business Days after the
consummation of such transaction, (c) such transaction must be approved by the
Lender, which approval shall be subject to the review by the Lender of all
documentation and financial analysis related to the transaction as the Lender
shall reasonably require, and shall be granted or denied within 30 Business
Days after the Lender has received such documentation and analysis.
"Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Prime Rate" means the rate of interest reported in The Wall Street
Journal newspaper in its "Money Rates" column as the "Prime Rate" and, if more
than one rate or a range of rates is reported as the "Prime Rate," the higher
or highest such rate, changing when and as such rate shall change. If The Wall
Street Journal shall cease to publish the "Prime Rate," then "Prime Rate" shall
mean that rate announced by the Lender from time to time as its prime rate of
interest. The Prime Rate (determined by either method) is established from
time to time by the Lender and recorded in its Central Credit Administration
Division as a reference for fixing the lending rate on commercial loans,
adjusted daily when and as such rate is changed, is not necessarily the lowest
rate of interest charged by the Lender on loans to its customers. Each
Borrower acknowledges that, with respect to all matters relevant hereto, a
certificate signed by an officer of the Lender setting forth the Prime Rate in
effect on any applicable date shall be binding and conclusive.
"Receivables" means the Accounts Receivable and the General
Intangibles.
"Regulatory Change" means any change, after the date of this
Agreement, in any federal or state laws, rules and regulations, or
interpretations thereof, or the adoption after the date of this Agreement of
any rules, interpretations, directives or requests, applying to a class of
financial institutions including the Lender, under any federal or state laws or
regulations by any court or regulatory authority charged with the
interpretation or administration thereof.
"Revolving Note" means a promissory note, in form and substance
satisfactory to the Lender, in the original principal amount of $3,000,000, and
evidencing the obligation of the Borrowers to pay the principal amount of the
Loans, together with interest on the Loans, as such promissory note may be
amended, modified, supplemented or replaced from time to time. The term
"Revolving Note" also shall include any promissory note executed and delivered
by the Borrowers in connection with an extension of the Termination Date, an
increase in the Maximum Amount or any other amendment to this Agreement
regarding the Loans.
"Sarnia" means Sarnia Corporation, a Virginia corporation.
"Sarnia Term Note" means the $1,500,000 Term Note of even date
herewith, made by Sarnia and payable to the Lender, as amended, modified,
supplemented or replaced from time to time.
"State" means the Commonwealth of Virginia.
<PAGE> 7
"Subsidiary" means a corporation of which shares of stock having
ordinary voting power to elect a majority of the board of directors or other
managers of such corporation are at the time owned, or the management of which
is otherwise controlled, directly or indirectly, through one or more
intermediaries, or both, by the Borrowers or any one or more of them.
"Tangible Net Worth" means, at any date, all amounts that, in
accordance with GAAP, would be included under stockholders' equity on the
consolidated balance sheet of the Parent and its Subsidiaries at such time;
provided that, in any event, such amounts are to be net of amounts carried on
the books of the Parent and its Subsidiaries for (a) any write-up in the book
value of any assets resulting from a revaluation thereof subsequent to the date
of this Agreement; (b) treasury stock; (c) unamortized debt discount expense;
(d) any cost of investments in excess of the value of net assets acquired at
any time of acquisition by the Borrowers; (e) loans or advances to, or
Receivables due from, any Affiliate or Subsidiary of the Borrowers, or
directors, officers, employees or shareholders of the Borrowers, any Affiliate
of the Borrowers or any Subsidiary; (f) investments in non-marketable
securities and (g) net leasehold improvements, patents, patent applications,
copyrights, trademarks, trade names, good will, research and development costs,
organizational expenses, capitalized software costs and other like intangibles.
"Termination Date" means December 31, 1996, and any extension or
extensions thereof granted by the Lender in its sole discretion.
"Total Liabilities" means, at any date, the sum of (a) the
consolidated liabilities of the Parent and its Subsidiaries (including tax and
other proper accruals), computed in accordance with GAAP, and (b) the amount of
principal and interest outstanding under the Sarnia Term Note.
"UCC" means the Uniform Commercial Code as adopted in the State, and
all amendments thereto.
Section 2. Loans.
Section 2.1. Amount and Borrowing Procedure.
(a) Subject to the terms and conditions of this
Agreement, the Lender agrees to make Loans to the Borrowers, or any one or more
of them, from time to time until the Termination Date in an aggregate principal
amount not to exceed the Maximum Amount at any one time outstanding. Up to the
Maximum Amount, the Borrowers may borrow, repay without penalty and re-borrow
hereunder from the date of this Agreement until the Termination Date; provided,
however, that no Loan will be disbursed by the Lender if, after such
disbursement, the aggregate principal amount of the Loans would exceed the
Borrowing Base.
(b) The Borrower shall immediately prepay the Loans to
the extent that the aggregate unpaid principal balance of the Loans at any time
exceeds the Borrowing Base.
(c) The proceeds of the Loans shall be used for
short-term working capital purposes and no other purpose. The initial Loan
shall be applied at the Closing to repay in full the Debt outstanding under the
Borrowers' existing line of credit with the Lender, and such existing line of
credit shall be terminated.
(d) The Parent may request that a Loan be made, which
request may be in writing or by telephone and made or signed by those
individuals designated by the Parent from time to time, in written instruments
delivered to the Lender, as authorized to make such requests (a "Request");
provided, however, that the Borrowers shall remain liable with respect to any
Loan disbursed by the Lender in good faith hereunder, even if such Loan is
requested by an individual who has not been so designated. Any Request for a
Loan must be received by the Lender no later than 2:00 p.m. (Washington, D.C.
time) on the date on which the Loan is to be made. Each Request must specify
the amount of the Loan and, at the option of the Lender, shall be
<PAGE> 8
accompanied by a current Borrowing Base Certificate and a current Aging.
Requests made by telephone shall be confirmed in writing and delivered to the
Lender, together with the current Borrowing Base Certificate and the current
Aging, within five Business Days after the date of the request. Each Borrower
appoints the Parent as its agent to receive the proceeds of the Loans on behalf
of the Borrowers. The proceeds of the Loans shall be credited to a deposit
account maintained with the Lender by the Parent. The Parent agrees to
distribute the proceeds of such Loans among the Borrowers for the purposes
contemplated by this Agreement. The Parent agrees to confirm in writing from
time to time, when and as requested by the Lender, the purpose for which the
proceeds of each Loan were used.
(e) The unpaid principal balance of the Loans shall bear
interest at a rate per annum equal to the Prime Rate plus 1/2 of 1%. Payments
of interest on each Loan shall be made on each Interest Payment Date beginning
on the Interest Payment Date next succeeding the date of disbursement of such
Loan.
(f) The obligation of the Borrower to repay the Loans,
together with interest thereon, shall be evidenced by the Revolving Note. The
unpaid principal balance of the Revolving Note shall be payable on demand, or
if demand by the Lender is not sooner made, on the Termination Date. The
Borrowers acknowledge and agree that the enumerated Events of Default in this
Agreement are merely examples of the types of occurrences that may cause the
Lender to make a demand for payment, and neither they nor any other provision
of this Agreement shall alter or limit the right of the Lender to demand
payment of the Revolving Note at any time.
(g) The Borrowers and the Lender from time to time may
agree to extend the Termination Date or increase the amount of credit to be
provided under this Agreement, or both. During any such periods of extension,
the remaining terms and conditions of this Agreement shall remain in full force
and effect, and the Borrowers shall execute and deliver any amendments or
modifications to the Loan Documents as the Lender may require in connection
with any such extension or increase. Nothing in this Section 2.1(g) shall
obligate the Lender to grant such extensions or to increase the amount of
credit provided under this Agreement.
Section 2.2. Commitment Fee. The Borrowers agree to pay to the
Lender in consideration of the Loans, on the first day of each calendar
quarter, beginning on April 1, 1996, and on the Termination Date, a commitment
fee of 1/4 of 1% per annum of the average daily amount of the difference
between the Maximum Amount and the aggregate unpaid principal amount of the
Loans outstanding on each day during the preceding calendar quarter. The
commitment fee shall commence to accrue as of the date of this Agreement and
shall cease to accrue on the Termination Date.
Section 2.3. Payments and Computations. All payments due under
this Agreement (including any payment or prepayment of principal, interest,
fees and other charges) or with respect to the Revolving Note or the Loans
shall be made in lawful money of the United States of America, in immediately
available funds, without defense, setoff or counterclaim, to the Lender at its
office at 808 17th Street, N.W., Washington, D.C. 20006, or at such other
place as the Lender may designate, and shall be applied first to accrued fees,
next to accrued late charges, next to accrued interest and then to principal.
If any payment of principal, interest or fees is due on a day other than a
Business Day, then the due date will be extended to the next succeeding full
Business Day and interest and fees will be payable with respect to the
extension. If any payment of principal, interest or fees is not made within
ten days of its due date, the Borrowers agree to pay to the Lender a late
charge equal to 5% of the amount of the payment. Upon the occurrence of an
Event of Default and during the continuation of such Event of Default, interest
shall accrue on the Loans at a per annum rate of 2% above the rate of interest
that otherwise would be applicable. The rate at which interest accrues on the
unpaid principal balance of the Loans shall be changed effective as of the date
of any change in the Prime Rate. Interest and fees shall be computed on the
basis of a year of 365 or 366 days, as applicable, and actual days elapsed.
The Lender may, but shall not be obligated to, debit the amount of any payment
due under this Agreement to any deposit account of any Borrower maintained with
the Lender. No setoff, claim, counterclaim, reduction or
<PAGE> 9
diminution of any obligation or any defense of any kind or nature that any
Borrower has or may have against the Lender (other than the defense of payment)
shall be available against the Lender in any suit or action brought by the
Lender to enforce this Agreement or any other Loan Document. The foregoing
shall not be construed as a waiver by any Borrower of any rights or claims that
any Borrower may have against the Lender, but any recovery upon such rights and
claims shall be had from the Lender separately, it being the intent of this
Agreement and the other Loan Documents that the Borrowers shall be obligated to
pay, absolutely and unconditionally, all amounts due hereunder and under the
other Loan Documents.
Section 2.4. Increased Costs. If, as a result of any Regulatory
Change or for any other reason, the Lender incurs Increased Costs, the
Borrowers agree to pay such Increased Costs to the Lender within ten Business
Days after receipt by the Borrowers of the Lender's invoice therefor. The
invoice will be accompanied by a written statement of the Lender setting forth
the basis of the calculation of the Increased Costs. The Lender's calculation
shall include reasonable averaging and attribution methods to determine the
Increased Costs attributable to the Loans.
Section 3. Covenants, Representations and Other Terms Regarding
Collateral.
Section 3.1. Security Interest. To secure the Obligations, each
Borrower grants to the Lender, its successors and assigns, a security interest
in the Accounts Receivable, the Equipment, the General Intangibles and the
Inventory, all additions and accessions thereto and replacements thereof, all
proceeds and products thereof, all books of account and records, including all
computer software relating thereto, all policies of insurance on any property
of each Borrower and all proceeds of such policies, all deposits of each
Borrower (general or special, time or demand, provisional or final) at any time
maintained with or held by the Lender or its Affiliates, including any
certificates of deposit, and all instruments, investments or securities held
for each Borrower, and all indebtedness owed to each Borrower by the Lender or
any of its Affiliates.
Section 3.2. Receivables.
(a) Each Borrower represents and warrants as to each and
every Eligible Receivable now existing that: (1) it is a bona fide existing
obligation, valid and enforceable against the Customer, for goods sold or
leased or services rendered in the ordinary course of business; (2) it is
subject to no dispute, defense or offset except as disclosed in writing to the
Lender; (3) all instruments, chattel paper and other evidences of indebtedness,
issued to any Borrower with respect to any Receivable have been delivered to
the Lender, and, together with all supporting documents delivered to the
Lender, are genuine, complete, valid and enforceable in accordance with their
terms; (4) it is not subject to any discount, allowance or special terms of
payment except as disclosed in writing to the Lender or as permitted by Section
3.2(b) below; (5) the security interest in any collateral securing the
Receivables is a perfected, first priority security interest; and (6) it is not
and shall not be subject to any prohibition or limitation upon assignment.
Each Borrower covenants and agrees that each Eligible Receivable arising after
the date of this Agreement will be in conformance with the foregoing
representations.
(b) The Borrowers shall immediately notify the Lender of
(1) any dispute in excess of $250,000 with a Customer, and (2) the bankruptcy,
insolvency, receivership, assignment for the benefit of creditors or suspension
of business of any such Customer of which any Borrower has knowledge. No
Borrower shall compromise or discount any Receivable without the prior written
consent of the Lender except for (i) ordinary trade discounts or allowances for
prompt payment, and (ii) prior to the occurrence of a Default or an Event of
Default, such compromises or discounts that, after giving effect thereto, will
not cause the Borrowing Base to be less than the aggregate unpaid principal
balance of the Loans then outstanding.
(c) Payments on all Receivables owing by the Government
shall be made to the Lender at its Secured Lending Division located at 808 17th
Street, N.W., B1, Washington, D.C. 20006. The Parent
<PAGE> 10
has established a lockbox for the account of the Borrowers with the Lender and
shall direct all other Customers to make payments on Receivables to such
lockbox by printing such direction on all invoices given to Customers. The
Borrowers also shall remit to such lockbox or deliver to the Lender all
payments on Receivables received by any Borrower. Such payments shall be
remitted or delivered in their original form on the day of receipt. All notes,
checks and other instruments so received by any Borrower shall be duly endorsed
to the order of the Lender. The payments remitted to the lockbox and all
payments delivered to the Lender shall be credited to a cash collateral account
maintained by the Lender in the name of the Parent over which the Lender shall
have the exclusive power of withdrawal. After final collection, funds credited
to the cash collateral account shall be applied to the payment of the
Obligations, and any excess collected funds remaining after the Obligations are
paid in full shall be transferred to the Parent's operating account with the
Lender. If a Default or an Event of Default shall occur and be continuing,
then, at the option of the Lender, all funds in the cash collateral account
shall be retained in the cash collateral account and be held as security for
the Obligations, and funds in the cash collateral account may be applied to the
Obligations by the Lender from time to time, whether or not such Obligations
are then due.
(d) Upon the occurrence of a Default or an Event of
Default, the Lender shall have the right to notify Customers of its security
interest in the Receivables and require payments to be made directly to the
Lender, and, to facilitate direct collection, the Lender shall have the right
to take over the Borrowers' post office boxes or make other arrangements, with
which the Borrowers shall cooperate, to receive the Borrowers' mail.
(e) The Borrowers shall execute all other agreements,
instruments and documents and shall perform all further acts that the Lender
may require with respect to Receivables owing by the Government to ensure
compliance with the Assignment of Claims Act.
Section 3.3. Inventory and Equipment.
(a) All of the Inventory and Equipment is now, and will
continue to be, kept only at the locations designated on Schedule 1 attached to
this Agreement. The Borrowers shall give the Lender prior written notice
before any Inventory or Equipment with an aggregate book value of more than
$10,000 is moved or delivered to a location other than those designated on
Schedule 1, and the Lender's lien and security interest will be maintained
despite the location of the Inventory or Equipment. The Borrowers shall
execute and record financing statements in all jurisdictions in which Inventory
or Equipment with an aggregate book value of $10,000 or more is to be located
for more than four months. The Borrowers shall not, without the prior written
consent of the Lender, permit any Inventory or Equipment with an aggregate book
value in excess of $10,000 to be moved to a location outside of the United
States of America.
(b) The Borrowers shall keep and maintain the Equipment
in good operating condition and repair. The Borrowers shall not permit any of
the Equipment to become a fixture to any real estate unless subordination
agreements satisfactory to the Lender are obtained from any owner or mortgagee
of such real estate. Immediately on demand therefor by the Lender, the
Borrowers shall deliver to the Lender any and all evidence of ownership of any
of the Equipment. If any Equipment is subject to a certificate of title at any
time, the Borrowers shall deliver such certificate of title to the Lender,
together with such documents as are necessary to cause the Lender's security
interest to be noted thereon. None of the Equipment shall be sold,
transferred, leased or otherwise disposed of without the prior written consent
of the Lender, except for (1) sales or dispositions of obsolete Equipment, and
(2) sales or dispositions of Equipment that is contemporaneously replaced with
Equipment of comparable value and utility; provided, however, that the
Borrowers shall not sell or dispose of any Equipment specifically financed by
the Lender unless the Borrowers repay the outstanding balance of the extension
of credit relating to such Equipment.
<PAGE> 11
(c) The Lender's security interest shall extend and
attach to Inventory that is presently in existence and is owned by any Borrower
or in which any Borrower purchases or acquires an interest at any time and from
time to time in the future, whether such Inventory is in transit or in such
Borrower's constructive, actual or exclusive occupancy or possession or not and
wherever such Inventory may be located, including, without limitation, all
Inventory that may be located at the premises of any Borrower or upon the
premises of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents, finishers, convertors or other third parties who may have
possession of the Inventory.
(d) Upon the sale, exchange, lease or disposition of the
Inventory, the security interest of the Lender, without break in continuity and
without further formality or act, shall continue in and attach to all cash and
non-cash proceeds of such sale, exchange, lease or disposition, including
Inventory returned or rejected by customers or repossessed by any Borrower or
the Lender. As to any such sale, exchange, lease or disposition, the Lender
shall have all of the rights of an unpaid seller, including stoppage in
transit, replevin, detinue and reclamation.
(e) Except for sales or leases made in the ordinary
course of business, the Borrowers shall not sell, lease, encumber or dispose of
or permit the sale, lease, encumbrance or disposal of any Inventory without the
prior written consent of the Lender.
Section 3.4. Defense of Collateral. The Borrowers, at their
expense, will defend the Collateral against any claims or demands adverse to
the Lender's security interest and will promptly pay, when due, all taxes or
assessments levied against any Borrower on the Collateral.
Section 3.5. Information Regarding Collateral. The Borrowers
shall provide the Lender such information as the Lender from time to time
reasonably may request with respect to the Collateral, including, without
limitation, statements describing, designating, identifying and evaluating all
Collateral and listing all sales and purchases of Inventory occurring within a
designated time period.
Section 3.6. Insurance of Collateral. The Borrowers shall have
the Inventory and Equipment insured against loss or damage by fire, theft,
burglary, pilferage, loss in transportation and such other hazards as the
Lender shall specify, by insurers satisfactory to the Lender, in amounts
satisfactory to the Lender and under policies containing loss payable clauses
satisfactory to the Lender. Any such insurance policies, or evidence thereof
satisfactory to the Lender, shall be deposited with the Lender. The Borrowers
agree that the Lender shall have a security interest in such policies and the
proceeds thereof, and, if any loss should occur, the proceeds may be applied to
the payment of the Obligations or to the replacement or restoration of the
Inventory or Equipment damaged or destroyed, as the Borrower may elect or
direct prior to the occurrence of a Default or an Event of Default and as the
Lender may elect or direct if a Default or Event of Default has occurred and is
continuing. After the occurrence of a Default or an Event of Default, the
Lender shall have the right to file claims under any insurance policies, to
receive any payments that may be made thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any of the insurance policies.
Section 3.7. Perfection of Security Interest. The Borrowers
shall perform any and all steps in all relevant or appropriate jurisdictions as
may be necessary or reasonably requested by the Lender to perfect, maintain and
protect the Lender's security interest in the Collateral. All instruments,
chattel paper and documents of title that are part of the Collateral shall be
delivered to the Lender, duly endorsed in blank. The Borrowers shall pay the
taxes and costs of, or incidental to, any recording or filing of any financing
statements concerning the Collateral. The Borrowers agree that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
<PAGE> 12
Section 3.8. Power of Attorney. Each Borrower appoints the
Lender and any officer, employee or agent of the Lender, as the Lender from
time to time may designate, as attorneys-in-fact for each Borrower to perform
all actions necessary or desirable in the discretion of the Lender to effect
the provisions of this Agreement and to carry out the intent of this Agreement,
to do any act that any Borrower is required to do pursuant to the terms of this
Agreement and to exercise such rights and powers as any Borrower might exercise
with respect to the Collateral, all at the cost and expense of the Borrowers.
Each Borrower agrees that neither the Lender nor any other such
attorney-in-fact will be liable for any acts of omission or commission, unless
such acts were willful and malicious, nor for any error of judgment or mistake
of law or fact. This power is coupled with an interest and is irrevocable so
long as any Obligations are outstanding. The Lender agrees that it shall not
be entitled to exercise its rights under this Section 3.8 prior to the
occurrence of a Default or an Event of Default.
Section 3.9. Limitations on Obligations. It is expressly agreed
by the Borrowers that, notwithstanding any other provision of this Agreement,
the Borrowers shall remain liable under each Receivable and contract giving
rise to each Receivable to observe and perform all the conditions and
obligations to be observed and performed by any Borrower in accordance with and
pursuant to the terms and provisions of each such Receivable and contract. The
Lender shall not have any obligation or liability under any Receivable or
contract by reason of or arising out of this Agreement or the assignment of
such Receivable or contract to the Lender or the receipt by the Lender of any
payment relating to the Receivable pursuant to this Agreement, nor shall the
Lender be required or obligated in any manner to perform or fulfill any of the
obligations of any Borrower under or pursuant to any Receivable or 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 Receivable, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts that
may have been assigned to it or to which it may be entitled at any time or
times.
Section 3.10. Indemnification. In any suit, proceeding or action
brought by or against the Lender relating to the Collateral, the Borrowers will
save, indemnify and keep the Lender harmless from and against all expense, loss
or damage suffered by reason of any defense, setoff, counterclaim, recoupment
or reduction of liability whatsoever of any obligor thereunder, arising out of
a breach by any Borrower of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to or in favor of
such obligor or its successors from any Borrower, and all such obligations of
any Borrower shall be and remain enforceable against and only against such
Borrower and shall not be enforceable against the Lender. The foregoing
obligation of the Borrowers to indemnify the Lender shall not extend to any
suit, proceeding or action arising out of the Lender's gross negligence or
willful misconduct.
Section 4. Representations and Warranties. Each Borrower
represents and warrants that:
Section 4.1. Incorporation, Good Standing and Due Qualification.
VRMI, Ohio and GEOMET are the only Subsidiaries of the Parent that are
conducting business. Versar Laboratories, Inc. and Fluxagamm, Inc. are
subsidiaries of the Parent that do not presently conduct business. The other
Borrowers have no Subsidiaries. Each Borrower (a) is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation; (b) has the corporate power and authority to
own its assets and to transact the business in which it is now engaged or in
which it is proposed to be engaged; and (c) is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction in
which such qualification is required.
Section 4.2. Corporate Power and Authority. The execution,
delivery and performance by the Borrowers of the Loan Documents to which each
is a party have been duly authorized by all necessary corporate action and do
not and will not (a) require any consent or approval of, or filing or
registration with, any governmental agency or authority or the stockholders of
such corporation; (b) contravene such corporation's charter or bylaws; (c)
result in a breach of or constitute a default under any agreement or instrument
to which such
<PAGE> 13
corporation is a party or by which it or its properties may be bound or
affected; (d) result in or require the creation or imposition of any Lien upon
or with respect to any of the properties now owned or hereafter acquired by
such corporation; or (e) cause such corporation to be in default under any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to such corporation.
Section 4.3. Legally Enforceable Agreement. This Agreement is,
and each of the other Loan Documents when delivered under this Agreement will
be, legal, valid and binding obligations of each Borrower and enforceable
against each Borrower in accordance with their respective terms.
Section 4.4. Financial Statements. The financial statements of
the Borrowers that have been furnished to the Lender in connection with this
Agreement are complete and correct and fairly present the financial condition
of the Borrowers as of the dates of such statements. Since the dates of such
statements, there has been no material adverse change in the condition
(financial or otherwise), business or operations of any Borrower.
Section 4.5. Litigation. There is no pending or threatened
action or proceeding against or affecting any Borrower or any Subsidiary before
any court, governmental agency or arbitrator, that, in any one case or in the
aggregate, may affect the financial condition, operations, properties or
business of any Borrower or any such Subsidiary in a materially adverse manner.
Section 4.6. Ownership and Liens. Each Borrower has title to all
of its assets, including the Collateral, and none of the Collateral or such
assets is subject to any Lien, except Liens permitted by this Agreement.
Section 4.7. ERISA. The Borrowers are in compliance in all
material respects with all applicable provisions of ERISA. None of the
Borrowers has incurred any material "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or Section 412 of the Code, nor has any
Borrower incurred any material liability to the PBGC in connection with any
"employee pension benefit plan" (as defined in Section 3(2) of ERISA)
established or maintained by any Borrower. None of the employee pension
benefit plans (as defined above) of any Borrower, nor any trusts created
thereunder, nor any trustee or administrator thereof, has engaged in a
"prohibited transaction," as such term is defined in Section 406 of ERISA or
Section 4975 of the Code, that could subject such plans or any of them, any
such trust, or any trustee or administrator thereof, or any party dealing with
such plans or any such trust to any material liability or tax or penalty on
prohibited transactions imposed by such Sections 406 or 4975. None of the
Borrowers nor any Affiliate of the Borrower is now, or at any time in the past
has been, obligated to make contributions to a "multiemployer plan," as such
term is defined in Section 4001(a)(3) of ERISA.
Section 4.8. Taxes. Each Borrower has filed all tax returns
(federal, state and local) required to be filed and have paid all taxes,
assessments and governmental charges and levies thereon to be due, including
interest and penalties.
Section 4.9. Debt. No Borrower is in any manner directly or
contingently obligated with respect to any Debt that is not permitted by this
Agreement. No Borrower is in default with respect to any Debt.
Section 4.10. Corporate Name; Chief Executive Office. During the
five years immediately preceding the date of this Agreement, no Borrower nor
any predecessor of any Borrower has used any corporate or fictitious name other
than its current corporate name and VRMI was formerly known as Versar New York,
Inc. The chief executive office of GEOMET is in Montgomery County, Maryland,
and the chief executive office of each other Borrower is in Fairfax County,
Virginia.
Section 4.11. Debarment and Suspension. No event has occurred and
no condition exists that is likely to result in the debarment or suspension of
any Borrower or any Subsidiary of the Borrower from any contracting
<PAGE> 14
with the Government, and no Borrower has, nor has any Affiliate of the
Borrower, been subject to any such debarment or suspension prior to the date of
this Agreement.
Section 5. Affirmative Covenants. Each Borrower covenants and
agrees that:
Section 5.1. Maintenance of Existence. Each Borrower will
preserve and maintain, and cause each Subsidiary to preserve and maintain, its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified, and cause each Subsidiary to qualify and
remain qualified, as a foreign corporation in each jurisdiction in which such
qualification is required.
Section 5.2. Maintenance of Records. Each Borrower will keep,
and cause each Subsidiary to keep, adequate records and books of account, in
which complete entries will be made in accordance with GAAP, reflecting all
financial transactions of such Borrower and its Subsidiaries. The principal
records and books of account, including those concerning the Collateral, shall
be kept at the chief executive office of the Borrowers described above. No
Borrower will move such records and books of account or change its chief
executive office or the name under which it does business without (a) giving
the Lender at least 30 days' prior written notice, and (b) executing and
delivering financing statements satisfactory to the Lender prior to such move
or change.
Section 5.3. Maintenance of Properties. Each Borrower will
maintain, keep and preserve, and cause each Subsidiary to maintain, keep and
preserve, all of its properties (tangible and intangible) necessary or useful
in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.
Section 5.4. Conduct of Business. Each Borrower will continue,
and cause each Subsidiary to continue, to engage in an efficient and economical
manner in a business of the same general type as conducted by it on the date of
this Agreement.
Section 5.5. Maintenance of Insurance. Each Borrower will
maintain, and cause each Subsidiary to maintain, insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually carried by companies engaged in the same or
a similar business and similarly situated, including, without limitation,
insurance covering the Inventory and Equipment as required by this Agreement.
Section 5.6. Compliance with Laws. Each Borrower will comply,
and cause each Subsidiary to comply, in all respects with all applicable laws,
rules, regulations and orders (including, without limitation, ERISA), such
compliance to include, without limitation, paying, before the same become
delinquent, all taxes, assessments and governmental charges imposed upon it or
upon its property.
Section 5.7. Right of Inspection. At any reasonable time and
from time to time, each Borrower will permit the Lender or any agent or
representative of the Lender to audit and verify the Collateral, examine and
make copies of and abstracts from the records and books of account of, and
visit the properties of, such Borrower and any Subsidiary, and to discuss the
affairs, finances and accounts of such Borrower and any Subsidiary with any of
their respective officers and directors and such Borrower's independent
accountants. The Borrowers agree to pay the Lender its customary audit fees
and related expenses for each audit conducted by the Lender.
Section 5.8. Reporting Requirements. The Borrowers will furnish
to the Lender:
(a) Quarterly Financial Statements. As soon as
available and, in any event, within 45 days after the end of each of the
quarters of each fiscal year of the Parent, unaudited financial statements
consisting of consolidated and consolidating balance sheets of the Parent and
its Subsidiaries as of the end of
<PAGE> 15
such quarter, and consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Parent and its Subsidiaries for the
period commencing at the end of the previous fiscal year and ending with the
last day of such quarter, all in reasonable detail and stating in comparative
form the respective consolidated figures for the corresponding date and period
in the previous fiscal year and all prepared in accordance with GAAP. Such
financial statements shall be certified to be accurate by the chief financial
officer of the Parent.
(b) Annual Financial Statements. As soon as available
and, in any event, within 90 days after the end of each fiscal year of the
Parent, audited financial statements consisting of consolidated and
consolidating balance sheets of the Parent and its Subsidiaries as of the end
of such fiscal year, and consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Parent and its Subsidiaries for such
fiscal year, all in reasonable detail and stating in comparative form the
respective consolidating figures for the corresponding date and period in the
prior fiscal year and all prepared in accordance with GAAP. The consolidated
statements shall be accompanied by an opinion thereon acceptable to the Lender
of an independent certified public accounting firm selected by the Parent and
acceptable to the Lender.
(c) Tax Returns. As soon as available and, in any
event, within five Business Days after filing, the consolidated federal income
tax returns of the Parent and its Subsidiaries;
(d) Management Letters. Promptly upon receipt thereof,
copies of any reports submitted to any Borrower or any Subsidiary by
independent certified public accountants in connection with examination of the
financial statements of any Borrower or any Subsidiary made by such
accountants;
(e) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Borrower or any Subsidiary,
that, if determined adversely to such Borrower or such Subsidiary, could have a
material adverse effect on the financial condition, properties or operations of
such Borrower or such Subsidiary;
(f) Notice of Defaults and Events of Default. As soon
as possible and, in any event, within five days after the occurrence of each
Default and Event of Default, a written notice setting forth the details of
such Default or Event of Default and the action that is proposed to be taken by
the Borrowers with respect thereto;
(g) Proxy Statements, etc. Promptly after the sending
or filing thereof, copies of all proxy statements, financial statements and
reports that any Borrower or any Subsidiary sends to its stockholders, and
copies of all regular, periodic and special reports, and all registration
statements that any Borrower or any Subsidiary files with the Securities and
Exchange Commission or any governmental authority that may be substituted
therefor, or with any national securities exchange;
(h) Borrowing Base Certificate. On or before the 15th
day of each calendar month, a Borrowing Base Certificate appropriately
completed and executed by the chief financial officer of the Parent and
including a computation of the Borrowing Base as of the last day of the
previous calendar month;
(i) Receivables Detail. On or before the 15th day of
each calendar month, an Aging as of the last day of the previous calendar
month, accompanied by (1) reports relating to the Receivables setting forth a
description of contracts giving rise to Receivables, the percentage of
completion of the work to be performed with respect to such contracts, the
amounts billed under such contracts and the amounts remaining to be billed, in
form and detail satisfactory to the Lender, (2) such other supporting documents
to the schedules as the Lender from time to time reasonably may request
(including any backlog reports with respect to outstanding contracts of the
Borrowers), and (3) such invoices, instruments, chattel paper and other
evidence of indebtedness representing any Receivables, duly endorsed in blank
or to the Lender, as the Lender may request;
<PAGE> 16
(j) Compliance Certificate. Within 30 days after the
end of each fiscal quarter, a Covenant Compliance Certificate of the chief
financial officer of the Parent, effective as of the end of such fiscal
quarter, to the effect that no Default or Event of Default occurred during the
prior quarter and that at no time during the prior quarter did the aggregate
outstanding balance of the Loans exceed the Borrowing Base, which certificate
shall include a computation of the financial covenants contained in this
Agreement;
(k) Audits. Promptly after the Borrowers' receipt
thereof, notice of any final decision of a contracting officer disallowing
costs aggregating more than $150,000, which disallowed costs arise out of any
audit of the Borrowers' contracts with the Government by DCAA or any other
agent of the Government; and
(l) General Information. Such other information
respecting the condition or operations, financial or otherwise, of any Borrower
or any Subsidiary as the Lender from time to time reasonably may request.
Section 6. Negative Covenants. Each Borrower agrees that,
without first obtaining the prior written consent of the Lender:
Section 6.1. Liens. No Borrower will create, incur, assume or
permit to exist, or permit any Subsidiary to create, incur, assume or permit to
exist, any Lien upon or with respect to any of its properties, now owned or
hereafter acquired, except: (a) Liens in favor of the Lender; (b) Liens that
are incidental to the conduct of the business of such Borrower or any
Subsidiary, are not incurred in connection with the obtaining of credit and do
not materially impair the value or use of assets of such Borrower or any
Subsidiary; (c) Liens on the Equipment in existence on the date of this
Agreement and arising out of Capital Leases or operating leases of Equipment;
(d) Liens securing obligations of a Subsidiary to a Borrower or another
Subsidiary; and (e) purchase-money Liens, whether now existing or hereafter
arising (including those arising out of a Capital Lease) on any fixed assets
provided that (1) any property subject to a purchase-money Lien is acquired by
such Borrower or any Subsidiary in the ordinary course of its respective
business and the Lien on any such property is created contemporaneously with
such acquisition, (2) each such Lien shall attach only to the property so
acquired, and (3) the Debt secured by all such Liens shall not exceed $500,000
at any time outstanding in the aggregate.
Section 6.2. Debt. No Borrower will create, incur, assume or
permit to exist, or permit any Subsidiary to create, incur, assume or permit to
exist, any Debt, except: (a) the Obligations; (b) the Debt in existence on the
date of this Agreement and arising out of Capital Leases and operating leases
of Equipment; (c) Debt of any Borrower subordinated to the Obligations on terms
satisfactory to the Lender; (d) Debt of any Subsidiary to any Borrower or
another Subsidiary; (e) ordinary trade accounts payable; and (f) Debt of any
Borrower or any Subsidiary (including Debt arising out of a Capital Lease)
secured by purchase-money Liens permitted by this Agreement.
Section 6.3. Mergers, Acquisitions, etc. Except for Permitted
Acquisitions, no Borrower will (a) merge or consolidate with any Person, or
permit any Subsidiary to do so, except that (1) any Subsidiary may merge into
or transfer assets to any Borrower, and (2) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary, or (b) purchase or
acquire, or permit any Subsidiary to purchase or acquire (1) all or
substantially all of the assets of any Person, or (2) any capital stock of or
ownership in any other Person. No Borrower shall become a joint venturer with,
or partner of, any other Person, and no Borrower shall acquire or form a
Subsidiary unless such Subsidiary becomes a Borrower in accordance with Section
8.3 hereof.
Section 6.4. Leases. No Borrower will create, incur, assume or
permit to exist, or permit any Subsidiary to create, incur, assume or permit to
exist, any obligation as lessee for the rental or hire of any real or personal
property, except: (a) Capital Leases giving rise to purchase-money Liens
permitted by this Agreement;
<PAGE> 17
(b) leases (other than Capital Leases) that do not in the aggregate require the
Borrowers and the Subsidiaries on a consolidated basis to make payments
(including taxes, insurance, maintenance and similar expenses that the
Borrowers or any Subsidiary is required to pay under the terms of any lease) in
any fiscal year of the Borrowers in excess of $3,700,000; and (c) leases
between any of the Borrowers and any Subsidiary or between any Subsidiaries.
Section 6.5. Sale and Leaseback. No Borrower will sell, transfer
or otherwise dispose of, or permit any Subsidiary to sell, transfer or
otherwise dispose of, any real or personal property to any Person and
thereafter, directly or indirectly, lease back the same or similar property.
Section 6.6. Dividends. No Borrower will declare or pay any
dividends; or purchase, redeem, retire or otherwise acquire for value any of
its capital stock now or hereafter outstanding; or make any distribution of
assets to its stockholders as such whether in cash, assets or obligations of
such Borrower; or allocate or otherwise set apart any sum for the payment of
any dividend or distribution on, or for the purchase, redemption or retirement
of, any shares of its capital stock; or make any other distribution by
reduction of capital or otherwise in respect of any shares of its capital
stock; or permit any of its Subsidiaries to purchase or otherwise acquire for
value any stock of such Borrower or another Subsidiary, except that, subject to
the compliance by such Borrower with the provisions of Section 7 below, (a) a
Borrower may declare and deliver dividends and make distributions payable
solely in common stock of such Borrower, and (b) a Borrower may purchase or
otherwise acquire shares of its capital stock by exchange for or out of the
proceeds received from a substantially concurrent issue of new shares of its
capital stock. The Lender acknowledges that the Borrowers may request
permission to pay dividends from time to time, and the Lender shall not
unreasonably withhold its consent to such requests.
Section 6.7. Sale of Assets. No Borrower will sell, lease,
assign, transfer or otherwise dispose of, or permit any Subsidiary to sell,
lease, assign, transfer or otherwise dispose of, any of its now owned or
hereafter acquired assets (including, without limitation, shares of stock and
indebtedness of Subsidiaries, Receivables and leasehold interests), except: (a)
for Inventory sold or leased in the ordinary course of business; (b) the sale
or other disposition of assets (other than the Real Estate) no longer used or
useful in the conduct of its business; and (c) that any Subsidiary may sell,
lease, assign or otherwise transfer its assets to a Borrower.
Section 6.8. Loans. No Borrower will make, or permit any
Subsidiary to make, any loan or advance to any Person except for (a) travel
advances to employees in the ordinary course of business, (b) loans to offices
and directors of the Parent to finance the purchase of Parent stock available
under stock options granted to such officers and directors, and (c) other loans
not exceeding $100,000 in the aggregate at any time outstanding for all
Borrowers.
Section 6.9. Guaranties, etc. Neither the Borrowers nor any
Subsidiary will assume, guarantee, endorse or otherwise be or become directly
or contingently responsible or liable (including, but not limited to, any
liability arising out of any agreement to purchase any obligation, stock,
assets, goods or services, or to supply or advance any funds, assets, goods or
services, or to maintain or cause such Person to maintain a minimum working
capital or net worth or otherwise to assure the creditors of any Person against
loss) for obligations of any Person, or permit any such guaranties or
liabilities to exist, except the Guaranty Agreement and guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business.
Section 6.10. Transactions with Affiliates. No Borrower will
enter into any transaction, including, without limitation, the purchase, sale
or exchange of property or the rendering of any service, with any Affiliate, or
permit any Subsidiary to enter into any transaction, including, without
limitation, the purchase, sale or exchange of property or the rendering of any
service, with any Affiliate, except in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's or such Subsidiary's business
and upon fair and reasonable
<PAGE> 18
terms no less favorable to such Borrower or such Subsidiary than would be
applicable in a comparable arm's-length transaction with a Person not an
Affiliate.
Section 6.11. Compliance with ERISA. With respect to any employee
benefit plan or plans covered by Title IV of ERISA, no Borrower will permit (a)
any prohibited transaction or transactions under ERISA or the Code that
results, or may result, in liability to a Borrower or any of its Subsidiaries
exceeding in the aggregate $10,000 or (b) any reportable event under ERISA if,
upon termination of the plan or plans with respect to which one or more such
reportable events shall have occurred, there is or would be any liability of a
Borrower or any of its Subsidiaries to the PBGC exceeding in the aggregate
$10,000. Neither the Borrowers nor any Subsidiary or Affiliate of the
Borrowers shall adopt, establish or become a party to any multiemployer plan.
Section 7. Financial Covenants. Each Borrower agrees that:
Section 7.1. Minimum Tangible Net Worth. The Parent will
maintain at the end of each fiscal quarter, beginning on March 31, 1996, a
Tangible Net Worth of not less than $5,200,000.
Section 7.2. Current Ratio. The Parent will maintain at the end
of each fiscal quarter, beginning on March 31, 1996, a ratio of Current Assets
to Current Liabilities of not less than 1.40 to 1.
Section 7.3. Leverage Ratio. The Parent will maintain at the end
of each fiscal quarter, beginning on March 31, 1996, a Leverage Ratio of not
greater than 2.60 to 1.
Section 7.4. Cash Flow Coverage. The Parent will maintain for
each period of 12 months ending on the last day of each fiscal quarter,
beginning with the fiscal quarter ending on March 31, 1996, a ratio of Cash
Flow for such period to Fixed Charges for such period of not less than 1.35 to
1.
Section 8. Conditions of Lending. The making of the Loans
shall be subject to the following conditions:
Section 8.1. Conditions Precedent to Closing. The initial
disbursement of the Loans shall be subject to the following conditions
precedent:
(a) The Loan Documents shall have been appropriately
completed, duly executed by the parties thereto, recorded where necessary and
delivered to the Lender.
(b) No Default or Event of Default shall have occurred
and be continuing.
(c) All representations and warranties contained herein
shall be true and correct at the date of the Closing.
(d) All legal matters incident to the Loans shall be
satisfactory to counsel for the Lender, and the Borrowers agree to execute and
deliver to the Lender such additional documents and certificates relating to
the Loans as the Lender reasonably may request.
(e) The Lender shall have received an opinion of counsel
to the Borrowers as to such matters as the Lender may request, in form and
substance satisfactory to the Lender.
(f) Financing statements in form and substance
satisfactory to the Lender shall have been properly filed in each office where
necessary to perfect the Lender's security interest in the Collateral,
termination statements shall have been filed with respect to any other
financing statements covering all or any portion of the Collateral (except with
respect to Liens permitted by this Agreement), and all taxes and fees with
respect to such recording and filing shall have been paid by the Borrowers.
<PAGE> 19
(g) The Borrowers shall have delivered to the Lender (1)
certified copies of evidence of all corporate actions taken by each Borrower to
authorize the execution and delivery of this Agreement and the other Loan
Documents, (2) certified copies of the articles of incorporation and bylaws of
each Borrower, (3) a certificate of incumbency for the officers of each
Borrower executing the Loan Documents, (4) a good standing certificate, dated
not more than 30 days prior to the date of the Closing, from the appropriate
state official of any state in which each Borrower is incorporated or qualified
to do business, and (5) such additional supporting documents as the Lender or
counsel for the Lender reasonably may request.
(h) The Lender shall have received a Borrowing Base
Certificate, an Aging, a listing of accounts payable of the Parent and a report
setting forth the status of all contracts relating to Eligible Billed
Receivables, all of which shall be of a current date and shall be in form and
substance satisfactory to the Lender.
(i) The Lender shall have received evidence satisfactory
to it that the Borrowers have obtained the insurance required by this
Agreement.
(j) The Lender shall have received such landlord and
mortgagee waivers as it shall request with respect to any landlord or mortgagee
that may claim an interest in any of the Collateral.
(k) Each Borrower shall have executed and delivered to
the Lender all documents required by the Lender to record and perfect an
assignment of any Receivables arising out of a contract with the Government,
and such assignment shall have been appropriately acknowledged by the
Government, all in conformance with the requirements of the Assignment of
Claims Act.
(l) Sarnia shall have closed the $9,000,000 loan from
IDS Life Insurance Company and the $500,000 and $1,500,000 loans from the
Lender, as described in the commitment letters issued with respect to such
loans, and the remaining Debt of Sarnia to the Lender shall be paid in full at
such closing.
Section 8.2. Conditions Precedent to Subsequent Disbursements.
Subsequent Loans shall be subject to the following conditions precedent:
(a) No Default or Event of Default shall have occurred
and be continuing.
(b) No material adverse change shall have occurred in
the financial condition of any Borrower.
(c) All representations and warranties shall be true and
correct at the date of such disbursement, both before and after giving effect
to such disbursement. The representations and warranties set forth in Section
4.4 shall be deemed to apply to the most recent financial statements delivered
to the Lender by the Borrowers.
(d) No change shall have occurred in any law or
regulations thereunder or interpretations thereof that, in the opinion of
counsel for the Lender, would make it illegal for the Lender to make Loans
hereunder.
(e) If required by the Lender, the Parent shall have
delivered to the Lender a current Borrowing Base Certificate and a current
Aging, duly executed by the chief financial officer of the Parent and
appropriately completed.
Each borrowing under this Agreement shall be deemed to be a
representation and warranty by the Borrowers on the date of such borrowing as
to the matters specified in this Section 8.2.
<PAGE> 20
Section 8.3. Conditions Precedent to Subsidiaries Becoming
Borrowers. Each Subsidiary that is formed or acquired after the date of this
Agreement shall become a Borrower under this Agreement, subject to the
satisfaction of the following conditions precedent:
(a) The Subsidiary shall execute and deliver to the
Lender an Assumption Agreement.
(b) No Default or Event of Default shall have occurred
and be continuing.
(c) All legal matters incident to such Subsidiary
becoming a Borrower shall be satisfactory to counsel for the Lender, and the
Subsidiary shall execute and deliver to the Lender such additional documents
and certificates relating to the Loans as the Lender reasonably may request.
(d) The Lender shall have received an opinion of counsel
to the Subsidiary, addressed to the Lender, covering such matters as the Lender
may request, in form and substance satisfactory to the Lender.
(e) Financing statements in form and substance
satisfactory to the Lender shall have been properly filed in each office where
necessary to perfect the security interest of the Lender in the Collateral of
the Subsidiary, termination statements shall have been filed with respect to
any other financing statements covering all or any portion of such Collateral
(except with respect to liens or security interests permitted by this
Agreement), all taxes and fees with respect to such recording and filing shall
have been paid by the Subsidiary and the Lender shall have received such lien
searches or reports as it shall require confirming that the foregoing filings
and recordings have been completed.
(f) The Subsidiary shall have delivered the following
documents to the Lender, each of which shall be certified as of the date on
which the Subsidiary is to become a Borrower, by the secretary of the
Subsidiary: (1) copies of evidence of all corporate actions taken by the
Subsidiary to authorize the execution and delivery of the Assumption Agreement
and the other Loan Documents; (2) copies of the articles or certificate of
incorporation and bylaws of the Subsidiary; and (3) a certificate as to the
incumbency and signatures of the officers of the Subsidiary executing the
Assumption Agreement.
(g) The Lender shall have received a certificate of good
standing (or similar instrument) issued by the appropriate state official of
the state of incorporation of the Subsidiary, dated within 30 days of the date
of the applicable Assumption Agreement.
(h) The Lender shall have received (1) an Aging of
Receivables of the Subsidiary, (2) a schedule of unbilled Receivables of the
Subsidiary, and (3) a report relating to the Receivables, setting forth a
description of contracts giving rise to Receivables of the Subsidiary, the
percentage of completion of the work to be performed with respect to such
contracts, the amounts billed under such contracts and the amounts remaining to
be billed, all of which shall be of a current date and shall be in form and
substance satisfactory to the Lender.
(i) If required by the Lender, the Lender shall have
received a satisfactory audit with respect to the Receivables of such
Subsidiary.
No Receivable of a Subsidiary shall be an Eligible Receivable prior to
the date on which all of the foregoing conditions are satisfied.
<PAGE> 21
Section 9. Default.
Section 9.1. Events of Default. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Failure of the Borrowers to pay any Obligation to
the Lender, including, without limitation, the principal of or interest on the
Notes or any of the Loans, when the same shall become due and payable, whether
at maturity, as a result of the Lender's demand for payment or otherwise, and
such failure shall continue for a period of ten days; or
(b) If any Borrower refuses to permit the Lender to
inspect, examine, verify or audit the Collateral in accordance with the
provisions of this Agreement; or
(c) Failure of the Borrower to perform, observe or
comply with any financial covenant set forth in Section 7 of this Agreement; or
(d) Failure of the Borrowers to perform, observe or
comply with any other term, condition, covenant, warranty, agreement or other
provision contained in this Agreement (except any such failure resulting in the
occurrence of another Event of Default described in this Section), within 30
days after receipt of notice from the Lender specifying such failure; or
(e) Discovery that any representation or warranty made
or deemed made by any Borrower in this Agreement or any statement or
representation made in any certificate, report or opinion delivered pursuant to
this Agreement (including any Borrowing Base Certificate) or in connection with
any borrowing under this Agreement was materially untrue or is breached in any
material respect; or
(f) If, as a result of default, any other obligation of
any Borrower or any Subsidiary for the payment of any Debt in excess of $50,000
becomes or is declared to be due and payable prior to the expressed maturity
thereof, unless and to the extent that the declaration is being contested in
good faith in a court of appropriate jurisdiction; or
(g) Any Borrower makes an assignment for the benefit of
creditors, files a petition in bankruptcy, petitions or applies to any tribunal
for any receiver or any trustee of such Borrower or any substantial part of its
property, or commences any proceeding relating to such Borrower under any
reorganization, arrangement, readjustments of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
(h) If, within 30 days after the filing of a bankruptcy
petition or the commencement of any proceeding against any Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, the proceeding shall not have been dismissed, or, if, within 30
days after the appointment, without the consent or acquiescence of such
Borrower, of any trustee, receiver or liquidator of such Borrower or of all or
any substantial part of the properties of such Borrower, the appointment shall
not have been vacated; or
(i) Any judgment against any Borrower in excess of
$25,000 or any attachment in excess of $25,000 against any property of any
Borrower that remains unpaid, undischarged, unbonded or undismissed for a
period of 30 days, unless and to the extent that the judgment or attachment is
appealed in good faith in a court of higher jurisdiction and the appeal remains
pending; or
(j) The occurrence of any of the events described in the
three immediately preceding clauses with respect to a Subsidiary or any
property of a Subsidiary; or
<PAGE> 22
(k) If any of the following events shall occur or exists
with respect to any Borrower or any employee benefit or other plan established,
maintained or to which contributions have been made by such Borrower, any
Subsidiary or Affiliate of such Borrower or any other Person that, together
with such Borrower, would be treated as a single employer under Section 4001 of
ERISA, and the Lender reasonably determines that the financial condition of
such Borrower would be materially and adversely affected thereby: (1) any
prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of
the Code), (2) any reportable event (as defined in Section 4043 of ERISA and
the regulations issued thereunder), (3) the filing under Section 4041 of ERISA
of a notice of intent to terminate any such plan or the termination of such
plan, or (4) the institution of proceedings by the PBGC under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any such plan; or
(l) A material adverse change occurs in the financial or
business condition of any Borrower or a Subsidiary; or
(m) The dissolution, liquidation or termination of
existence of any Borrower; or
(n) If any Person or two or more Persons acting in
concert shall acquire beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission) directly or indirectly or more than 25%
of the outstanding voting stock of the Parent; or
(o) If the Borrowers fail to give the Lender any notice
required by this Agreement within ten days after the occurrence of the event
giving rise to the obligation to give such notice; or
(p) The occurrence of an event of default under any
other Loan Document; or
(q) If any Borrower or any Subsidiary shall be debarred
or suspended from any contracting with the Government.
Section 9.2. Remedies upon Default. Upon the occurrence of an
Event of Default, the following provisions shall be applicable:
(a) The Lender, at its option, may terminate its
obligation to make Loans under this Agreement and declare all Obligations,
whether incurred prior to, contemporaneous with or subsequent to the date of
this Agreement, and whether represented in writing or otherwise, immediately
due and payable and may exercise all of its rights and remedies against the
Borrower and any Collateral.
(b) The Lender may foreclose its lien and security
interest in the Collateral in any way permitted by law and shall have, without
limitation, the remedies of a secured party under the UCC. The Lender may
enter the Borrowers' premises without legal process and without incurring
liability to the Borrowers and remove the Collateral to such place or places as
the Lender may deem advisable, or the Lender may require the Borrowers to
assemble the Collateral and make the Collateral available to the Lender at a
convenient place and, with or without having the Collateral at the time or
place of sale, the Lender may sell or otherwise dispose of all or any part of
the Collateral whether in its then condition or after further preparation or
processing, either at public or private sale or at any broker's board, in lots
or in bulk, for cash or for credit, at any time or place, in one or more sales
and upon such terms and conditions as the Lender may elect. The Lender shall
give not less than five Business Days' prior written notice to the Borrowers of
the time and place of any public sale of the Collateral or the time after which
the Collateral may be sold in a private sale, which the Borrowers agree
constitutes commercially reasonable notice. At any such sale the Lender may be
the purchaser, subject to the applicable provisions of the UCC.
<PAGE> 23
(c) The proceeds from any sale of the Collateral by the
Lender shall first be applied to any costs and expenses in securing possession
of the Collateral and to any expenses in connection with the sale. The net
proceeds will be applied toward the payment of the Obligations. Application of
the net proceeds as to particular Obligations or as to principal or interest
shall be in the Lender's absolute discretion. Any deficiency will be paid to
the Lender forthwith upon demand, and any surplus will be paid to the Borrowers
if the Borrowers are not otherwise indebted to the Lender.
(d) To the extent that the Obligations are now or
hereafter secured by property other than the Collateral described herein or by
the guarantee, endorsement or property of any other Person, the Lender shall
have the right to proceed against such other guarantee, endorsement or property
upon the occurrence of an Event of Default, and the Lender shall have the
right, in its sole discretion, to determine which rights, security, liens,
security interests or remedies the Lender shall at any time pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of them or any of the Lender's rights
hereunder.
(e) The Lender is hereby authorized at any time or from
time to time, without notice to the Borrowers (any such notice being expressly
waived by the Borrowers), to setoff and apply any deposit (general or special,
time or demand, provisional or final) at any time held, including any
certificate of deposit, and other indebtedness at any time owed by the Lender,
whether or not any such deposit or indebtedness is then due, to or for the
credit or account of any Borrower against any and all of the Obligations.
(f) EACH BORROWER, HAVING KNOWLEDGE THAT IT MAY BE
ENTITLED TO NOTICE AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL,
WAIVES ANY RIGHT THAT IT MAY HAVE UNDER EXISTING OR FUTURE LAW TO NOTICE OF
FORECLOSURE AND ANY OTHER ACT DESCRIBED HEREIN, TO ANY HEARING THAT MAY BE HELD
RELATING TO FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY NOTICE THAT MAY BE
REQUIRED TO BE GIVEN BY THE LENDER PRIOR TO SUCH HEARING. EACH BORROWER
EXPRESSLY WAIVES ITS RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(g) The Lender itself may perform or comply, or
otherwise cause performance or compliance, with the obligations of the
Borrowers contained in this Agreement, including, without limitation, the
obligations of the Borrowers to defend and insure the Collateral. The expenses
of the Lender incurred in connection with such performance or compliance,
together with interest thereon at the Prime Rate plus 3%, shall be payable by
the Borrowers to the Lender on demand and shall constitute Obligations.
Section 10. Miscellaneous.
Section 10.1. Collection Costs. The Borrowers shall pay all of
the reasonable costs and expenses incurred by the Lender in connection with the
enforcement of this Agreement and the other Loan Documents, including, without
limitation, reasonable attorneys' fees and expenses.
Section 10.2. Modification and Waiver. Except for the other
documents expressly referred to in this Agreement, this Agreement contains the
entire agreement between the parties and supersedes all prior agreements
between the Lender and any Borrower concerning the financing of the
Receivables. No modification or waiver of any provision of this Agreement or
any Loan Document and no consent by the Lender to any departure therefrom by
any Borrower shall be effective unless such modification or waiver shall be in
writing and signed by an officer of the Lender with a title of vice president
or any higher office, and the same shall then be effective only for the period
and on the conditions and for the specific instances and purposes specified in
such writing. No notice to or demand on the Borrowers in any case shall
entitle the Borrowers to any other or further notice or demand in similar or
other circumstances. No failure or delay by the Lender in
<PAGE> 24
exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Lender contained in this Agreement
are cumulative and not exclusive of any rights or remedies otherwise provided
by law.
Section 10.3. Notices. All notices, requests, demands or other
communications provided for in this Agreement shall be in writing (except for
requests for Loans made by telephone as described in Section 2.1 above) and
shall be delivered by hand, sent prepaid by Federal Express (or a comparable
overnight delivery service), sent by telecopy or facsimile or sent by the
United States mail, certified, postage prepaid, return receipt requested, to
the Lender, at 808 17th Street, N.W., Washington, D.C. 20006, Attention: Ana G.
Tejblum, Vice President, or to the Borrowers at 6850 Versar Center,
Springfield, Virginia 22151, Attention: James C. Dobbs, General Counsel. Any
notice, request, demand or other communication delivered or sent in the
foregoing manner shall be deemed given or made (as the case may be) upon the
earliest of (a) the date it is actually received, (b) the business day after
the day on which it is delivered by hand or transmitted by telecopy or
facsimile, (c) the business day after the day on which it is properly delivered
to Federal Express (or a comparable overnight delivery service), or (d) the
third business day after the day on which it is deposited in the United States
mail. The Borrowers or the Lender may change its address by notifying the
other party of the new address in any manner permitted by this Section 10.3.
Rejection or other refusal to accept or the inability to deliver because of a
changed address of which no notice was given shall not affect the date of such
notice, election or demand sent in accordance with the foregoing provisions.
Section 10.4. Counterparts. This Agreement may be executed by the
parties hereto individually or in any combination, in one or more counterparts,
each of which shall be an original and all of which together constitute one and
the same agreement.
Section 10.5. Captions. The captions of the various sections and
paragraphs of this Agreement have been inserted only for the purposes of
convenience; such captions are not a part of this Agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
Section 10.6. Survival of Agreements. All agreements,
representations and warranties made herein shall survive the delivery of this
Agreement and the making and renewal of the Loans hereunder.
Section 10.7. Fees and Expenses. Whether or not any Loans are
made hereunder, the Borrowers shall pay on demand all out-of-pocket costs and
expenses incurred by the Lender in connection with the preparation,
negotiation, execution, delivery, filing, recording and administration of this
Agreement and any of the documents executed or delivered in connection
herewith, including, without limitation, the reasonable fees and expenses of
counsel to the Lender, and local counsel who may be retained by the Lender,
with respect to this Agreement and such documents and any amendments thereof
and with respect to advising the Lender as to its rights and responsibilities
thereunder.
Section 10.8. Use of Defined Terms. All terms defined in this
Agreement shall have the defined meanings when used in certificates, reports or
other documents made or delivered pursuant to this Agreement, unless the
context shall otherwise require.
Section 10.9. Successors and Assigns. This Agreement shall inure
to the benefit of and bind the respective parties hereto and their successors
and assigns; provided, however, that no Borrower may assign its rights
hereunder without the prior written consent of the Lender.
Section 10.10. Accounting Terms. All accounting terms used herein
that are not otherwise expressly defined in this Agreement shall have the
meanings respectively given to them in accordance with GAAP in effect on the
date of this Agreement. Except as otherwise provided herein, all financial
computations made pursuant to this
<PAGE> 25
Agreement shall be made in accordance with GAAP and all balance sheets and
other financial statements shall be prepared in accordance with GAAP. Except
as otherwise provided herein, whenever reference is made in any provision of
this Agreement to a balance sheet or other financial statement or financial
computation with respect to any Borrower, such terms shall mean a consolidated
balance sheet or other financial statement or financial computation, as the
case may be, with respect to any Borrower.
Section 10.11. Interpretation. This Agreement and the rights and
obligations of the parties hereunder shall be construed and interpreted in
accordance with the laws of the Commonwealth of Virginia, without reference to
conflict of laws principles.
Section 10.12. Joint and Several Liability. The representations,
warranties, covenants and agreements contained in this Agreement shall be
deemed to have been made, given and undertaken by the Borrowers jointly and
severally.
[SIGNATURES ON FOLLOWING PAGES]
<PAGE> 26
IN WITNESS WHEREOF, the Borrowers and the Lender have caused this
Agreement to be signed by their duly authorized representatives all as of the
day and year first above written.
LENDER:
------
THE RIGGS NATIONAL BANK
OF WASHINGTON, D.C., a national
banking association
By: /S/ Ana G. Tejblum
-------------------------------
Ana G. Tejblum
Vice President
BORROWERS:
---------
VERSAR, INC., a Delaware corporation
By: /S/ James Charles Dobbs
----------------------------
Name: James Charles Dobbs
--------------------------
Title: Secretary
-------------------------
VERSAR RISK MANAGEMENT, INC.,
a New York corporation
By: /S/ James Charles Dobbs
------------------------------
Name: James Charles Dobbs
-----------------------------
Title:
---------------------------
VERSAR OF OHIO, INC., an
Ohio corporation
By: /S/ Jerome B. Strauss
--------------------------------
Name: Jerome B. Strauss
------------------------------
Title: President
-----------------------------
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
<PAGE> 27
BORROWERS CONTINUED:
---------
GEOMET TECHNOLOGIES, INC., a
Delaware corporation
By: /S/ James Charles Dobbs
-------------------------------
Name: James Charles Dobbs
--------------------------
Title: Vice President
----------------
<PAGE> 1
EXHIBIT 10.79
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 1st day of September, 1996, by and between VERSAR, INC., a
Delaware corporation ("Company"), its successors and assigns, and BENJAMIN M.
RAWLS ("Executive").
Whereas, Company desires to assure itself of the services of
Executive and Executive is willing to make his services available to Company on
the terms and conditions set forth below.
Now, therefore, in consideration of the premises and mutual
promises contained in this Agreement, it is agreed:
1. Employment. Company hereby employs Executive and
Executive hereby accepts employment with Company on the terms and conditions
set forth in this Agreement.
2. Duties. Executive shall serve as Chairman,
President and Chief Executive Officer of Company. Under the direction of the
Board of Directors, Executive shall perform all assigned duties reasonably
required of an employee in such positions and shall personally, diligently and
faithfully perform his duties to the best of his ability, on a full-time and
exclusive basis.
3. Compensation. Executive's compensation for the
services performed under this Agreement shall consist of a Base Salary and
Incentive Compensation, if any, as described below:
3.1 Base Salary. Executive shall receive the
base salary approved by Company's Board of Directors, payable in regular
bi-weekly installments (the "Base Salary"). The Base Salary will be reviewed
annually by the Board of Directors in accordance with standard salary review
procedures in effect from time to time for executive officers of Company. In
no event shall the Base Salary be less than the Base Salary being paid to
Executive on the date of this Agreement, unless Executive agrees to a
reduction. In the event that Executive's employment with Company is terminated
as provided in this Agreement, the Base Salary shall be deemed to be
Executive's then current Base Salary or $250,000, whichever is greater.
3.2 Incentive Compensation. In addition to the
Base Salary, Executive shall be eligible to earn incentive compensation in the
form of cash or securities under bonus and incentive programs as may be in
effect from time to time for executive officers of Company generally
("Incentive Compensation").
3.3 Withholding. Executive agrees and
acknowledges that Company will withhold from Executive's compensation all taxes
and other amounts which Company is required by law to withhold, including
without limitation (i) federal income taxes, (ii) state income taxes, (iii)
county, city or other local income taxes, and (iv) social security taxes.
4. Benefits.
4.1 Generally. Executive shall be entitled to
receive any and all benefits made available to executive officers of Company
generally and such other benefits as the Board of Directors in its discretion
may make available to Executive from time to time.
<PAGE> 2
4.2 Insurance. Executive shall be eligible to
participate in all medical, hospitalization, dental, life, disability and other
insurance plans as are in effect from time to time for executive officers of
Company generally.
4.3 Other Benefit. In lieu of the deferred
compensation program offered in the March 21, 1991 employment letter, Executive
shall be eligible to participate in the Retired Executive's Insurance Program.
4.4 Personal Leave. Executive shall be entitled
to take seven (7) weeks of paid personal leave annually.
4.5 Reimbursement for Reasonable Business
Expenses. Company shall reimburse Executive for customary and reasonable
expenses incurred by him in performing his duties pursuant to this Agreement,
in accordance with Company's then current reimbursement policy (including
appropriate itemization and substantiation of expenses incurred).
5. Term. Subject to early termination of this
Agreement in accordance with Section 6 or 7 below, the term of Executive's
employment hereunder shall commence on the date hereof, and shall continue for
a period of two (2) years. Executive expressly agrees and acknowledges that
Company has no obligation to renew this Agreement or to continue Executive's
employment after the two-year term.
6. Termination by Company.
6.1 Termination With Cause. Company shall be
entitled to terminate Executive's employment and services immediately upon
written notice to Executive, except in the case of death, specifying the date
of termination in the event that (i) Executive fails to carry out assigned
duties after being given prior warning and an opportunity to remedy the
failure; or (ii) Executive breaches any material term of this Agreement; (iii)
Executive engages in fraud, dishonesty, willful misconduct, gross negligence or
breach of fiduciary duty (including without limitation any failure to disclose
a conflict of interest), in the performance of his duties hereunder; (iv)
Executive is convicted of a felony or crime involving moral turpitude; (v)
Executive suffers a permanent and total disability which for at least six
months prevents his performance of his duties hereunder if such permanent
disability is covered by Workers Compensation or long term disability
insurance, or both; or (vi) Executive dies. For eight weeks following
Company's termination of this Agreement with cause pursuant to this Section
6.1, Company shall continue to pay Executive his Base Salary in effect as of
the date of termination and make available the benefits set forth in Section 4.
All other obligations of Company hereunder shall cease as of the date of
termination.
6.2 Termination Without Cause. Company shall be
entitled to terminate Executive's employment and services without cause upon
not less than sixty (60) days' prior written notice to Executive specifying the
date of termination. If Company terminates Executive's employment without
cause at any time during the two-year term, Company shall give Executive a lump
sum payment equivalent to one year of Executive's then current Base Salary, any
Incentive Compensation to which Executive would have been entitled as of the
date of termination, any deferred compensation, any accrued personal leave and
continue to make available the benefits set forth in Section 4 for twelve (12)
months. All other obligations of Company hereunder shall cease as of the date
of termination. Notwithstanding the foregoing, during the eighteen months
immediately following Company's termination of this Agreement without cause,
Executive shall be entitled to the vesting of any and all stock options issued
by Company pursuant to its Incentive Stock Option Plan in accordance with the
vesting schedule in his grant of option, and vesting of any and all other
options, warrants, or shares, and Executive shall have the right to exercise
such options or warrants, or purchase such shares under the same terms and
conditions applicable to Executive prior to termination.
<PAGE> 3
7. Termination by Executive.
7.1 Termination for Any Reason. Executive may terminate
his employment and services at any time and for any reason by giving Company at
least thirty (30) days' prior written notice specifying the date of
termination. If Executive terminates the Agreement in accordance with this
Section 7.1, then from the date of Executive's notice to the date of
termination (provided that during this notice period, Company does not
terminate Executive for cause under Section 6.1 above), Company shall continue
to pay Executive his Base Salary in effect as of the date of termination, and
any Incentive Compensation to which Executive would have been entitled as of
the date of termination, any deferred compensation, any accrued personal leave
and continue to make available the benefits set forth in Section 4 until the
date of termination. All other obligations of Company hereunder shall cease as
of the date of termination.
7.2 Termination for Change in Circumstances or Control.
Notwithstanding Section 7.1 above, if Executive terminates this Agreement as a
result of a Change of Circumstances or Change in Control, as defined below,
then for eighteen months following Executive's termination of this Agreement
pursuant to Section 7.1, Company shall continue to pay Executive his Base
Salary in effect as of the date of termination, any Incentive Compensation to
which Executive was entitled as of the date of termination, any deferred
compensation, any accrued personal leave and continue to make available the
benefits set forth in Section 4 for eighteen (18) months. All other
obligations of Company hereunder shall cease as of the date of termination;
provided, however, if there is a Change in Control, Executive shall be entitled
to the immediate vesting of any and all stock options regardless of whether
Executive terminates his employment based on such Change in Control.
7.2.1 Change in Circumstances. For the purposes of
Section 7.2, a "Change in Circumstances" shall be deemed to occur if and only
if there occurs:
(a) a change in Executive's title of
Chairman, President and Chief Executive Officer;
(b) a reduction in Executive's Base Salary
unless agreed to by Executive;
(c) a change in the geographic location
where Executive's position is based of more than 50 miles; or
(d) a Change in Control (as defined below)
of Company without the concurrence of Executive, followed by (i) any material
change in Executive's positions, authorities, powers, duties, responsibilities
or functions from those that were in effect immediately prior to the Change in
Control, except in connection with the termination of Executive's employment by
Company for cause in accordance with Section 6.1 above; or (ii) a personal
determination by Executive that, as a result of a change in circumstances
significantly affecting his position which occurred without his approval and
which was caused by a Change in Control within six months after a Change in
Control occurs, he is unable to carry out the authorities, powers, duties,
responsibilities or functions carried out by him prior to such Change in
Control.
7.2.2 Change In Control. For the purposes of
Section 7.2, a "Change in Control" shall be deemed to occur if and only if:
(a) any person, partnership, association,
trust or other entity, or any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the
"beneficial owner," as defined in Rule 13d-3 promulgated under the Exchange
Act, directly or indirectly, of securities of Company representing more than
twenty-five percent (25%) of the combined voting power of Company's then
outstanding securities;
<PAGE> 4
(b) during the term of this Agreement,
individuals who at the beginning of such 24-month period were directors of
Company cease for any reason to constitute a majority of the Board of Directors
of Company (or of any successor to Company by merger, consolidation,
reorganization, sale of assets or otherwise), unless three-quarters of the
Board at the beginning of such 24-month period approve the nomination of each
of the directors who were not directors at the beginning of such 24-month
period (other than in a nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of Directors of Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or
(c) a majority of the Board determines in
its sole and absolute discretion that there has been a Change in Control of
Company, which determination may be made in advance of the event constituting
such Change in Control.
8. Survival. This Agreement shall survive any Changes in
Control, change in management of Company, and any merger, consolidation,
reorganization, sale of assets or sale of stock of Company.
9. Non-Competition and Non-Solicitation.
9.1 Prohibition. Executive acknowledges that Company's
business and employee relationships are maintained at great expense and effort.
Executive further acknowledges that, by virtue of his employment under this
Agreement, he will have an extensive and unique opportunity to establish and
maintain valuable contacts with Company's customers and employees and the
opportunity both during and after employment to unfairly compete with Company,
its subsidiaries and affiliates. Therefore, Executive agrees that during the
term of his employment with Company and for a period of the balance of the term
of this Agreement or twelve (12) months following termination of such
employment, whichever is greater, he shall not compete with the business of
Company, its subsidiaries or affiliates. For the purpose of this Agreement,
activities among others which shall be deemed competitive include: (i)
encouraging any customers of Company, its subsidiaries or affiliates to become
a customer of Executive or of any other person except through normal
competitive bidding; or (ii) encouraging any employee of Company, its
subsidiaries or affiliates to become an employee of Executive or of any other
person.
9.2 Remedies for Breach. Executive acknowledges that
the damage to Company, its subsidiaries and affiliates resulting from a breach
of this Section 9 may cause irreparable injury. Therefore, in the event of any
such breach, Company, its subsidiaries and affiliates shall be entitled to seek
such remedies as are available at law or equity to restrain and enjoin
Executive from continuing to violate the provisions of this Section 9.
9.3 Binding Effect. In the event that any part of this
Section 9 shall be deemed by a court of competent jurisdiction to be in
violation of applicable law for any reason whatsoever, than such part shall not
be deemed to be void, but shall be deemed to be modified so as to be valid and
enforceable, and the remaining provisions of this Section 9 or of this
Agreement shall not be affected. The provisions of Section 9 shall survive the
termination of Executive's employment for any reason.
10. Confidentiality and Non-Disclosure.
10.1 Prohibition. Executive understands and acknowledges
that the success of Company's business is dependent upon the secrecy and
non-disclosure of many confidential plans, procedures and methods. Therefore,
Executive agrees that he will not directly or indirectly disclose to any person
or use for his own purposes any confidential information, records, data,
formulae, specifications, customer lists, ideas, inventions, plans concerning
business or product development, business procedures, contract proposals or
such proprietary information or other trade secrets of Company, its
subsidiaries or affiliates ("Confidential Information")
<PAGE> 5
provided such information is marked as such or Executive has reason to know it
is confidential. Upon termination of this Agreement and employment hereunder,
Executive agrees to promptly deliver to Company all papers, records, files,
other documents and Confidential Information belonging to Company, its
subsidiaries and affiliates and to not retain any copies thereof.
10.2 Remedies for Breach. Executive acknowledges that
the damage to Company, its subsidiaries and affiliates resulting from a breach
of this Section 10 may cause irreparable injury. Therefore, in the event of
any such breach, Company, its subsidiaries and affiliates shall be entitled to
seek such remedies as are available at law or equity to restrain and enjoin
Executive from continuing to violate the provisions of this Section 10.
10.3 Binding Effect. The provisions of Section 10 shall
survive the termination of this Agreement and Executive's employment for any
reason.
11. Results and Proceeds.
11.1 Ownership. As Executive's employer, Company shall
own all rights in and to the results and proceeds connected with or arising out
of, directly or indirectly, Executive's services hereunder. Executive hereby
assigns to Company all right, title and interest in and to all intellectual
property, discoveries and trade secrets which Executive may solely or jointly
conceive, design, develop, create or suggest or cause to be conceived, designed
or developed or created during the term of Executive's employment by Company,
which relate to Executive's employment or Company's business. For purposes of
this Agreement, the term "intellectual property" shall include, without
limitation, any ideas, concepts, literary material, designs, drawings,
illustrations, photographs, patentable ideas and musical compositions. To the
extent that any such intellectual property may be protectable pursuant to
applicable copyright law, Executive acknowledges that such property is a work
for hire within the meaning of such law.
11.2 Further Assurances. Executive hereby agrees to
execute any documents necessary to evidence Company's proprietary interest in
any intellectual property, discovery or trade secrets referred to Section 11.1
above. In the event Company is unable, for any reason whatsoever, to secure
Executive's signature to any lawful and necessary document required to apply
for protection of, or enforce any rights with respect to, any copyrights,
trademark, patent or other proprietary rights, Executive hereby irrevocably
designates and appoints Company, and its duly authorized officers and agents,
as his agent and attorney-in-fact, whose power is coupled with an interest, to
act for and in Executive's behalf and stead, to execute such documents and to
do all other lawful acts to protect Company's interest in any such copyright,
trademark, patent or other proprietary right with the same legal force and
effect as if executed by Executive.
12. Miscellaneous.
12.1 Conformity with the Immigration Reform and Control
Act of 1986. Upon request, Executive agrees to furnish Company with all
documentation needed to satisfy the requirements of the Immigration Reform and
Control Act of 1986.
12.2 Waiver. The failure of either party to insist, in
any one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any term or condition.
12.3 Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing and delivered by registered or
certified mail or delivered personally, in the case of Company, to its
principal business office in Springfield, Virginia and, in the case of
Executive to his address appearing in the records of Company, or to such other
address as he may designate in writing to Company.
<PAGE> 6
12.4 Severability. In the event that any provisions
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed that such invalidity or lack of enforceability shall not affect any
other provision of this Agreement and the remaining provisions hereof shall
continue in full force and effect. Any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable.
12.5 Amendment. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
12.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
12.7 Coverage. The provisions of this Agreement
regarding the terms and conditions of Executive's employment shall not preclude
Executive from participating in any other employee compensation or benefit
program adopted by Company for which he is otherwise eligible.
12.8 Resignation from Offices. Upon termination of his
employment, Executive shall be deemed to have resigned as an officer and
director of Company, its subsidiaries and affiliates, if then so acting, as of
the date of such termination.
12.9 Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against Company, its
successors and assigns and Executive, his heirs, beneficiaries and legal
representatives. This agreement may be assigned by Company but may not be
assigned by Executive.
12.10 Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to Executive's employment by Company and
supersedes any prior or simultaneous agreements between them, whether oral or
written, regarding such employment, except any confidentiality agreements
between Executive and Company. There are no other agreements, covenants or
representations, express or implied, concerning Executive's employment by
Company except those expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
By: /S/ John P. Horton
------------------------------
John P. Horton
---------------------------------
Chairman, Compensation Committee
---------------------------------
/S/ Benjamin M. Rawls
---------------------------------
Benjamin M. Rawls
<PAGE> 1
EXHIBIT 10.80
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 1st day of September, 1996, by and between VERSAR, INC., a
Delaware corporation ("Company"), its successors and assigns, and THOMAS S.
ROONEY ("Executive").
Whereas, Company desires to assure itself of the services of
Executive and Executive is willing to make his services available to Company on
the terms and conditions set forth below.
Now, therefore, in consideration of the premises and mutual
promises contained in this Agreement, it is agreed:
1. Employment. Company hereby employs Executive and
Executive hereby accepts employment with Company on the terms and conditions
set forth in this Agreement.
2. Duties. Executive shall serve as Executive Vice
President of Company. Under the direction of the President, Executive shall
perform all assigned duties reasonably required of an employee in such
positions and shall personally, and faithfully perform his duties to the best
of his ability, on a full-time and exclusive basis.
3. Compensation. Executive's compensation for the
services performed under this Agreement shall consist of a Base Salary and
Incentive Compensation, if any, as described below:
3.1 Base Salary. Executive shall receive the
base salary approved by Company's Board of Directors, payable in regular
bi-weekly installments (the "Base Salary"). The Base Salary will be reviewed
annually by the Board of Directors in accordance with standard salary review
procedures in effect from time to time for executive officers of Company. In
no event shall the Base Salary be less than the Base Salary being paid to
Executive on the date of this Agreement, unless Executive agrees to a
reduction. In the event that Executive's employment with Company is terminated
as provided in this Agreement, the Base Salary shall be deemed to be
Executive's then current Base Salary or $180,000, whichever is greater.
3.2 Incentive Compensation. In addition to the
Base Salary, Executive shall be eligible to earn incentive compensation in the
form of cash or securities under bonus and incentive programs as may be in
effect from time to time for executive officers of Company generally
("Incentive Compensation").
3.3 Withholding. Executive agrees and
acknowledges that Company will withhold from Executive's compensation all taxes
and other amounts which Company is required by law to withhold, including
without limitation (i) federal income taxes, (ii) state income taxes, (iii)
county, city or other local income taxes, and (iv) social security taxes.
4. Benefits.
4.1 Generally. Executive shall be entitled to
receive any and all benefits made available to executive officers of Company
generally and such other benefits as the Board of Directors in its discretion
may make available to Executive from time to time.
4.2 Insurance. Executive shall be eligible to
participate in all medical, hospitalization, dental, life, disability and other
insurance plans as are in effect from time to time for executive officers of
Company generally.
<PAGE> 2
4.3 Personal Leave. Executive shall be entitled
to take five (5) weeks of paid personal leave annually.
4.4 Reimbursement for Reasonable Business
Expenses. Company shall reimburse Executive for customary and reasonable
expenses incurred by him in performing his duties pursuant to this Agreement,
in accordance with Company's then current reimbursement policy (including
appropriate itemization and substantiation of expenses incurred).
5. Term. The term of this Agreement and Executive's
employment hereunder shall commence on the date hereof and continue for a
period of two (2) years, subject to early termination of this Agreement in
accordance with Section 6 or 7 below. Executive expressly agrees and
acknowledges that Company has no obligation to renew this Agreement or to
continue Executive's employment after the two-year term.
6. Termination by Company.
6.1 Termination With Cause. Company shall be
entitled to terminate this Agreement and Executive's employment immediately
upon written notice to Executive, except in the case of death, specifying the
date of termination in the event that (i) Executive fails to carry out assigned
duties after being given prior warning and an opportunity to remedy the
failure; or (ii) Executive breaches any material provision of this Agreement;
(iii) Executive engages in fraud, dishonesty, willful misconduct, gross
negligence or breach of fiduciary duty (including without limitation any
failure to disclose a conflict of interest), in the performance of his duties
hereunder; (iv) Executive is convicted of a felony or crime involving moral
turpitude; (v) Executive suffers a permanent and total disability which for at
least six months prevents his performance of his duties hereunder if such
permanent disability is covered by Workers Compensation or long term disability
insurance, or both; or (vi) Executive dies. For eight weeks following
Company's termination of this Agreement with cause pursuant to this Section
6.1, Company shall continue to pay Executive his Base Salary in effect as of
the date of termination and make available the benefits set forth in Section 4.
All other obligations of Company hereunder shall cease as of the date of
termination.
6.2 Termination Without Cause. During the term
of this Agreement Company shall be entitled to terminate this Agreement and
Executive's employment without cause upon not less than sixty (60) days prior
written notice to Executive specifying the date of termination. If Company
terminates Executive's employment without cause at any time during the two-year
term of this Agreement, Company shall give Executive a lump sum payment
equivalent to one year of Executive's then current Base Salary, any Incentive
Compensation to which Executive would have been entitled as of the date of the
termination any deferred compensation, any accrued personal leave and continue
to make available the benefits set forth in Section 4 for eighteen (18) months.
All other obligations of Company hereunder shall cease as of the date of
termination. Notwithstanding the foregoing, during the eighteen (18) months
immediately following Company's notice of termination of this Agreement without
cause, Executive shall be entitled to the vesting of any and all stock options
issued by Company pursuant to its Incentive Stock Option Plan in accordance
with the vesting schedule in his grant of option, and vesting of any and all
other options, warrants, or shares, and Executive shall have the right to
exercise such options or warrants, or purchase such shares under the same terms
and conditions applicable to Executive prior to termination.
7. Termination by Executive.
7.1 Termination for Any Reason. Executive may terminate
his employment and services at any time and for any reason by giving Company at
least thirty (30) days' prior written notice specifying the date of
termination. If Executive terminates the Agreement in accordance with this
Section 7.1, then from the
<PAGE> 3
date of Executive's notice to the date of termination (provided that during
this notice period, Company does not terminate Executive for cause under
Section 6.1 above), Company shall continue to pay Executive his Base Salary in
effect as of the date of termination, and any Incentive Compensation to which
Executive would have been entitled as of the date of termination, any deferred
compensation, any accrued personal leave and continue to make available the
benefits set forth in Section 4 until the date of termination. All other
obligations of Company hereunder shall cease as of the date of termination.
7.2 Termination for Change in Circumstances or Control.
Notwithstanding Section 7.1 above, if Executive terminates this Agreement as a
result of a Change of Circumstances or Change in Control, as defined below,
then for eighteen months following Executive's termination of this Agreement
pursuant to Section 7.1, Company shall continue to pay Executive his Base
Salary in effect as of the date of termination, any Incentive Compensation to
which Executive was entitled as of the date of termination, any deferred
compensation, any accrued personal leave and continue to make available the
benefits set forth in Section 4 for twelve (12) months. All other obligations
of Company hereunder shall cease as of the date of termination; provided,
however, if there is a Change in Control, Executive shall be entitled to the
immediate vesting of any and all stock options regardless of whether Executive
terminates his employment based on such Change in Control.
7.2.1 Change in Circumstances. For the purposes of
Section 7.2, a "Change in Circumstances" shall be deemed to occur if and only
if there occurs:
(a) a change in Executive's title of
Executive Vice President and Chief Operating Officer;
(b) a reduction in Executive's Base Salary
unless agreed to by Executive;
(c) a change in the geographic location
where Executive's position is based of more than 50 miles; or
(d) a Change in Control (as defined below)
of Company without the concurrence of Executive, followed by (i) any material
change in Executive's positions, authorities, powers, duties, responsibilities
or functions from those that were in effect immediately prior to the Change in
Control, except in connection with the termination of Executive's employment by
Company for cause in accordance with Section 6.1 above; or (ii) a personal
determination by Executive that, as a result of a change in circumstances
significantly affecting his position which occurred without his approval and
which was caused by a Change in Control within six months after a Change in
Control occurs, he is unable to carry out the authorities, powers, duties,
responsibilities or functions carried out by him prior to such Change in
Control.
7.2.2 Change In Control. For the purposes of
Section 7.2, a "Change in Control" shall be deemed to occur if and only if:
(a) any person, partnership, association,
trust or other entity, or any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the
"beneficial owner," as defined in Rule 13d-3 promulgated under the Exchange
Act, directly or indirectly, of securities of Company representing more than
twenty-five percent (25%) of the combined voting power of Company's then
outstanding securities;
(b) during the term of this Agreement,
individuals who at the beginning of such 24-month period were directors of
Company cease for any reason to constitute a majority of the Board of Directors
of Company (or of any successor to Company by merger, consolidation,
reorganization, sale of assets or otherwise), unless three-quarters of the
Board at the beginning of such 24-month period approve the
<PAGE> 4
nomination of each of the directors who were not directors at the beginning of
such 24-month period (other than in a nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of Directors of Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) a majority of the Board determines in
its sole and absolute discretion that there has been a Change in Control of
Company, which determination may be made in advance of the event constituting
such Change in Control.
8. Survival. This Agreement shall survive any Changes in
Control; change in management of Company, including but not limited to the
election of a new President; and any merger, consolidation, reorganization,
sale of assets or sale of stock of Company.
9. Non-Competition and Non-Solicitation.
9.1 Prohibition. Executive acknowledges that Company's
business and employee relationships are maintained at great expense and effort.
Executive further acknowledges that, by virtue of his employment under this
Agreement, he will have an extensive and unique opportunity to establish and
maintain valuable contacts with Company's customers and employees and the
opportunity both during and after employment to unfairly compete with Company,
its subsidiaries and affiliates. Therefore, Executive agrees that during the
term of his employment with Company and for a period of the balance of the term
of this Agreement or twelve (12) months following termination of such
employment, whichever is greater, he shall not compete with the business of
Company, its subsidiaries or affiliates. For the purpose of this Agreement,
activities among others which shall be deemed competitive include: (i)
encouraging any customers of Company, its subsidiaries or affiliates to become
a customer of Executive or of any other person except through normal
competitive bidding; or (ii) encouraging any employee of Company, its
subsidiaries or affiliates to become an employee of Executive or of any other
person.
9.2 Remedies for Breach. Executive acknowledges that
the damage to Company, its subsidiaries and affiliates resulting from a breach
of this Section 9 may cause irreparable injury. Therefore, in the event of any
such breach, Company, its subsidiaries and affiliates shall be entitled to seek
such remedies as are available at law or equity to restrain and enjoin
Executive from continuing to violate the provisions of this Section 9.
9.3 Binding Effect. In the event that any part of this
Section 9 shall be deemed by a court of competent jurisdiction to be in
violation of applicable law for any reason whatsoever, than such part shall not
be deemed to be void, but shall be deemed to be modified so as to be valid and
enforceable, and the remaining provisions of this Section 9 or of this
Agreement shall not be affected. The provisions of Section 9 shall survive the
termination of Executive's employment for any reason.
10. Confidentiality and Non-Disclosure.
10.1 Prohibition. Executive understands and acknowledges
that the success of Company's business is dependent upon the secrecy and
non-disclosure of many confidential plans, procedures and methods. Therefore,
Executive agrees that he will not directly or indirectly disclose to any person
or use for his own purposes any confidential information, records, data,
formulae, specifications, customer lists, ideas, inventions, plans concerning
business or product development, business procedures, contract proposals or
such proprietary information or other trade secrets of Company, its
subsidiaries or affiliates ("Confidential Information") provided such
information is marked as such or Executive has reason to know it is
confidential. Upon termination of this Agreement and employment hereunder,
Executive agrees to promptly deliver to Company all
<PAGE> 5
papers, records, files, other documents and Confidential Information belonging
to Company, its subsidiaries and affiliates and to not retain any copies
thereof.
10.2 Remedies for Breach. Executive acknowledges that
the damage to Company, its subsidiaries and affiliates resulting from a breach
of this Section 10 may cause irreparable injury. Therefore, in the event of
any such breach, Company, its subsidiaries and affiliates shall be entitled to
seek such remedies as are available at law or equity to restrain and enjoin
Executive from continuing to violate the provisions of this Section 10.
10.3 Binding Effect. The provisions of Section 10 shall
survive the termination of this Agreement and Executive's employment for any
reason.
11. Results and Proceeds.
11.1 Ownership. As Executive's employer, Company shall
own all rights in and to the results and proceeds connected with or arising out
of, directly or indirectly, Executive's services hereunder. Executive hereby
assigns to Company all right, title and interest in and to all intellectual
property, discoveries and trade secrets which Executive may solely or jointly
conceive, design, develop, create or suggest or cause to be conceived, designed
or developed or created during the term of Executive's employment by Company,
which relate to Executive's employment or Company's business. For purposes of
this Agreement, the term "intellectual property" shall include, without
limitation, any ideas, concepts, literary material, designs, drawings,
illustrations, photographs, patentable ideas and musical compositions. To the
extent that any such intellectual property may be protectable pursuant to
applicable copyright law, Executive acknowledges that such property is a work
for hire within the meaning of such law.
11.2 Further Assurances. Executive hereby agrees to
execute any documents necessary to evidence Company's proprietary interest in
any intellectual property, discovery or trade secrets referred to Section 11.1
above. In the event Company is unable, for any reason whatsoever, to secure
Executive's signature to any lawful and necessary document required to apply
for protection of, or enforce any rights with respect to, any copyrights,
trademark, patent or other proprietary rights, Executive hereby irrevocably
designates and appoints Company, and its duly authorized officers and agents,
as his agent and attorney-in-fact, whose power is coupled with an interest, to
act for and in Executive's behalf and stead, to execute such documents and to
do all other lawful acts to protect Company's interest in any such copyright,
patent, trademark or other proprietary right with the same legal force and
effect as if executed by Executive.
12. Miscellaneous.
12.1 Conformity with the Immigration Reform and Control
Act of 1986. Upon request, Executive agrees to furnish Company with all
documentation needed to satisfy the requirements of the Immigration Reform and
Control Act of 1986.
12.2 Waiver. The failure of either party to insist, in
any one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any term or condition.
12.3 Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing and delivered by registered or
certified mail or delivered personally, in the case of Company, to its
principal business office in Springfield, Virginia and, in the case of
Executive to his address appearing in the records of Company, or to such other
address as he may designate in writing to Company.
<PAGE> 6
12.4 Severability. In the event that any provisions
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed that such invalidity or lack of enforceability shall not affect any
other provision of this Agreement and the remaining provisions hereof shall
continue in full force and effect. Any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable.
12.5 Amendment. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
12.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
12.7 Coverage. The provisions of this Agreement
regarding the terms and conditions of Executive's employment shall not preclude
Executive from participating in any other employee compensation or benefit
program adopted by Company for which he is otherwise eligible.
12.8 Resignation from Offices. Upon termination of his
employment, Executive shall be deemed to have resigned as an officer of
Company, and as any officer or director its subsidiaries and affiliates, if
then so acting, as of the date of such termination.
12.9 Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against Company, its
successors and assigns and Executive, his heirs, beneficiaries and legal
representatives. This agreement may be assigned by Company but may not be
assigned by Executive.
12.10 Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to Executive's employment by Company and
supersedes any prior or simultaneous agreements between them, whether oral or
written, regarding such employment, except any confidentiality agreements
between Executive and Company. There are no other agreements, covenants or
representations, express or implied, concerning Executive's employment by
Company except those expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
By: /S/ Benjamin M. Rawls
------------------------------------
Benjamin M. Rawls
Chairman of the Board, President
and Chief Executive Officer
/S/ Thomas S. Rooney
----------------------------------------
Thomas S. Rooney
<PAGE> 1
EXHIBIT 10.81
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Versar, Inc., a Delaware corporation (the
"Company") and LAWRENCE W. SINNOTT (the "Employee"), dated as of the 1st day of
September 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by pending or threatened Change of Control and
to encourage the Employee's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Employee with compensation and benefit arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Employee will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Employee's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Employee that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change in Control
or (ii) otherwise arose in connection with or anticipation of a Change in
Control (in each case, a "Potential Change of Control"), then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on August 31, 1998, unless otherwise extended by
the Company.
2. Change in Circumstances or Control.
2.1 Change in Circumstances. For the purposes of Section 3,
a "Change in Circumstances" shall be deemed to occur if and only if there
occurs:
(a) a change in Executive's title of Vice
President, Chief Financial Officer; and Treasurer.
(b) a reduction in Executive's Base Salary in
effect, prior to the Effective Date unless agreed to by Executive;
(c) a change in the geographic location where
Executive's position is based of more than 50 miles; or
(d) a Change in Control (as defined below) of
Company without the concurrence of Executive, followed by (i) any material
change in Executive's positions, authorities, powers, duties,
<PAGE> 2
responsibilities or functions from those that were in effect immediately prior
to the Change in Control, except in connection with the termination of
Executive's employment by Company for cause in accordance with Section 2.1
above; or (ii) a personal determination by Executive that, as a result of a
change in circumstances significantly affecting his position which occurred
without his approval and which was caused by a Change in Control, he is unable
to carry out the authorities, powers, duties, responsibilities or functions
carried out by him prior to such Change in Control.
2.2 Change In Control. For the purposes of Section 2.1, and
3, "Change in Control" shall be deemed to occur if and only if:
(a) any person, partnership, association, trust or
other entity, or any "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), becomes the "beneficial
owner," as defined in Rule 13d-3 promulgated under the Exchange Act, directly
or indirectly, of securities of Company representing more than twenty-five
percent (25%) of the combined voting power of Company's then outstanding
securities;
(b) during the term of this Agreement, individuals
who at the beginning of such 24-month period were directors of Company cease
for any reason to constitute a majority of the Board of Directors of Company
(or of any successor to Company by merger, consolidation, reorganization, sale
of assets or otherwise), unless three-quarters of the Board at the beginning of
such 24-month period approve the nomination of each of the directors who were
not directors at the beginning of such 24-month period (other than in a
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of
Directors of Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
(c) a majority of the Board determines in its sole
and absolute discretion that there has been a Change in Control of Company,
which determination may be made in advance of the event constituting such
Change in Control.
3. Termination by Executive.
3.1 Termination for Change in Circumstances or Control.
During the Change in Control period, if a Change of Circumstances or Change in
Control occurs, the Executive may terminate his employment at any time. If
Executive terminates his employment as a result of a Change of Circumstances or
Change in Control, as defined herein, then for twelve months following
Executive's termination of his employment Company shall continue to pay
Executive his Base Salary in effect as of the date of termination or in effect
prior to the Effective Date, which ever is greater, plus any Incentive
Compensation to which Executive was entitled as of the date of termination, any
deferred compensation, any accrued personal leave and continue to make
available the benefits set forth in Section 4 for twelve (12) months. All
other obligations of Company hereunder shall cease as of the date of
termination; provided, however, if there is a Change in Control, Executive
shall be entitled to the immediate vesting of any and all stock options
regardless of whether Executive terminates his employment based on such Change
in Control.
3.2 Base Salary. Executive shall receive the base
salary approved by Company's Board of Directors, payable in regular bi-monthly
installments (the "Base Salary"). The Base Salary will be reviewed annually by
the Board of Directors in accordance with standard salary review procedures in
effect from time to time for executive officers of Company. In no event shall
the Base Salary be less than the Base Salary being paid to Executive on the
date of this Agreement, unless Executive agrees to a reduction. In the event
that Executive's employment with Company is terminated as provided in this
Agreement, the Base Salary shall be deemed to be Executive's then current Base
Salary or $110,000, whichever is greater.
<PAGE> 3
3.3 Incentive Compensation. In addition to the Base
Salary, Executive shall be eligible to earn incentive compensation in the form
of cash or securities under bonus and incentive programs as may be in effect
from time to time for executive officers of Company generally ("Incentive
Compensation").
3.4 Withholding. Executive agrees and acknowledges that
Company will withhold from Executive's continuing compensation all taxes and
other amounts which Company is required by law to withhold, including without
limitation (i) federal income taxes, (ii) state income taxes, (iii) county,
city or other local income taxes, and (iv) social security taxes.
4. Benefits.
4.1 Generally. Executive shall be entitled to receive
any and all benefits made available to executive officers of Company generally
and such other benefits as the Board of Directors in its discretion may make
available to Executive from time to time.
4.2 Insurance. Executive shall be eligible to
participate in all medical, hospitalization, dental, life, disability and other
insurance plans as are in effect from time to time for executive officers of
Company generally.
4.3 Personal Leave. Executive shall be entitled to take
five (5) weeks of personal leave annually.
4.4 Reimbursement for Reasonable Business Expenses.
Company shall reimburse Executive for customary and reasonable expenses
incurred by him in performing his duties pursuant to this Agreement, in
accordance with Company's then current reimbursement policy (including
appropriate itemization and substantiation of expenses incurred).
5. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim right or action which the Company may have
against the Employee or others. In no event shall the Employee be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this agreement
and such amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of the Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code).
6. Survival. This Agreement shall survive any Change on
Control, change in management of Company, and any merger, consolidation,
reorganization, sale of assets or sale of stock of Company.
7. Miscellaneous.
7.1 Waiver. The failure of either party to insist, in
any one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any term or condition.
<PAGE> 4
7.2 Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing and delivered by registered or
certified mail or delivered personally, in the case of Company, to its
principal business office in Springfield, Virginia and, in the case of
Executive to his address appearing in the records of Company, or to such other
address as he may designate in writing to Company.
7.3 Severability. In the event that any provisions
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed that such invalidity or lack of enforceability shall not affect any
other provision of this Agreement and the remaining provisions hereof shall
continue in full force and effect. Any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable.
7.4 Amendment. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
7.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
7.6 Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against Company, its
successors and assigns and Executive, his heirs, beneficiaries and legal
representatives. This Agreement may be assigned by Company but may not be
assigned by Executive.
7.7 Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to Executive's employment by
Company and supersedes any prior or simultaneous agreements between them,
whether oral or written, regarding such employment, except any confidentiality
agreements between Executive and Company. There are no other agreements,
covenants or representations, express or implied, concerning Executive's
employment by Company except those expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
By: /S/ Benjamin M. Rawls
---------------------------------
------------------------------------
/S/ Lawrence W. Sinnott
------------------------------------
Lawrence W. Sinnott
<PAGE> 1
EXHIBIT 10.82
CHANGE OF CONTROL SEVERANCE AGREEMENT
AGREEMENT by and between Versar, Inc., a Delaware corporation (the
"Company") and JAMES CHARLES DOBBS (the "Employee"), dated as of the 1st day of
September 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by pending or threatened Change of Control and
to encourage the Employee's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Employee with compensation and benefit arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Employee will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Employee's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Employee that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change in Control
or (ii) otherwise arose in connection with or anticipation of a Change in
Control (in each case, a "Potential Change of Control"), then for all purposes
of this Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on August 31, 1998, unless otherwise extended by
the Company.
2. Change in Circumstances or Control.
2.1 Change in Circumstances. For the purposes of
Section 3, a "Change in Circumstances" shall be deemed to occur if and only if
there occurs:
(a) a change in Executive's title of Vice
President and General Counsel;
(b) a reduction in Executive's Base Salary
in effect, prior to the Effective Date unless agreed to by Executive;
(c) a change in the geographic location
where Executive's position is based of more than 50 miles; or
(d) a Change in Control (as defined below)
of Company without the concurrence of Executive, followed by (i) any material
change in Executive's positions, authorities, powers, duties, responsibilities
or functions from those that were in effect immediately prior to the Change in
Control,
<PAGE> 2
except in connection with the termination of Executive's employment by Company
for cause in accordance with Section 2.1 above; or (ii) a personal
determination by Executive that, as a result of a change in circumstances
significantly affecting his position which occurred without his approval and
which was caused by a Change in Control, he is unable to carry out the
authorities, powers, duties, responsibilities or functions carried out by him
prior to such Change in Control.
2.2 Change In Control. For the purposes of Section
2.1, and 3, "Change in Control" shall be deemed to occur if and only if:
(a) any person, partnership, association,
trust or other entity, or any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes the
"beneficial owner," as defined in Rule 13d-3 promulgated under the Exchange
Act, directly or indirectly, of securities of Company representing more than
twenty-five percent (25%) of the combined voting power of Company's then
outstanding securities;
(b) during the term of this Agreement,
individuals who at the beginning of such 24-month period were directors of
Company cease for any reason to constitute a majority of the Board of Directors
of Company (or of any successor to Company by merger, consolidation,
reorganization, sale of assets or otherwise), unless three-quarters of the
Board at the beginning of such 24-month period approve the nomination of each
of the directors who were not directors at the beginning of such 24-month
period (other than in a nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of Directors of Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or
(c) a majority of the Board determines in
its sole and absolute discretion that there has been a Change in Control of
Company, which determination may be made in advance of the event constituting
such Change in Control.
3. Termination by Executive.
3.1 Termination for Change in Circumstances or Control.
During the Change in Control period, if a Change of Circumstances or Change in
Control occurs, the Executive may terminate his employment at any time. If
Executive terminates his employment as a result of a Change of Circumstances or
Change in Control, as defined herein, then for twelve months following
Executive's termination of his employment pursuant to this Section 3.1, Company
shall continue to pay Executive his Base Salary in effect as of the date of
termination, or in effect prior to the Effective Date, which ever is greater,
plus any Incentive Compensation to which Executive was entitled as of the date
of termination, any deferred compensation, any accrued personal leave and
continue to make available the benefits set forth in Section 4 for twelve (12)
months. All other obligations of Company hereunder shall cease as of the date
of termination; provided, however, if there is a Change in Control, Executive
shall be entitled to the immediate vesting of any and all stock options
regardless of whether Executive terminates his employment based on such Change
in Control.
3.2 Base Salary. Executive shall receive the base
salary approved by Company's Board of Directors, payable in regular bi-monthly
installments (the "Base Salary"). The Base Salary will be reviewed annually by
the Board of Directors in accordance with standard salary review procedures in
effect from time to time for executive officers of Company. In no event shall
the Base Salary be less than the Base Salary being paid to Executive on the
date of this Agreement, unless Executive agrees to a reduction. In the event
that Executive's employment with Company is terminated as provided in this
Agreement, the Base Salary shall be deemed to be Executive's then current Base
Salary or $130,000, whichever is greater.
<PAGE> 3
3.3 Incentive Compensation. In addition to the Base
Salary, Executive shall be eligible to earn incentive compensation in the form
of cash or securities under bonus and incentive programs as may be in effect
from time to time for executive officers of Company generally ("Incentive
Compensation").
3.4 Withholding. Executive agrees and acknowledges that
Company will withhold from Executive's continuing compensation all taxes and
other amounts which Company is required by law to withhold, including without
limitation (i) federal income taxes, (ii) state income taxes, (iii) county,
city or other local income taxes, and (iv) social security taxes.
4. Benefits.
4.1 Generally. Executive shall be entitled to
receive any and all benefits made available to executive officers of Company
generally and such other benefits as the Board of Directors in its discretion
may make available to Executive from time to time.
4.2 Insurance. Executive shall be eligible to
participate in all medical, hospitalization, dental, life, disability and other
insurance plans as are in effect from time to time for executive officers of
Company generally.
4.3 Personal Leave. Executive shall be entitled
to take five (5) weeks of personal leave annually.
4.4 Reimbursement for Reasonable Business
Expenses. Company shall reimburse Executive for customary and reasonable
expenses incurred by him in performing his duties pursuant to this Agreement,
in accordance with Company's then current reimbursement policy (including
appropriate itemization and substantiation of expenses incurred).
5. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim right or action which the Company may have
against the Employee or others. In no event shall the Employee be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this agreement
and such amounts shall not be reduced whether or not the Employee obtains other
employment. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the
Company, the Employee or others of the validity or enforceability of, or
liability under, any provision of the Agreement or any guarantee of performance
thereof (including as a result of any contest by the Employee about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code).
6. Survival. This Agreement shall survive any Change on
Control, change in management of Company, and any merger, consolidation,
reorganization, sale of assets or sale of stock of Company.
7. Miscellaneous.
7.1 Waiver. The failure of either party to insist, in
any one or more instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or a relinquishment of any right
granted hereunder or of the future performance of any term or condition.
<PAGE> 4
7.2 Notices. Any notice to be given hereunder shall be
deemed sufficient if addressed in writing and delivered by registered or
certified mail or delivered personally, in the case of Company, to its
principal business office in Springfield, Virginia and, in the case of
Executive to his address appearing in the records of Company, or to such other
address as he may designate in writing to Company.
7.3 Severability. In the event that any provisions
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed that such invalidity or lack of enforceability shall not affect any
other provision of this Agreement and the remaining provisions hereof shall
continue in full force and effect. Any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable and
enforceable.
7.4 Amendment. This Agreement may be amended only by an
agreement in writing signed by the parties hereto.
7.5 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
7.6 Benefit. This Agreement shall be binding upon and
inure to the benefit of and shall be enforceable by and against Company, its
successors and assigns and Executive, his heirs, beneficiaries and legal
representatives. This Agreement may be assigned by Company but may not be
assigned by Executive.
7.7 Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to Executive's employment by
Company and supersedes any prior or simultaneous agreements between them,
whether oral or written, regarding such employment, except any confidentiality
agreements between Executive and Company. There are no other agreements,
covenants or representations, express or implied, concerning Executive's
employment by Company except those expressly set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
By: /S/ Benjamin M. Rawls
----------------------------------
-------------------------------------
/S/ James C. Dobbs
-------------------------------------
James C. Dobbs
<PAGE> 1
EXHIBIT 11
VERSAR, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------
1996 1995 1994
---------------- -------------- ----------------
<S> <C> <C> <C>
NET EARNINGS
Continuing Operations . . . . . . . . . . . . . . . $ 992 $ 458 $ (2,658)
Loss from Discontinued Operations . . . . . . . . . --- --- (2,265)
Cumulative Effect of Change in Accounting
Principle . . . . . . . . . . . . . . . . . --- --- 556
---------------- ------------- ----------------
$ 992 $ 458 $ (4,367)
================ ============= ================
Weighted average common shares outstanding . . . . . . . 4,905,126 4,664,260 4,480,753
---------------- ------------- ----------------
NET EARNINGS PER SHARE - PRIMARY
Continuing Operations . . . . . . . . . . . . . . . $ 0.19 $ 0.10 $ (0.59)
Loss from Discontinued Operations . . . . . . . . . --- --- (0.51)
Cumulative Effect of Change in Accounting
Principle. . . . . . . . . . . . . . . . . . . . . --- --- 0.13
---------------- ------------- ----------------
$ 0.19 $ 0.10 $ (0.97)
================ ============= ================
Common shares from above . . . . . . . . . . . . . . . . 4,905,126 4,664,260 4,480,753
Assumed exercise of options (treasury stock
method) . . . . . . . . . . . . . . . . . . . . . . . . 293,637 129,453 ---
---------------- ------------- ----------------
5,198,763 4,793,713 4,480,753
================ ============= ================
NET EARNINGS PER SHARE - FULLY DILUTED
Continuing Operations . . . . . . . . . . . . . . . $ 0.19 $ 0.09 $ (0.59)
Loss from Discontinued Operations . . . . . . . . . --- --- (0.51)
Cumulative Effect of Change in Accounting
Principle. . . . . . . . . . . . . . . . . . . . . --- --- 0.13
---------------- ------------- ----------------
$ 0.19 $ 0.09 $ (0.97)
================ ============= ================
Common shares from above . . . . . . . . . . . . . . . . 4,905,126 4,664,260 4,480,753
Assumed exercise of options (treasury stock method) . . . 342,597 169,586 ---
---------------- ------------- ----------------
5,247,723 4,833,846 4,480,753
================ ============= ================
</TABLE>
<PAGE> 1
Exhibit 22
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of Name under which subsidiary
Name Incorporation conducts business
- ---- ------------- -------------------------
<S> <C> <C>
Fluxagamm, Inc. (a) Delaware Fluxagamm, Inc.
Versar Risk Management, Inc. New York Versar New York, Inc. in New
York; Versar Inc. elsewhere
GEOMET Technologies, Inc. Delaware GEOMET Technologies, Inc.
Versar Laboratories, Inc. (b) Delaware Versar Laboratories, Inc.
Versar of Ohio, Inc. Ohio Versar of Ohio, Inc.
</TABLE>
(a) formerly Gammaflux, Inc.
(b) formerly Versar Consultants, Inc.
<PAGE> 1
Exhibit 23
Consent of Independent Accounts
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the company's previously filed
Registration Statement on Form S-8 (No. 33-17507).
/S/ Arthur Andersen LLP
---------------------------
Arthur Andersen LLP
Washington, D.C.,
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 83
<SECURITIES> 0
<RECEIVABLES> 13,079
<ALLOWANCES> 703
<INVENTORY> 0
<CURRENT-ASSETS> 14,297
<PP&E> 9,900
<DEPRECIATION> 7,862
<TOTAL-ASSETS> 16,979
<CURRENT-LIABILITIES> 6,668
<BONDS> 0
0
0
<COMMON> 50
<OTHER-SE> 7,726
<TOTAL-LIABILITY-AND-EQUITY> 16,979
<SALES> 0
<TOTAL-REVENUES> 44,283
<CGS> 0
<TOTAL-COSTS> 43,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 776
<INCOME-TAX> (216)
<INCOME-CONTINUING> 992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 992
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
