SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 1997 No. 1-9309
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Versar INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6850 Versar Center, Springfield, Virginia 22151
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(Address of principal executive offices) (Zip code)
(703) 750-3000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
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(Title of Class)
American Stock Exchange
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(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
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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 2, 1997 was approximately $10,209,341.
The number of shares of Common Stock outstanding as of September 2, 1997
was 5,171,459.
The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on Pages 19
through 23 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 1997 Annual Meeting of
Stockholders scheduled to be held on November 12, 1997 are incorporated by
reference into Part III hereof.
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PART I
Item 1. Business
Forward Looking Statements
This report contains certain forward-looking statements which are based on
current expectations. Actual results may differ materially. The forward-looking
statements include those regarding cost controls and reductions, the expected
resolution of delays in billing of certain projects, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, the integration of the recent or ongoing acquisitions,
and the possibility of the Company making acquisitions during the next 12 to 18
months. Forward-looking statements involve numerous risks and uncertainties that
could cause actual results to differ materially, including, but not limited to,
the possibilities that the demand for the Company's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing; one or more current or
future claims made against the Company may result in substantial liabilities;
and such other risks and uncertainties as are described in reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
The statements in this report, including statements under the headings of
Business, Legal Proceedings, and Management's Discussion and Analysis and the
attached financial statements, reflect the business lines and two month's
financial results of Science Management Corporation ("SMC"). On May 2, 1997,
Versar, Inc. ("Versar" or the "Company") purchased a majority of the common
shares and all of the outstanding preferred shares of SMC as more fully
described below. As a result, the SMC revenue for the last two months of
Versar's fiscal year is included in Versar's financial statements as a majority
owned subsidiary. In addition, because SMC has negative retained earnings, the
entire net income of SMC for May and June of 1997 is also included in Versar's
results. This inclusion will continue until the negative retained earnings are
eliminated and then, until the closing of the merger described below, Versar
will account for SMC's earnings on an equity basis of its 53.5% ownership
interest in SMC's common stock. On July 27, 1997, SMC and Versar entered into an
Agreement and Plan of Merger which is subject to SMC stockholder approval.
Versar believes that the merger and, thus, the acquisition of the remaining SMC
outstanding common stock, will occur during the second quarter of fiscal year
1998.
Versar is a diversified international professional services firm, helping
clients in the private and public sectors enhance their performance while
reducing costs and achieving environmental excellence. Versar combines science,
technology, and people with specialized skills to design and implement programs.
In addition, we design systems, facilities, and equipment to improve operating
performance, conserve resources, reduce emissions and waste generation, which
ultimately increase productivity and profitability, protects worker health and
safety and our environment.
On May 2, 1997, pursuant to a Stock Purchase Agreement dated April 30,
1997, Versar purchased from Imperial Capital Worldwide Partners, L.P., a
Delaware limited partnership ("Imperial") 1,070,000 shares common stock of SMC
(representing 53.5% of the issued and outstanding common stock of SMC), 100% of
the issued and outstanding preferred stock of SMC and certain options to
purchase 350,000 additional shares of SMC common stock for a purchase price of
$2,790,000 paid in cash. As additional consideration for such stock purchases,
the Company paid certain legal fees incurred by Imperial and its affiliates in
connection with the stock purchase and other matters related to SMC in an
aggregate amount of $80,000. The purchase price paid by the Company was
determined by the Company's bid exceeding another competitive bid.
Versar's four major business areas are: (1) environmental services; (2)
management services; (3) facilities and information management services; and (4)
engineering, design, and construction services to the process industries. As is
indicated below, certain of these business areas have developed as a result of
the integration of
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SMC into the Versar corporate group and represent a combination of traditional
services of SMC with Versar's traditional services offerings.
Environmental Services include the full range of scientific, engineering,
and construction services to address the prevention, detection, management,
control, and cleanup of toxic substances and hazardous waste in the environment
and constituted the primary business line of Versar prior to the acquisition of
SMC. Versar emphasizes innovation in process and technology application to
achieve better results more quickly and at less cost in today's highly
competitive market. Versar's Environmental Services Group works in partnership
with government and industry by becoming an involved member of our clients'
organization. We focus on a client-centered approach that builds 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 become 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.
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:
o A Complex and changing environmental regulations and the need for a
more strategic approach to meet national and international
environmental requirements in a way that allows industry to be
profitable and competitive in a global market.
o A Increased emphasis on compliance management and recognition that
pollution prevention and waste minimization are necessary parts of the
long-term sollution to local and national environmental challenges.
o A 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 as a full-service firm that
emphasizes:
Strategic Planning and Pollution Prevention. These are Versar's trademark
environmental services, capitalizing on its combined strengths in regulatory
policy, risk assessment, information management, pollution control, and
treatment technology, which emphasize pollution prevention. This service is also
fully integrated with and is part of Versar's Management Services. Versar also
provides nationally recognized services in the area of natural resources
management and ecological studies.
Total Compliance Management (TCM). TCM is a strategic approach and process of
continuous improvement that permits senior management to view environmental
compliance expenditures as a business investment thus creating an "Environmental
Balance Sheet." Versar consults at the highest levels of industry and government
where policy decisions are made. Versar supports its clients in implementing new
programs and approaches as well as managing current programs on-site and
outsourcing through its Facilities and Information Services. Versar has also
positioned itself to be a leader in marketing services related to the
environmental standards by the International Organization for Standards, ISO
14000. A further enhancement to the ISO 9000 quality standards promulgated and
widely adopted several years ago, ISO 14000 will establish voluntary
environmental compliance standards for the international business community.
Corrective/Remedial Action. Versar provides the full range of services in
remedial/corrective action from site investigation, remedial design,
construction, and operation and maintenance (O&M) of remedial systems. More and
more clients are asking how their project can be accomplished more efficiently.
Versar emphasizes innovative solutions to such problems as groundwater
remediation. For example, Versar successfully demonstrated the
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effectiveness of a passive reactive wall consisting of iron fillings placed in a
trench to remove halogenated organic compounds from groundwater at Lowry Air
Force Base. Versar also brings to its clients a new alternative to conventional
remedial technologies, known as Bio-Injection. This method of remediation allows
the concurrent treatment of soils and groundwater with a mixture of bacteria and
nutrients. This process typically requires a one-time treatment, with positive
results achieved within months instead of years at less cost than conventional
treatment methods.
Versar is applying these and other technologies as it focuses more and more
on emerging opportunities in the redevelopment of industrial properties under
EPA and States' Brownfields programs. Versar has established alliances with real
estate and investment firms to help clients bring new life to abandoned,
contaminated sites in prime real estate areas.
Versar's Environmental Services address management, compliance, and
remedial/corrective needs of clients in a wide range of technical areas
including:
o Environmental Policy
o Air Quality
o Water/Groundwater Quality
o Waste Management
o Risk Assessment
o Ecological Studies
o Technology Evaluations
o Natural Resources Management
o Industrial Hygiene
o Asbestos and Lead Paint
o Tank Management
Personal Protection Equipment (PPE)/ChemDemil. A specialty area for the
Company is our Chemical Surety Laboratory and our related expertise in personal
protection equipment. Versar's support to the U.S. Army's Chemical Weapons
Demilitarization program is an important business area for Versar. Versar's
subsidiary, GEOMET Technologies, Inc., is involved in the disposal of residual
chemical weapons material at sites throughout the United States. GEOMET's
program, now in its third 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. GEOMET is also in the business of developing and testing
PPE. Current projects include development of two 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 also a commercial
supplier to remedial action contractors and others of PPE specially qualified
for chemical protection. Driven in part by the Sarin attack on the Tokyo subway
in 1995, Versar has significantly expanded offering its services to local,
State, and foreign governments in support of counter-terrorism. Management
believes the opportunities for commercial application will continue to grow.
GEOMET also has an energy services practice, which involves energy auditing and
energy conservation services to a variety of clients. This service is fully
integrated with and part of utility support services.
Management Services include strategic planning and the development and
implementation of comprehensive programs to help clients optimize resource
utilization to enhance operating performance, improve the quality of products
and services, achieve sustainable environmental compliance as well as maintain a
competitive advantage and return on investment goals. Versar's Management
Services Group assists its clients in identifying areas requiring improvement,
provides specific recommendations, develops programs, and actively participates
in their implementation. Using a "Total Enterprise" approach to productivity,
the Management Services Group helps clients
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improve profitability by more effectively employing all their resources
(personnel, materials, equipment, facilities, organization, science, and
technology) in day-to-day operations and adapting to ever changing business
conditions. A key focus is helping clients integrate environmental, health, and
safety performance into facility operation in a way that reduces operating and
overhead costs, emissions and waste generation, and the need for expensive
"end-of-pipe" control technology. Key service areas of the Management Services
include:
o Profit Improvement and Sustainability
o Team Building and Improved Management Effectiveness
o Organizational Optimization
o Quality Improvement/Management
o Resources Management and Conservation
o Technology Management
o Risk Management
o Strategic Environmental Management
o Business Process Reengineering
o Logistics Support
o Documentation Reduction
o Facility O&M Performance Benchmarking and Improvement
Versar has provided management consulting and program support services to
both government and industry. Versar has significantly expanded this service
offering with the acquisition of SMC, one of whose core businesses is providing
senior level strategic planning and management consulting services. The
Management Services Group which employs a variety of proprietary analytical
techniques including the Work-Factor(R) System, a widely recognized,
predetermined elemental time system developed by SMC and used to measure the
human work component of highly-repetitive manufacturing processes. SMC has also
developed other systems and techniques designed to improve the productivity of
administrative, support, and professional personnel in a wide range of
functions.
Facilities and Information Management Services include a full range of
utility infrastructure (energy, water, wastewater) support services,
environmental compliance management functions, information management, and
business recovery services. Versar provides consulting services and on-site
support with dedicated personnel, and takes responsibility for and provides
specific services on an outsourcing basis.
Versar provides utility infrastructure support services in three areas:
o A Consulting and management support in evaluating, procuring, and
implementing alternative options for the optimization of utility
operations and maintenance services. A key focus is improving
compliance and the quality of utility services, while reducing the
costs of these services through better use of available technology,
training, and development of operating personnel and innovative
approaches to project financing.
o A Contract operations or outsourcing where Versar takes over the
operations and maintenance of our clients' utility infrastructure.
o A Privatization initiatives where Versar designs, builds, operates,
and maintains a client's utility infrastructure needs.
Versar also offers services to take over existing utility assets on a purchase
or lease basis. Versar will deliver the required services on a contract basis
and will assume responsibility for permitting and ensuring regulatory compliance
for all systems it manages whether performed on a outsourcing basis or under a
privatization initiative.
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Versar provides environmental compliance management services both on-site
and on an outsourcing basis to meet our clients' needs as they continue to
restructure, reduce their overhead costs, and improve productivity. Industry and
government are using new 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
brings its clients knowledge and experience in the application of such
technology. An integral part of Versar's services is the application of
environmental health and safety management information systems in helping
clients make more informed decisions. 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 customer's 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 complement those objectives while complying with
the regulations. Beyond regulatory compliance, this approach challenges Versar's
expertise to develop and implement alternatives that enhance the client's
productivity and reduce the unit costs of operations. Versar will tailor a
program to suite a client's needs as part of its management services and then
implement it through on-site support or on an outsourcing basis, as required.
Versar's Business Information Systems ("BIS") services, operated through
SMC, include systems support in Facilities Management, Business Recovery, and
Professional Support Services. Versar offers clients the full range of services
in managing, staffing, and operating data processing centers, operations, or
specific functions in accordance with client specifications. Services performed
and functions managed include data entry, tape handling, library management,
maintenance, and systems development. Under multi-year subcontracts from IBM,
Versar's BIS group currently manages data centers in Connecticut and Tennessee,
performing a variety of activities for clients in several industries. With low
overhead and highly skilled management, Versar's BIS group offers outsourcing
services at significantly lower costs than larger competitors. The facilities
management operations of BIS have built an excellent service record,
consistently achieving performance reliability targets well in excess of
contract requirements.
In the business recovery area, Versar's BIS group offers a complete menu of
services covering all aspects of business continuation and recovery services.
Through its highly qualified staff and consultants, the BIS professionally and
cost effectively evaluates a client's business continuation and recovery needs,
creates specific disaster recovery plans and programs, and audits, updates or
tests existing client plans for data backup and disaster response. Unlike many
of its competitors, however, BIS can also perform as a full solution provider,
offering clients online backup facilities and access to state of the art
alternate EDP operating sites in its capacity as a business partner to IBM and
other well known vendors. In this role, the BIS professionals assist clients in
identifying and specifying their needs, arrange for backup or "hot sites" with
their business partners, and support implementation, testing, and periodic
update of the total business continuation or disaster recovery program.
The professional services support group included in the BIS group supports
all of its services and also offers clients support in a variety of systems
needs, including network and internet anti-virus protection programs and
products.
Engineering, Design, and Construction Services operate through SMC McEver,
Inc. ("SMC McEver"), a wholly owned subsidiary of SMC and a Houston-based
engineering and construction company. SMC McEver provides design, engineering,
and construction services to the process industries. Typical clients include
refinery and petrochemical plants, materials handling projects, specialty
chemical plants, bulk storage terminals, pipelines, and other manufacturing
facilities. SMC McEver also provides consulting services for a variety of
projects with unique engineering and construction demands. Environmental,
health, and safety support services, including site assessment, permitting, and
cleanup required of past contamination problems, are provided through the
Environmental Services.
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With specialized expertise in the engineering and construction of refinery
and petrochemical plants, SMC McEver focuses its resources and experience on
providing services that encompass all relevant disciplines from concept through
completion and startup. This includes:
o Site Assessment
o Detailed design and documentation
o Engineering specifications
o Equipment and materials procurement
o Cost analysis
o The preparation of bid packages
o Environmental impact statements
o Permitting and site preparation
o Construction and construction management
SMC McEver's team of certified professionals are experts in all the
necessary disciplines. Assisted by a force of highly-skilled engineers, they
prepare and supervise every phase of each project. Although providing a
comprehensive set of services from a single source, SMC McEver offers clients
the choice of using any individual service, or combination of services it
provides, including services available from other Versar operating units. SMC
McEver was recently awarded a $15M contract for the design and construction of a
specialty chemical plant.
Markets
Versar's markets are evolving in response to our clients' changing needs,
and market opportunities are being driven by the availability of technology
aimed at productivity improvement. Versar has significantly diversified its
business over the last year, primarily through the acquisition of SMC, with a
much greater emphasis on (1) environmental services with particular emphasis on
redevelopment of industry properties and conversion of military bases for
alternative uses, (2) facilities and information management support services to
respond to our clients' increasing need to make more informed decisions and to
outsource non-core functions, (3) services to design, build, finance, and
operate utility infrastructure and facilities for the process industries, and
(4) management services to help industry and government restructure and improve
their operating performance.
Versar is on the cutting edge of a number of growth markets. These include:
o A Industry's continued focus on productivity improvement, in
particular opportunities internationally and with Versar's (SMC)
multinational clients.
o A Deregulation of the energy industry presents opportunities for
Versar (GEOMET) as a certified energy service provider contractor.
o A Continued growth in consumption of fossil fuel and demand for
improved process technologies that prevent pollution will increase
worldwide opportunities for Versar (SMC McEver) in process facility
design and construction.
o A Government /commercial interest in expanding capability to respond
to potential terrorism worldwide will provide continued growth
opportunities for Versar (GEOMET) services in personnel protection
equipment.
o Brownsfield legislation and tax incentives will provide opportunities
for growth of Versar's environmental cleanup services.
o A Continued demand to reduce environmental management cost will
provide opportunities for Versar to grow its business in pollution
prevention, risk management, and resources management.
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Versar's current client base, including clients of SMC, is well balanced
with 41 percent industrial/commercial and 59 percent government. Approximately
50 percent of Versar's industrial/commercial clients are in the petrochemical,
specialty chemical, and manufacturing industry. A major part of Versar's support
services to this client base includes the design and construction of process
facilities through SMC McEver, management services to multinationals and fortune
100 companies, and environmental management services. Versar also provides a
wide range of services to the financial/real estate/insurance business sector,
transportation and communications sector, services industries and others.
The U.S. Department of Defense (DOD) is Versar's largest government client,
making up 33 percent of our business base. DOD is going through many of the same
issues as are faced in private industry with restructuring and cost reduction in
response to increasing budget limitations. DOD also has an aggressive
environmental program to cleanup, realign, and close bases worldwide as it
continues to restructure to a smaller force. Versar is a major support
contractor to DOD, offering the same range of services as in the private sector.
The U.S. Environmental Protection Agency (EPA) makes up 7 percent of Versar's
business and is growing in new areas such as water quality, risk assessment, and
natural resources management. Versar thus maintains cutting edge knowledge of
regulatory trends and their impacts. Other Federal clients make up 6 percent of
our business and include the Departments of Energy and the Interior, Federal
Housing Authority, and Intelligence Agencies. State and local governments make
up 13 percent of Versar's business.
Competition
Versar traditionally has faced substantial competition in each market in
which it operates and expects to continue to face substantial competition as it
diversifies its business. Many times, our competitors are larger and have more
financial resources. Versar has historically competed primarily on its
scientific, technological, and engineering expertise as well as costs. As
Versar's business mix shifts more toward providing turnkey infrastructure
support services, Versar will compete with more facility O&M and
engineering/construction contractors on projects that lend themselves more to
innovation in approach, technology application, and project financing -- areas
where Versar's senior management are skilled in packaging responses to new and
different opportunities. In essence, the market is changing rapidly, and Versar
is taking advantage of these changes to position itself for substantial growth
in new and emerging markets by providing much needed infrastructure support to
industry and government as we enter the 21st century. However, no assurances can
be given that Versar will be able to achieve such growth or successfully compete
in such new areas.
Backlog
As of June 30, 1997, total backlog for Versar, including unfunded tasks and
orders, was approximately $340 million, as compared to approximately $325
million as of June 30, 1996. Funded backlog for Versar was approximately $41
million, an increase of 28 percent compared to approximately $32 million as of
June 30, 1996. 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.
Employees
At June 30, 1997, Versar had approximately 554 full-time employees, of
which approximately 369 were engineers, scientists, and other professionals.
Sixty percent of the Company's professional employees have a bachelors degree,
24% have a masters degree, and 3% have doctorate degrees.
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Item 2. Properties
The Company's executive office is located in a building in Springfield,
Virginia, a suburb of Washington, D.C. In June 1995, Versar leased 73,371 square
feet from Sarnia Corporation. 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, 1997, the Company had under lease an aggregate of
approximately 227,000 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 and Burlington, MA;
Hopkins, MN; Columbia, Gaithersburg and Germantown, MD; Bridgewater, NJ;
Cincinnati, OH; Bristol and King of Prussia, PA; San Antonio and Houston, TX;
American Fork, UT; France and England. 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 Versar 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.
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.
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In September 1995, Windolph sought review of this case by the Colorado
Supreme Court which was denied on February 20, 1996. The case proceeded to trial
on the promissory estoppel claim only. A bench trial without jury was held on
January 27, 1997. On April 3, 1997, the Court entered judgment for Versar on the
promissory estoppel claim rejecting Windolph arguments on the basis of Delaware
and Colorado law. Alternatively, the Court held that even if its judgment is
overturned on appeal, the maximum liability to Windolph would be $11,000. On May
23, 1997, the parties entered into a Stipulation of Dismissal pursuant to which
Versar agreed to withdraw its demand for court costs and Windolph agreed to
waive his right to appeal the trial court's decision, thereby fully terminating
this litigation without any payment to Windolph.
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 alleged the defendants breached certain covenants that Versar would refer
laboratory work to Kemron in the Asset Acquisition Agreement and alleged damages
in the amount of not less than $3,000,000.
Versar responded by denying the allegations and filed a counterclaim
alleging various material breaches of the Asset Acquisition Agreement by Kemron
and seeking a declaratory judgment that Kemron's breaches have terminated
Versar's obligations under the Agreement. On June 16, 1997, the parties entered
into a settlement agreement extending and amending the right of Kemron to the
referral of analytical services from Versar.
In June 1996, Flintlock Ltd, a client of SMC McEver, (a subsidiary of SMC
which is a majority owned subsidiary of Versar), filed an action in the 165th
Judicial District Court of Harris County, Texas, entitled Flintlock Ltd. v. SMC
McEver, Inc., Case No. 96-002700. Flintlock alleged that SMC McEver negligently
failed to manage the construction of a citronella candle project and negligently
misrepresented the project's cost. Flintlock asserts that it incurred over
$700,000 in damages. SMC McEver has counterclaimed for over $244,000 which it
claims is due under the contract between the parties. The parties have taken
certain discovery which remains ongoing. The parties have also engaged in
discussions regarding possible mediation. SMC McEver has retained counsel and is
defending this matter vigorously. The Company does not expect the outcome of
this litigation to have a material adverse effect on its financial condition or
its results of operations.
Versar and its subsidiaries are parties to various other legal actions
arising in the normal course of business. The Company believes that an 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 1997.
10
<PAGE>
EXECUTIVE OFFICERS
The current executive officers of Versar, and their ages as of September 2,
1997, their current offices or positions and their business experience for the
past five years are set forth below.
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Benjamin M. Rawls 56 Chairman, Chief Executive
Officer and President
Thomas S. Rooney 63 Executive Vice President and
Chief Operating Officer
Robert L. Durfee 61 Executive Vice President,
President, GEOMET Technologies, Inc.
Lawrence A. White 54 Executive Vice President,
Corporate Development
Lawrence W. Sinnott 35 Vice President,
Chief Financial Officer and Treasurer
James C. Dobbs 52 Vice President, General Counsel and
Secretary
Gayaneh Contos 61 Senior Vice President
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.
11
<PAGE>
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 (the
"AMEX"), under the symbol VSR. At June 30, 1997, the Company had 746
stockholders of record, excluding stockholders whose shares were held in nominee
name. The quarterly high and low sales prices as reported on the AMEX during
fiscal years 1997 and 1996 are presented below.
Fiscal Year High Low
----------- ---- ---
1997 4th Quarter........................... $4.000 $3.188
3rd Quarter........................... 4.188 3.000
2nd Quarter........................... 3.250 2.563
1st Quarter........................... 3.938 2.563
Fiscal Year High Low
----------- ---- ---
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
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.
12
<PAGE>
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,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations related data:
Gross Revenue................................... $48,517 $44,283 $39,090 $42,764 $43,012
Net Service Revenue............................. 33,570 31,919 29,347 31,032 32,980
Operating Income (Loss)......................... 1,503 872 560 (1,269) 853
Income (Loss) from Continuing
Operations.................................... 1,256 992 458 (2,658) (590)
Net Income (Loss)............................... 1,256 992 458 (4,367) (1,093)
Income (Loss) per Share from Continuing
Operations.................................... $ .24 $ .19 $ .09 $ (.59) $ (.14)
Net Income (Loss) per Share..................... $ .24 $ .19 $ .09 $ (.97) $ (.27)
Weighted Average Shares Outstanding............. 5,286 5,248 4,834 4,481 4,093
Consolidated Balance Sheet related data:
Working Capital................................. $ 9,141 $ 7,629 $ 5,425 $ 5,261 $ 7,627
Current Ratio................................... 1.83 2.14 1.64 1.68 1.98
Total Assets.................................... 25,448 16,979 28,195 27,782 31,922
Current Portion of Long-Term Debt............... 819 323 335 1,201 1,198
Long-Term Debt ................................. 1,437 2 4 17 13,494
Mortgage Debt of Sarnia......................... -- -- 12,062 12,403 --
------- ------- ------- ------- -------
Total Debt, excluding bank line of credit....... 2,256 325 12,401 13,621 14,692
Stockholders' Equity............................ $ 9,523 $ 7,776 $ 6,290 $ 5,261 $ 8,690
</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. Fiscal year 1997's
data includes the financial position of Science Management Corporation (SMC) in
which a majority interest was acquired by Versar on May 2, 1997. As a result,
the SMC revenue and income for the two months ended June 30, 1997 are included
in Versar's income statement. See Notes B, C and F of the Notes to Consolidated
Financial Statements for further information.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain forward-looking statements which are based on
current expectations. Actual results may differ materially. The forward-looking
statements include those regarding cost controls and reductions, the expected
resolution of delays in billing of certain projects, the possible impact of
current and future claims against the Company based upon negligence and other
theories of liability, the integration of the recent or ongoing acquisitions,
and the possibility of the Company making acquisitions during the next 12 to 18
months. Forward-looking statements involve numerous risks and uncertainties that
could cause actual results to differ materially, including, but not limited to,
the possibilities that the demand for the Company's services may decline as a
result of possible changes in general and industry specific economic conditions
and the effects of competitive services and pricing; one or more current or
future claims made against the Company may result in substantial liabilities;
and such other risks and uncertainties as are described in reports and other
documents filed by the Company from time to time with the Securities and
Exchange Commission.
Versar's gross revenues for fiscal year 1997 totalled $48,517,000, or
$4,234,000 (10%) above fiscal year 1996 gross revenue of $44,283,000. Gross
revenue for fiscal year 1996 was $5,193,000 (13%) above that reported in 1995.
The increase in Versar's revenue in the last fiscal year was primarily due to
the acquisition of a majority interest in Science Management Corporation ("SMC")
on May 2, 1997. Gross revenues of $3,854,000 of SMC are included in fiscal year
1997 from the date of acquisition of SMC. The increase in gross revenues in
fiscal year 1996 was due to task orders being performed in the Company's Rocky
Mountain and Midwest regions in support of the Air Force Center for
Environmental Excellence contract. As reflected in the table on page 15,
government revenue represented 59% of the total revenue in 1997, compared to 66%
in 1996 and 64% in 1995. The reduction is attributable to the addition of SMC
revenues, which are predominately commercial.
Purchased services and materials for fiscal year 1997 totalled $14,947,000
or $2,583,000 (21%) higher than fiscal year 1996 purchased services. Purchased
services for fiscal year 1996 were $2,621,000 (27%) higher than reported in
fiscal year 1995. The increase in fiscal years 1996 and 1997 was primarily due
to the increase in gross revenue as mentioned above.
Net service revenue is derived by deducting the costs of purchased services
from gross revenue. Versar considers it appropriate to analyze operating margins
and other ratios in relation to net service revenue because such revenues
reflect the actual work performed by the Company.
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 decreased to 80.5% in
1997 compared to 81.4% in 1996 and 81.0% in 1995. The decreases in fiscal years
1997 and 1996 are attributable to improved labor utilization and reduced fixed
operating costs.
Selling, general and administrative expenses approximated 15.1% of net
service revenue in 1997, compared to 15.5% in 1996 and 17.0% in 1995. The
decrease is primarily due to the higher volume of net service revenue, while
selling, general and administrative expenses increased by only 3% in fiscal year
1997.
Other income includes the costs and revenues that are not directly
attributable to contracts. In 1997, the Company recognized the remainder of the
non-compete income from the sale of its majority-owned subsidiary Gammaflux,
Inc. of $42,000 compared to $28,000 in fiscal year 1996, and $47,000 in fiscal
year 1995. In 1995,
14
<PAGE>
the remaining $214,000 of other income 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.
Losses on Sarnia Corporation ("Sarnia") in fiscal year 1996 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 C in the consolidated financial
statements. The Sarnia 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 for accounting purposes.
Operating income for 1997 was $1,503,000, an increase of $631,000 over
fiscal year 1996. The increase is primarily due to a combination of lower direct
costs of services and selling, general and administrative expenses as a
percentage of net service revenue as discussed above. Fiscal year 1996 operating
income increased by $312,000 due to decreased selling, general and
administrative expenses as a percentage of net service revenue.
Interest expense in 1997 was $97,000, an increase of $1,000 from 1996. The
increase is due to interest cost of $46,000 incurred during the fourth quarter
associated with financing the acquisition of SMC. Interest expense in 1996 was
$96,000, a decrease of $62,000 from 1995. The decrease is due to the reduced
debt in fiscal year 1996.
Versar's income tax expense for fiscal year 1997 was $150,000 compared to a
tax benefit of $216,000 and $56,000 in fiscal years 1996 and 1995, respectively.
The Company reduced the valuation against the deferred tax assets in each of the
fiscal years due to the assessment of future earnings potential. Refer to Note H
of the Notes to Financial Statements.
In summary, Versar's net income was $1,256,000 in fiscal year 1997,
compared to net income of $992,000 in fiscal year 1996 and net income of
$458,000 in fiscal year 1995.
REVENUE
Versar provides professional services to various industries, government and
commercial clients. A summary of revenue generated from the Company's client
base is as follows:
For the Years Ended June 30,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
(In thousands, except for percentages)
Government
EPA $ 3,339 7% $ 3,787 9% $ 5,375 14%
State & Local 6,339 13% 6,733 15% 4,607 12%
Department of Defense 15,952 33% 16,479 37% 13,194 34%
Other 2,972 6% 2,035 5% 1,707 4%
Commercial 19,915 41% 15,249 34% 14,207 36%
------- ---- ------- ---- ------- ----
Gross Revenue $48,517 100% $44,283 100% $39,090 100%
======= ==== ======= ==== ======= ====
Liquidity and Capital Resources
The Company's operating activities provided $2,184,000 of cash in 1997
primarily from operations. Non-cash expenses included $722,000 for depreciation
and amortization and stock issued to the ESSOP of $446,000.
15
<PAGE>
The Company utilized short-term bank financing to supplement its ability to
meet day-to-day operating cash requirements. At June 30, 1997, the Company had
$9,141,000 of working capital, compared to $7,629,000 in 1996. Working capital
increased by 20% primarily due to the earnings in fiscal year 1997.
The Company's accounts receivable balance increased by $5,149,000 due to
the acquisition of SMC.
In April 1997, the Company moved its line of credit facility to
NationsBank, N.A. The new line of credit is restricted to the borrowing base of
qualifying receivables less the $1,500,000 reserve for a guarantee of debt of
Sarnia and outstanding acquisition loan balances (approximately $1,958,000 at
June 30, 1997). Borrowings on the line of credit are at the lower of the 30 day
London Interbank Offered Rate ("LIBOR") plus 250 or the prime rate (8.22% at
June 30, 1997). 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 of the Company's
wholly owned subsidiaries individually and is collectively secured by accounts
receivable, equipment and intangibles, plus all insurance policies on property
constituting collateral. Unused borrowing availability at June 30, 1997 was
$2,688,000. Advances on the line are due on November 30, 1998. The Company was
in compliance with the financial covenants at June 30, 1997. Management believes
that cash generated by operations and borrowings available under the line of
credit will be adequate to meet the working capital needs for fiscal year 1998.
As previously reported, Versar has guaranteed a five year term loan of
$1,500,000 for Sarnia. 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. In fiscal year 1998, principal payments of $300,000 are due and
will be added back to Versar's equity as they are paid.
Acquisition of Science Management Corporation
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock and
all outstanding preferred stock of SMC for aggregate consideration of $2,870,000
paid in cash. The acquisition was financed by a three year $2,000,000 term note
at a prime rate of interest plus 1/2% (9% at June 30, 1997) from NationsBank,
N.A. The remaining portion of $870,000 was paid with current working capital.
Principal payments on the term note of $520,833, $750,000, and $687,500 are due
in fiscal years 1998, 1999 and 2000, respectively. On July 29, 1997, Versar and
SMC entered into an Agreement and Plan of Merger pursuant to which Versar will
obtain the remaining SMC common stock for newly issued shares of Versar common
stock via a merger of SMC with a newly formed wholly owned subsidiary of Versar.
The merger is expected to occur in the second quarter of fiscal year 1998. The
transactions costs associated with the merger are projected to be approximately
$400,000.
New Accounting Standards
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
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 had no material effect on the financial position or results of
operations of the Company.
SFAS 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." The Company has made certain pro
forma disclosures of net income and per share information as if the fair value
based method for accounting defined in SFAS 123 had been applied.
16
<PAGE>
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share" in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts on the face of the Consolidated Statements of
Operations. The Company is required to adopt the provisions of the standard
during the second quarter of 1998, and when adopted, will require restatement of
prior years' earnings per share. The standard will not have a material impact on
historical earnings per share reported by the Company.
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 a 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.
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 1997 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 1997 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 1997 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 1997 fiscal year.
17
<PAGE>
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, 1997 and 1996
c) Consolidated Statements of Operations for the Years Ended June 30,
1997, 1996, and 1995
d) Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended June 30, 1997, 1996, and 1995
e) Consolidated Statements of Cash Flows for the Years Ended June 30,
1997, 1996, and 1995
f) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
a) Schedule II - Valuation and Qualifying Accounts for the years ended
June 30, 1997, 1996, and 1995
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 19 through 23 of this report.
(B) Reports on Form 8-K
Form 8-K and Form 8-K/A which provided details on the acquisition of SMC
and the pro forma combined financial statements of such transaction were
filed on May 16 and July 15, 1997, respectively.
18
<PAGE>
Exhibit Index
Page Number/
Item No. Description Reference
- -------- ----------- ---------
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)
10.34 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)
19
<PAGE>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
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)
10.49 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)
10.52 Incentive Stock Option Plan of Versar, Inc. dated December
1, 1992*.................................................... (I)
10.58 Agreement dated March 10, 1993 between the Registrant and
the Environmental Protection Agency......................... (I)
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)
20
<PAGE>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
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)
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........................................................ (N)
10.79 Employment Agreement dated September 1, 1996 between the
Registrant and Benjamin M. Rawls*........................... (N)
10.80 Employment Agreement dated September 1, 1996 between the
Registrant and Thomas S. Rooney*............................ (N)
10.81 Change of Control Severance Agreement dated September 1,
1996 between the Registrant and Lawrence W. Sinnott*........ (N)
10.82 Change of Control Severance Agreement dated September 1,
1996 between the Registrant and James C. Dobbs*............. (N)
10.83 Agreement and Plan of Merger dated July 29, 1997 between the
Registrant and Science Management Corporation............... (O)
10.84 Acquisition Promissory Note, dated April 30, 1997, between
the Registrant and NationsBank, N.A......................... 26
21
<PAGE>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
10.85 Revolving Promissory Note, dated March 27, 1997, between the
Registrant and NationsBank, N.A............................. 37
10.86 Financing and Security Agreement, dated March 27, 1997,
between the Registrant and NationsBank, N.A................. 48
10.87 Amendment to Financing and Security Agreement, dated April
30, 1997, between the Registrant and NationsBank, N.A....... 93
11 Statement Re: Computation of Per Share Earnings............. 100
22 Subsidiaries of the Registrant.............................. 101
23 Consent of Arthur Andersen LLP.............................. 102
27 Financial Data Schedules....................................
* Indicates management contract or compensatory plan or arrangement
(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.
22
<PAGE>
(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.
(N) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June 30, 1996
("FY 1996 Form 10-K") filed with the Commission on September 24, 1996.
(O) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Form S-4 registration number 333-33167.
Exhibit item numbers are as outlined by item 601 of Regulation S-K.
23
<PAGE>
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 29, 1997 /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.
SIGNATURES TITLE DATE
- ---------- ----- ----
/S/ Benjamin M. Rawls Chairman, Chief Executive September 29, 1997
- --------------------------- Officer, President, and
Benjamin M. Rawls Director
/s/ James A. Skidmore, Jr. Vice Chairman and Director September 29, 1997
- ---------------------------
James A. Skidmore, Jr.
/s/ Robert L. Durfee Executive Vice President September 29, 1997
- --------------------------- and Director
Robert L. Durfee
/s/ Lawrence W. Sinnott Vice President, Chief September 29, 1997
- --------------------------- Financial Officer, Treasurer,
Lawrence W. Sinnott and Principal Accounting Officer
/s/ Michael Markels, Jr. Chairman Emeritus and September 29, 1997
- --------------------------- Director
Michael Markels, Jr.
/s/ Thomas J. Shields Director September 29, 1997
- ---------------------------
Thomas J. Shields
/s/ John E. Gray Director September 29, 1997
- ---------------------------
John E. Gray
/s/ Charles I. Judkins, Jr. Director September 29, 1997
- ---------------------------
Charles I. Judkins, Jr.
/s/ M. Lee Rice Director September 29, 1997
- ---------------------------
M. Lee Rice
24
<PAGE>
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, 1997 and 1996, 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, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
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 29, 1997
F-1
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash............................................... $ 437 $ 83
Accounts receivable, net........................... 17,525 12,376
Prepaid expenses and other current assets.......... 1,489 1,365
Deferred income taxes.............................. 652 473
------- -------
Total current assets............................. 20,103 14,297
Property and equipment, net........................... 2,275 2,038
Deferred income taxes................................. 257 300
Goodwill.............................................. 2,501 94
Other assets.......................................... 312 250
------- -------
Total assets..................................... $25,448 $16,979
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $ 4,959 $ 2,098
Bank line of credit................................ 274 492
Current portion of long-term debt.................. 819 323
Accrued salaries and vacation...................... 1,627 1,619
Other liabilities.................................. 3,283 2,136
------- -------
Total current liabilities........................ 10,962 6,668
Long-term debt........................................ 1,437 2
Other long-term liabilities........................... 2,026 1,033
Reserve on guarantee of real estate debt.............. 1,500 1,500
------- -------
Total liabilities................................ 15,925 9,203
------- -------
Commitments and contingencies (Note J)
Stockholders' equity
Common stock, $.01 par value; 30,000,000 shares
authorized; 5,151,792 shares and 4,994,693 shares
issued and outstanding at June 30, 1997 and 1996,
respectively...................................... 52 50
Capital in excess of par value..................... 13,788 13,299
Accumulated deficit................................ (4,317) (5,573)
------- -------
Total stockholders' equity....................... 9,523 7,776
------- -------
Total liabilities and stockholders' equity....... $25,448 $16,979
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
GROSS REVENUE.................................... $48,517 $44,283 $39,090
Purchased services and materials, at cost..... 14,947 12,364 9,743
------- ------- -------
NET SERVICE REVENUE.............................. 33,570 31,919 29,347
Direct costs of services and overhead......... 27,024 25,973 23,785
Selling, general, and administrative expenses. 5,085 4,960 4,993
Other income, net............................. (42) (28) (261)
Losses on Sarnia operations................... -- 142 270
------- ------- -------
OPERATING INCOME................................. 1,503 872 560
OTHER EXPENSE
Interest expense.............................. 97 96 158
Income tax expense (benefit).................. 150 (216) (56)
------- ------- -------
NET INCOME....................................... $ 1,256 $ 992 $ 458
======= ======= =======
NET INCOME PER SHARE............................. $ .24 $ .19 $ .09
======= ======= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING............................... 5,286 5,248 4,834
======= ======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands)
<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, 1997, 1996, and 1995
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
------ ---- ------- ------- ----- ------
Exercise of stock options............... 18 -- 45 -- -- 45
Common stock issued to ESSOP............ 139 2 444 -- -- 446
Purchase of common stock for treasury... (40) -- -- -- (140) (140)
Issuance of treasury stock for ESSOP.... 40 -- -- -- 140 140
Net income.............................. -- -- -- 1,256 -- 1,256
------ ---- ------- ------- ----- ------
Balance, June 30, 1997.................. 5,152 $ 52 $13,788 $(4,317) $ -- $9,523
====== ==== ======= ======= ===== ======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................................... $ 1,256 $ 992 $ 458
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization........................ 722 684 699
Loss on sale of property and equipment............... 36 14 --
Provision for doubtful accounts receivable........... (4) (37) 1
Common stock issued to ESSOP......................... 586 181 510
Deferred tax benefit................................. (358) (250) --
------- ------- -------
Subtotal........................................... 2,238 1,584 1,668
------- ------- -------
Changes in assets and liabilities
Decrease (increase) in accounts receivable............. 135 (616) (1,031)
Decrease (increase) in prepaids and other assets....... 105 (500) 287
Increase in accounts payable........................... 453 148 474
(Decrease) increase in accrued salaries and vacation... (156) 228 121
(Decrease) increase in other liabilities............... (591) 659 (807)
Net change in assets and liabilities of Sarnia......... -- 142 270
------- ------- -------
Net cash from continuing operations.................. 2,184 1,645 982
Changes in net liabilities of discontinued operations.. -- (615) (176)
------- ------- -------
Net cash provided by operating activities............ 2,184 1,030 806
------- ------- -------
Cash flows from investing activities
Purchases of property and equipment...................... (638) (1,261) (440)
Proceeds from sale of fixed assets....................... 60 -- --
Acquisition of business.................................. (2,870) -- --
------- ------- -------
Net cash used in investing activities................ (3,448) (1,261) (440)
------- ------- -------
Cash flows from financing activities
Net (payment) borrowings on bank line of credit.......... (218) 54 438
Principal payments on long-term debt..................... (69) (14) (879)
Borrowing for acquisition of SMC......................... 2,000 -- --
Purchase of treasury stock............................... (140) (63) (76)
Proceeds from issuance of the Company's common stock..... 45 279 137
------- ------- -------
Net cash provided by (used in) financing activities.. 1,618 256 (380)
------- ------- -------
Net increase (decrease) in cash............................ 354 25 (14)
Cash at the beginning of the year.......................... 83 58 72
------- ------- -------
Cash at the end of the year................................ $ 437 $ 83 $ 58
======= ======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
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 majority-owned
subsidiaries ("Versar" or the "Company"). All significant intercompany balances
and transactions have been eliminated in consolidation. The results of
operations of Sarnia Corporation ("Sarnia") were included in the Company's
financial statements through January 1, 1996.
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 common
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. On May 2, 1997, Versar acquired 53.5% of the
outstanding common stock and all outstanding preferred stock of Science
Management Corporation ("SMC"). The Company recorded goodwill of $2,452,000 to
be amortized over fifteen years. Versar believes the customer relationships and
the value of SMC's business reputation were and continue to be long-term
intangible assets with an almost infinite life. Versar has selected a period of
15 years for amortization of the goodwill, which is reasonable based on the
mature businesses of SMC and the compatibility of these businesses with Versar's
business. Amortization expense was $46,000 and $19,000 for 1997 and 1996,
respectively. Refer to Note B for further information.
F-6
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Net income per share: Per share amounts are computed by dividing the net
income by the fully diluted weighted average number of common shares outstanding
during the applicable period being reported upon.
Income taxes: The Company follows Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The standard
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.
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 has
liabilities for deferred compensation of $990,000 and $965,000 at June 30, 1997
and 1996, 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 $215,000 and $236,000 at June
30, 1997 and 1996, 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: SFAS 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." The Company
has made certain pro forma disclosures of net income and per share information
as if the fair value based method for accounting defined in SFAS 123 had been
applied.
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share" in February 1997. SFAS 128 requires a company to present basic and
diluted earnings per share amounts on the face of the Consolidated Statements of
Operations. The Company is required to adopt the provisions of the standard
during the second quarter of 1998, and when adopted, will require restatement of
prior years' earnings per share. The standard will not have a material impact on
historical earnings per share reported by the Company.
NOTE B ACQUISITION
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock and
all outstanding preferred stock of SMC for aggregate consideration of $2,870,000
paid in cash. The acquisition was financed by a three year $2,000,000 term note
at a prime rate of interest plus 1/2% (9% at June 30, 1997) from NationsBank,
N.A. The remaining portion of $870,000 was paid with current working capital.
Principal payments of $520,833, $750,000, and $687,500 on the term loan are due
in fiscal years 1998, 1999 and 2000, respectively. Versar and SMC have entered
into an Agreement and Plan of Merger pursuant to which Versar will obtain the
remaining SMC common stock for newly issued shares of Versar common stock
subject to the approval of SMC's shareholders. The transactions costs associated
with the merger are projected to be approximately $400,000.
This transaction has been accounted for under the purchase method of
accounting. Operating results of SMC have been included with those of the
Company since the closing date of May 2, 1997.
F-7
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following pro forma combined financial information presents the
historical results of operations of the Company and SMC for the years ended June
30, 1997 and 1996 with pro forma adjustments as if SMC had been acquired as of
the beginning of the periods presented. SMC was in bankruptcy proceedings until
July 1996 and lacked working capital to enhance operating performance. The pro
forma information is not necessarily indicative of what the results of
operations actually would have been if the transaction had occurred on the date
indicated, or of future results of operations.
Years Ended June 30,
---------------------
1997 1996
---- ----
(Unaudited) (In thousands, except per share amount)
Gross revenue...................... $70,403 $72,901
Net income (loss).................. $ 585 $ (611)
Net income (loss) per share........ $ 0.11 $ (0.11)
NOTE C 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.
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.
Sarnia Corporation: Sarnia, formerly Versar Virginia, Inc., a former
wholly-owned real estate subsidiary of Versar, was spun-off to Versar
stockholders 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 accounted for as a divestiture
for accounting purposes until January 1996, because 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.
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 no longer includes the results of operations
and financial position of Sarnia in the consolidated financial statements.
Sarnia's results of operations through January 1, 1996 are presented as single
line items in the Consolidated Statements of Operations.
F-8
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D ACCOUNTS RECEIVABLE
June 30,
---------------------
1997 1996
---- ----
(In thousands)
Billed receivables
U.S. Government......................... $ 5,683 $ 6,143
Commercial.............................. 7,367 2,716
Unbilled receivables
U.S. Government......................... 3,197 3,029
Commercial.............................. 2,073 1,191
------- -------
18,320 13,079
Allowance for doubtful accounts........... (795) (703)
------- -------
$17,525 $12,376
======= =======
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, 1997 unbilled receivables will be substantially billed and collected in
fiscal year 1998. Of the $17,525,000 accounts receivable, $5,280,000 represent
receivables of SMC.
NOTE E PROPERTY AND EQUIPMENT
Estimated June 30,
Useful Life --------------------
in Years 1997 1996
-------- ---- ----
(In thousands)
Furniture and fixtures......... 5 $ 1,655 $ 1,987
Equipment...................... 3 to 10 6,345 6,505
Leasehold improvements......... Life of lease 1,433 1,408
------- -------
9,433 9,900
Accumulated depreciation
and amortization............ (7,158) (7,862)
------- -------
$ 2,275 $ 2,038
======= =======
Depreciation and amortization of property and equipment included as expense
in the accompanying Consolidated Statements of Operations was $676,000,
$665,000, and $668,000 for the years ended June 30, 1997, 1996, and 1995,
respectively.
Maintenance and repair expenses approximated $248,000, $301,000, and
$246,000 for the years ended June 30, 1997, 1996, and 1995, respectively.
F-9
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE F DEBT
June 30,
-----------------
1997 1996
---- ----
(In thousands)
Bank line of credit, Riggs National Bank.......... $ -- $ 492
Bank line of credit, NationsBank, N.A............. 274 --
Acquisition promissory note....................... 1,958 --
Other............................................. 298 325
------- -----
Total debt................................... 2,530 817
Current portion of long-term debt................. (1,093) (815)
------- -----
Long-term debt.................................... $ 1,437 $ 2
======= =====
Until April 1997, Versar maintained a bank line of credit for working
capital purposes with Riggs National Bank. 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 were at the prime rate of interest plus 1/2%.
In April 1997, Versar changed its line of credit facility from the Riggs
National Bank to NationsBank, N.A. The new line of credit provides for advances
up to $3,000,000 based on qualifying receivables less the $1,500,000 guarantee
of Sarnia's term loan by Versar and the outstanding acquisition loan balance.
Interest on the borrowings is based on the lower of the 30 day London Interbank
Offered Rate (LIBOR) plus two hundred and fifty basis points (8.22% at June 30,
1997). A commitment 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.
Unused borrowing availability at June 30, 1997 was $2,688,000. Advances under
the line are due upon demand or on November 30, 1998. The loan has certain
covenants related to maintenance of financial ratios. The Company was in
compliance with the financial covenants at June 30, 1997. 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 1998.
Versar obtained a $2,000,000 promissory note from NationsBank on April 30,
1997 for the acquisition of Science Management Corporation (See Note B). The
interest on the note is based on prime rate plus one half of one percent (.50%)
per annum (9% at June 30, 1997). Principal payment commenced on May 31, 1997 and
is scheduled to be paid in full on April 30, 2000.
Versar has guaranteed certain debt of Sarnia Corporation (formerly Versar
Virginia, Inc., which was spun-off to Versar shareholders on June 30, 1994). On
January 25, 1996, Sarnia refinanced its outstanding debt. As a result of the
refinancing, Versar's guarantee of Sarnia's debt has decreased from
approximately $12,400,000 to $1,500,000. The $1,500,000 note matures in five
years with $300,000 principal payment per year starting July 1, 1997. 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, 1997, 1996, and 1995, approximated
$306,000, $673,000, and $544,000, respectively, and the weighted average
interest rates for such periods were 8.78%, 10.82%, and 10.79%, respectively.
The maximum amount outstanding approximated $1,146,000, $1,500,000, and
$1,375,000 during fiscal years 1997, 1996, and 1995, respectively. Weighted
average interest rates are computed by relating the interest expense to the
average month-end balance.
F-10
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest payments were $62,000, $89,000, and $157,000 for the fiscal years
ended June 30, 1997, 1996, and 1995, respectively.
NOTE G STOCK OPTIONS
In November 1996, the stockholders approved the Versar 1996 Stock Option
Plan to provide employees and directors 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. At June 30, 1997, 91,750 shares were
granted under the 1996 Plan to SMC employees in connection with the acquisition.
The Company also maintains the Versar 1992 Stock Option Plan, the 1982 Incentive
Stock Option Plan, and a Non-Qualified Option Plan adopted in 1987. Options have
been granted from these plans to purchase the Company's common stock.
At June 30, 1997, options to purchase an aggregate of 924,280 shares of
common stock were outstanding under the 1996, 1992 and 1982 Incentive Stock
Option Plans at per share exercise prices ranging from $2.375 to $3.940 and
options to purchase an aggregate of 368,835 shares were outstanding under the
Non-Qualified Stock Option Plan at per share exercise prices ranging from $2.375
to $3.563.
Under the 1992 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. Under the 1996 Stock Option Plan, options
may be granted at the fair market value on the date of grant. The vesting of
each option will be determined by the Administrator of the Plan. Each Option
expires on the earlier of the last day of the tenth year after the date of grant
or the date the optionee ceases to be affiliated with the Company or its
subsidiaries.
Options under the Incentive Stock Option 1982, 1992 and 1996 Plans are as
follows:
Optioned Option Price
Shares Per Share Total
------ --------- -----
(In thousands, except per share price)
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
Issued......................... 99 2.719 to 3.563 349
Exercised...................... (14) 2.125 to 2.688 (35)
Cancelled...................... (377) 2.125 to 3.940 (949)
----- ------
Outstanding at June 30, 1997..... 924 $2.375 to $3.940 $2,853
===== ======
F-11
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At June 30, 1997, 1996, and 1995, options of 560,731, 807,408, and 667,515
shares were exercisable under the 1982, 1992 and 1996 Plans.
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.
Options under the 1987 Non-Qualified Plan are as follows:
Optioned Option Price
Shares Per Share Total
------ --------- -----
(In thousands, except per share price)
Outstanding at June 30, 1994..... 178 $2.375 to $2.500 $ 437
Issued......................... -- -- to -- --
Cancelled...................... -- -- to -- --
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
Issued......................... -- -- to -- --
Cancelled...................... -- -- to -- --
Exercised...................... (4) 2.500 to 2.500 (10)
---- ------
Outstanding at June 30, 1997..... 369 $2.375 to $3.563 $1,063
==== ======
Non-Qualified stock options of 212,134, 163,367, and 150,000 shares were
exercisable at June 30, 1997, 1996, and 1995, respectively.
F-12
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company applies APB 25 and related interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized for stock
options. Had compensation cost for stock options been determined based on the
fair value at the grant dates for awards under this plan consistent with the
method of SFAS 123, the Company's net income and net income per share would have
been reduced to the pro forma amounts indicated as follows:
1997 1996
---- ----
(In thousands, except
per share data)
Net Income: As Reported $1,256 $ 992
Pro Forma 1,073 840
Net Income Per Share: As Reported $ 0.24 $ 0.19
Pro Forma 0.20 0.16
In accordance with SFAS 123, the fair value approach to valuing stock
options used for pro forma presentation has not been applied to stock options
granted prior to July 1, 1995. The compensation cost calculated under the fair
value approach is recognized over the vesting period of the stock options.
The weighted average fair value of options granted was $1.56 and $1.35
during 1997 and 1996, respectively. The fair value is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996: expected volatility of
40.5% for both years; risk-free interest rate of 6%; and expected lives of five
years after the grant date.
NOTE H INCOME TAXES
At June 30, 1997, the Company had $74,000 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-13
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision (benefit) for income taxes consists of the following:
Years Ended June 30,
--------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Currently payable
Federal.............................. $ 208 $ 2 $ (67)
State................................ 77 32 11
Deferred
Federal.............................. (135) (250) --
State................................ -- -- --
----- ----- -----
$ 150 $(216) $ (56)
===== ===== =====
Deferred tax assets are comprised of the following (in thousands):
June 30, June 30,
1997 1996
---- ----
Deferred Tax Assets:
Employee benefits.................... $ 627 $ 564
Bad debt reserve..................... 175 239
All other reserves................... 384 332
Alternative minimum tax credits...... 74 182
Other business tax credits........... -- 230
------ ------
Total Deferred Tax Assets........ 1,260 1,547
Deferred Tax Liabilities:
Depreciation......................... (17) (65)
Other................................ (1) (1)
------ ------
Total Deferred Tax Liabilities... (18) (66)
Net Deferred Tax Assets................ 1,242 1,481
Valuation Allowance.................... (333) (708)
------ ------
Net Deferred Tax Asset................. $ 909 $ 773
====== ======
Due to Versar's losses in previous years, the Company was unable to record
a tax benefit of $333,000 until the probability of realization of these amounts
becomes more certain.
F-14
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax (benefit) provision was composed of the following:
Years Ended June 30,
----------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Expected provision at federal statutory rate... $ 478 $ 264 $ 137
Change in valuation allowance.................. (375) (552) (512)
State income tax, net of federal benefit....... 77 32 11
Losses on Sarnia operations not deductible..... -- 48 92
Other ........................................ (30) (8) 216
----- ----- -----
$ 150 $(216) $ (56)
===== ===== =====
Income taxes paid for the years ended June 30, 1997, 1996, and 1995 were
$307,000, $7,000, and $140,000, respectively.
Science Management Corporation has net operating loss carryforwards of
approximately $9,500,000 for federal income tax purposes, which will expire in
the years 1997 through 2011. Due to the substantial changes in SMC's ownership,
there are annual limitations on the amount of the carryforwards that can be
utilized which limits the recoverable amount to approximately $4,500,000. SMC
also has net operating loss carryforwards available for use in the United
Kingdom of approximately $1,000,000, which are available indefinitely, as well
as minor amounts available for use in other jurisdictions. In conjunction with
the proposed Agreement and Plan of Merger (see Note B), the Company is analyzing
its alternatives with respect to treatment of the acquisition for tax purposes.
Versar will file consolidated tax returns including SMC after it acquires the
remaining 46.5% of SMC common stock. Due to the annual limitations and questions
surrounding the Company's ability to utilize these carryforwards, the Company
has not recorded any benefit or valuation allowances, effectively reserving the
full amount of the net operating loss carryforwards. The Company will finalize
the tax treatment in fiscal year 1998, as the second phase of the merger is
finalized.
NOTE I 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 trustees in
the Company's stock. No contributions were made in fiscal years 1997, 1996, and
1995, 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
F-15
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
matching contributions approximated $492,000, $473,000, and $434,000, for fiscal
years 1997, 1996, and 1995, respectively.
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. There were no
contributions in fiscal years 1997 and 1996, but $29,000 for fiscal year 1995.
Vesting occurs over time, such that an employee is 100% vested after seven years
of participation.
NOTE J 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 227,000 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:
Total
Years Ending June 30, Amount
--------------------- ------
(In thousands)
1998...................................... $ 3,320
1999...................................... 2,450
2000...................................... 1,964
2001...................................... 1,460
2002...................................... 1,234
2003 and thereafter....................... 7,586
-------
$18,014
=======
Certain of the lease payments are subject to adjustment for increases in
utility costs and real estate taxes. Total rental expense approximated
$2,658,000, $2,467,000, and $2,938,000 for 1997, 1996, and 1995, respectively.
Versar is a defendant in lawsuits that have arisen in the ordinary course
of its business. 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.
F-16
<PAGE>
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K CUSTOMER INFORMATION
A substantial portion of the Company's consulting revenue is derived from
contracts with the U.S. Government as follows:
Years Ended June 30,
-----------------------------
1997 1996 1995
---- ---- ----
(In thousands)
U.S. Department of Defense $15,952 $16,479 $13,194
U.S. Environmental Protection Agency 3,339 3,787 5,375
Other U.S. Government Agencies 2,972 2,035 1,707
------- ------- -------
Total U.S. Government $22,263 $22,301 $20,276
======= ======= =======
The Company's largest contract generated revenues of approximately
$10,768,000 and $7,951,000 in fiscal years 1997 and 1996, respectively. No
contracts individually exceeded 10% of total revenues in fiscal year 1995.
NOTE L QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1997 and 1996 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year 1997 Fiscal Year 1996
------------------------------------- ------------------------------------
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............... $15,583 $10,727 $10,749 $11,458 $10,597 $11,389 $11,807 $10,490
Net Service Revenue......... 10,251 7,705 7,740 7,874 7,951 8,224 8,130 7,614
Operating income............ 597 373 222 311 121 245 293 213
Net income.................. $ 384 $ 216 $ 391 $ 265 $ 374 $ 213 $ 230 $ 175
======= ======= ======= ======= ======= ======= ======= =======
Net income per share........ $ .07 $ .04 $ .08 $ .05 $ .07 $ .04 $ .04 $ .03
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares outstanding........ 5,380 5,240 5,073 5,127 5,276 5,216 5,170 5,178
======= ======= ======= ======= ======= ======= ======= =======
</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>
Schedule II
VERSAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES CHARGE OFF YEAR
---- -------- ---------- ----
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
1995 $1,351,609 $ 770 $(395,180) $957,199
1996 957,199 (36,710) (217,262) 703,227
1997 703,227 (3,862) (183,585) 515,780
F-18
Exhibit 10.84
ACQUISITION PROMISSORY NOTE
$2,000,000.00 Fairfax, Virginia
April 30, 1997
FOR VALUE RECEIVED, VERSAR, INC., a corporation organized under the laws of
the State of Delaware and GEOMET TECHNOLOGIES, INC., a corporation organized
under the laws of the State of Delaware (collectively, the "Borrowers" and each
a "Borrower"), jointly and severally promise to pay to the order of NATIONSBANK,
N.A., a national banking association, its successors and assigns (the "Lender"),
the principal sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) (the
"Principal Sum"), together with interest thereon at the rate or rates
hereinafter provided, in accordance with the following:
1. Interest. Commencing as of the date hereof and continuing until repayment
in full of all sums due hereunder, the unpaid Principal Sum shall bear interest
at the fluctuating per annum interest rate established by the Lender from time
to time, at its discretion, whether or not such rate is otherwise published
("Prime Rate"), plus one half of one percent (.50%) per annum. The Prime Rate is
established by the Lender as an index or base and may or may not be the best or
lowest rate charged by the Lender on any loan. The rate of interest charged
under this Note shall change immediately and contemporaneously with any change
in the Prime Rate. All interest payable under the terms of this Note shall be
calculated on the basis of a 360-day year and the actual number of days elapsed.
2. Payments and Maturity. The unpaid Principal Sum, together with interest
thereon at the rate or rates provided above, shall be payable as follows:
1
<PAGE>
(a) Interest on the unpaid Principal Sum shall be due and payable monthly,
commencing May 31, 1997, and on the last day of each month thereafter to
maturity; and
(b) The unpaid Principal Sum shall be due and payable in monthly
installments of principal in the amount of $41,666.67 each, commencing May, 31
1997, and on the last day of each month to and including April 30, 1998; and
(c) Commencing on May 31, 1998 and continuing on the last day of each month
thereafter until maturity, the unpaid Principal Sum shall be due and payable in
monthly installments of principal in the amount of $62,500 each; and
(d) Unless sooner paid, the entire unpaid Principal Sum, together with all
interest accrued and unpaid thereon, shall be due and payable in full on April,
30, 2000.
3. Default Interest. Upon the occurrence of an Event of Default (as
hereinafter defined), the unpaid Principal Sum shall bear interest thereafter at
a rate (the "Default Rate") two percent (2.0%) per annum in excess of the then
current rate or rates of interest hereunder until such Event of Default is
cured.
4. Late Charges. If the Borrowers shall fail to make any payment under the
terms of this Note within ten (10) days after the date such payment is due, the
Borrowers shall pay to the Lender on demand a late charge equal to five percent
(5%) of such payment.
5. Application and Place of Payments. All payments, made on account of this
Note shall be applied first to the payment of any late charge then due
hereunder, second to the payment of accrued and unpaid interest then due
hereunder, and the remainder, if any, shall be applied to the unpaid Principal
Sum, with application first made to all principal installments then due
hereunder, next to the outstanding principal balance due and owing at maturity
and thereafter to the principal
2
<PAGE>
payments due in the inverse order of maturities. Notwithstanding any provision
contained herein to the contrary, any portion of a permitted partial prepayment
applied to the unpaid Principal Sum shall be applied first to the outstanding
principal balance due and owing at maturity and thereafter to the principal
payments due in the inverse order of maturities. All payments on account of this
Note shall be paid in lawful money of the United States of America in
immediately available funds during regular business hours of the Lender at its
principal office in McLean, Virginia or at such other times and places as the
Lender may at any time and from time to time designate in writing to the
Borrowers. The Lender is authorized to deduct any payment (including payments of
principal and/or interest as above provided) from the Borrowers' Account Number
__________ on or after the date the payment is due; provided, however, that such
authorization shall not be deemed to relieve the Borrowers from their obligation
to make such payment when it is due.
6. Prepayment. The Borrowers may prepay the Principal Sum in whole or in part
upon ten (10) days prior written notice to the Lender without premium or
penalty.
7. Financing Agreement and Other Financing Documents. This Note is one of the
"Acquisition Notes" described in a Financing and Security Agreement dated March
31, 1997 by and among the Borrowers and the Lender (as amended, modified,
restated, substituted, extended and renewed at any time and from time to time,
the "Financing Agreement"). The indebtedness evidenced by this Note is included
within the meaning of the term "Obligations" as defined in the Financing
Agreement. The term "Financing Documents" as used in this Note shall mean
collectively this Note, the Financing Agreement and any other instrument,
agreement, or document previously, simultaneously, or hereafter executed and
delivered by the Borrowers and/or any other person, singularly or jointly with
any other person, evidencing, securing, guaranteeing, or in connection with
3
<PAGE>
the Principal Sum, this Note and/or the Financing Agreement.
8. Security. This Note is secured as provided in the Financing Agreement.
9. Events of Default. The occurrence of any one or more of the following
events shall constitute an event of default (individually, an "Event of Default"
and collectively, the "Events of Default") under the terms of this Note:
(a) The failure of the Borrowers to pay to the Lender within five (5)
days of when due any and all amounts payable by the Borrowers to the Lender
under the terms of this Note; or
(b) The occurrence of an event of default (as defined therein) under
the terms and conditions of any of the other Financing Documents.
10. Remedies. Upon the occurrence of an Event of Default, at the option of the
Lender, all amounts payable by the Borrowers to the Lender under the terms of
this Note shall immediately become due and payable by the Borrowers to the
Lender without notice to the Borrowers or any other person, and the Lender shall
have all of the rights, powers, and remedies available under the terms of this
Note, any of the other Financing Documents and all applicable laws. The
Borrowers and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the joint and several liability of the
Borrowers, guarantors and endorsers.
Until such time as the Lender is not committed to extend further credit to
the Borrowers and all Obligations of the Borrowers to the Lender have been
indefeasibly paid in full in cash, and subject
4
<PAGE>
to and not in limitation of the provisions set forth in the next following
paragraph below, no Borrower shall have any right of subrogation (whether
contractual, arising under the Bankruptcy Code or otherwise), reimbursement or
contribution from any Borrower, or any guarantor nor any right of recourse to
its security for any of the debts and obligations of any Borrower which are the
subject of this Note. Except as otherwise expressly permitted by the Financing
Agreement, any and all present and future debts and obligations of any other to
any Borrower are hereby subordinated to the full payment and performance of all
present and future debts and obligations to the Lender under this Note and the
Financing Agreement and the Financing Documents, provided, however,
notwithstanding anything set forth in this Note to the contrary, prior to the
occurrence of a payment Default, the Borrowers shall be permitted to make
payments on account of any of such present and future debts and obligations from
time to time in accordance with the terms thereof.
The Borrowers further agree that, if any payment made by the Borrowers, or
any other person is applied to this Note and is at any time annulled, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise
required to be refunded or repaid, or the proceeds of any property hereafter
securing this Note is required to be returned by the Lender to any Borrower,
their estate, trustee, receiver or any other party, including, without
limitation, such Borrower, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
such Borrower's liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereafter securing such the
Borrower's liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest
or other collateral) shall be
5
<PAGE>
reinstated in full force and effect, and such prior cancellation or surrender
shall not diminish, release, discharge, impair or otherwise affect the
obligations of such Borrower of the amount of such payment (or any lien,
security interest or other collateral securing such obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note shall be
absolute, irrevocable and unconditional and shall remain in full force and
effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the Financing Agreement and
the Financing Documents shall have been indefeasibly paid in full in cash in
accordance with the terms thereof and this Note shall have been canceled.
11. Expenses. The Borrowers promise to pay to the Lender on demand by the
Lender all costs and expenses incurred by the Lender in connection with the
collection and enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses and all court costs.
12. Notices. Any notice, request, or demand to or upon the Borrowers or the
Lender shall be deemed to have been properly given or made when delivered in
accordance with Section 11.01 of the Financing Agreement.
13. Miscellaneous. Each right, power, and remedy of the Lender as provided for
in this Note or any of the other Financing Documents, or now or hereafter
existing under any applicable law or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or beginning of
the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant,
or agreement of this Note or
6
<PAGE>
any of the other Financing Documents, or to exercise any right, power, or remedy
consequent upon a breach thereof, shall constitute a waiver of any such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at a later time or times. By
accepting payment after the due date of any amount payable under the terms of
this Note, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under the terms of this
Note or to declare an Event of Default for the failure to effect such prompt
payment of any such other amount. No course of dealing or conduct shall be
effective to amend, modify, waive, release, or change any provisions of this
Note.
14. Partial Invalidity. In the event any provision of this Note (or any part of
any provision) is held by a court of competent jurisdiction to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision (or remaining part of the
affected provision) of this Note; but this Note shall be construed as if such
invalid, illegal, or unenforceable provision (or part thereof) had not been
contained in this Note, but only to the extent it is invalid, illegal, or
unenforceable.
15. Captions. The captions herein set forth are for convenience only and shall
not be deemed to define, limit, or describe the scope or intent of this Note.
16. Applicable Law. The Borrowers acknowledge and agree that this Note shall be
governed by the laws of the Commonwealth of Virginia, even though for the
convenience and at the request of the Borrowers, this Note may be executed
elsewhere.
17. WAIVER OF TRIAL BY JURY. THE BORROWERS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO WHICH ANY BORROWER
7
<PAGE>
AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A)
THIS NOTE OR (B) THE FINANCING DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS
WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES
TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES TO THIS NOTE.
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH BORROWER,
AND EACH BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH BORROWER FURTHER REPRESENTS THAT IT
HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
18. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS NOTE OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING
FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE
LAW), THE RULES OF PRACTICE AND PROCEDURE FOR ARBITRATION OF COMMERCIAL
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DISPUTES OF ENDISPUTE, INC., D/B/A J.A.M.S./ENDISPUTE ("J.A.M.S.") AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN INCONSISTENCY, THE SPECIAL
RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT
MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE RELATES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN FAIRFAX COUNTY,
VIRGINIA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO: (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR
(II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.
ss.91 OR ANY SUBSTANTIALLY
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EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER: (A) TO EXERCISE
SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET OFF, OR (B) TO FORECLOSE
AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE
RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE LENDER MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH
PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR ANCILLARY
REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
19. Expenses. The Borrowers promise to pay to the Lender on demand by the
Lender all costs and expenses incurred by the Lender in connection with the
collection and enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses and all court costs.
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IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
under seal by their duly authorized officers as of the date first written above.
WITNESS OR ATTEST: VERSAR, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: V.P. and CFO
WITNESS OR ATTEST: GEOMET TECHNOLOGIES, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
11
Exhibit 10.85
REVOLVING PROMISSORY NOTE
$3,000,000 McLean, Virginia
March 27, 1997
FOR VALUE RECEIVED, VERSAR, INC., a corporation organized under the laws of
the State of Delaware and GEOMET TECHNOLOGIES, INC., a corporation organized
under the laws of the State of Delaware (collectively, the "Borrowers" and each
a "Borrower"), jointly and severally promise to pay to the order of NATIONSBANK,
N.A., a national banking association, its successors and assigns (the "Lender"),
the principal sum of THREE MILLION DOLLARS ($3,000,000) (the "Principal Sum"),
or so much thereof as has been or may be advanced or readvanced to or for the
account of the Borrowers pursuant to the terms and conditions of the Financing
Agreement (as hereinafter defined), together with interest thereon at the rate
or rates hereinafter provided, in accordance with the following:
1. Interest.
(a) Except as otherwise expressly set forth below, amounts outstanding
hereunder shall bear interest at the LIBOR Rate (as hereinafter defined),
plus two hundred and fifty basis points (i.e. 2.50%). For purposes hereof,
the "LIBOR Rate" shall mean a fluctuating rate equal to the daily London
Interbank Offered Rate for thirty (30) days U.S. Dollar deposits as quoted
by the Lender as of 11:00 A.M. (Washington, D.C., time) (the "LIBOR Rate").
The interest rate on all sums accruing interest at the LIBOR Rate under
this Note shall change immediately and contemporaneously with any change in
the LIBOR Rate.
(b) In addition, so long as no event of default or any act, event or
condition which, with notice or the passage of time or both, would
constitute an event of default under any Financing Document has occurred
and is continuing, the Borrowers shall have the right to elect that
specified
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amounts advanced under this Note in a minimum amount of $100,000 and
increments of $50,000, bear interest at the Prime Rate per annum. For
purposes hereof, the "Prime Rate" means the fluctuating prime rate of
interest established and declared by the Lender from time to time. The
Prime Rate does not necessarily represent the lowest rate of interest
charged by the Lender to its borrowers.
(c) All interest payable under the terms of this Note shall be
calculated on the basis of a 360-day year and the actual number of days
elapsed.
(d) In respect to any interest rate election hereunder and any
transactions contemplated hereby, the Borrowers authorize the Lender to
accept, rely upon, act upon and comply with, any verbal or written
instructions, requests, confirmations and orders of the President and Chief
Executive Officer, the Vice President, Treasure & Chief Financial Office
and Vice President, Secretary & General Counsel on behalf of the Borrowers.
The Borrowers acknowledge that the transmission between the Borrowers and
the Lender of any such instructions, requests, confirmations and orders
involves the possibility of errors, omissions, mistakes and discrepancies
and agrees to adopt such internal measures and operational procedures to
protect its interests. By reason thereof, the Borrowers hereby assume all
risk of loss and responsibility for, release and discharge the Lender from
any and all responsibility or liability for, and agree to indemnify,
reimburse on demand and hold the Lender harmless from, any and all claims,
actions, damages, losses, liability and expenses by reason of, arising out
of or in any way connected with or related to, (i) the Lender's acceptance,
reliance and actions upon, compliance with or observation of any such
instructions, requests, confirmations or orders, and (ii) any such errors,
omissions, mistakes and discrepancies, except those caused by the Lender's
gross negligence or willful misconduct.
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2. Payments and Maturity. The unpaid Principal Sum, together with interest
thereon at the rate or rates provided above, shall be payable as follows:
(a) Interest only on the unpaid Principal Sum shall be due and payable
monthly, commencing July 1, 1997, and on the same day of each month
thereafter to maturity; and
(b) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full on
November 30, 1998.
The fact that the balance hereunder may be reduced to zero from time to
time pursuant to the Financing Agreement will not affect the continuing validity
of this Note or the Financing Agreement, and the balance may be increased to the
Principal Sum after any such reduction to zero.
3. Default Interest. Upon the occurrence of an Event of Default (as
hereinafter defined), the unpaid Principal Sum shall bear interest thereafter at
a rate (the "Default Rate") two percent (2%) per annum in excess of the then
current rate or rates of interest hereunder until such Event of Default is
cured.
4. Late Charges. If the Borrowers shall fail to make any payment under the
terms of this Note within ten (10) days after the date such payment is due, the
Borrowers shall pay to the Lender on demand a late charge equal to five percent
(5%) of such payment.
5. Application and Place of Payments. All payments, made on account of this
Note shall be applied first to the payment of any late charge then due
hereunder, second to the payment of accrued and unpaid interest then due
hereunder, and the remainder, if any, shall be applied to the unpaid Principal
Sum. All payments on account of this Note shall be paid in lawful money of the
United States of America in immediately available funds during regular business
hours of the Lender at its principal office in McLean, Virginia or at such other
times and places as the Lender may at any
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time and from time to time designate in writing to the Borrowers. The Lender is
authorized to deduct any payment (including payments of principal and/or
interest as above provided) from the Borrowers' Account Number _____________ on
or after the date the payment is due; provided, however, that such authorization
shall not be deemed to relieve the Borrowers from their obligation to make such
payment when it is due.
6. Prepayment. The Borrowers may prepay the Principal Sum in whole or in
part without premium or penalty.
7. Financing Agreement and Other Financing Documents. This Note is the
"Revolving Promissory Note" described in a Financing and Security Agreement of
even date herewith by and among the Borrowers and the Lender (as amended,
modified, restated, substituted, extended and renewed at any time and from time
to time, the "Financing Agreement"). The indebtedness evidenced by this Note is
included within the meaning of the term "Obligations" as defined in the
Financing Agreement. The term "Financing Documents" as used in this Note, each
Acquisition Note, shall mean collectively this Note, the Financing Agreement and
any other instrument, agreement, or document previously, simultaneously, or
hereafter executed and delivered by the Borrowers and/or any other person,
singularly or jointly with any other person, evidencing, securing, guaranteeing,
or in connection with the Principal Sum, this Note and/or the Financing
Agreement.
8. Security. This Note is secured as provided in the Financing Agreement.
9. Events of Default. The occurrence of any one or more of the following
events shall constitute an event of default (individually, an "Event of Default"
and collectively, the "Events of Default") under the terms of this Note:
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<PAGE>
(a) The failure of the Borrowers to pay to the Lender within five (5)
days of when due any and all amounts payable by the Borrowers to the Lender
under the terms of this; or
(b) The occurrence of an event of default (as defined therein) under
the terms and conditions of any of the other Financing Documents.
10. Remedies. Upon the occurrence of an Event of Default, at the option of
the Lender, all amounts payable by the Borrowers to the Lender under the terms
of this Note shall immediately become due and payable by the Borrower to the
Lender without notice to the Borrowers or any other person, and the Lender shall
have all of the rights, powers, and remedies available under the terms of this
Note, any of the other Financing Documents and all applicable laws. The
Borrowers and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note or any payment hereunder may be extended from
time to time without in any way affecting the joint and several liability of the
Borrowers, guarantors and endorsers.
Until such time as the Lender is not committed to extend further credit to
the Borrowers and all Obligations of the Borrowers to the Lender have been
indefeasibly paid in full in cash, and subject to and not in limitation of the
provisions set forth in the next following paragraph below, no Borrower shall
have any right of subrogation (whether contractual, arising under the Bankruptcy
Code or otherwise), reimbursement or contribution from any Borrower, or any
guarantor nor any right of recourse to its security for any of the debts and
obligations of any Borrower which are the subject of this Note. Except as
otherwise expressly permitted by the Financing Agreement, any and all present
and future debts and obligations of any other to any Borrower are hereby
subordinated to the
5
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full payment and performance of all present and future debts and obligations to
the Lender under this Note and the Financing Agreement and the Financing
Documents, provided, however, notwithstanding anything set forth in this Note to
the contrary, prior to the occurrence of a payment Default, the Borrowers shall
be permitted to make payments on account of any of such present and future debts
and obligations from time to time in accordance with the terms thereof.
The Borrowers further agree that, if any payment made by the Borrowers, or
any other person is applied to this Note and is at any time annulled, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise
required to be refunded or repaid, or the proceeds of any property hereafter
securing this Note is required to be returned by the Lender to any Borrower,
their estate, trustee, receiver or any other party, including, without
limitation, such Borrower, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
such Borrower's liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereafter securing such the
Borrower's liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest
or other collateral) shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect the obligations of such Borrower of the amount of such
payment (or any lien, security interest or other collateral securing such
obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note shall be
absolute, irrevocable and unconditional and shall remain in full force and
effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the
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Financing Agreement and the Financing Documents shall have been indefeasibly
paid in full in cash in accordance with the terms thereof and this Note shall
have been canceled.
11. Expenses. The Borrowers jointly and severally promise to pay to the
Lender on demand by the Lender all costs and expenses incurred by the Lender in
connection with the collection and enforcement of this Note, including, without
limitation, reasonable attorneys' fees and expenses and all court costs.
12. Notices. Any notice, request, or demand to or upon the Borrowers or the
Lender shall be deemed to have been properly given or made when delivered in
accordance with Section 11.01 of the Financing Agreement.
13. Miscellaneous. Each right, power, and remedy of the Lender as provided
for in this Note or any of the other Financing Documents, or now or hereafter
existing under any applicable law or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or beginning of
the exercise by the Lender of any one or more of such rights, powers, or
remedies shall not preclude the simultaneous or later exercise by the Lender of
any or all such other rights, powers, or remedies. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant,
or agreement of this Note or any of the other Financing Documents, or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement or of
any such breach, or preclude the Lender from exercising any such right, power,
or remedy at a later time or times. By accepting payment after the due date of
any amount payable under the terms of this Note, the Lender shall not be deemed
to waive the right either to require prompt payment when due
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<PAGE>
of all other amounts payable under the terms of this Note or to declare an Event
of Default for the failure to effect such prompt payment of any such other
amount. No course of dealing or conduct shall be effective to amend, modify,
waive, release, or change any provisions of this Note.
14. Partial Invalidity. In the event any provision of this Note (or any
part of any provision) is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision (or remaining part of
the affected provision) of this Note; but this Note shall be construed as if
such invalid, illegal, or unenforceable provision (or part thereof) had not been
contained in this Note, but only to the extent it is invalid, illegal, or
unenforceable.
15. Captions. The captions herein set forth are for convenience only and
shall not be deemed to define, limit, or describe the scope or intent of this
Note.
16. Applicable Law. Each Borrower acknowledges and agrees that this Note
shall be governed by the laws of the Commonwealth of Virginia, even though for
the convenience and at the request of the Borrowers, this Note may be executed
elsewhere.
17. WAIVER OF TRIAL BY JURY. EACH BORROWER HEREBY WAIVES TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO WHICH EITHER BORROWER AND THE LENDER MAY BE PARTIES,
ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS NOTE OR (B) THE FINANCING
DOCUMENTS. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
8
<PAGE>
THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY EACH BORROWER,
AND EACH BORROWER HEREBY REPRESENTS THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH BORROWER FURTHER REPRESENTS THAT IT
HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT
HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
18. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS NOTE OR ANY
RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR ARBITRATION OF
COMMERCIAL DISPUTES OF ENDISPUTE, INC., D/B/A J.A.M.S./ENDISPUTE ("J.A.M.S.")
AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED
IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY
9
<PAGE>
CONTROVERSY OR CLAIM TO WHICH THIS NOTE RELATES IN ANY COURT HAVING JURISDICTION
OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN FAIRFAX
COUNTY, VIRGINIA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR. IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING
THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY (90) DAYS OF THE
DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING
OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCING OF SUCH HEARING FOR AN
ADDITIONAL SIXTY (60) DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO:
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE
LAW; OR (III) LIMIT THE RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SET OFF, OR (B) TO FORECLOSE AGAINST
ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE
RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE LENDER MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
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UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR
FORECLOSURE OR FOR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under
seal by its duly authorized officers as of the date first written above.
WITNESS OR ATTEST: VERSAR, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: V.P. and CFO
WITNESS OR ATTEST: GEOMET TECHNOLOGIES, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
11
Exhibit 10.86
FINANCING AND SECURITY AGREEMENT
THIS FINANCING AND SECURITY AGREEMENT (the "Agreement") is made this 27th
day of March, 1997, by and between VERSAR, INC., a corporation organized and in
good standing under the laws of the State of Delaware (the "Company"), and its
subsidiary, GEOMET TECHNOLOGIES, INC., a corporation organized and in good
standing under the laws of the State of Delaware ("Geomet"; the Company,
collectively with its Subsidiaries are sometimes collectively called, the
"Borrowers" and each a "Borrower") and NATIONSBANK, N.A., a national banking
association, its successors and assigns (the "Lender").
RECITALS
A. The Borrowers have applied to the Lender for credit facilities
consisting of a guidance line of credit in the maximum principal amount of Five
Million Dollars ($5,000,000) to be used by the Borrowers to finance Acquisitions
(as hereinafter defined) and a revolving credit facility in the maximum
principal amount of Three Million Dollars ($3,000,000) to be used by the
Borrowers to finance Receivables.
B. The Lender is willing to make these credit facilities available to the
Borrowers upon the terms and subject to the conditions hereinafter set forth.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers and the Lender
hereby agree as follows:
I. DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the terms
defined in the Preamble and Recitals hereto shall have the respective meanings
specified therein, and the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in or a
lease of goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all monies due and to become due under any Government Contract, all rights to
receive payments under presently existing or hereafter acquired or created
letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy, instrument, document or general
intangible, and all extensions and renewals of any thereof, all rights under or
arising out of present or future contracts, agreements or general interest in
merchandise which gave rise to any or all of the foregoing, including all goods,
all claims or causes of action now
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existing or hereafter arising in connection with or under any agreement or
document or by operation of law or otherwise, all collateral security of any
kind (including real property mortgages) given by any person with respect to any
of the foregoing and all proceeds (cash and non-cash) of the foregoing.
"Acquisition Loan" means and "Acquisition Loans" have the meanings
described in Section 2.01.
"Acquisition Note" and "Acquisition Notes" have the meanings described in
Section 2.01(d).
"Affiliate" means, with respect to the Borrowers, any Person, directly or
indirectly controlling, directly or indirectly controlled by, or under direct or
indirect common control with the Borrowers or any Subsidiary, as the case may
be.
"Agreement" means this Financing and Security Agreement and all amendments,
modifications and supplements hereto which may from time to time become
effective in accordance with the provisions of Section 11.10 hereof.
"Assets" means, at any time, all assets that should, in accordance with
GAAP consistently applied, be classified as assets on a balance sheet of the
Borrowers.
"Banking Day" shall mean any day that is not a Saturday, Sunday or banking
holiday in the Commonwealth of Virginia.
"Borrowing Base" means the sum of (a) ninety percent (90%) of Eligible
Government Receivables, eighty five percent (85%) of Eligible Subcontractor
Receivables and eighty percent (80%) Eligible Commercial Receivables, less the
sum of (a) the then outstanding balance of the Acquisitions Notes, and (b) the
then outstanding balance of the Sarnia Note.
"Collateral" shall mean all of the Borrowers' Accounts, chattel paper,
Equipment, General Intangibles, documents, instruments and Inventory (whether or
not designated with initial capital letters), as those terms are defined in the
Uniform Commercial Code as presently adopted and in effect in the State and
shall also cover, without limitation, (i) any and all property specifically
included in those respective terms in this Agreement or in the Financing
Documents and (ii) all proceeds (cash and non-cash, including, without
limitation, insurance proceeds) of the foregoing.
"Collection" means each check, draft, cash, money, instrument, item, and
other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
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"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.
"Current Assets" means at any date, the amount which, in conformity with
GAAP, would be set forth opposite the caption "total current assets" (or any
like caption) on a consolidated balance sheet of the Company and its
Subsidiaries.
"Current Liabilities" means at any date, the amount which, in conformity
with GAAP, would be set forth opposite the caption "total current liabilities"
(or any like caption) on a consolidated balance sheet of the Company and its
Subsidiaries.
"Current Ratio" means the ratio of (a) Current Assets to (b) Current
Liabilities, including, without, limitation, the unpaid principal balance of the
Revolving Loans outstanding at such time.
"Debt Service Coverage" shall mean as to the Borrower and its Subsidiaries
for any period of determination thereof, the ratio of (a) EBITDA minus
dividends, to (b) the sum of interest expense, and payments on Indebtedness for
Borrowed Money scheduled to be due and payable during the same period,
including, any capital leases, cash taxes and capital expenditures for such
period.
"Default" has the meaning described in Article IX.
"Default Rate" has the meaning set forth in the Notes.
"Documents" means all documents and documents of title, whether now
existing or hereafter acquired or created, and all proceeds (cash and non-cash
of the foregoing).
"EBITDA" means shall mean as to the Company and its Subsidiaries for any
period of determination thereof, the sum of (a) net profit (or loss) determined
in accordance with GAAP, plus (b) interest expense and federal and state taxes
for such period, plus (c) depreciation and amortization of assets for such
period, all as determined on a consolidated basis for the twelve (12) month
period then ending.
"Eligible Commercial Receivable" mean, at any time of determination
thereof, each Account, other than Eligible Government Receivables, which
conforms and continues to conform to the Eligibility Standards.
"Eligible Government Receivable" and "Eligible Government Receivables"
means, at any time of determination thereof, all Accounts which arise out of
Government Contracts, where the Company is the "prime" contractor, where all
monies due thereunder may have been directly assigned to the Lender in its sole
discretion in conformity with the Assignment of Claims Act of 1940, as amended
and which otherwise conform to the Eligibility Standards
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"Eligible Subcontractor Receivable" and "Eligible Subcontractor
Receivables" means, at any time of determination thereof, all Accounts which
arise out of Government Contracts, where the Company is not the "prime"
contractor and all monies due thereunder may have been directly assigned to the
Lender in its sole discretion in conformity with the Assignment of Claims Act of
1940, as amended and which otherwise conform to the Eligibility Standards
"Eligibility Standards" mean, at any time of determination thereof, each
Account which conforms and continues to the following standards (a) the Account
arose from a bona fide outright sale or lease of goods by the Borrowers, or from
services performed by the Borrowers, and (i) such goods have been delivered to
the appropriate account debtors or their respective designees, such Borrower has
in its possession shipping and delivery receipts evidencing such shipment and
delivery, no return, rejection or repossession has occurred, and such goods have
not been rejected by the account debtor, or (ii) such services have been
satisfactorily completed and accepted by the appropriate account debtor; (b) the
Account is based upon an enforceable order or contract, written or oral, for
goods delivered or for services performed, and the same were shipped, held, or
performed in accordance with such order or contract; (c) the title of each
Borrower to the Account and, except as to the account debtor and any creditor
which finances the account debtor's purchase of such goods, to any goods is
absolute and is not subject to any prior assignment, claim, Lien, or security
interest, except Permitted Liens and Liens created by the account debtors in
connection with their interests in the goods, and each Borrower otherwise has
the full and unqualified right and power to assign and grant a security interest
in it to the Lender as security and collateral for the payment of the
Obligations; (d) the amount shown on the books of each Borrower and on any
invoice, certificate, schedule or statement delivered to the Lender is owing to
such Borrower and no partial payment has been received unless reflected with
that delivery; (e) the Account is not subject to any claim of reduction,
counterclaim, setoff, recoupment, or other defense in law or equity, or any
claim for credits, allowances, or adjustments by the account debtor because of
returned, inferior, or damaged goods or unsatisfactory services, or for any
other reason; (f) the account debtor has not returned or refused to retain, or
otherwise notified either Borrower of any dispute concerning, or claimed
nonconformity of, any of the goods or services from the sale of which the
Account arose; (g) the Account is not outstanding more than ninety (90) days
from the date of the invoice therefor; (h) the Account is not owing by any
account debtor for which the Lender has deemed fifty percent (50%) or more of
such account debtor's other Accounts (or any portion thereof) due to either
Borrower to be non-Eligible Receivables; (i) the Account does not arise out of a
contract with, or order from, an account debtor that, by its terms, forbids or
makes void or unenforceable the assignment by the Borrowers to the Lender of the
Account arising with respect thereto; (j) the account debtor is not a Subsidiary
or other Affiliate of the Company; (k) the account debtor is not incorporated in
or primarily conducting business in any jurisdiction located outside of the
United States of America; (l) the Borrowers are not indebted in any manner to
the account debtor, with the exception of customary credits, adjustments and/or
discounts given to an account debtor by the Company in the ordinary course of
their businesses, (m) no part of the Account represents a retainage, (n) no bond
has been issued or is contemplated with respect to the goods or services
furnished by either Borrower or with respect to the project or contract for
which those goods or services were furnished, and (o) the
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Lender in the exercise of its sole but reasonable discretion has not deemed the
Account ineligible because of uncertainty as to the creditworthiness of the
account debtor or because the Lender otherwise considers the collateral value
thereof to the Lender to be impaired or its ability to realize such value to be
insecure. In the event of any dispute, under the foregoing criteria, as to
whether an Account is, or has ceased to be, an Eligible Receivable, the decision
of the Lender in the exercise of its sole and absolute discretion shall control.
"Enforcement Costs" shall mean all expenses, charges, costs and fees
whatsoever (including, without limitation, attorney's fees and expenses) of any
nature whatsoever paid or incurred by or on behalf of the Lender in connection
with (a) the collection or enforcement of any or all of the Obligations, (b) the
preparation of or changes to this Agreement, the Notes, the Security Documents
and/or any of the other Financing Documents, (c) the creation, perfection,
collection, maintenance, preservation, defense, protection, realization upon,
disposition, sale or enforcement of all or any part of the Collateral,
including, without limitation, those sums paid or advanced, and costs and
expenses, more specifically described in Section 10.3, and (d) the monitoring,
administration, processing, servicing of any or all of the Obligations and/or
the Collateral.
"Equipment" shall mean all equipment, machinery, furniture and fixtures and
supplies of every nature, presently existing or hereafter acquired or created
and wherever located, together with all accessions, additions, fittings,
accessories, special tools, and improvements thereto and substitutions therefor
and all parts and equipment which may be attached to or which are necessary for
the operation and use of such personal property, whether or not the same shall
be deemed to be affixed to real property, and all rights under or arising out of
present or future contracts relating to the foregoing and all proceeds (cash and
non-cash) of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" means an event which, with the giving of notice or lapse
of time, or both, could or would constitute a Default under the provisions of
this Agreement.
"Fees" means the fees described in Sections 2.06 and 2.07 hereof.
"Financing Documents" means at any time collectively and include this
Agreement, each Note, the Security Documents, and any other instrument,
agreement or document previously, simultaneously or hereafter executed and
delivered by any Borrower and/or any other Person, singly or jointly with
another Person or Persons, evidencing, securing, guarantying or in connection
with any of the Obligations and/or in connection with this Agreement, any Notes,
any of the Security Documents, any of the Loan and/or any of the Obligations,
including without limitation, the Sarnia Note and the Sarnia Financing
Documents.
"Funded Debt" shall mean for any period of determination thereof, an amount
equal to the aggregate amount of all payments in principal in respect to
Indebtedness for Borrowed Money
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scheduled to be due and payable during such period, together with all other
interest bearing Liabilities of the Borrowers.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" shall mean all general intangibles of every nature,
whether presently existing or hereafter acquired or created, including without
limitation all books, correspondence, credit files, records, computer programs,
computer tapes, cards and other papers and documents in the possession or
control of either Borrower, claims (including without limitation all claims for
income tax and other refunds), choses in action, contract rights, judgments,
patents, patent licenses, trademarks, trademark licenses, licensing agreements,
rights in intellectual property, Goodwill (including all Goodwill of each
Borrower's business symbolized by and associated with any and all trademarks,
trademark licenses, copyrights and/or service marks), royalty payments,
contractual rights, rights as lessee under any lease of real or personal
property, literary rights, copyrights, service names, service marks, logos,
trade secrets, all amounts received as an award in or settlement of a suit in
damages, deposit accounts, interests in joint ventures or general or limited
partnerships, rights in applications for any of the foregoing, and all proceeds
(cash and non-cash) of the foregoing.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Government Contract" means and "Government Contracts" means contracts of
either Borrower with the United States, or any agency, department or
instrumentality thereof and on which either Borrower is either a "prime"
contractor or a subcontractor of the prime contractor.
"Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder; (c)
any substance the presence of which on any property now or hereafter owned or
acquired by either Borrower is prohibited by any Law similar to those set forth
in this definition; and (d) any other substance which by Law requires special
handling in its collection, storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by either Borrower or
for which either Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any property now or hereafter owned or acquired by either Borrower, and any
other contamination by Hazardous Materials for which either Borrower is, or is
claimed to be, responsible.
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"Indebtedness for Borrowed Money" of a Person, at any time shall mean the
sum at such time of (a) indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) lease
obligations of such Person which have been or should be, in accordance with
GAAP, capitalized on the books of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person, to the extent attached to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (e) any obligation of such Person or
a commonly controlled entity to a multiemployer plan (as those terms are used
under applicable ERISA statutes and regulations).
"Inventory" means all inventory of the Borrowers, including, without
limitation all packing, shipping, advertising, and promotional materials, and
all documents of title or documents representing the same, all general
intangibles necessary or beneficial for the disposition of the same, and all
proceeds (cash and non-cash) of the foregoing.
"Items of Payment" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed Goods, the sale or lease of
which gave rise to an Account, and other proceeds or products of Collateral; and
"Items of Payment" means the collective reference to all of the foregoing.
"Law" or "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or political
subdivision or agency thereof, or any court or similar entity established by any
thereof.
"Liabilities" means, at any time, all liabilities that should, in
accordance with GAAP consistently applied, be classified as liabilities on a
balance sheet of the Borrowers.
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien or charge of
any kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction, by any bailor in a true bailment transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the agreement to give any financing statement by any lessee
in a true lease transaction, by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.
"Loan" means a Revolving Loan or an Acquisition Loan, as the case may be,
and "Loans" mean all Revolving Loans and all Acquisition Loans.
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"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Worth" means, at any time, the excess of (a) Assets, over (b)
Liabilities.
"Note" means the Revolving Promissory Note or any Acquisition Note, as the
case may be, and "Notes" mean collectively the Revolving Promissory Note and the
Acquisition Notes, and any other promissory note which may from time to time
evidence the Obligations.
"Obligations" means all present and future debts, obligations, and
liabilities, whether now existing or contemplated or hereafter arising, of the
Borrowers to the Lender under, arising pursuant to, in connection with and/or on
account of the provisions of this Agreement, the Notes, each Security Document,
and any of the other Financing Documents, any of the Loans, and any of the Loans
including, without limitation, the principal of, and interest on, the Notes,
late charges, Enforcement Costs, and other prepayment penalties (if any), letter
of credit fees or fees charged with respect to any guaranty of any letter of
credit, and also means all other present and future indebtedness, liabilities
and obligations, whether now existing or contemplated or hereafter arising, of
the Borrowers to the Lender of any nature whatsoever regardless of whether such
debts, obligations and liabilities be direct, indirect, primary, secondary,
joint, several, joint and several, fixed or contingent; and any and all
renewals, extensions and rearrangements of any such debts, obligations and
liabilities, including, but not limited to any and all obligations of the
Company under the Sarnia Guaranty.
"Overdraft" means any excess of debit entries over collected funds on
deposit in any banking account of either Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent or
which the Lender has determined in the exercise of its sole but reasonable
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, (ii) the Borrowers have the financial ability to pay, with all
penalties and interest, at all times without materially and adversely affecting
any Borrower, and (iii) are not, and will not be with appropriate filing, the
giving of notice and/or the passage of time, entitled to priority over any Lien
of the Lender; (b) deposits or pledges to secure obligations under worker's
compensation, social security or similar laws, or under unemployment insurance
in the ordinary course of business; (c) Liens in favor of the Lender; (d)
judgment Liens to the extent the entry of such judgment does not constitute an
Event of Default under the terms of this Agreement or result in the sale of, or
levy of execution on, any of the Collateral; and (e) such other Liens, if any,
as are set forth on EXHIBIT __ attached hereto and made a part hereof.
"Person" shall mean and include an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated association, a
government or political subdivision or agency thereof or any other entity.
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"Prime Rate" means the prime rate charged by the Lender as announced by the
Lender. The Prime Rate is not necessarily the lowest rate of interest charged by
the Lender to borrowers.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Responsible Officer" means the chief executive officer of the Company or
the president of the Company or, with respect to financial matters, the chief
financial officer of the Company.
"Revolving Loan Committed Amount" has the meaning described in Section
2.02(a).
"Revolving Loan" and "Revolving Loans" have the meanings described in
Section 2.02(a).
"Revolving Promissory Note" has the meaning described in Section 2.02(c).
"Revolving Loan Account" has the meaning described in Section 2.04.
"Sarnia" means Sarnia Corporation, a Virginia corporation, its successors
and assigns.
"Sarnia Financing Documents" means at any time collectively and include the
Sarnia Note, and any other instrument, agreement or document previously,
simultaneously or hereafter executed and delivered by Sarnia, the Borrowers
and/or any other Person, singly or jointly with another Person or Persons,
evidencing, securing, guarantying or in connection with the Sarnia Note.
"Sarnia Note" means that certain Promissory Note of even date herewith in
the principal amount of $1,500,000 from Sarnia Corporation in favor of the
Lender, as the same may be from time to time be amended, restated, supplemented
or otherwise modified.
"Sarnia Guaranty" means that certain Guaranty of Payment Agreement of even
date herewith from the Company in favor of the Lender, as the same may be from
time to time be amended, restated, supplemented or otherwise modified, pursuant
to which, among other things, the Borrower has unconditionally guarantied
repayment of the Sarnia Note.
"Security Documents" shall mean collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Lender on any collateral to secure the Obligations, as the same may from
time to time be amended, restated, supplemented or otherwise modified.
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"Senior Management" shall be deemed to refer to the following executive
positions: President and Chief Executive Officer; Vice President, Treasurer and
Chief Financial Officer; and Vice President and General Counsel.
"State" means the Commonwealth of Virginia.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly by the Company and/or by one or more
Subsidiaries of the Company.
"Tangible Net Worth" means, at any time, the sum at such time of: (a) the
Net Worth less the total of (i) all assets which would be classified as
intangible assets under GAAP, including Goodwill, trademarks, trademark
applications, trade names, service marks, patent applications and licenses, and
deferred charges, (ii) leasehold improvements, (iii) applicable reserves,
allowances and other similar properly deductible items to the extent such
reserves, allowances and other similar properly deductible items have not been
previously deducted by the Lender in the calculation of Net Worth, (iv) any
revaluation or other write-up in book value of assets subsequent to the date of
the most recent financial statements delivered to the Lender, and (v) the amount
of all loans and advances to, or investments in, any Person, excluding cash
equivalents and deposit accounts maintained by the Borrowers with any financial
institution; plus (b) the principal amount of subordinated indebtedness
outstanding at any time.
"Taxes" mean all taxes and assessments whether general or special, ordinary
or extraordinary, or foreseen or unforeseen, of every character (including all
penalties or interest thereon), which at any time may be assessed, levied,
confirmed or imposed by any Governmental Authority on the Borrowers or any of
their properties or assets or any part thereof or in respect of any of its
franchises, businesses, income or profits.
"Wholly Owned Subsidiary" means any domestic United States corporation all
the shares of stock of all classes of which (other than directors' qualifying
shares) at the time are owned directly or indirectly by the Company and/or by
one or more Wholly Owned Subsidiaries of the Company.
SECTION 1.2 Accounting Terms and Other Definitional Provisions. Unless
otherwise defined herein, as used in this Agreement and in any certificate,
report or other document made or delivered pursuant hereto, accounting terms not
otherwise defined herein, and accounting terms only partly defined herein, to
the extent not defined, shall have the respective meanings given to them under
GAAP. Unless otherwise defined herein, all terms used herein which are defined
by the Virginia Uniform Commercial Code shall have the same meanings as assigned
to them by the Virginia Uniform Commercial Code unless and to the extent varied
by this Agreement. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are references to sections or
subsections of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular
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number shall include the plural, the plural the singular and the use of the
masculine, feminine or neuter gender shall include all genders, as the context
may require. Reference to any one or more of the Financing Documents and any of
the Financing Documents shall mean the same as the foregoing may from time to
time be amended, restated, substituted, extended, renewed, supplemented or
otherwise modified.
II. BORROWING
SECTION 2.1 (a) The Acquisition Loans. Subject to and in accordance with
the provisions of this Agreement, the Lender agrees from time to time from the
Closing Date until November 30, 1998, to lend (each an "Acquisition Loan" and
collectively the "Acquisition Loans") to the Borrowers such sums as the
Borrowers request and as the Lender approves pursuant to this Agreement, up to
the maximum aggregate principal amount of Five Million Dollars ($5,000,000) (the
"Acquisition Loan Committed Amount").
(b) Proceeds of the Acquisition Loans. The proceeds of each advance under
the Acquisition Loan shall be used by the Borrowers to make a Permitted
Acquisition in accordance with Section 8.04 of this Agreement, and for no other
purposes except as may otherwise be agreed by the Lender in writing.
(c) Procedure for Making Acquisition Loans. The Borrowers may borrow under
the Acquisition Loan on any Banking Day. The Borrowers shall notify the Lender
no later than ten (10) Banking Days prior to the date of the date of the
proposed borrowing. The Lender will not lend more than seventy five percent
(75%) of the Purchase Price of any Acquisition. The Lender shall not consider
making an advance under the Acquisition Loan unless the Lender shall have
received and approved with respect to such advance, among other things; (i) a
pro forma post acquisition balance statement, income statement, and cash flow
statement, (ii) a listing of all assets to be acquired, (iii) historical
financial statements on the Target (as hereinafter defined); (iv) the proposed
terms and conditions for the proposed acquisition; and (v) such other
information as the Lender may request.
(d) Acquisition Loan Notes. The joint and several obligation of the
Borrowers to repay with interest each advance made under the Acquisition Loan
made by the Lender from time to time shall be evidenced by an Acquisition Note
(as from time to time extended, amended, restated, supplemented or otherwise
modified, each an "Acquisition Note" and collectively, the "Acquisition Notes")
substantially in the form set forth in EXHIBIT "A-1" attached hereto and made a
part hereof, with appropriate insertions, dated as of the date of each advance.
SECTION 2.2 The Revolving Loan. (a) The Lender agrees to lend to the
Borrowers and the Borrowers agree to borrow on a revolving basis from time to
time the principal amount (the "Revolving Loan") not to exceed at any time
outstanding the lesser (the "Revolving Loan Committed Amount") of Three Million
Dollars ($3,000,000) or the Borrowing Base.
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(b) If at any time the outstanding principal balance of the Revolving Loan
exceeds the limitations provided in subsection (a) above, the Borrowers promise
to pay to the order of the Lender, on demand, the amount of the excess.
(c) The joint and several obligation of the Borrowers to repay the advances
under the Revolving Loan shall be evidenced by the Borrowers' Revolving
Promissory Note of even date herewith (the "Revolving Promissory Note") payable
to the Lender in the form attached hereto as EXHIBIT "A-2". The Revolving
Promissory Note shall bear interest and shall be repaid by the Borrowers in the
manner and at the times set forth in the Revolving Promissory Note.
(d) The Borrowers may prepay the principal sum outstanding on the Revolving
Loan only in accordance with the terms of the Revolving Note. Sums borrowed and
repaid may be readvanced under the terms and conditions of this Agreement.
(e) The proceeds of the Revolving Loan shall be used by the Borrowers for
the purposes set forth in Recital A above, and, unless prior written consent of
the Lender is obtained, for no other purpose.
SECTION 2.3 Revolving Loan Procedure. (a) Each advance under the Revolving
Loan shall be in an amount of not less than $10,000, or a multiple thereof. The
Borrowers shall notify the Lender not late than 1:00 p.m. on the date of any
proposed advance.
(b) The Borrowers shall furnish to the Lender such schedules, certificates,
lists, records, reports, information and documents as required by the Lender
from time to time so that the Lender may, in its discretion, determine the
Borrowing Base.
(c) In addition, the Borrowers hereby irrevocably authorize the Lender to
make advances under the Revolving Loan at any time and from time to time,
without further request from or notice to the Borrowers, which the Lender, in
its sole and absolute discretion, deems necessary or appropriate to protect the
Lender's interests under this Agreement or otherwise, including, without
limitation, advances made to cover Overdrafts, principal of, and/or interest on,
any Loans, fees, and/or Enforcement Costs, prior to, on, or after the
termination of this Agreement, regardless of whether the aggregate amount of the
advances which the Lender may make hereunder exceeds the Revolving Credit
Committed Amount. The Lender shall have no obligation whatsoever to make any
advance under this subsection and the making of one or more advances under this
subsection shall not obligate the Lender to make other similar advance or
advances. Any such advances will be secured by the Collateral.
(d) The Lender is authorized to deduct any payment (including payments of
principal, interest and/or Fees as provided herein or in the Notes) from the
Borrowers' Account Number _____________ on or after the date the payment is due;
provided, however, that such authorization shall not be deemed to relieve the
Borrowers from their obligation to make such payment when it is
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due and, further provided, that the Lender will provide the Borrowers with
notice of any such deduction.
SECTION 2.4 Revolving Loan Account. The Lender will establish and maintain
a loan account on its books (the "Revolving Loan Account") to which the Lender
will ( debit (i) the principal amount of each Revolving Loan made by the Lender
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loans as and when due, and (ii) any other amounts due and payable by
the Borrowers to the Lender from time to time under the provisions of this
Agreement in connection with the Revolving Loans, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due and payable, and (b) credit all payments made by the Borrowers
to the Lender on account of the Revolving Loans as of the date made including,
without limitation, funds credited to the Collateral Account and collected and
paid to the Lender, the Lender reserving the right, exercised in its sole and
absolute discretion from time to time, to provide earlier credit or to disallow
credit for any Collection which is unsatisfactory to the Lender.
The Lender may debit the Revolving Loan Account for the amount of any
Collection which is returned to the Lender unpaid. All credit entries to the
Revolving Loan Account are conditional and shall be readjusted as of the date
made if final and indefeasible payment is not received by the Lender in cash or
solvent credits. The Borrowers hereby promise to pay to the order of the Lender,
on demand, an amount equal to the excess, if any, of all debit entries over all
credit entries recorded in the Revolving Loan Account under the provisions of
this Agreement.
SECTION 2.5 Collateral Account. The Borrowers will deposit or cause to be
deposited to a bank account designated by the Lender and from which the Lender
alone has power of access and withdrawal (the "Collateral Account"), all Items
of Payment. The Borrowers shall deposit Items of Payment for credit to the
Collateral Account not later than the next Banking Day after the receipt
thereof, and in precisely the form received, except for the endorsements of the
Borrowers where necessary to permit the collection of any such Items of Payment,
which endorsement the Borrowers hereby agree to make. Pending such deposit to
the Collateral Account, endorsement and/or other delivery thereof to the Lender,
the Borrowers will not commingle any Items of Payment with any of its other
funds or property, but will hold them separate and apart therefrom in trust and
for the account of the Lender. The Lender is not, however, required to credit
the Collateral Account for the amount of any Collection which is unsatisfactory
to the Lender. In addition, the Borrowers shall, if so directed by the Lender,
establish a lock box to which Items of Payments may be sent and shall direct the
Borrowers' customers and others as the Lender may require to forward payments to
that lock box. Items of Payment received in the lock box shall be deposited in
the Collateral Account or as otherwise directed by the Lender from time to time.
SECTION 2.6 Commitment Fee. The Borrowers agree to pay to the Lender on the
first day of each calendar quarter commencing after the date of this Agreement a
commitment fee (computed on the basis of a year consisting of three hundred and
sixty (360) days for the actual
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number of days elapsed) of one quarter of one percent (.25%) per annum on the
daily average of the unused amount of the Revolving Loan.
SECTION 2.7 Acquisition Loan Fee. The Borrowers agree to pay to the Lender
a fee in conjunction with each advance under the Acquisition Loan. The
Acquisition Loan fee will be one half of one percent (.50%) per annum of the
amount of each Acquisition Note and shall be payable on the date of each advance
under the Acquisition Loan. THE BORROWERS ACKNOWLEDGE AND AGREE THAT THE
ACQUISITION LOAN FEE IS PAID IN CONSIDERATION OF THE LENDER'S PROCESSING OF THE
BORROWERS' CREDIT APPLICATION, AND IS NOT INTENDED AS A COMMITMENT FEE FOR THE
ACQUISITION LOAN FACILITY; PAYMENT OF THE ACQUISITION LOAN FEE SHALL UNDER NO
CIRCUMSTANCES OBLIGATE THE LENDER TO MAKE ANY FUTURE ADVANCES OR APPROVE ANY
DISCRETIONARY ACQUISITIONS UNDER THE ACQUISITION LOAN FACILITY.
SECTION 2.8 Transactions under this Agreement Between the Borrowers and the
Lender. In respect to any advance and all other matters under or in connection
with this Agreement and any transactions contemplated hereby, the Borrowers
authorize the Lender to accept, rely upon, act upon and comply with, any verbal
or written instructions, requests, confirmations and orders of any employee or
representative of the Company designated by the Borrowers in writing delivered
to the Lender from time to time. The Borrowers each acknowledge that the
transmission between the Borrowers and the Lender of any such instructions,
requests, confirmations and orders involves the possibility of errors,
omissions, mistakes and discrepancies and agrees to adopt such internal measures
and operational procedures to protect its interests. By reason thereof, the
Borrowers hereby assume all risk of loss and responsibility for, releases and
discharges the Lender from any and all responsibility or liability for, and
agrees to indemnify, reimburse on demand and hold the Lender harmless from, any
and all claims, actions, damages, losses, liability and expenses by reason of,
arising out of or in any way connected with or related to, (i) the Lender's
acceptance, reliance and actions upon, compliance with or observation of any
such instructions, requests, confirmations or orders, and (ii) any such errors,
omissions, mistakes and discrepancies, except those caused by the Lender's gross
negligence or willful misconduct.
SECTION 2.9 Account Statements. Any and all periodic or other statements or
reconciliations, and the information contained in those statements or
reconciliations, of the Revolving Loan Account shall be presumed conclusively to
be correct and shall constitute an account stated between the Lender and the
Borrowers unless the Lender receives specific written objection thereto from the
Borrowers within thirty (30) Banking Days after such statement or reconciliation
shall have been sent by the Lender.
SECTION 2.10 Overdraft Advances. If, after the close of business on any
Banking Day, any banking account of either Borrower with the Lender is
determined by the Lender to have an Overdraft, the Lender, in its sole
discretion on each and any such occasion may (and is hereby irrevocably
authorized by the Borrowers to), but is not obligated to, make an advance under
the
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Revolving Loan to the Borrowers in a principal amount equal to any such
Overdraft as of the close of business on such Banking Day. All Overdrafts shall
be secured by the Collateral.
III. COLLATERAL
As security for the payment of all of the Obligations, each Borrower hereby
assigns, grants and conveys to the Lender and agrees that the Lender shall have
a perfected, continuing security interest in all of the Collateral. Each
Borrower further agrees that the Lender shall have in respect the Collateral all
of the rights and remedies of a secured party under the Virginia Uniform
Commercial Code and under other applicable Laws and Security Documents, as well
as those provided in this Agreement. Each Borrower covenants and agrees to
execute and deliver such financing statements and other instruments and filings
as are necessary in the opinion of the Lender to perfect such security interest.
Notwithstanding the fact that the proceeds of the Collateral constitute a part
of the Collateral, neither Borrower may dispose of the Collateral, or any part
thereof, other than in the ordinary course of its business or as otherwise may
be permitted by this Agreement.
IV. UNCONDITIONAL OBLIGATIONS
The payment and performance by the Borrowers of the Obligations shall be
absolute and unconditional, irrespective of any defense or any rights of
set-off, recoupment or counterclaim they might otherwise have against the Lender
and the Borrowers shall pay absolutely net all of the Obligations, free of any
deductions and without abatement, diminution or set-off; and until payment in
full of all of the Obligations, the Borrowers: (a) will not suspend or
discontinue any payments provided for in the Notes; (b) will perform and observe
all of their other agreements contained in this Agreement, including (without
limitation) all payments required to be made to the Lender; and (c) will not
terminate or attempt to terminate this Agreement for any cause.
V. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Loans, each Borrower represents and
warrants to the Lender and, unless the Lender is notified by either Borrower of
a change or changes effecting such representations and warranties, shall be
deemed to represent and warrant to the Lender at the time each request for an
advance under the Loans is submitted and again at the time any advance is made
under the Loans that:
SECTION 5.1 Subsidiaries. Geomet is the Company's only Subsidiary.
SECTION 5.2 Good Standing. The Company and each of its Subsidiaries (a) is
a corporation duly organized, existing and in good standing under the laws of
the jurisdiction of its incorporation, (b) has the corporate power to own its
property and to carry on its business as now being conducted, and (c) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the transaction
of its business makes such qualification necessary.
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SECTION 5.3 Power and Authority. The Company and each of its Subsidiaries
has full power and authority to execute and deliver this Agreement and each of
the other Financing Documents executed and delivered by it, to make the
borrowing hereunder, and to incur the Obligations, all of which have been duly
authorized by all proper and necessary corporate action. No consent or approval
of stockholders or of any public authority is required as a condition to the
validity or enforceability of this Agreement or any of the other Financing
Documents executed and delivered by the Borrowers.
SECTION 5.4 Binding Agreements. This Agreement and each of the other
Financing Documents executed and delivered by the Borrowers have been properly
executed by each Borrower, constitute valid and legally binding obligations of
the Borrowers, and are fully enforceable against the Borrowers in accordance
with their respective terms.
SECTION 5.5 Litigation. There are no proceedings pending or, so far as
either Borrower knows, threatened before any court or administrative agency
which will materially adversely affect the financial condition or operations of
the Company or any Subsidiary, or the authority of either Borrower to enter into
this Agreement or any of the other Financing Documents executed and delivered by
the Borrowers.
SECTION 5.6 No Conflicting Agreements. There is (a) no charter, by-law or
preference stock provision of either Borrower and no provision of any existing
mortgage, indenture, contract or agreement binding on either Borrower or
affecting its property, and (b) to the knowledge of each Borrower, no provision
of law or order of court binding upon the Borrowers, which would conflict with
or in any way prevent the execution, delivery, or performance of the terms of
this Agreement or of any of the other Financing Documents executed and delivered
by the Borrowers, or which would be violated as a result of such execution,
delivery or performance.
SECTION 5.7 Financial Condition. The financial statements of the Company
dated June 30, 1996 are complete and correct and, in the opinion of the Company,
fairly present the current financial condition of the Company and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
period involved. There are no material liabilities, direct or indirect, fixed or
contingent, of either Borrower as of the date of such financial statements which
are not reflected therein or in the notes thereto. There has been no adverse
change in the financial condition or operations of either Borrower since the
date of such financial statements (and to each Borrower's knowledge, no such
adverse change is pending or threatened), and the Borrowers have not guaranteed
the obligations of, or made any investments in or advances to, any company,
individual or other entity except as disclosed in such financial statements.
SECTION 5.8 Taxes. Each Borrower has filed or has caused to have been filed
all federal, state and local tax returns which, to the knowledge of the
Borrowers, are required to be filed, and has paid or caused to have been paid
all taxes as shown on such returns or on any assessment received by it, to the
extent that such taxes have become due, unless and to the extent only that such
taxes, assessments and governmental charges are currently contested in good
faith and by appropriate
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proceedings by the Borrowers and adequate reserves therefor have been
established as required under generally accepted accounting principles.
SECTION 5.10 Compliance With Law. Neither Borrower is in violation of any
law, ordinance, governmental rule or regulation to which it is subject and the
violation of which would have a material adverse effect on the conduct of its
business, and each Borrower has obtained any and all licenses, permits,
franchises or other governmental authorizations necessary for the ownership of
its properties and the conduct of its business.
SECTION 5.11 Place(s) of Business and Location of Collateral. The Borrowers
warrant that the address of each Borrower's chief executive office is as
specified in EXHIBIT C attached hereto and made a part hereof and that the
address of each other place of business of the Borrowers, if any, is as
disclosed to the Lender in EXHIBIT C. The Collateral and all books and records
pertaining to the Collateral are and will be located at the address indicated on
EXHIBIT C. Each Borrower will immediately advise the Lender in writing of the
opening of any new place of business or the closing of any of its existing
places of business, and of any change in the location of the places where the
Collateral, or any part thereof, or the books and records concerning the
Collateral, or any part thereof, are kept. The proper and only places to file
financing statements with respect to the Collateral within the meaning of the
Uniform Commercial Code are the Circuit Court for Fairfax County and the State
Corporation Commission. A copy of a fully executed financing statement shall be
sufficient to satisfy for all purposes the requirements of a financing statement
as set forth in Article 9 of the Virginia Uniform Commercial Code.
SECTION 5.12 Title to Properties. Each Borrower has good and marketable
title to all of its properties, including the Collateral, and the Collateral is
free and clear of mortgages, pledges, liens, charges and other encumbrances
other than the Permitted Liens.
SECTION 5.13 Margin Stock. None of the proceeds of the Loans will be used,
directly or indirectly, by the Company or any Subsidiary for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of
Governors of the Federal Reserve System (herein called "margin security" and
"margin stock") or for any other purpose which might make the transactions
contemplated herein a "purpose credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
SECTION 5.14 ERISA. With respect to any "pension plan" as defined in
Section 3(2) of ERISA, which plan is now or previously has been maintained or
contributed to by either Borrower and/or by any Commonly Controlled Entity: (a)
no "accumulated funding deficiency" as defined in Code ss.412 or ERISA ss.302
has occurred, whether or not that accumulated funding deficiency has
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been waived; (b) no "reportable event" as defined in ERISA ss.4043 has occurred;
(c) no termination of any plan subject to Title IV of ERISA has occurred; (d)
neither any Borrower nor any Commonly Controlled Entity has incurred a "complete
withdrawal" within the meaning of ERISA ss.4203 from any multiemployer plan; (e)
neither any Borrower nor any Commonly Controlled Entity has incurred a "partial
withdrawal" within the meaning of ERISA ss.4205 with respect to any
multiemployer plan; (f) no multiemployer plan to which any Borrower or any
Commonly Controlled Entity has an obligation to contribute is in
"reorganization" within the meaning of ERISA ss.4241 nor has notice been
received by any Borrower or any Commonly Controlled Entity that such a
multiemployer plan will be placed in "reorganization".
SECTION 5.15 Governmental Consent. Neither the nature of any Borrower or of
its business or properties, nor any relationship between any Borrower and any
other entity or person, nor any circumstance in connection with the making of
the Loans, or the offer, issue, sale or delivery of the Notes is such as to
require a consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority, on the part of any Borrower, as
a condition to the execution and delivery of this Agreement or any of the other
Financing Documents, the borrowing of the principal amounts of the Loans or the
offer, issue, sale or delivery of the Notes.
SECTION 5.16 Inventory. With respect to all Inventory of each Borrower, as
reflected on the books and records of each Borrower, (a) such Inventory is of
good and merchantable quality, free from defects, and (b) such Inventory is not
stored with a bailee, warehouseman or similar party, and such Inventory is
located at the places of business indicated on EXHIBIT C.
SECTION 5.17 Full Disclosure. The financial statements referred to in this
Part V do not, nor does this Agreement, nor do any written statements furnished
by the Borrowers to the Lender in connection with the making of the Loans,
contain any untrue statement of fact or omit a fact necessary to make the
statements contained therein or herein not misleading. There is no fact which
the Borrowers have not disclosed to the Lender in writing which materially
adversely affects or, will or could prove to materially adversely affect the
properties, business, prospects, profits or condition (financial or otherwise)
of the Borrowers or the ability of either Borrower to perform this Agreement.
SECTION 5.18 Presence of Hazardous Materials or Hazardous Materials
Contamination. To the best of each Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by of
either Borrower or for which either Borrower is responsible, other than
reasonable quantities of Hazardous Materials stored or kept by either Borrower
in the ordinary course of its current line of business, which Hazardous
Materials are at all times stored, used and disposed in accordance with
applicable Laws; and (b) no property owned, controlled or operated by either
Borrower has ever been used as a manufacturing, storage, or dump site for
Hazardous Materials nor is affected by Hazardous Materials Contamination at any
other property.
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SECTION 5.19 Intellectual Property. Each Borrower owns or possesses rights
to use all of the patents, trademarks, service marks, trade names, copyrights
and licenses and all rights with respect thereto necessary for the present and
planned future operation of its business, without any known conflict with the
rights of any other Person.
SECTION 5.20 Business Names and Addresses. In the five (5) years preceding
the date hereof, neither Borrower has conducted business under any name other
than its current name nor conducted its business in any jurisdiction other than
those disclosed on EXHIBIT C attached hereto.
SECTION 5.21 No Default. There is no Event of Default (as hereinafter
defined) and no event has occurred and no condition exists which with the giving
of notice or the passage of time would constitute an Event of Default. Neither
Borrower is in default under the terms of any other agreement or instrument to
which it may be a party or by which the Collateral or any of its properties may
be bound or subject.
SECTION 5.22 Compliance with Eligibility Standards. Unless the Lender is
advised by the Borrowers in writing to the contrary, each Account described in
any schedule, certificate, record and data furnished to the Lender for purposes
of calculating the Borrowing Base will at all times meet and comply with the
Eligibility Standards.
SECTION 5.23 Accounts. With respect to all Accounts and to the best of each
Borrower's knowledge (a) they are genuine, and in all respects what they purport
to be, and are not evidenced by a judgment, an instrument, or chattel paper
(unless such judgment has been assigned and such instrument or chattel paper has
been endorsed and delivered to the Lender); (b) they represent undisputed, bona
fide transactions completed in accordance with the terms and provisions
contained in the invoices and purchase orders relating thereto; (c) the goods
sold (or services rendered) which resulted in the creation of the Accounts have
been delivered or rendered to and accepted by the account debtor; (d) the
amounts shown on each Borrower's books and records, with respect thereto are
actually and absolutely owing to each Borrower and are not contingent for any
reason; (e) no payments have been or shall be made thereon except payments
turned over to the Lender by either Borrower; (f) there are no set-offs,
counterclaims or disputes known by either Borrower or asserted with respect
thereto, and neither Borrower has made any agreement with any account debtor
thereof for any deduction or discount of the sum payable thereunder except
regular discounts allowed by each Borrower in the ordinary course of its
business for prompt payment; (g) there are no facts, events or occurrences known
to either Borrower which in any way impair the validity or enforcement thereof
or tend to reduce the amount payable thereunder; (h) all account debtors
thereof, to the best of each Borrower's knowledge, have the capacity to
contract; (i) the goods sold or transferred or the services furnished giving
rise thereto are not subject to any liens except the security interest granted
to the Lender by this Agreement; (j) the Borrowers have no knowledge of any fact
or circumstance which would impair the validity or collectibility thereof; and
(k) there are no proceedings or actions known to either Borrower which are
threatened or pending
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against any account debtor which might result in any material adverse change in
its financial condition.
SECTION 5.24 Government Receivables. In addition to the representations set
forth in Section 5.23 above, with respect to all Government Receivables to the
best of either Borrower's knowledge, (a) there has been no default or
cancellation with respect thereto, (b) they are not dependent on any future
appropriation, (c) the assignment of all sums due thereunder will not violate
any Laws and is permissible under said Government Contract, (d) each Borrower
has the right to assign all monies due thereunder; and (e) any prior assignments
with respect thereto have been terminated.
SECTION 5.25 Claims and Investigations. There exist no pending or
threatened claims, investigations (whether formal or informal), litigation,
disputes, protests or other controversies involving any Borrower or any
Affiliate pertaining to or arising out of any Government Contract which, if
adversely determined, would have a material adverse effect on the business,
assets, operations or condition, financial or otherwise, of any Borrower or any
Affiliate. Neither any Borrower nor any Affiliate has filed nor has any basis
for filing any claims or demands for payment against the United States or any
other party arising out of or in connection with any Government Contract, other
than progress billings, public vouchers, and invoices submitted in the ordinary
course of business.
VI. CONDITIONS OF LENDING
The making of the Loans and any advance thereunder is subject to the
following conditions precedent:
SECTION 6.1 Opinion of Counsel for the Borrowers. On the date hereof, the
Lender shall receive the favorable written opinion of counsel for the Borrowers
satisfactory in all respects to the Lender.
SECTION 6.2 Approval of Counsel for the Lender. All legal matters incident
to the Loans and all documents necessary in the opinion of the Lender to make
the Loans shall be satisfactory in all material respects to counsel for the
Lender.
SECTION 6.3 Supporting Documents. The Lender shall receive on the date
hereof: (a) a certificate of the Secretary of each Borrower, in a form
acceptable to the Lender in all respects, dated as of the date hereof and
certifying (i) that attached thereto is a true, complete and correct copy of
resolutions adopted by the Board of Directors of each Borrower authorizing the
execution and delivery of this Agreement, the Notes and the other Financing
Documents, and the Obligations, and (ii) as to the incumbency and specimen
signature of each officer of each Borrower executing this Agreement, the Notes
and the other Financing Documents, and a certification by the President or any
Vice President of each Borrower as to the incumbency and signature of the
Secretary of such Borrower; (b) such other documents as the Lender may
reasonably require the Borrowers to execute,
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in form and substance acceptable to the Lender; and (c) such additional
information, instruments, opinions, documents, certificates and reports as the
Lender may reasonably deem necessary.
SECTION 6.4 Financing Documents. All of the Financing Documents required by
the Lender shall be executed, delivered and, if deemed necessary by the Lender,
recorded, all at the sole expense of the Borrowers.
SECTION 6.5 Insurance. The Borrowers shall have satisfied the Lender that
any and all insurance required by this Agreement is in effect as of the date of
this Agreement, and that, to the extent required by the Financing Documents, the
Lender has been named as an insured lienholder.
SECTION 6.6 Security Documents. In order to perfect the lien and security
interest created by this Agreement, the Borrowers shall have executed and
delivered to the Lender all financing statements and Security Documents (in form
and substance acceptable to the Lender in its sole discretion) deemed necessary
by the Lender, in a sufficient number of counterparts for recordation, and, at
the Borrowers' sole expense, shall record all such financing statements and
Security Documents, or cause them to be recorded, in all public offices deemed
necessary by the Lender.
SECTION 6.7 Termination Statements. The Lender shall have received from
creditors of each Borrower all termination statements covering the Collateral
required by the Lender. The termination statements shall be fully and properly
executed, in recordable form and sufficient, in the opinion of counsel for the
Lender, to terminate the interests of other creditors of each Borrower in the
Collateral.
SECTION 6.8 Compliance. At the time of the making of each advance hereunder
(a) the Company and each Subsidiary shall have complied and shall then be in
compliance with all the terms, covenants and conditions of this Agreement which
are binding upon it, (b) there shall exist no Event of Default and no event
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default, (c) the representations and warranties contained
in Part V shall be true with the same effect as though such representations and
warranties had been made at the time of the making of the advance.
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VII. AFFIRMATIVE COVENANTS OF BORROWERS
Until payment in full and the performance of all of the Obligations
hereunder, the Borrowers shall:
SECTION 7.1 Financial Statements. Furnish to the Lender:
(a) Annual Statements and Certificates. As soon as available but in no
event more than one hundred twenty (120) days after the close of each of
the Company's fiscal years, a copy of the consolidated financial statement
relating to the Company and its Subsidiaries in reasonable detail
satisfactory to the Lender, prepared in accordance with GAAP and certified
by an independent certified public accountant satisfactory to the Lender in
its reasonable discretion, which financial statement shall include a
balance sheet as at the end of such fiscal year, profit and loss statement
and a statement of changes in financial condition, and which financial
statement shall be accompanied by a certificate of the principal financial
officer of the Company setting forth the calculation of all financial
covenants under this Agreement and stating whether any event has occurred
which constitutes an Event of Default or which would constitute an Event of
Default with the giving of notice or the lapse of time or both, and, if so,
stating the facts with respect thereto.
(b) Quarterly Statements and Certificates. As soon as available but in
no event more than sixty (60) days after the close of each of the Company's
fiscal quarters, (i) consolidated balance sheets of the Company and its
Subsidiaries as at the close of such period and consolidated income and
expense statements for such period, certified by the principal financial
officer of the Company and accompanied by a certificate of that officer
setting forth the calculation of all financial covenants under this
Agreement and stating whether any event has occurred which constitutes an
Event of Default or which would constitute an Event of Default with the
giving of notice or the lapse of time or both, and, if so, stating the
facts with respect thereto, and (ii) a backlog report and list of any
Government Contract having a value in excess of $500,000.
(c) Monthly reports. Within twenty five (25) days after the end of
each month deliver reports to the Lender which shall include, in such
detail as the Lender may reasonably request, data for the preceding month
with respect to aged Accounts.
(d) Borrowing Base Reports. Within twenty five (25) days after the end
of each month the Company shall deliver to the Lender a fully completed
certificate (each a "Borrowing Base Certificate" and collectively, the
"Borrowing Base Certificates") as of such date in the form of EXHIBIT E
attached hereto. Each Borrowing Base Certificate shall be effective only as
accepted by the Lender (and with such revision, if any, as the Lender may
require as a condition to such acceptance), such acceptance to be presumed
unless the Lender otherwise notifies the Company within five (5) Banking
Days after receipt of such Borrowing Base Certificate.
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(e) Additional Reports and Information. With reasonable promptness,
such additional information, reports or statements as the Lender may from
time to time reasonably request.
SECTION 7.2 Financial Covenants.
(a) Debt Service Coverage. Maintain a Debt Service Coverage of not
less than 1.20 to 1.0 as of the last day of each fiscal quarter, based on
the four (4) quarter period ending on such date.
(b) Funded Debt to EBITDA. Maintain a ratio of Funded Debt to EBITDA
greater than the following amounts at the following times, based on the
four (4) quarter period ending on such date:
Funded Debt/EBITDA Fiscal Year Ending
------------------ ------------------
3.50 to 1.0 1997;
3.50 to 1.0 1998;
3.00 to 1.0 1999;
2.75 to 1.0 2000;
2.50 to 1.0 2001 at all times thereafter.
(c) Current Ratio. Maintain a Current Ratio of not less than 1.20 to
1.0.
(d) Liabilities to Tangible Net Worth. Maintain a ratio of liabilities
(defined in accordance with GAAP) to Tangible Net Worth not greater than
the following amounts at the following times:
Liabilities/Tangible Net Worth Fiscal Year Ending
------------------------------ ------------------
3.50 to 1.00 1997;
3.50 to 1.00 1998;
3.00 to 1.00 1999 and thereafter.
SECTION 7.3 Taxes and Claims. Pay and discharge and cause each of its
Subsidiaries to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or any of its income or properties prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any of its properties; provided,
however, the Company and the Subsidiaries shall not be required to pay any such
tax, assessment, charge, levy or claim, the payment of which is being contested
in good faith and by proper proceedings.
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SECTION 7.4 Corporate Existence. Maintain, and cause each of its
Subsidiaries to maintain, its corporate existence in good standing in the
jurisdiction in which it is incorporated and in each jurisdiction where it is
required to register or qualify to do business.
SECTION 7.5 Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, with all applicable federal, state and local laws, rules
and regulations to which it is subject and the violation of which would have a
material adverse effect on the conduct of its business.
SECTION 7.6 Governmental Regulation. Promptly notify the Lender in the
event that the Company or any Subsidiary receives any notice, claim or demand
from any governmental agency which alleges that the Company or any Subsidiary is
in violation of any of the terms of, or has failed to comply with any applicable
order issued pursuant to any federal or state statute regulating its operation
and business, including, but not limited to, the Occupational Safety and Health
Act and the Environmental Protection Act which could materially affect the
financial condition or operation of the Company or its Subsidiaries.
SECTION 7.7 Litigation. Give prompt notice in writing, with a full
description to the Lender, of all litigation and of all proceedings before any
court or any governmental or regulatory agency affecting the Company or any
Subsidiary which, if adversely decided, would materially affect the conduct of
the Company's or such Subsidiary's business, the financial condition of the
Company or such Subsidiary, or in any manner affect the Collateral.
SECTION 7.8 Use of Proceeds. Use the proceeds of the Loans for the purpose
or purposes set forth in Recital A above and, without the prior written consent
of the Lender, for no other purpose or purposes.
SECTION 7.9 Maintenance of Properties. Keep, and cause the Subsidiaries to
keep and maintain, its properties, whether owned in fee or otherwise, or leased,
in good operating condition; make and, cause the Subsidiaries to make, all
proper repairs, renewals, replacements, additions and improvements thereto
needed to maintain such properties in good operating condition; comply, and
cause the Subsidiaries to comply, with the provisions of all leases to which it
is party or under which it occupies property so as to prevent any loss or
forfeiture thereof or thereunder; and comply, or cause the Subsidiaries to
comply, with all laws, rules, regulations and orders applicable to its
properties or business or any part thereof.
SECTION 7.10 Other Liens, Security Interests, etc. Keep its properties and
assets, including, without limitation, the Collateral, free from all liens,
security interests and claims of every kind and nature, other than the security
interest granted to the Lender pursuant to this Agreement and the Permitted
Liens.
SECTION 7.11 Books and Records. (a) Keep and maintain and cause the
Subsidiaries to keep and maintain accurate books and records, (b) make and cause
the Subsidiaries to make entries on such books and records in form satisfactory
to the Lender disclosing the Lender's assignment of,
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and security interest in and lien on, the Collateral and all collections
received by the Company or any of the Subsidiaries on its Accounts, (c) furnish
and cause the Subsidiaries to furnish to the Lender promptly upon request such
information, reports, contracts, invoices, lists of purchases of Inventory
(showing names, addresses and amount owing) and other data concerning account
debtors and the Company's and Subsidiaries' Accounts and Inventory and all
contracts and collection(s) relating thereto as the Lender may from time to time
specify, (d) unless the Lender shall otherwise consent in writing, keep and
maintain and cause the Subsidiaries to keep and maintain all such books and
records mentioned in (a) above only at the addresses listed in EXHIBIT C, and
(e) permit and cause the Subsidiaries to permit any Person designated by the
Lender to enter the premises of the Company and the Subsidiaries and examine,
audit and inspect the books and records at any reasonable time and from time to
time without notice, at the Borrowers' expense.
SECTION 7.12 Business Names. Immediately notify and cause each of the
Subsidiaries to notify the Lender of any change in the name under which it
conducts its business.
SECTION 7.13 ERISA. Maintain at all times such bonding as is required by
ERISA. As soon as practicable and in any event within 15 days after it knows or
has reason to know that, with respect to any plan, a "reportable event" has
occurred, the Borrowers will deliver to the Lender a certificate signed by its
chief financial officer setting forth the details of such "reportable event".
Each Borrower shall agrees that with respect to any pension plan which any
Borrower and/or any Commonly Controlled Entity maintains or contributes to,
either now or in the future, that: (a) such bonding as is required under ERISA
will be maintained; (b) as soon as practicable and in any event within 15 days
after either Borrower or any Commonly Controlled Entity knows or has reason to
know that a "reportable event" has occurred or is likely to occur, the Borrowers
will deliver to the Lender a certificate signed by its chief financial officer
setting forth the details of such "reportable event"; (c) within 15 days after
notice is received by either Borrower or any Commonly Controlled Entity that any
multiemployer plan has been or will be placed in "reorganization" within the
meaning of ERISA ss.4241, the Borrowers will notify the Lender to that effect;
and (d) upon the Lender's request, the Borrowers will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual report
completed with respect to any "defined benefit plan", as defined in ERISA
ss.3(35).
SECTION 7.14 Management. Promptly notify the Lender of any contemplated
changes in its Senior Management subsequent to the date hereof.
SECTION 7.15 Banking Relationship. Maintain the Lender as its principal
depository.
SECTION 7.16 Notification of Events of Default and Adverse Developments.
The Borrowers will promptly notify the Lender upon obtaining knowledge of the
occurrence of:
(a) any Event of Default;
(b) any Default;
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(c) any event, development or circumstance whereby the financial
statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition
and operational results of the Company or its Subsidiaries;
(d) any default under any Government Contract or any event which if
not corrected could give rise to a default under any Government
Contract or a termination for convenience;
(e) any judicial, administrative or arbitral proceeding pending
against the Company or any of its Subsidiaries and any judicial
or administrative proceeding known by the Company to be
threatened against it or any of its Subsidiaries which, if
adversely decided, could materially adversely affect its
financial condition or operations (present or prospective); and
(f) any other development in the business or affairs of the Company
and any of its Subsidiaries which may be materially adverse;
in each case describing in detail satisfactory to the Lender the nature thereof
and, in the case of notification under clauses (i) and (ii), the action the
Borrowers propose to take with respect thereto.
SECTION 7.17 Insurance Generally. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible insurance companies on such
of its properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity; maintain
general public liability insurance against claims for personal injury, death or
property damage in such amounts as are satisfactory to the Lender and workmen's
compensation insurance in statutory amounts with such companies as are licensed
to do business in the state requiring the same; file, and cause each of its
Subsidiaries to file, with the Lender, upon its request, a detailed list of the
insurance then in effect and stating the names of the insurance companies, the
amounts and rates of the insurance, dates of the expiration thereof and the
properties and risks covered thereby; and, within thirty (30) days after notice
in writing from the Lender, obtain, and cause each of its Subsidiaries to
obtain, such additional insurance as the Lender may reasonably request.
SECTION 7.18 Insurance With Respect to Equipment and Inventory. In addition
to and not by way of limitation of Section 7.17 above, maintain and cause each
of its Subsidiaries to maintain hazard insurance with fire and extended coverage
and with loss payable to the Lender as its interest may appear on the Equipment
and Inventory in an amount at least equal to the lesser amount of the
outstanding principal amount of the Note or the fair market value of the
Equipment and Inventory (but in any event sufficient to avoid any co-insurance
obligations) and with a specific endorsement to each such insurance policy
pursuant to which the insurer agrees to give the Lender at least thirty (30)
days written notice before any alteration or cancellation of such insurance
policy and that no act or default of either Borrower shall affect the right of
the Lender to recover under such
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policy in the event of loss or damage; file, and cause each of its Subsidiaries
to file, with the Lender, upon its request, a detailed list of the insurance
then in effect and stating the names of the insurance companies, the amounts and
rates of the insurance, dates of the expiration thereof and the properties and
risks covered thereby; and, within thirty (30) days after notice in writing from
the Lender, obtain, and cause each of its Subsidiaries to obtain, such
additional insurance as the Lender may reasonably request.
SECTION 7.19 Maintenance of the Collateral. Not permit anything to be done
to the Collateral which may impair the value thereof. The Lender, or an agent
designated by the Lender, shall be permitted to enter the premises of the
Company, and the Subsidiaries, and examine, audit and inspect the Collateral at
any reasonable time and from time to time without notice. The Lender shall not
have any duty to, and each Borrower hereby releases the Lender from all claims
of loss or damage caused by the delay or failure to collect or enforce any of
the Accounts or to, preserve any rights against any other party with an interest
in the Collateral.
SECTION 7.20 Inventory. With respect to the Inventory, the Company and the
Subsidiaries shall: (a) as soon as possible upon demand by the Lender, execute
and deliver to the Lender designations of Inventory specifying the Company's and
the Subsidiaries' cost of Inventory, the retail price thereof, and such other
matters and information relating to the Inventory as the Lender may reasonably
request, (b) keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, the Company's and the
Subsidiaries' cost therefor and the selling price thereof, all of which records
shall be available to the officers, employees or agents of the Lender upon
demand for inspection and copying thereof, (c) not store any of its Inventory
with a bailee, warehouseman or similar person without the Lender's prior written
consent; provided, however, in the event the Lender does consent to such
storage, the Company and the Subsidiaries shall cause any such bailee,
warehouseman or similar person to issue and deliver to the Lender, in a form
acceptable to the Lender, warehouse receipts in the name of the Lender
evidencing the storage of Inventory, (d) permit the Lender and its agents or
representatives to inspect and examine the Inventory at any time or times
hereafter during the Company's and Subsidiaries' usual business hours, and to
check and test the same as to quality, quantity, value and condition, and (e)
acquire and maintain all Inventory free from all liens, except the security
interest granted to the Lender pursuant to this Agreement and the Permitted
Liens.
SECTION 7.21 Other Liens, Security Interests, etc. Keep the Collateral free
from all liens, security interests and claims of every kind and nature, other
than the security interest granted to the Lender pursuant to this Agreement and
the Permitted Liens.
SECTION 7.22 Defense of Title and Further Assurances. At its expense defend
the title to the Collateral (or any part thereof), and promptly upon request
execute, acknowledge and deliver any financing statement, renewal, affidavit,
deed, assignment, continuation statement, security agreement, certificate or
other document the Lender may require in order to perfect, preserve, maintain,
protect, continue and/or extend the lien or security interest granted to the
Lender under this Agreement and its priority. The Borrowers shall pay to the
Lender on demand all taxes, costs and
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expenses incurred by the Lender in connection with the preparation, execution,
recording and filing of any such document or instrument.
SECTION 7.23 Subsequent Opinion of Counsel as to Recording Requirements.
Provide to the Lender a subsequent opinion of counsel as to the filing,
recording and other requirements with which the Company and the Subsidiaries
have has complied to maintain the lien and security interest in favor of the
Lender in the Collateral in the event that the Company or any Subsidiary shall
transfer its principal place of business or the office where it keeps its
records pertaining to the Accounts.
SECTION 7.24 Assignments of Accounts. Promptly, upon request, execute and
deliver to the Lender written assignments, in form and content acceptable to the
Lender, of specific Accounts or groups of Accounts; provided, however, the lien
and/or security interest granted to the Lender under this Agreement shall not be
limited in any way to or by the inclusion or exclusion of Accounts within such
assignments. Such Accounts shall secure payment of the Obligations and are not
sold to the Lender whether or not any assignment thereof, which is separate from
this Agreement, is in form absolute.
SECTION 7.25 Notice of Returned Goods, etc. Promptly notify and cause the
Subsidiaries to promptly notify the Lender of the return, rejection or
repossession of any goods sold or delivered in respect of any Accounts, and of
any claims made in regard thereto. Whenever either Borrower obtains possession
(by return, rejection, repossession or otherwise) of any goods, the sale or
lease of which gave rise to an Account, the Borrowers will (unless the Lender
shall otherwise consent in writing) physically segregate such goods from the
Borrowers' other property, and label and hold such goods as trustee for the
Lender for such disposition as the Lender may direct.
SECTION 7.26 Collections. Until such time as the Lender shall notify the
Company and each of the Subsidiaries of the revocation of such privilege, the
Company and each of the Subsidiaries (a) shall at its own expense have the
privilege for the account of and in trust for the Lender of collecting its
Accounts and receiving in respect thereto all items of payment and shall
otherwise completely service all of the Accounts including (i) the billing,
posting and maintaining of complete records applicable thereto, and (ii) the
taking of such action with respect to such Accounts as the Lender may request or
in the absence of such request, as the Company and each of the Subsidiaries may
deem advisable; and (b) may grant, in the ordinary course of business, to any
account debtor, any rebate, refund or adjustment to which the account debtor may
be lawfully entitled, and may accept, in connection therewith, the return of
goods, the sale or lease of which shall have given rise to an Account. The
Lender may, at its option, at any time or from time to time after default
hereunder, revoke the collection privilege given to the Company and each of the
Subsidiaries herein by either giving notice of its assignment of, and lien on
the Collateral to the account debtors or giving notice of such revocation to the
Company and each of the Subsidiaries.
SECTION 7.27 Notice to Account Debtors and Escrow Account. In the event (a)
an Event of Default exists, (b) an event has occurred or condition exists which,
with the giving of notice
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or the lapse of time will constitute an Event of Default, or (c) demand has been
made for any or all of the Obligations. Promptly upon the request of the Lender
in such form and at such times as specified by the Lender, give notice of the
Lender's lien on the Accounts to the account debtors requiring the account
debtors to make payments thereon directly to the Lender.
SECTION 7.28 Government Accounts. Promptly notify the Lender if any of the
Accounts arise out of Government Contracts and execute any instruments and take
any steps required by the Lender in order that all moneys due and to become due
under such contracts with potential values in excess of $500,000 shall be
assigned to the Lender and notice thereof given to the government under the
Federal Assignment of Claims Act or any other applicable law. In addition, the
Lender may, without notice to the Borrowers, discuss the status of any
Government Contract with the contracting officer responsible for such contract,
and the Borrowers will cooperate with the Lender and its agents in connection
with such discussions.
SECTION 7.29 Hazardous Materials; Contamination. Each Borrower agrees to
(a) give notice to the Lender immediately upon either Borrower's acquiring
knowledge of the presence of any Hazardous Materials Contamination on any
property owned or leased by either Borrower or for which either Borrower is
responsible, with a full description thereof; (b) comply at all times with any
Laws governing the handling, requiring the removal, treatment or disposal of
Hazardous Materials or Hazardous Materials Contamination and provide the Lender
with satisfactory evidence of such compliance; (c) in the event of any Hazardous
Materials Contamination, provide the Lender, within thirty (30) days after a
demand by the Lender, with a bond, letter of credit or similar financial
assurance evidencing to the Lender's satisfaction that the necessary funds are
available to pay the cost of removing, treating, and disposing of such Hazardous
Materials Contamination and discharging any Lien which may be established as a
result thereof on any property owned or controlled by either Borrower or for
which either Borrower is responsible; and (d) defend, indemnify and hold
harmless the Lender and its agents, employees, trustees, successors and assigns
from any and all claims which may now or in the future (whether before or after
the termination of this Agreement) be asserted as a result of the presence of
any Hazardous Materials on any property owned or controlled by either Borrower
for which either Borrower is responsible for any Hazardous Materials
Contamination.
VIII. NEGATIVE COVENANTS OF BORROWERS
Until payment in full and the performance of all of the Obligations,
without the prior written consent of the Lender, the Company will not and will
neither cause nor permit any of its Subsidiaries to, directly or indirectly:
SECTION 8.1 Borrowings. Create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money, except (a) borrowings in existence on the date
hereof and reflected on the financial statements which the Borrowers furnished
to the Lender in writing prior to the date hereof, and (b) borrowings secured by
Permitted Liens.
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SECTION 8.2 Mortgages and Pledges. Create, incur, assume or suffer to exist
any Lien on any of its property or assets, whether now owned or hereafter
acquired, except for Permitted Liens.
SECTION 8.3 Method of Accounting. Change the method of accounting employed
in the preparation of the financial statements furnished prior to the date of
this Agreement to the Lender pursuant to Part V of this Agreement, unless
required to conform to GAAP and on the condition that the Borrowers' accountants
shall furnish such information as the Lender may request to reconcile the
changes with the Borrowers' prior financial statements.
SECTION 8.4 Merger, Acquisition or Sale of Assets. Enter into any merger or
consolidation or acquire all or substantially all the assets of any person,
firm, partnership, joint venture or corporation, or sell, lease or otherwise
dispose of any of its assets (except assets disposed of in the ordinary course
of business) provided, however, that the Company may subject to the Lender's
approval, which approval shall be in the Lender's sole and absolute discretion,
use the proceeds of the Acquisition Loan for the purpose of financing the costs
associated with the acquisition of other entities (each an "Acquisition" and
collectively, the "Acquisitions"), provided, however, that each of the following
conditions are, in the Lender's discretion, met (a) the acquired entity (the
"Target") is a going concern; (b) the Target is in a similar line of business;
(c) the Company is the controlling corporation; (f) the portion of the
Acquisition financed under the Acquisition Loan must not exceed seventy five
percent (75%) of the purchase price (based on the value of all consideration
paid for the Target, whether cash or otherwise, but not including stock); (g)
after giving affect to the Acquisition, the Borrowers' Debt Service Coverage
will be equal or greater than 1.20 to 1.00 on a pro-forma basis; (h) after
giving affect to the Acquisition, the Borrowers' ratio of Funded Debt to EBITDA
is less than or equal to 3.50 to 1.0; and (i) the Target is not an entity
headquartered or organized outside of the United States. All Targets will be
required to pledge all of their assets to secure the Loan and will be added as a
co-obligors of the Loans. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN NOR COMPLIANCE WITH ANY AND ALL OF THE CONDITIONS PRECEDENT PROVIDED IN
THIS AGREEMENT, NO PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
DOCUMENTS SHALL IMPOSE UPON THE LENDER ANY OBLIGATION TO MAKE ANY ADVANCE UNDER
THE ACQUISITION LOAN TO THE BORROWERS UNDER THE PROVISIONS OF THIS AGREEMENT.
SECTION 8.5 Advances and Loans. Lend money, give credit or make advances to
any person, firm, joint venture or corporation, including, without limitation,
officers, directors, employees, Subsidiaries and Affiliates of the Company,
other than reasonable advances for travel expenses and the like incurred by
officers and employees in the ordinary course and in furtherance of the
Borrowers' business.
SECTION 8.6 Contingent Liabilities. Assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any person, firm, partnership, joint
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venture or corporation, except by the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business.
SECTION 8.7 Investments. Purchase or acquire the obligations or stock of,
or any other or additional interest in, any person, firm, partnership, joint
venture or corporation except (a) general obligations of, or obligations
unconditionally guaranteed as to principal and interest by, the United States of
America, (b) bonds, debentures, participation certificates or notes issued by
any agency or corporation which is or may hereafter be created by Act of the
Congress of the United States as an agency or instrumentality thereof, (c)
Public Housing Bonds, Temporary Notes or Preliminary Loan Notes, fully secured
by contracts with the United States, and (d) certificates of deposit issued by
the Lender.
SECTION 8.8 Subsidiaries. Create or acquire any Subsidiaries other than the
Subsidiaries existing as of the date hereof.
SECTION 8.9 Additional Stock. Issue any additional stock for more than ten
percent (10%) of any class, except stock of an existing class issued as a stock
dividend, stock options and to the Company's Employee Savings and Stock
Ownership Plan (the "ESSOP") approved by the Company's shareholders.
SECTION 8.10 Dividends and Purchase of Stock. Declare any dividend (other
than a dividend payable in capital stock of the Company) on any shares of any
class of its capital stock (other than preferred stock outstanding on the date
hereof or issued in a face amount of less than six million dollars) or apply any
of its property or assets to the purchase, redemption or other retirement of, or
set apart any sum for the payment of any dividend on, or for the purchase,
redemption or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of the Company (except pursuant to an ongoing program to purchase stock for
contribution to the Company's existing ESSOP), or permit any Subsidiary to
purchase or acquire any shares of any class of capital stock of the Company.
SECTION 8.11 ERISA Compliance. Neither the Company nor any Commonly
Controlled Entity will: (a) engage in or permit any "prohibited transaction" (as
defined in ERISA); (b) cause any "accumulated funding deficiency" as defined in
ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a
manner which could result in the imposition of a lien on the property of the
Company pursuant to ERISA; (d) terminate or consent to the termination of any
Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multiemployer Plan.
SECTION 8.12 Prohibition on Hazardous Materials. The Borrowers shall not
place, manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, controlled or operated by the
Borrowers or for which either Borrower is responsible, other than reasonable
quantities of Hazardous Materials stored or kept by either
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Borrower in the ordinary course of its current line of business, which Hazardous
Materials are at all times stored, used and disposed in accordance with
applicable Laws.
SECTION 8.13 Transfer of Collateral. Transfer, or permit the transfer, to
another location of any of the Collateral or the books and records related to
any of the Collateral; provided, however, that the Borrowers may transfer the
Collateral or the books and records related thereto to another location if (a)
the Borrowers shall have provided to the Lender prior to such transfer an
opinion of counsel addressed to the Lender to the effect that the Lender's
perfected security interest shall not be affected by such move or if it shall be
affected, setting forth the steps necessary to continue the Lender's perfected
security interest together with the commencement of such steps by the Borrowers
at their expense, and (b) shall have taken such steps.
SECTION 8.14 Sale and Leaseback. Directly or indirectly enter into any
arrangement to sell or transfer all or any substantial part of its fixed assets
then owned by it and thereupon or within one year thereafter rent or lease the
assets so sold or transferred.
SECTION 8.15 Sale of Accounts. Sell, discount, transfer, assign or
otherwise dispose of any of its Accounts, notes receivable, installment or
conditional sales agreements or any other rights to receive income, revenues or
moneys, however evidenced.
SECTION 8.16 Line of Business. Enter into any lines or areas of business
that would fundamentally change the business activities in which it is presently
engaged.
IX. EVENTS OF DEFAULT
The occurrence of one or more of the following events shall be "Events of
Default" under this Agreement, and the terms "Event of Default" or "Default"
shall mean, whenever they are used in this Agreement, any one or more of the
following events:
SECTION 9.1 Failure to Pay. The Borrowers shall fail to (a) make any
payment of principal or interest on either of the Notes within five (5) days of
when due, or (b) pay any of the Obligations, within five (5) days of when and as
the same shall become due and payable.
SECTION 9.2 Breach of Representations and Warranties. Any representation or
warranty made herein or in any report, certificate, opinion (including any
opinion of counsel for the Borrowers), financial statement or other instrument
furnished in connection with the Obligations or with the execution and delivery
of any of the Financing Documents, shall prove to have been false or misleading
when made in any material respect.
SECTION 9.3 Failure to Comply with Insurance Provisions. The Borrowers
shall fail to duly and promptly perform, comply with or observe the terms,
covenants, conditions and agreements set forth in SECTIONS 7.17 and 7.18.
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SECTION 9.4 Failure to Comply with Covenants. Default shall be made by
either Borrower in the due observance and performance of any covenant, condition
or agreement contained in SECTIONS 7.01, 7.02 7.04 or 7.16 hereof or in Part
VIII hereof.
SECTION 9.5 Other Defaults. Default shall be made by either Borrower in the
due observance or performance of any other term, covenant or agreement herein
contained, which default shall remain unremedied for thirty (30) days after
written notice thereof to the Borrowers by the Lender.
SECTION 9.6 Default Under Other Financing Documents. An event of default
shall occur under any of the other Financing Documents, and such event of
default is not cured within any applicable grace period provided therein.
SECTION 9.7 Receiver; Bankruptcy. The Company or any Subsidiary shall (a)
apply for or consent to the appointment of a receiver, trustee or liquidator of
itself or any of its property, (b) admit in writing its inability to pay its
debts as they mature, (c) make a general assignment for the benefit of
creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material allegations of a petition filed
against it in any proceeding under any such law or if corporate action shall be
taken by the Company or any Subsidiary for the purposes of effecting any of the
foregoing, or (f) by any act indicate its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any of its property, or suffer any such receivership, trusteeship or
proceeding to continue undischarged for a period of sixty (60) days.
SECTION 9.8 Judgment. Unless adequately insured in the opinion of the
Lender, the entry of a final judgment for the payment of money involving more
than $150,000 against the Company or any Subsidiary and the failure by the
Company or such Subsidiary to discharge the same, or cause it to be discharged,
within thirty (30) days from the date of the order, decree or process under
which or pursuant to which such judgment was entered, or to secure a stay of
execution pending appeal of such judgment.
SECTION 9.9 Execution; Attachment. Any execution or attachment shall be
levied against the Collateral, or any part thereof, and such execution or
attachment shall not be set aside, discharged or stayed within thirty (30) days
after the same shall have been levied.
SECTION 9.10 Default Under Other Borrowings. Default shall be made with
respect to any evidence of indebtedness or liability for borrowed money (other
than the Loans) if the effect of such default is to accelerate the maturity of
such evidence of indebtedness or liability.
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SECTION 9.11 Audit Results. If the Lender concludes after examining the
results of any audits of the Borrowers' books and records or the Collateral that
the condition of the Borrowers is unsatisfactory based on the Lender's normal
and customary underwriting practices.
SECTION 9.12 Contract Default. If (i) a notice of debarment, notice of
suspension or notice of termination for default shall have been issued under any
Government Contract, (ii) either Borrower is barred or suspended from
contracting with any part of any Governmental Authority, (iii) an investigation
of any Governmental Authority shall have been commenced in connection with any
Government Contract or either Borrower which could reasonably result in criminal
or civil liability, suspension, debarment or any other adverse administrative
action arising by reason of alleged fraud, willful misconduct, neglect, default
or other wrongdoing, (iv) the actual termination of any Government Contract due
to alleged fraud, willful misconduct, neglect, default or any other wrongdoing;
or (v) a cure notice issued under any Government Contract shall remain uncured
beyond (A) the expiration of the time period available to either Borrower
pursuant to such Government Contract and/or such cure notice, to cure the
noticed default, or (B) the date on which the other contracting party is
entitled to exercise its rights and remedies under the Government Contract as a
consequence of such default, which would materially affect the conduct of the
Company's or such Subsidiary's business, the financial condition of the Company
or such Subsidiary, or in any manner affect the Collateral.
X. RIGHTS AND REMEDIES UPON DEFAULT
SECTION 10.1 Demand; Acceleration. The occurrence or non-occurrence of an
Event of Default under this Agreement shall in no way affect or condition the
right of the Lender to demand payment at any time of any of the Obligations
which are payable on demand regardless of whether or not an Event of Default has
occurred. Upon the occurrence of an Event of Default, and in every such event
and at any time thereafter, the Lender may declare the Obligations due and
payable, without presentment, demand, protest, or any notice of any kind, all of
which are hereby expressly waived, anything contained herein or in any of the
other Financing Documents to the contrary notwithstanding.
SECTION 10.2 Specific Rights With Regard to Collateral. In addition to all
other rights and remedies provided hereunder or as shall exist at law or in
equity from time to time, the Lender may, after the occurrence of an Event of
Default, without notice to the Borrowers:
(a) request any account debtor obligated on any of the Accounts to
make payments thereon directly to the Lender, with the Lender taking
control of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or deal with the
same as it may deem advisable;
(c) make exchanges, substitutions or surrenders of all or any part of
the Collateral;
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(d) remove from any of the Company's or any Subsidiary's place of
business all books, records, ledger sheets, correspondence, invoices and
documents, relating to or evidencing any of the Collateral or without cost
or expense to the Lender, make such use of the Company's or any
Subsidiary's place(s) of business as may be reasonably necessary to
administer, control and collect the Collateral;
(e) repair, alter or supply goods if necessary to fulfill in whole or
in part the purchase order of any account debtor;
(f) demand, collect, receipt for and give renewals, extensions,
discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral;
(h) settle, renew, extend, compromise, compound, exchange or adjust
claims in respect of any of the Collateral or any legal proceedings brought
in respect thereof;
(i) endorse the name of either Borrower upon any items of payment
relating to the Collateral or on any proof of claim in bankruptcy against
an account debtor; and
(j) notify the post office authorities to change the address for the
delivery of mail to the Borrowers to such address or post office box as the
Lender may designate and receive and open all mail addressed to the
Borrowers.
SECTION 10.3 Performance by Lender. If either Borrower shall fail to pay
the Obligations or otherwise fail to perform, observe or comply with any of the
material conditions, covenants, terms, stipulations or agreements contained in
this Agreement or any of the other Financing Documents, the Lender without
notice to or demand upon the Borrowers and without waiving or releasing any of
the Obligations or any Event of Default, may (but shall be under no obligation
to) at any time thereafter make such payment or perform such act for the account
and at the expense of the Borrowers, and may enter upon the premises of each
Borrower for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums so paid or advanced
by the Lender and all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection therewith (the
"Expense Payments") together with interest thereon from the date of payment,
advance or incurring until paid in full at the rate of one percent (1%) per
annum in excess of the highest fluctuating interest rate payable under any of
the Notes from time to time shall be paid by the Borrowers to the Lender on
demand and shall constitute and become a part of the Obligations.
SECTION 10.4 Uniform Commercial Code and Other Remedies. Upon the
occurrence of an Event of Default (and in addition to all of its rights, powers
and remedies under this Agreement), the Lender shall have all of the rights and
remedies of a secured party under the Virginia
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Uniform Commercial Code and other applicable laws, and the Lender is authorized
to offset and apply to all or any part of the Obligations all moneys, credits
and other property of any nature whatsoever of either Borrower now or at any
time hereafter in the possession of, in transit to or from, under the control or
custody of, or on deposit with, the Lender. Upon demand by the Lender, the
Borrowers shall assemble the Collateral and make it available to the Lender, at
a place designated by the Lender. The Lender or its agents may enter upon each
Borrower's premises to take possession of the Collateral, to remove it, to
render it unusable, or to sell or otherwise dispose of it.
Any written notice of the sale, disposition or other intended action by the
Lender with respect to the Collateral which is sent by regular mail, postage
prepaid, to the Borrowers at the address set forth in Part XI hereof, or such
other address of the Borrowers which may from time to time be shown on the
Lender's records, at least ten (10) days prior to such sale, disposition or
other action, shall constitute reasonable notice to the Borrowers. The Borrowers
shall pay on demand all costs and expenses, including, without limitation,
attorney's fees and expenses, incurred by or on behalf of the Lender in
preparing for sale or other disposition, selling, managing, collecting or
otherwise disposing of, the Collateral. All of such costs and expenses (the
"Liquidation Costs") together with interest thereon from the date incurred until
paid in full at the Default Rate, shall be paid by the Borrowers to the Lender
on demand and shall constitute and become a part of the Obligations. Any
proceeds of sale or other disposition of the Collateral will be applied by the
Lender to the payment of the Liquidation Costs and Expense Payments, and any
balance of such proceeds will be applied by the Lender to the payment of the
balance of the Obligations in such order and manner of application as the Lender
may from time to time in its sole discretion determine. After such application
of the proceeds, any balance shall be paid to the Borrowers or to any other
party entitled thereto.
XI. MISCELLANEOUS
SECTION 11.1 Notices. All notices, certificates or other communications
hereunder shall be deemed given when delivered by hand or courier, or when
mailed by certified mail, postage prepaid, return receipt requested, addressed
as follows:
if to the Lender: NATIONSBANK, N.A.
8300 Greensboro Drive
Suite 550
McLean, Virginia 22103
Attn: Mr. Rit Amin
if to the Borrowers: VERSAR, INC.
6850 Versar Center
Springfield, Virginia 22151
Attn: Larry Sinnott
SECTION 11.2 Consents and Approvals. If any consent, approval, or
authorization of any state, municipal or other governmental department, agency
or authority or of any person, or
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any person, corporation, partnership or other entity having any interest
therein, should be necessary to effectuate any sale or other disposition of the
Collateral, the Borrowers agree to execute all such applications and other
instruments, and to take all other action, as may be required in connection with
securing any such consent, approval or authorization.
SECTION 11.3 Remedies, etc. Cumulative. Each right, power and remedy of the
Lender as provided for in this Agreement or in any of the other Financing
Documents or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Agreement or in any of the
other Financing Documents or now or hereafter existing at law or in equity, by
statute or otherwise, and the exercise or beginning of the exercise by the
Lender of any one or more of such rights, powers or remedies shall not preclude
the simultaneous or later exercise by the Lender of any or all such other
rights, powers or remedies. In order to entitle the Lender to exercise any
remedy reserved to it herein, it shall not be necessary to give any notice,
other than such notice as may be expressly required in this Agreement.
SECTION 11.4 No Waiver of Rights by the Lender. No failure or delay by the
Lender to insist upon the strict performance of any term, condition, covenant or
agreement of this Agreement or of any of the other Financing Documents, or to
exercise any right, power or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant or agreement or of any
such breach or preclude the Lender from exercising any such right, power or
remedy at any later time or times. By accepting payment after the due date of
any amount payable under this Agreement or under any of the other Financing
Documents, the Lender shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.
SECTION 11.5 Entire Agreement. The Financing Documents shall completely and
fully supersede all other agreements, both written and oral, between the Lender
and the Borrowers relating to the Obligations. Neither the Lender nor the
Borrowers shall hereafter have any rights under such prior agreements but shall
look solely to the Financing Documents for definition and determination of all
of their respective rights, liabilities and responsibilities relating to the
Obligations.
SECTION 11.6 Survival of Agreement; Successors and Assigns. All covenants,
agreements, representations and warranties made by the Borrowers herein and in
any certificate, in the Financing Documents and in any other instruments or
documents delivered pursuant hereto shall survive the making by the Lender of
the Loans and the execution and delivery of the Notes, and shall continue in
full force and effect so long as any of the Obligations are outstanding and
unpaid, INCLUDING, BUT NOT LIMITED TO, REPAYMENT IN FULL OF ALL OBLIGATIONS
UNDER THE SARNIA DOCUMENTS. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of the Borrowers, which are contained in this Agreement shall inure to
the benefit of the successors and assigns of the Lender, and all covenants,
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promises and agreements by or on behalf of the Lender which are contained in
this Agreement shall inure to the benefit of the permitted successors and
permitted assigns of the Borrowers, but this Agreement may not be assigned by
the Borrowers without the prior written consent of the Lender.
SECTION 11.7 Expenses. Each Borrower agrees to pay all out-of-pocket
expenses of the Lender (including the reasonable fees and expenses of its legal
counsel) in connection with the preparation of this Agreement, the recordation
of all financing statements and such other instruments as may be required by the
Lender at the time of, or subsequent to, the execution of this Agreement to
secure the Obligations (including any and all recordation tax and other costs
and taxes incident to recording), the enforcement of any provision of this
Agreement and the collection of the Obligations. Each Borrower agrees to
indemnify and save harmless the Lender for any liability resulting from the
failure to pay any required recordation tax, transfer taxes, recording costs or
any other expenses incurred by the Lender in connection with the Obligations.
The provisions of this Section shall survive the execution and delivery of this
Agreement and the repayment of the Obligations. Each Borrower further agrees to
reimburse the Lender upon demand for all out-of-pocket expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Lender in
enforcing any of the Obligations or any security therefor, which agreement shall
survive the termination of this Agreement and the repayment of the Obligations.
SECTION 11.8 Counterparts. This Agreement may be executed in any number of
counterparts all of which together shall constitute a single instrument.
SECTION 11.9 Governing Law. This Agreement and all of the other Financing
Documents shall be governed by, and construed in accordance with the laws of the
State.
SECTION 11.10 Modifications. No modification or waiver of any provision of
this Agreement or of any of the other Financing Documents, nor consent to any
departure by the Borrowers therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on the Borrowers in any case shall entitle the Borrowers to any other
or further notice or demand in the same, similar or other circumstance.
SECTION 11.11 Illegality. If fulfillment of any provision hereof or any
transaction related hereto or to any of the other Financing Documents, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity; and if any clause or
provisions herein contained other than the provisions hereof pertaining to
repayment of the Obligations operates or would prospectively operate to
invalidate this Agreement in whole or in part, then such clause or provision
only shall be void, as though not herein contained, and the remainder of this
Agreement shall remain operative and in full force and effect; and if such
provision pertains to repayment of the Obligations, then, at the option of the
Lender, all of the Obligations of the Borrowers to the Lender shall become
immediately due and payable.
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SECTION 11.12 Extension of Maturity. Should the principal of or interest on
the Notes become due and payable on other than a Banking Day, the maturity
thereof shall be extended to the next succeeding Banking Day and in the case of
principal, interest shall be payable thereon at the rate per annum specified in
the Notes during such extension.
SECTION 11.13 Gender, etc. Whenever used herein, the singular number shall
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders.
SECTION 11.14 Headings. The headings in this Agreement are for convenience
only and shall not limit or otherwise affect any of the terms hereof.
SECTION 11.15 Waiver of Trial by Jury. The parties hereto hereby waive
trial by jury in any action or proceeding to which both of them may be parties,
arising out of or in any way pertaining to (a) this Agreement, (b) the Loans,
Obligations, and Collateral which are the subject of this Agreement, and (c) any
and all notes, guarantees, assignments or agreements of any kind relating to the
Loans. It is agreed and understood that this waiver constitutes a waiver of
trial by jury of all claims against all parties to such actions or proceedings,
including claims against parties who are not parties to this Agreement.
This waiver is knowingly, willingly and voluntarily made by each of the
parties hereto, and the parties hereby represent that no representations of fact
or opinion have been made by any individual to induce this waiver of trial by
jury or to in any way modify or nullify its effect. The parties further
represent that they have been represented in the signing of this Agreement and
in the making of this waiver by independent legal counsel, selected of their own
free will, and that they have had the opportunity to discuss this waiver with
counsel.
SECTION 11.16 Liability of the Lender. The Borrowers hereby agree that the
Lender shall not be chargeable for any negligence, mistake, act or omission of
any accountant, examiner, agency or attorney employed by the Lender (except for
the gross negligence or willful misconduct of any person, corporation,
partnership or other entity employed by the Lender) in making examinations,
investigations or collections, or otherwise in perfecting, maintaining,
protecting or realizing upon any lien or security interest or any other interest
in the Collateral or other security for the Obligations.
SECTION 11.17 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS NOTE OR
ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR ARBITRATION OF
COMMERCIAL DISPUTES OF ENDISPUTE, INC., D/B/A J.A.M.S./ENDISPUTE ("J.A.M.S.")
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AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED
IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE RELATES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN FAIRFAX COUNTY,
VIRGINIA AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL BE DEEMED TO: (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR
(II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C.
ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE
LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SET OFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
SECTION 11.18 Right of Contribution. The Borrowers and the Lender agree
that on and after the Closing Date, each Borrower (an "Entitled Borrower") shall
be entitled to contribution from each other Borrower to the extent, if any, that
(a) an Entitled Borrower incurs any Obligations in excess of such Entitled
Borrowers Net Valuation (as hereinafter defined) or (b) the Obligations incurred
by such Entitled Borrower would leave such Entitled Borrower with an
unreasonably small
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amount of capital to enable the Entitled Borrower to operate the business in
which it is engaged, and/or the Obligations incurred by such Entitled Borrower
prevent such Entitled Borrower from paying its debts as such debts mature;
provided, however, that such right of contribution shall be subordinated to the
payment of the Obligations and may not be exercised by any Borrower until all of
the Obligations have been paid in full. Nothing in this Section shall be deemed
to in any manner impair the joint and several liability of each Borrower for any
and all of the Obligations. The provisions of this Section shall be in addition
to and shall in no manner limit any other rights of contribution available to
any Borrower. The term "Net Valuation" as used in this Section means the amount
by which (1) an Entitled Borrower's property at a fair valuation exceeds (2)
such Entitled Borrower's debts.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement on the day and year first above written.
WITNESS OR ATTEST: VERSAR, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: V.P. and CFO
WITNESS OR ATTEST: GEOMET TECHNOLOGIES, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
NATIONSBANK, N.A.
By: (SEAL)
- -------------------------- --------------------------
Rit Amin
Commercial Loan Officer
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EXHIBITS
--------
A-1. Form of Acquisition Note
A-2. Revolving Note
B. Subsidiaries
C. Places of Business
D. Liens on Collateral
E. Borrowing Base Certificate
F. Compliance Certificate
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EXHIBIT B
SUBSIDIARIES
Chief Executive Ownership Interest
Name Officer of Company
- ---- ------- ----------
GEOMET TECHNOLOGIES, INC
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EXHIBIT C
PLACES OF BUSINESS
The Borrowers' Chief Executive Office is:
6850 Versar Center
Springfield, Virginia 22151
The Borrowers have other places of business at the following addresses:
The Collateral is located at the following address(es):
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EXHIBIT D
LIENS ON COLLATERAL
Asset Covered Lienholder Balance Unpaid Principal
- ------------- ---------- ------- ----------------
45
Exhibit 10.87
FIRST AMENDMENT TO
FINANCING AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") made as of the 30th day of April, 1997 by and among VERSAR, INC., a
corporation organized under the laws of the State of Delaware ("Versar") and
GEOMET TECHNOLOGIES, INC., a corporation organized under the laws of the State
of Delaware (collectively, the "Borrowers" and each a "Borrower"), and
NATIONSBANK, N.A., a national banking association, its successors and assigns
(the "Lender").
RECITALS
A. The Borrowers are parties to a certain Financing and Security Agreement,
along with the Lender dated March 31, 1997 (as thereafter amended, modified and
renewed from time to time, the "Financing Agreement"), pursuant to which the
Lender has agreed to make available to the Borrowers a guidance line of credit
in the maximum principal amount of Five Million Dollars ($5,000,000) to be used
by the Borrowers to finance Permitted Acquisitions and a revolving credit
facility in the maximum principal amount of Three Million Dollars ($3,000,000)
to be used by the Borrowers to finance Receivables all as more fully described
in the Financing Agreement. Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings given to such terms in the Financing
Agreement.
B. The Borrowers have requested that the Lender make an Acquisition Loan in
the amount of Two Million Dollars ($2,000,000) for the purpose of acquiring not
less than seventy percent (70%) of the issued and outstanding stock of Science
Management Corporation, a Delaware corporation (together with its subsidiaries,
"SMC") and to amend the Financing Agreement in accordance with the terms and
conditions set forth below.
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NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Borrowers and the Lender do hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. Borrowing Base. Subject to the terms and conditions set forth herein
from the date hereof through the earlier of: (i) October 31, 1997, or (ii) the
date on which Versar closes on the sale of its operations located in the State
of Utah (such date being called, the "Borrowing Base Conversion Date"), the
parties hereto agree that the definition of "Borrowing Base" set forth in
Section 1.01 of the Financing Agreement shall be as follows:
"Borrowing Base" means the sum of (a) ninety percent (90%) of Eligible
Government Receivables, plus (b) eighty five percent (85%) of Eligible
Subcontractor Receivables, plus (c) eighty percent (80%) Eligible
Commercial Receivables, plus (d) the lesser of (i) fifty percent (50%) of
Eligible Unbilled Borrowing Base Receivables, or (ii) $1,500,000, minus the
sum of (y) the then outstanding balance of the Acquisitions Notes, and (z)
the then outstanding balance of the Sarnia Note.
From and after the Borrowing Base Conversion Date, the parties hereto agree that
without further notice to the Borrowers, the definition of "Borrowing Base"
shall automatically be as follows:
"Borrowing Base" means the sum of (a) ninety percent (90%) of Eligible
Government Receivables, plus (b) eighty five percent (85%) of Eligible
Subcontractor Receivables, plus (c) eighty percent (80%) Eligible
Commercial Receivables, less the sum of (y) the then outstanding balance of
the Acquisitions Notes, and (z) the then outstanding balance of the Sarnia
Note.
From and after the date hereof, for purposes of the Financing Agreement,
"Eligible Unbilled Borrowing Base Receivables@ means all Accounts arising out of
work actually performed by either
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Borrowers which (i) are eligible to be billed in accordance with the applicable
contract within thirty (30) days of the Aas of@ date of the applicable Borrowing
Base Certificate (with no additional performance required by any Person, and no
condition to payment by the account debtor, other than receipt of an appropriate
invoice). The Borrowers understand and agree that any sums outstanding under the
Revolving Loan in excess of the Borrowing Base shall be due and payable in full
on demand.
3. Period to Complete Acquisition. None of the Accounts of SMC may be
included by the Borrowers in the calculation of the Borrowing Base until such
date as the Borrowers satisfy the requirements of Sections 4 and 5 of this
Agreement and all of the following conditions have been satisfied in the
Lender's sole and absolute discretion (such date being called the "Joinder
Date"):
(a) The Lender shall have received from the Borrower evidence that all
of the unsecured bankruptcy creditors of SMC have either been paid in full
and fully released their liens on any and all of the assets of SMC, or have
entered into one or more subordination agreements in form and substance
satisfactory in all respects to the Lender and its counsel.
(b) The Borrowers shall have provided the Lender with fully executed
Subordination Agreements by and among Versar, SMC, and any and all existing
secured administrative claim lienholders of SMC (the "Subordinated
Creditors") and the Lender in form and substance satisfactory in all
respects to the Lender and its counsel (the "Administrative Claim
Subordination").
From and after the Joinder Date, all Accounts of SMC which in the Lender's sole
and absolute discretion meet the Eligibility Standards and are otherwise
acceptable to the Lender in its sole and absolute discretion, may be included by
the Borrowers in the Borrowing Base.
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4. Joinder of SMC. As soon as possible, but in no event later than June 30,
1997, the Borrowers and SMC shall execute and deliver to the Lender such
promissory notes, financing statements, security agreements and such other
documents as the Lender and its counsel may require to (i) add SMC as a co-maker
of the Obligations, (ii) add SMC as a party to the Financing Agreement and such
other Financing Documents as the Lender may require, and (iii) cause SMC to
grant to the Lender a valid and perfected first lien security interest on
substantially all of the assets of SMC to secure the Obligations.
5. Audit Period. As soon as possible, but in no event later than June 30,
1997, the Borrowers will permit, and cause SMC to permit, any Person designated
by the Lender to enter the premises of the Borrower and SMC and examine, audit
and inspect the books and records of SMC at the Borrowers' expense. The results
of such audit must be satisfactory to the Lender in all material respects.
6. Fee. In addition to the Acquisition Loan fee described in this Agreement
and in the Financing Agreement, in consideration of the Lender's agreement to
amend the Revolving Loan, the Borrowers agree to pay the Lender a fee in the
amount of One Thousand Dollars ($1,000) in each month where advances are made
against Eligible Unbilled Borrowing Base Receivables. This fee shall be paid in
arrears on the first day of each calendar month.
7. Representations. The Borrowers hereby represent to the Lender, that upon
the funding of the Acquisition Loan described herein, the Borrowers are in
compliance with all of the
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provisions of Section 8.04 of the Financing Agreement, and that no Event of
Default has occurred or is continuing immediately prior to or upon the execution
of this Agreement.
8. Conditions Precedent. This Agreement shall become effective on the date
the Lender receives the following documents, each of which shall be satisfactory
in form and substance to the Lender in its sole and absolute discretion:
(a) A fully executed Acquisition Note in the form of Exhibit A-1
attached hereto in the principal amount of $2,000,000;
(b) Payment of the Acquisition Loan fee in the amount of $10,000 by
the Borrowers;
(c) A fully executed copy of the Administrative Claim Subordination;
(d) True, correct and complete copies of all documents being executed
and delivered in connection with the acquisition of SMC;
(e) True, correct and complete copies of all notes, security
agreements, guaranties, documents or other instruments previously or now
executed and delivered by SMC and/or the Borrower to or from the
Subordinated Creditors;
(f) Proof that the Borrowers have paid all costs and expenses to the
Lender in connection with this Agreement, including but not limited to all
the Lender's attorneys fees; and
(g) Such other information, instruments, opinions, documents,
certificates and reports as the Lender may deem necessary.
9. Counterparts. This Agreement may be executed in any number of duplicate
originals or counterparts, each of which duplicate original or counterpart shall
be deemed to be an original and all taken together shall constitute one and the
same instrument.
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10. Financing Documents; Governing Law; Etc. This Agreement is one of the
Financing Documents defined in the Financing Agreement and shall be governed and
construed in accordance with the laws of the Commonwealth of Virginia. The
headings and captions in this Agreement are for the convenience of the parties
only and are not a part of this Agreement.
11. Acknowledgments. The Borrowers hereby confirm to the Lender the
enforceability and validity of each of the Financing Documents. In addition, the
Borrowers hereby agree to the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of the Borrowers under the terms of
any of the Financing Documents, except as otherwise specifically set forth in
this Agreement. The Borrowers each issue, ratify and confirm the
representations, warranties and covenants contained in the Financing Documents.
12. Modifications. This Agreement may not be supplemented, changed, waived,
discharged, terminated, modified or amended, except by written instrument
executed by the parties.
13. Full Force and Effect. Except as expressly set forth above, the
provisions of the Financing Agreement shall continue in full force and effect
and are hereby ratified and confirmed. A default under this Agreement shall be a
default under the Financing Agreement. This Agreement may be executed and
delivered in any number of counterparts, all of which, taken together, shall
constitute one agreement and any party hereto may execute this Agreement by
signing any counterpart.
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IN WITNESS WHEREOF the parties hereto have signed and sealed this Agreement
on the day and year first above written.
WITNESS OR ATTEST: VERSAR, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: V.P. and CFO
WITNESS OR ATTEST: GEOMET TECHNOLOGIES, INC.
/s/ Lula Fasold By: /s/ Lawrence W. Sinnott (SEAL)
- -------------------------- --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
LENDER:
WITNESS: NATIONSBANK, N.A.
By: (SEAL)
- -------------------------- --------------------------
Jennifer Lathrop
Commercial Lending Officer
7
Exhibit 11
VERSAR, INC. AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
(In thousands, except share data)
Years Ended June 30,
----------------------------------
1997 1996 1995
---- ---- ----
NET INCOME.................................. $ 1.256 $ 992 $ 458
========== ========== ==========
Weighted average common shares outstanding.. 5,041,455 4,905,126 4,664,260
---------- ---------- ----------
NET INCOME PER SHARE -- PRIMARY............. $ 0.24 $ 0.19 $ 0.10
========== ========== ==========
Common shares from above.................... 5,041,455 4,905,126 4,664,260
Assumed exercise of options (treasury stock
method)................................... 109,912 293,637 129,453
---------- ---------- ----------
5,151,367 5,198,763 4,793,713
========== ========== ==========
NET INCOME PER SHARE -- FULLY DILUTED....... $ 0.24 $ 0.19 $ 0.09
========== ========== ==========
Common shares from above.................... 5,041,455 4,905,126 4,664,260
Assumed exercise of options (treasury stock
method)................................... 244,354 342,597 169,586
---------- ---------- ----------
5,285,809 5,247,723 4,833,846
========== ========== ==========
Exhibit 22
Subsidiaries of the Registrant
State of Name under which subsidiary
Name Incorporation conducts business
- ---- ------------- ---------------------------
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.
Science Management Corporation** Delaware Science Management Corporation
- ----------
(a) formerly Gammaflux, Inc.
(b) formerly Versar Consultants, Inc.
* Dormant Entities
** 53.5% owned. See Note B.
Exhibit 23
Consent of Independent Public Accountants
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 Statements on Form S-8 (No. 333-21469) and S-4 (No. 333-33167).
/s/ Arthur Andersen LLP
----------------------------
Arthur Andersen LLP
Washington, D.C.
September 29, 1997
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
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