<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE
JUNE 30, 1999 NO. 1-9309
--------------
VERSAR INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-0852979
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
6850 VERSAR CENTER, SPRINGFIELD, VIRGINIA 22151
(Address of principal executive offices) (Zip code)
(703) 750-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
AMERICAN STOCK EXCHANGE
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 1, 1999 was approximately $9,934,502.
The number of shares of Common Stock outstanding as of September 1, 1999 was
6,402,048.
The Exhibit Index required by 17 CFR Part 240.0-3(c) is located on Pages 19
through 23 hereof.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission with respect to the 1999 Annual Meeting of Stockholders
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 the continued award of future
work or task orders from government and private clients, 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, 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; the ability to perform work within budget or contractual
limitations, one or more current or future claims made against the Company may
result in substantial liabilities; the possibility that acquired entities may
not perform as well as expected; the ability to attract and retain key
professional employees; 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, Inc. ("Versar") is a diversified international professional
services firm, helping clients in the private and public sectors enhance their
performance while reducing costs, conserving energy, and achieving environmental
excellence. Versar combines science, technology, and people with specialized
skills to identify customer needs to develop and implement solutions that
improve our customer's bottom line while focusing on the economics of alternate
solutions to their environmental problems. We do this by integrating our
environmental and engineering expertise into the design of facilities, systems,
and equipment. This approach improves our customer's operating performance,
conserves resources, and reduces emissions and waste generation. This ultimately
increases productivity and profitability while protecting worker health and
safety and our environment.
Versar's major business areas include: (1) environmental, health and
safety services; (2) energy conservation services; and (3) industrial and public
infrastructure services. As is indicated below, certain of these business areas
have evolved as a result of significant expansion of our personal protection
equipment business and the integration of The Greenwood Partnership, Ltd.
("TGP") into the Versar corporate group and represent a combination of TGP's
services with Versar's traditional service offerings.
ENVIRONMENTAL, HEALTH AND SAFETY SERVICES
Personal Protection Equipment (PPE)/ChemDemilitarization. A specialty
area for the Company is its Chemical Surety Laboratory and the development of
protection equipment to support counter-terrorism and the nation's Chemical
Weapons Demilitarization programs. These programs address significant public
health and safety issues and are an important business area for Versar. This
part of Versar's business expanded by 17% in fiscal year 1999 and could
represent as much as 20% of Versar's revenues in fiscal year 2000.
Versar's subsidiary, GEOMET Technologies, Inc. is in the business of
developing, testing and providing 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 a personal ice cooling system
(PICS). In July 1998, GEOMET was awarded a $38M contract for the production and
fielding of the Army's Self-Contained Toxic Environment Protection Outfit
(STEPO) System for 73 installations through the year 2002. GEOMET started
production in late fiscal year 1999. These protective suits will be used to
recover, render safe, store and dispose of unexploded chemical and biological
weapons.
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GEOMET is also a commercial supplier to remedial action contractors and
emergency responders of PPE specially qualified for chemical protection. Driven
in part by the sarin nerve gas attack on the Tokyo subway in 1995, Versar has
significantly expanded this division's offering of services to local, state,
United States, and foreign governments in support of counter-terrorism. In
fiscal year 1998 we sold protective suits to the National Guard as part of the
nation's "counter-terrorism civil defense" program. Management believes the
opportunities for commercial application of its products and services will
continue to grow in this area. We now offer our PPE products and services
through the Internet.
GEOMET is also involved in the disposal of residual chemical weapons
material at sites throughout the United States. GEOMET's program, now in its
fifth year and up for rebid in fiscal year 2000, 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.
Redevelopment of Industrial Facilities and Military Bases. Versar is
applying innovative technology and approaches that include creative financing,
and stop loss insurance in the cleanup and redevelopment of industrial and
commercial properties that are environmentally impaired or part of EPA's and the
States' Brownfields programs. Versar primarily focuses on the enhancement of
assets in the cleanup of sites and the redevelopment of industrial facilities
and commercial properties for reuse. Versar has established alliances with real
estate and investment firms, developers, insurers, and property managers to help
clients bring new life to other abandoned, contaminated sites in prime real
estate locations.
Versar provides the full range of services in remediation/corrective
action from site investigation, remedial design, and construction to the
operation and maintenance (O&M) of remedial systems. A major accomplishment of
the Company in fiscal year 1998 was the award of a worldwide environmental
remedial action services contract (RAC) to support the Air Force Center of
Environmental Excellence. This contract has an estimated value of $40M over 5
years and clearly indicates recognition of Versar as a remedial construction
contractor which is where the environmental market has been moving over the last
few years. Versar brings to its customers innovative solutions to cleanup that
are cost effective and permanent. For example, Versar has successfully
demonstrated the 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. This eliminated the need to pump and treat
the groundwater. Versar will now complete the design for the full implementation
of this technology at Lowry.
Under an existing contract to the Air Force Armstrong Labs, Versar is
separating reusable materials from bomb range residues, used targets, and other
scrap materials at Nellis Air Force Base. Versar is brokering reusable material
to aluminum processors and scrap metal smelters and reimbursing the government
for the savings.
Consulting/Engineering includes the full range of scientific,
engineering and program management services addressing prevention, detection,
control, management, and cleanup of toxic substances and hazardous waste
releases to the environment. Versar emphasizes innovation in process and
technology application to achieve better results more quickly and at less cost
in today's highly competitive market. The addition of TGP to the Versar Team
provides Versar with specialized skills in technology and the design of
industrial infrastructure to help our clients build environmental performance
into their plant operations and improve their bottom line. Our objective is to
provide a design that helps our clients become more active in preventing
pollution by applying innovative and cost-effective approaches to achieving
sustainable growth while maintaining compliance and taking corrective actions to
cleanup past problems.
Today's business challenges require viewing environmental management as
an integral part of the day to day operations so that informed decisions can be
made based on the economics of alternate solutions and their impact on
productivity and profitability. Versar helps its customers manage compliance as
part of operations and encourages
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recognition that pollution prevention and waste minimization are necessary parts
of the long-term solution to local and national environmental challenges. This
approach recognizes that there is competition for limited resources and a need
for new and better technology to eliminate waste, reduce emissions, and to
implement more cost effective corrective actions. Versar's combined strengths in
regulatory policy, risk assessment, information management, pollution control,
and treatment technology, emphasize pollution prevention and waste reduction.
Versar provides nationally recognized expert services in the area of air and
water quality, waste management, natural resources management, ecological
assessments, asbestos and lead paint abatement, industrial hygiene and a wide
range of corrective and remedial action technologies. Versar also provides
consulting and engineering services to industry and government agencies in
assessing alternative compliance strategies and their impacts on our customers'
operations and profits. We help develop plans for their implementation, obtain
necessary permits, evaluate performance, and take any corrective action
required.
Versar provides turnkey services in evaluating state-of-the-art
environmentally friendly and energy efficient technology and in designing and
installing systems that both enhance operating performance and reduce costs. For
example, Versar applied an alternative technology and paint formulation for
coating mass transit vehicles eliminating the need to install a $6M fume
collection system. Versar also redesigned the water cycle of an industrial
laundry in the Northeast so that it would recycle and reuse process water. This
both reduced water use and operating costs with less than a two year payback.
Outsourcing. Versar is increasingly providing on-site and off-site
support to help our customers manage their environmental programs. Over the last
5 years the Company has provided a full range of pollution prevention,
compliance management, cleanup, and O&M services for the Washington, D.C.
Metropolitan Area Transit Authority (WMATA). A key accomplishment in fiscal year
1999 was the renewal of our 5-year contract to support WMATA. This multimillion
dollar contract is Versar's model project that demonstrates how environmental
management can be integrated with the customer's operations on an outsourced
basis. Versar also has over 20 on-site support staff at DOD installations and
industrial facilities across the country managing a wide spectrum of customers'
environmental management functions ranging from underground storage tanks
(USTs), asbestos abatement programs, air compliance/permitting, real property
transfers, and on-site hazardous material pharmacies.
ENERGY CONSERVATION SERVICES
With the acquisition of The Greenwood Partnership, Versar now has
energy conservation services as one of its core businesses. This not only helps
diversify the Company's business, it also provides an entry to new customers in
an emerging growth market. TGP brings to Versar, engineering, design, and
construction management expertise in the upgrade of plant infrastructure to
reduce energy consumption. GEOMET has for many years provided demand side
management support to utilities in the identification and implementation of
efforts to reduce energy consumption. GEOMET has provided energy auditing and
energy conservation services for a variety of clients.
Versar, through TGP, currently has developed alliances with three major
utilities who are marketing Energy Services Performance Contracts (ESPC) for the
government and industry. These alliances include Duke Energy (DukeSolutions
Inc.), Virginia Power and Light (Evantage Co.), and Carolina P&L (Strategic
Resources Services). Potential fees on these contracts are based on energy
savings that can be achieved. Versar's utility partners make the required
investment to upgrade each facility while Versar is reimbursed on the basis of a
negotiated fixed fee.
Major utilities in the ESPC market are driven by the opportunity to
develop alliances with government and industry customers as deregulation of this
industry occurs in the U.S. The current market in the Federal sector is driven
by Executive Order 12902 that requires government facilities to reduce energy
consumption by 30% by 2005. This has been augmented by a new Executive Order
13123 issued this past year that government facilities reduce the amount of
green house gases they generate by 50% over the next decade. While energy is
still relatively cheap, government will clearly set the example for cost
effective energy investment. However, it is generally believed over the long
term the larger market for energy conservation services will exist in the
private and commercial sectors.
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INDUSTRIAL AND PUBLIC INFRASTRUCTURE SERVICES
Industrial Infrastructure Services is the core business of TGP that has
been integrated with Versar's. This service area includes providing a full range
of architectural and engineering services in industrial/commercial facilities
and supporting central mechanical and electrical utilities and building systems.
For example, TGP recently designed a microchip manufacturing facility deploying
state-of-the-art material handling, waste treatment, and utility infrastructure
support technology.
Key industrial sectors that the Company serves include the
pharmaceuticals, electronics, biotechnology, food processing, paper products,
film, plastics and fiber industries. Services include architectural design, site
development, plus the design, construction or design-build of plant facility,
and supporting utility, material handling, and waste management systems.
Versar/TGP provides design expertise in plant structures and associated
utilities, fuel handling, chemical treatment, distribution, piping systems
instrumentation and controls, substations and electric power distribution
systems. Systems are designed to optimize performance, environmental compliance,
safety, energy use, and utilization of space. Economic evaluations of
alternative designs, fuels, and operating parameters are conducted to produce
bottom line savings for our customers throughout the life cycle of heating,
cooling and electric power systems.
Services are performed for a wide range of corporate, industrial,
commercial, state, Federal, health care and educational customers. Specific
services include:
- Retrofit and Renovations
- Energy Management Studies and Audits
- Fire Protection
- Life Safety
- Performance Contracting
- Life-Cycle Analysis
- Heating and Cooling Distribution Systems
- Electrical Power and Lighting
- Building HVAC Systems
Versar is offering to take over the operation and maintenance of
utility infrastructure systems of its customers on a contract services basis.
Public Infrastructure Services include highway design and construction
oversight, municipal stormwater, water and wastewater design, and waterparks.
Versar's Utah Office has extensive depth of experience in municipal
engineering services. Over the past 20 years we have completed a large number of
projects for UDOT, municipalities and counties in the state. Projects have
included highway and interchange designs, water distribution systems, wastewater
systems, surface water drainage systems and other general civil engineering
design projects. Much of the work over the past few years has been related to
the 2002 Winter Olympics and I-15 projects, and management believes this
business will continue to grow as a result of population growth in the region.
Versar's Arizona Office has about 95 percent of the market in designing
public recreational water parks in Arizona. This market also continues to grow
rapidly as a result of strong population expansion in the region. Versar is now
designing other recreational facilities. For example, in fiscal year 1999 Versar
designed the first skateboard park in Arizona.
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MARKETS
Versar's services are evolving in response to clients' changing needs,
and market opportunities are being driven by the availability of technology
aimed at enhancing operating performance and profitability. Versar has
diversified its business over the past few years with a much greater emphasis on
(1) environmental services which help the bottom line, such as P2 initiatives
with short paybacks, redevelopment of industry properties and conversion of
military bases for alternative productive uses; (2) the emerging energy
conservation services markets with TGP providing Versar with alliances and core
capabilities to enter this new market; and (3) industrial and public
infrastructure services to respond to our clients' increasing need to expand or
upgrade plant and equipment to improve their operating performance.
- Versar is participating in a number of growth markets. These
include:
- Counter-terrorism and nuclear/biological/chemical
warfare preparedness including PPE, training,
monitoring, and analytical services.
- Industry's and government's continued focus on
productivity improvement with increased need for
services to expand or upgrade plant and utility
infrastructure.
- Expansion and revitalization of public
infrastructure.
- Deregulation of the energy industry presents
opportunities for Versar through TGP in energy
conservation projects.
- Industry and government outsourcing of non-core
functions.
- Kyoto Agreement and need to reduce Greenhouse Gases.
- Brownsfield legislation and tax incentives that will
provide opportunities in industrial and military base
redevelopment projects.
- Continued availability of new and better technology
to increase productivity, prevent pollution, and
preserve natural resources.
Versar's current client base is well balanced with 37 percent
industrial/commercial and 63 percent government. 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 42 percent of its business base. DOD is going through many of the same
issues faced by private industry including 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. DOD's major focus over the next few
years will be to reduce its infrastructure. 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 6 percent of Versar's business,
which is growing in new areas such as water quality, risk assessment, and
natural resources management. Versar thus maintains extensive knowledge of
regulatory trends and their impacts. Other Federal clients make up 3 percent of
our business and include NASA, the Departments of Energy and the Interior,
Federal Housing Authority, and Intelligence Agencies. State and local
governments make up 12 percent of Versar's business.
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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, its competitors are larger and have
greater financial resources. In the past few years, there has been a major
consolidation in the environmental services market. Versar has historically
competed primarily on its scientific, technological, and engineering expertise
as well as cost. As Versar's business mix shifts more toward providing turnkey
infrastructure and resources management 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 is 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 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, 1999, total backlog for Versar, including unfunded tasks
and orders, was approximately $244 million, as compared to approximately $301
million as of June 30, 1998, a decrease of 19 percent. Funded backlog for Versar
was approximately $41 million, an increase of 37 percent compared to
approximately $30 million as of June 30, 1998. Total backlog decreased for
fiscal year 1999 as a number of pending contracts and follow-on contracts have
not yet been awarded. 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. 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, 1999, Versar had approximately 415 full-time employees, of
which approximately 80 percent were engineers, scientists, and other
professionals. Eighty-two percent of the Company's professional employees have a
bachelors degree, 27 percent have a masters degree, and 4 percent have a
doctorate degree.
ITEM 2. PROPERTIES
The Company's executive office is located in Springfield, Virginia, a
suburb of Washington, D.C. Versar currently leases 68,414 square feet in two
buildings from Sarnia Corporation. The rent is subject to a two-percent
escalation per year. Both lease streams are subject to adjustment on June 1,
2004, at which time 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, 1999, the Company had under lease an aggregate of
approximately 204,000 square feet of office and laboratory space in the
following locations: Springfield, Lynchburg, and Williamsburg, VA; Tempe, AZ;
Alameda and Fair Oaks, CA; Northglenn, CO; Miami, FL; Lombard, IL; Hopkins, MN;
Columbia, Gaithersburg and Germantown, MD; Bristol, PA; San Antonio, TX; and
American Fork, UT. These leases are generally for terms of five years or less.
Versar believes that its facilities are suitable and adequate for its
current and foreseeable operational and administrative needs.
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ITEM 3. LEGAL PROCEEDINGS
At the end of December 1998, the Company was served with a complaint
entitled Servi-Sure Corporation v. Versar, Inc., No. 98L14567, filed in the
Circuit Court of Cook County, Illinois. In the complaint, Plaintiff alleges
damages from a property investigation conducted in December 1988 based upon
breach of contract and negligence. The Company has moved to dismiss the lawsuit
on the basis of the Illinois statute of limitations. It also continues
settlement negotiations with the Plaintiff. Based upon an evaluation of the
facts and discussions with outside counsel, management does not believe this
lawsuit will have a material adverse effect on the Company's consolidated
financial condition and results of operations.
Edward Long, a 26 year old laborer, filed suit against an indirect,
wholly-owned subsidiary of the Company and other defendants, in an action
entitled Edward Long v. SMC Environmental Services Group, Inc., et. al., in the
Court of Common Pleas, Montgomery County, Pennsylvania. This action was for
personal injuries allegedly occurring at a municipal waste transfer station
during the transfer of leachate from a tanker truck to the facility. SMC has
responded by denying liability. Discovery is ongoing. Based upon a review of the
facts and discussions with outside counsel, management does not believe this
lawsuit will have a material adverse effect on the Company's consolidated
financial condition and 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 1999.
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EXECUTIVE OFFICERS
The current executive officers of Versar, and their ages as of September 1,
1999, their current offices or positions and their business experience for at
least the past five years are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Benjamin M. Rawls 58 Chairman, Chief Executive
Officer and President
Thomas S. Rooney 65 Executive Vice President and
Chief Operating Officer
Robert L. Durfee 63 Executive Vice President,
President, GEOMET Technologies, Inc.
Lawrence A. White 56 Executive Vice President,
Corporate Development
Lawrence W. Sinnott 37 Vice President,
Chief Financial Officer and Treasurer
James C. Dobbs 54 Vice President, General Counsel and
Secretary
Gayaneh Contos 63 Senior Vice President
</TABLE>
BENJAMIN M. RAWLS, M.B.A., joined Versar as President and Chief
Executive Officer in April 1991. He became Chairman of the Board in November
1993. From 1988 to April 1991, Mr. Rawls was President and Chief Executive
Officer of Rawls Associates, Inc., a management consulting firm. Mr. Rawls was
President and Chief Executive Officer of R-C Holding, Inc. (now Air & Water
Technologies Corporation) from 1987 to 1988 and was Chairman of Metcalf & Eddy,
Inc., a subsidiary of Research-Cottrell, Inc., from 1984 to 1988.
THOMAS S. ROONEY, P.E., B.S.C.E., joined Versar in 1991 as Executive
Vice President and Chief Operating Officer. From 1989 to 1991, Mr. Rooney was
the President of Rooney Consulting, Inc., an environmental engineering company
in Haddonfield, New Jersey. 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 between
1983 and 1990 was Group Vice President of Roy F. Weston, Inc., where he managed
major programs and served as principal consultant to numerous government and
industrial clients.
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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.
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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, 1999, the Company had 878
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 1999 and 1998 are presented below.
<TABLE>
<CAPTION>
Fiscal Year High Low
----------- ---- ---
<S> <C> <C> <C>
1999 4th Quarter........................... $ 2.688 $ 1.750
3rd Quarter........................... 2.813 1.625
2nd Quarter........................... 3.000 1.500
1st Quarter........................... 4.750 1.875
Fiscal Year High Low
----------- ---- ---
1998 4th Quarter........................... $ 6.750 $ 3.875
3rd Quarter........................... 5.875 4.250
2nd Quarter........................... 6.250 4.813
1st Quarter........................... 5.750 3.500
</TABLE>
No cash dividends have been paid by Versar since it began public
trading of its stock in 1986. The Board of Directors intends to retain any
future earnings for use in the Company's business and does not anticipate paying
cash dividends in the foreseeable future. Under the terms of the Company's
revolving line of credit, approval would be required from the Company's primary
bank for the payment of any dividends.
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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,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
Consolidated Statement of Operations
related data:
<S> <C> <C> <C> <C> <C>
Gross Revenue................................... $ 58,886 $ 50,420 $ 44,935 $ 44,283 $ 39,090
Net Service Revenue............................. 38,721 34,895 31,696 31,919 29,347
Operating Income................................ 2,072 378 1,266 872 560
Income from Continuing Operations............... 1,837 276 1,109 992 458
(Loss) Income from Discontinued
Operations.................................... --- (10,429) 147 --- ---
Net Income (Loss)............................... 1,837 (10,153) 1,256 992 458
Income per share from Continuing
Operations - Diluted.......................... $ .29 $ .05 $ .21 $ .19 $ .09
(Loss) Income per share from Discontinued
Operations - Basic and Diluted................ --- (1.83) .03 --- ---
Net Income (Loss) per share - Diluted........... $ .29 $ (1.78) $ .24 $ .19 $ .09
Weighted Average Shares Outstanding -........... 6,283 5,695 5,286 5,248 4,834
Diluted
Consolidated Balance Sheet related data:
Working Capital................................. $ 8,403 $ 3,120 $ 9,140 $ 7,629 $ 5,425
Current Ratio................................... 1.90 1.23 2.21 2.14 1.64
Total Assets.................................... 22,380 21,488 21,870 16,979 28,195
Current Portion of Long-Term Debt............... 1,135 1,114 819 323 335
Long-Term Debt ................................. --- 688 1,437 2 4
Mortgage Debt of Sarnia......................... --- --- --- --- 12,062
--------- -------- -------- --------- ---------
Total Debt, excluding bank line of credit....... 1,135 1,802 2,256 325 12,401
Stockholders' Equity............................ $ 6,123 $ 3,391 $ 9,523 $ 7,776 $ 6,290
</TABLE>
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 in January 1996, Versar's guarantee was reduced
from $12.4 million to $1.5 million, and the divestiture was considered complete
for accounting purposes. Certain amounts in fiscal year 1997 have been
reclassified to reflect the two segments of SMC, engineering, design and
construction services and management services, as discontinued operations for
comparative purposes.
12
<PAGE> 13
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 the continued award of future
work or task orders from government and private clients, the ability to perform
work within budget or contractual limitations, 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, 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; the possibility that acquired
entities may not perform as well as expected; the ability to attract and retain
key professional employees; 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 revenue for fiscal year 1999 totaled $58,886,000, or
$8,466,000 (16.8%) above fiscal year 1998 gross revenue of $50,420,000. Gross
revenue for fiscal year 1998 increased by $5,485,000 (12.2%) over that reported
in fiscal year 1997. Approximately fifty percent of the increase in fiscal year
1999 gross revenue was in the Company's Rocky Mountain operations in support of
the Air Force's Armstrong contract. The majority of the remaining increase in
gross revenue was from inclusion for the full year of The Greenwood Partnership,
Ltd. ("TGP") and the kickoff of the Company's GEOMET subsidiary's STEPO suit
production contract. Gross revenue in fiscal year 1998 increased primarily due
to the inclusion of TGP revenues for a portion of that year and growth of
Versar's baseline business. As reflected in the table on page 14, government
revenue represented 63.0% of the total revenue in 1999, compared to 56.0% in
fiscal year 1998 and 64.0% in fiscal year 1997.
Purchased services and materials for fiscal year 1999 totaled
$20,165,000, or $4,640,000 (29.9%) higher than fiscal year 1998 purchased
services. Purchased services for fiscal year 1998 increased by $2,286,000
(17.3%) over that reported in fiscal year 1997. The increase in fiscal year 1999
is due to subcontracted efforts and materials acquired in the performance of the
Company's Rocky Mountain and GEOMET contracts mentioned above. The increase in
fiscal year 1998 was due to subcontracted efforts on a remediation project in
the Company's Northeast operations.
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 and unallowable costs
that are directly attributable to overhead. The percentage of these costs to net
service revenue decreased to 80.3% in fiscal year 1999 compared to 84.3% in
fiscal year 1998 and 80.1% in fiscal year 1997. The decrease in fiscal year 1999
is primarily due to improved labor utilization. Fiscal year 1998 increased due
to operating losses related to the closing of EIMS and ValuAdd divisions during
the year.
Selling, general and administrative expenses approximated 14.3% of net
service revenue in fiscal year 1999, compared to 13.7% in fiscal year 1998 and
16.0% in fiscal year 1997. The increase in fiscal year 1999 was primarily due to
higher levels of resources required for the start up of the STEPO contract as
mentioned above. The decrease in fiscal year 1998 was primarily due to the
higher revenue levels while maintaining, selling, general and administrative
expenses below fiscal year 1997 levels.
In fiscal year 1997, the Company recorded other income of $42,000 from
a non-compete agreement from the sale of its majority-owned subsidiary
Gammaflux, Inc.
13
<PAGE> 14
In fiscal year 1998, the Company recorded a special charge of $330,000
to write off receivables and goodwill for the Company's ValuAdd division. The
Company's decision to shut down the ValuAdd operations was a result of
significant business shortfalls in that operation.
Operating income for 1999 was $2,072,000, an increase of $1,694,000
over fiscal year 1998. The increase is primarily due to higher gross revenues
and improved labor utilization. In fiscal year 1998, operating income decreased
by $888,000 compared to fiscal year 1997 primarily as a result of the
disposition of the Company's ValuAdd and EIMS operations.
Interest expense during fiscal year 1999 was $521,000, an increase of
$270,000 from fiscal year 1998. The increase is primarily driven by higher
utilization of the Company's line of credit as a result of the disposition of
Science Management Corporation and its subsidiaries ("SMC") and the winding down
of its operations in fiscal year 1999.
Versar's income tax benefit for fiscal year 1999 was $286,000 compared
to a benefit of $149,000 in fiscal year 1998. A substantial valuation allowance
of approximately $3.4 million on deferred tax assets was set up at the end of
fiscal year 1998 due the losses from the discontinued operations of SMC.
Approximately $900,000 of the valuation allowance was released in fiscal year
1999 due to the improved earnings of the Company. Refer to Note I of the Notes
to Financial Statements.
In fiscal year 1998, the Company recorded a loss from discontinued
operations for the two segments acquired from SMC of $10,429,000, net of $90,000
tax benefit, including the write-off of goodwill of $5,064,000 associated with
its acquisition and operating losses for a total of $7,376,000 (net of tax) and
accrued reserves of $3,053,000 to finalize the disposition of SMC. As part of
the accrued liabilities the Company reserved approximately $1,700,000 for
operating losses in the phase out of the two segments. (Refer to Notes C and I
of the Notes to Financial Statements for further information on the
discontinuance of the engineering, design and construction services and
management services segments of SMC and the related tax impact to the Company.)
In summary, Versar's net income was $1,837,000 in fiscal year 1999,
compared to a net loss of $10,153,000 in 1998 and net income of $1,256,000 in
fiscal year 1997.
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:
<TABLE>
<CAPTION>
For the Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- -------------------
(In thousands, except for percentages)
Government
<S> <C> <C> <C> <C> <C> <C>
EPA $ 3,496 6% $ 3,493 7% $ 3,339 7%
State & Local 7,247 12% 5,460 11% 6,339 14%
Department
of Defense 24,973 42% 16,771 33% 15,952 36%
Other 1,316 3% 2,385 5% 2,972 7%
Commercial 21,854 37% 22,311 44% 16,333 36%
------- --------- -------- ---- -------- ----
Gross Revenue $58,886 100% $ 50,420 100% $ 44,935 100%
======= ========= ======== ==== ======== ====
</TABLE>
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities from continuing operations
generated $2,380,000 in cash in fiscal year 1999 of which $1,806,000 was used to
wind down the discontinued operations of SMC, resulting in a net cash flow of
$574,000. The increase in cash flow over fiscal year 1998 is primarily due to
improved earnings in fiscal year 1999.
During fiscal year 1999, the Company utilized short-term bank
financing to supplement its ability to meet day-to-day operating cash
requirements. In May 1999, the Company extended its existing line of credit for
an additional 18 months. At June 30, 1999, the Company had $8,403,000 of working
capital, compared to $3,120,000 in 1998. Working capital increased by 169%
primarily as a result of the reclassification of the Company's existing line of
credit to long term and the income generated during fiscal year 1999.
Versar's line of credit provides for advances up to $6,500,000 based on
qualifying receivables less the $900,000 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 eighty basis points (7.89% at June 30, 1999) or the prime rate.
A commitment fee of one quarter of one percent (.25%) 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, 1999 was approximately
$2,392,000. Advances under the line are due upon demand or on November 30, 2000.
The loan has certain covenants related to maintenance of financial ratios. The
Company was in compliance with the covenants as of June 30, 1999. As such, since
the line of credit is greater than one year, it has been classified as long term
on the balance sheet. Management anticipates that by November 1999 the line of
credit will be extended to November 2001. Management believes that cash
generated by operations and borrowings available from the bank line of credit
and the extension of the line will be adequate to meet the working capital needs
for fiscal year 2000.
Versar obtained a $2,000,000 promissory note from NationsBank on April
30, 1997 for the acquisition of SMC (See Note B). The interest on the note is
based on prime rate plus one half of one percent (.50%) per annum (8.25% at June
30, 1999). Principal payment commenced on May 31, 1997 and it is scheduled to be
paid in full on April 30, 2000. At June 30, 1999, approximately $687,500 was the
remaining balance due on this loan.
Versar guarantees certain debt of Sarnia Corporation. Sarnia's balance
due on the term loan was $900,000 at June 30, 1999 and, accordingly, Versar
reduced its reserve to $900,000 as of June 30, 1999. As the term loan is repaid,
the reserve will be reduced and added to Versar's equity.
ACQUISITION OF THE GREENWOOD PARTNERSHIP
On January 30, 1998, Versar completed the acquisition of The Greenwood
Partnership, P.C. As a part of the acquisition, the Company increased its
current line of credit by $2,000,000 and retired existing debt of Greenwood of
approximately $672,000, paid $300,000 in cash, recorded additional notes payable
to Greenwood stockholders of $450,000 payable over 4 years, and issued 228,572
shares of common stock. The transaction was accounted for as a purchase of
assets and the goodwill recorded as part of the transaction was approximately
$1.1 million. The assets of Greenwood are included as collateral under the
Company's line of credit.
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.
15
<PAGE> 16
BUSINESS SEGMENT
Versar currently has three business segments: environmental services,
energy conservation services, and industrial and public infrastructure services.
Currently, the energy conservation and facility infrastructure services segments
do not meet the segment reporting requirements. During fiscal year 2000, the
growth in these segments may require the Company to provide financial
disclosure.
YEAR 2000
Certain computer programs have been written using two digits rather
than four to define the applicable year, which could result in the computer
recognizing a date using "00" as the year 1900 rather than the year 2000. This,
in turn, could result in major system failures and in miscalculations, and is
generally referred to as the "Year 2000" problem. On August 4, 1998, the
Company's Board of Directors adopted a comprehensive Strategy for Achieving Year
2000 readiness program for Versar and its subsidiaries. The Versar Year 2000
program is designed to (a) identify computer systems (hardware and software) and
other equipment (telecommunications equipment and technical field equipment)
that may fail to recognize or properly process data on or after January 1, 2000;
(b) upgrade or replace all non-compliant systems, components, and software; and
(c) evaluate the Year 2000 readiness of key clients and critical vendors and
service providers.
Subsequently, management has implemented the eight step program to
identify both internally and externally the extent of any Year 2000 problem, the
cost to the Company to mitigate any Year 2000 effects and identify any
significant client or subcontractor compliance issues. These actions included a
comprehensive survey of internal equipment, systems and software to identify
potential Year 2000 failures. This included a physical inventory of such
equipment and products. We surveyed suppliers of such equipment, systems and
software on their Year 2000 readiness and any requirements for change or
upgrade. The Company then implemented a company-wide program to replace, modify,
upgrade and test such equipment, systems and software.
Presently, Versar does not believe that the Year 2000 program will
result in any additional material investments, nor does Versar have any
information that the Year 2000 problem will have material adverse effects on the
business, operations or financial performance of Versar. In the third and fourth
quarters of fiscal year 1999, the Company and its subsidiaries modified its
financial reporting and project management software, and computer systems to be
Year 2000 ready. The estimated total costs incurred for the Year 2000 program
for hardware, software and internal costs is approximately $175,000. The Company
expects any additional Year 2000 related costs to be minimal.
In addition, after completing a survey of significant customers and
suppliers, Versar is not aware of any Year 2000 problems of its customers,
suppliers or network affiliates that will have a material adverse effect on the
business, operations or financial performance of Versar. Based on the above
survey and the work completed on Versar's company-wide computers and software,
the Company does not anticipate any significant risks and, therefore, has not
developed a Year 2000 contingency plan.
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.
16
<PAGE> 17
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 1999 Annual
Meeting of Stockholders, which is expected to be filed with the Commission not
later than 120 days after the Company's 1999 fiscal year end 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 1999 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 1999 fiscal year.
17
<PAGE> 18
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, 1999 and 1998
c) Consolidated Statements of Operations for the Years Ended June
30, 1999, 1998, and 1997
d) Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1999, 1998, and 1997
e) Consolidated Statements of Cash Flows for the Years Ended June
30, 1999, 1998, and 1997
f) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
a) Schedule II - Valuation and Qualifying Accounts for the Years
Ended June 30, 1999, 1998, and 1997
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
None.
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Versar, Inc. filed as an exhibit to the
Registrant's Registration Statement on Form S-1 effective November 20, 1986
(File No. 33-9391)................................................................... (A)
3.2 Bylaws of Versar, Inc................................................................ (A)
4 Specimen of Certificate of Common Stock of Versar, Inc,.............................. (A)
10.3 Agreement dated July 31, 1990 between the Registrant and the U.S.
Army Natick RD&E Center and as modified through May 23,1991 ........................ (G)
10.10 Incentive Stock Option Plan *........................................................ (B)
10.11 Executive Tax and Investment Counseling Program...................................... (A)
10.12 Nonqualified Stock Option Plan *..................................................... (B)
10.13 Employee Incentive Plan, as amended *................................................ (E)
10.14 Incentive Stock Option Plan of Gammaflux, Inc., a subsidiary of the Registrant....... (D)
10.15 Letter agreement dated June 28, 1991 among the Registrant,
GEOMET Technologies, Inc., and Charles I. Judkins, Jr................................ (G)
10.17 Deferred Compensation Agreements dated as follows:
July 1, 1987 between the Registrant and the following persons:
Charles I. Judkins, Jr............................................................... (C)
July 1, 1988 between the Registrant and Gayaneh Contos............................... (F)
10.26 Executive Medical Plan dated August 21, 1991, effective July 1, 1991................. (G)
10.38 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)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
<S> <C> <C>
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)
10.47 Bankruptcy Court-approved Settlement Agreement and Mutual Release
between Versar Architects and Engineers, Inc. and the City of
Sterling, Colorado................................................................... (H)
10.52 Incentive Stock Option Plan of Versar, Inc. dated December 1, 1992 *................. (I)
10.65 Information Statement for the Distribution to Shareholders of Versar, Inc., the
Outstanding Shares of its Wholly-owned Subsidiary, Sarnia Corporation,
dated June 30, 1994.................................................................. (J)
10.66 Agreement dated January 13, 1994 between the Registrant and the Department of
the Air Force........................................................................ (K)
10.67 Agreement dated January 18, 1994 between the Registrant and OHM Services
Remediation Corporation.............................................................. (K)
10.70 Agreement dated July 18, 1995 between the Registrant and the U.S. Air Force
Human Systems Center................................................................. (M)
10.71 Agreement dated March 29, 1995 between the Registrant and the U.S. Army Norfolk
Corps of Engineers................................................................... (M)
10.72 Agreement dated March 16, 1995 between the Registrant and the U.S. Army Baltimore
Corps of Engineers................................................................... (M)
10.73 Agreement dated April 25, 1995 between the Registrant and the U.S. Army Philadelphia
Corps of Engineers................................................................... (M)
10.74 Agreement dated August 10, 1995 between the Registrant and the Environmental
Protection Agency.................................................................... (M)
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)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- -------- ----------- ---------
<S> <C> <C>
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..................................................................... (P)
10.85 Revolving Promissory Note, dated March 27, 1997, between the Registrant and
NationsBank, N.A..................................................................... (P)
10.86 Financing and Security Agreement, dated March 27, 1997, between the Registrant and
NationsBank, N.A..................................................................... (P)
10.87 Amendment to Financing and Security Agreement, dated April 30, 1997, between the
Registrant and NationsBank, N.A...................................................... (P)
10.88 The Greenwood Partnership Asset Acquisition Agreement................................ (Q)
10.89 Modification to NationsBank loan to increase to $5M.................................. (Q)
10.90 AFCEE RAC Contract................................................................... (Q)
10.91 Employment Agreement dated January 30, 1999 between the Registrant and
Benjamin M. Rawls*................................................................... 26-44
10.92 Employment Agreement dated January 30, 1999 between the Registrant and
Thomas S. Rooney*.................................................................... 45-63
10.93 Change of Control Severance Agreement dated January 30, 1999 between the
Registrant and Lawrence W. Sinnott*.................................................. 64-76
10.94 Change of Control Severance Agreement dated January 30, 1999 between the
Registrant and James C. Dobbs*....................................................... 77-89
10.95 Financing and Security Agreement, dated May 24, 1999, between the Registrant and
NationsBank, N.A..................................................................... 90-97
10.96 Revolving Promissory Note, dated May 24, 1999, between the Registrant and
NationsBank, N.A..................................................................... 98-112
11 Statement Re: Computation of Per Share Earnings..................................... 113
22 Subsidiaries of the Registrant....................................................... (Q)
27 Financial Data Schedules.............................................................
</TABLE>
21
<PAGE> 22
- -------------------------------------------------------------------------
* 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.
(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.
22
<PAGE> 23
(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.
(P) Incorporated by reference to similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June
30, 1997 ("FY 1997 Form 10-K") filed with the Commission on
September 29, 1997.
(Q) Incorporated by reference to similarly numbered exhibit to the
Registrant's Form 10-K Annual Report for Fiscal Year Ended June
30, 1998 ("FY1998 Form 10-K") filed with the Commission on
September 28, 1998.
23
<PAGE> 24
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)
/S/ Benjamin M. Rawls
Date: September 15, 1999
-------------------------------------
Benjamin M. Rawls
Chairman, Chief Executive Officer,
President, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/ Benjamin M. Rawls
Chairman, Chief Executive Officer, September 15, 1999
- ------------------------------------------- President, and Director
Benjamin M. Rawls
/S/ Robert L. Durfee
Executive Vice President and September 15, 1999
- ------------------------------------------- Director
Robert L. Durfee
/S/ Lawrence W. Sinnott
Vice President, Chief Financial September 15, 1999
- ------------------------------------------- Officer, Treasurer, and
Lawrence W. Sinnott Principal Accounting Officer
/S/ Michael Markels, Jr.
Chairman Emeritus and Director September 15, 1999
- -------------------------------------------
Michael Markels, Jr.
/S/ Thomas J. Shields
Director September 15, 1999
- -------------------------------------------
Thomas J. Shields
/S/ Constantine G. Caras
Director September 15, 1999
- -------------------------------------------
Constantine G. Caras
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
/S/ Pat H. Moore
Director September 15, 1999
- -------------------------------------------
Pat H. Moore
/S/ David Gladstone
Director September 15, 1999
- -------------------------------------------
David Gladstone
/S/ Charles I. Judkins, Jr.
Director September 15, 1999
- -------------------------------------------
Charles I. Judkins, Jr.
/S/ M. Lee Rice
Director September 15, 1999
- -------------------------------------------
M. Lee Rice
</TABLE>
25
<PAGE> 26
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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999, 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
Vienna, VA
September 10, 1999
F-1
<PAGE> 27
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30,
------------------------
1999 1998
-------- --------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents ........................................... $ 58 $ 72
Accounts receivable, net ............................................ 15,939 14,631
Prepaid expenses and other current assets ........................... 1,125 1,378
Deferred income taxes ............................................... 599 784
-------- --------
Total current assets .............................................. 17,721 16,865
Property and equipment, net ............................................ 2,466 2,779
Deferred income taxes .................................................. 973 502
Goodwill ............................................................... 996 1,069
Other assets ........................................................... 224 273
-------- --------
Total assets ...................................................... $ 22,380 $ 21,488
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .................................................... $ 4,290 $ 3,303
Bank line of credit ................................................. --- 3,664
Current portion of long-term debt ................................... 1,135 1,114
Accrued salaries and vacation ....................................... 2,180 1,495
Liabilities of discontinued operations, net ......................... 98 1,524
Other liabilities ................................................... 1,615 2,645
-------- --------
Total current liabilities ......................................... 9,318 13,745
Bank line of credit .................................................... 4,108 ---
Long-term debt ......................................................... --- 688
Other long-term liabilities ............................................ 1,931 2,084
Liabilities of discontinued operations, net ............................ --- 380
Reserve on guarantee of real estate debt ............................... 900 1,200
-------- --------
Total liabilities ................................................. 16,257 18,097
-------- --------
Commitments and contingencies .......................................... --- ---
Stockholders' equity
Common stock, $.01 par value; 30,000,000 shares
authorized; 6,336,758 shares and 6,071,887
shares issued and outstanding at June 30, 1999
and 1998, respectively ............................................. 63 61
Capital in excess of par value ...................................... 18,051 17,458
Accumulated deficit ................................................. (11,991) (14,128)
-------- --------
Total stockholders' equity ........................................ 6,123 3,391
-------- --------
Total liabilities and stockholders' equity ........................ $ 22,380 $ 21,488
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 28
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
GROSS REVENUE ..................................... $ 58,886 $ 50,420 $ 44,935
Purchased services and materials, at cost ...... 20,165 15,525 13,239
-------- -------- --------
NET SERVICE REVENUE ............................... 38,721 34,895 31,696
Direct costs of services and overhead .......... 31,107 29,418 25,387
Selling, general and administrative expenses ... 5,542 4,769 5,085
Other income ................................... --- --- (42)
Special charge ................................. --- 330 ---
-------- -------- --------
OPERATING INCOME .................................. 2,072 378 1,266
OTHER EXPENSE
Interest expense ............................... 521 251 97
Income tax (benefit) expense ................... (286) (149) 60
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS ................. 1,837 276 1,109
DISCONTINUED OPERATIONS
(Loss) income from discontinued operations
(net of tax benefit of $90 at June 30,
1998 and tax expense of $90 at
June 30, 1997) ........................... --- (7,376) 147
Loss on disposal of discontinued operations,
including provision of $1,700 for operating
losses during phase out period (less
applicable income taxes of $0) ........... --- (3,053) ---
-------- -------- --------
(LOSS) INCOME FROM DISCONTINUED
OPERATIONS ...................................... --- (10,429) 147
-------- -------- --------
NET INCOME (LOSS) ................................. $ 1,837 $(10,153) $ 1,256
======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS - BASIC .............................. $ .30 $ .05 $ .22
======== ======== ========
INCOME PER SHARE FROM CONTINUING
OPERATIONS - DILUTED ............................ $ .29 $ .05 $ .21
======== ======== ========
(LOSS) INCOME PER SHARE FROM
DISCONTINUED OPERATIONS - BASIC
AND DILUTED ..................................... $ --- $ (1.83) $ .03
======== ======== ========
NET INCOME (LOSS) PER SHARE - BASIC ............... $ .30 $ (1.78) $ .25
======== ======== ========
NET INCOME (LOSS) PER SHARE - DILUTED ............. $ .29 $ (1.78) $ .24
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC ............................. 6,190 5,695 5,041
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED ...................... 6,283 5,695 5,286
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 29
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30, 1999, 1998, and 1997
----------------------------------------------------------------------
Total
Number Capital in Accumu- Stock-
of Common Excess of lated Treasury holders'
Shares Stock Par Value Deficit Stock Equity
------ ----- --------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
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
--------- --------- ---------- ---------- ---------- ----------
Exercise of stock options................ 71 --- 206 --- --- 206
Common stock issued for acquisitions..... 773 8 3,061 --- --- 3,069
Common stock issued to ESSOP............. 76 1 403 --- --- 404
Decrease in guarantee of Sarnia debt..... --- --- --- 300 --- 300
Tax benefit of exercised options......... --- --- --- 42 --- 42
Net loss................................. --- --- --- (10,153) --- (10,153)
--------- --------- ---------- ---------- ---------- ----------
Balance, June 30, 1998................... 6,072 61 17,458 (14,128) --- 3,391
--------- --------- ---------- ---------- ---------- ----------
Exercise of stock options................ 5 --- 13 --- --- 13
Common stock issued to ESSOP............. 260 2 580 --- --- 582
Decrease in guarantee of
Sarnia debt ........................ --- --- --- 300 --- 300
Net income............................... --- --- --- 1,837 --- 1,837
--------- --------- ---------- ---------- ---------- ----------
Balance, June 30, 1999................... 6,337 $ 63 $ 18,051 $ (11,991) $ --- $ 6,123
========= ========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 30
VERSAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
1999 1998 1997
----------- ---------- ----------
Cash flows from operating activities
<S> <C> <C> <C>
Net income (loss) ............................................... $ 1,837 $(10,153) $ 1,256
Adjustments to reconcile net income (loss) to
net cash provided by continuing operations
Loss (income) from discontinued operations ................ --- 10,429 (147)
Depreciation and amortization ............................. 725 731 695
Goodwill write-off ........................................ --- 55 ---
Loss on sale of property and equipment .................... 39 80 36
Provision for doubtful accounts receivable ................ 92 269 (4)
Common stock issued to ESSOP .............................. 582 404 586
Deferred tax benefit ...................................... (286) (287) (135)
-------- -------- --------
Subtotal ............................................. 2,989 1,528 2,287
-------- -------- --------
Changes in assets and liabilities
Increase in accounts receivable ........................... (1,400) (2,244) (275)
Decrease (increase) in prepaids and other assets .......... 165 (716) 427
Increase in accounts payable .............................. 987 420 785
Increase (decrease) in accrued salaries and vacation. 685 8 (132)
(Decrease) increase in other liabilities .................. (1,046) 1,595 (270)
-------- -------- --------
Net cash provided by continuing
operations ........................................... 2,380 591 2,822
Changes in net assets/liabilities of discontinued
operations ........................................... (1,806) (2,258) (979)
-------- -------- --------
Net cash provided by (used in) operating activities .. 574 (1,667) 1,843
-------- -------- --------
Cash flows from investing activities
Purchases of property and equipment ............................. (378) (482) (638)
Proceeds from sale of fixed assets .............................. --- --- 60
Cash used by discontinued operations ............................ --- (77) ---
Acquisition of businesses ....................................... --- (940) (2,870)
-------- -------- --------
Net cash used in investing activities ................ (378) (1,499) (3,448)
-------- -------- --------
Cash flows from financing activities
Net borrowings (payment) on bank line of credit ................. 444 3,390 (218)
Principal payments on long-term debt ............................ (667) (520) (69)
Notes payable for leases ........................................ --- 66 ---
Borrowing for acquisition of SMC ................................ --- --- 2,000
Purchase of treasury stock ...................................... --- --- (140)
Proceeds from issuance of common stock .......................... 13 206 45
-------- -------- --------
Net cash (used in) provided by financing
activities ........................................ (210) 3,142 1,618
-------- -------- --------
Net (decrease) increase in cash .................................... (14) (24) 13
Cash at the beginning of the year .................................. 72 96 83
-------- -------- --------
Cash at the end of the year ........................................ $ 58 $ 72 $ 96
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 31
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. In September 1998, the
Company decided to discontinue its management services and engineering, design
and construction services businesses, which are classified as discontinued
operations. Both of these businesses came from the acquisition of Science
Management Corporation ("SMC") in May 1997 (see Note B). The Company's remaining
business segments are environmental services, energy conservation services and
facility infrastructure services. The energy conservation and facility
infrastructure segments are collectively less than 10% of the consolidated
revenues, operating profit and identifiable assets and therefore separate
segment reporting is not required. Both segments are expected to grow and may
become separate reportable segments in fiscal year 2000.
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. Actual results may differ from those estimates.
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 ValuAdd. The purchase resulted in the Company
recording goodwill of $97,500, which was being amortized over a five-year
period. In fiscal year 1998, the Company recorded a special charge of $330,000
to write off receivables and remaining goodwill of approximately $55,000 for the
ValuAdd operations. The Company's decision to shut down the ValuAdd operations
was a result of significant business shortfalls in the ValuAdd operations.
F-6
<PAGE> 32
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock
and all outstanding preferred stock of Science Management Corporation ("SMC")
for cash. Versar had selected a period of 15 years for amortization of the
goodwill, which was determined to be reasonable based on the mature businesses
of SMC.
On October 22, 1997, the shareholders of SMC approved the Agreement and
Plan of Merger between Versar and SMC, and SMC was merged into a wholly-owned
subsidiary of Versar effective October 23, 1997. In connection with the merger,
Versar issued approximately 533,433 shares of Versar's common stock to SMC
stockholders and SMC became a wholly-owned subsidiary of Versar. The issuance of
the 533,433 shares and transaction costs increased goodwill and equity of Versar
during the second quarter of fiscal year 1998 by approximately $2,898,000.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, in the fourth quarter of fiscal year 1998, the Company determined that
the projected future cash flows over the next 14 years, based on current
information, would not be sufficient to offset the goodwill amortization related
to the SMC acquisition. The Company further determined that the goodwill was
fully impaired and, accordingly, wrote off the entire balance of $5,064,000 of
goodwill resulting from the SMC acquisition. This write-off is included in the
loss from discontinued operations on the accompanying consolidated statements of
operations.
On January 30, 1998, Versar completed the acquisition of The Greenwood
Partnership, Ltd. ("Greenwood" or "TGP"). The transaction was accounted for as a
purchase. Goodwill recorded as part of the transaction was approximately $1.1
million. Versar is amortizing the goodwill related to the acquisition over 15
years, which was determined to be reasonable based on the mature business of
Greenwood.
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 (loss) per share: The Company presents basic earnings per
share and diluted earnings per share. Diluted earnings per share assumes
exercise of dilutive stock options using the treasury stock method.
Income taxes: The Company recognizes 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 $1,052,000 and $1,027,000 at June 30,
1999 and 1998, respectively, included in other long-term liabilities on the
accompanying consolidated balance sheets. Versar purchased key-man life
insurance policies to fund the amounts due under the deferred compensation
agreements. The cash surrender value of the policies, net of loans, is $292,000
and $176,000 at June 30, 1999 and 1998, respectively.
Cash and Cash Equivalents: All investments with an original maturity of
three months or less are considered to be cash equivalents.
Classification: Certain prior year information has been reclassified to
conform to current year presentation.
F-7
<PAGE> 33
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B ACQUISITIONS
On May 2, 1997, Versar acquired 53.5% of the outstanding common stock
and all outstanding preferred stock of SMC for $2,870,000 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, 1998) from NationsBank, N.A. The remaining
portion of $870,000 was paid with current working capital. This transaction was
accounted for under the purchase method of accounting. On October 22, 1997, the
shareholders of SMC approved the Agreement and Plan of Merger between Versar and
SMC, and SMC was merged into a wholly-owned subsidiary of Versar effective
October 23, 1997. In connection with the merger, Versar issued approximately
533,433 shares of Versar's common stock to SMC stockholders other than Versar,
and SMC became a wholly-owned subsidiary of Versar. The issuance of the 533,433
shares increased goodwill and equity of Versar during the second quarter of
fiscal year 1998 by $2,898,000. SMC represented the engineering, design and
construction services and management services segments of the Company in fiscal
year 1997. The entire balance of the goodwill was written off in fiscal year
1998 and the SMC businesses are presented as discontinued operations in fiscal
year 1998.
On January 30, 1998, Versar completed the acquisition of The Greenwood
Partnership, Ltd. As a part of the acquisition, the Company increased its
current line of credit by $2,000,000 and retired existing debt of Greenwood of
approximately $672,000, paid $300,000 in cash, recorded an additional note
payable to Greenwood stockholders of $450,000 payable over 4 years, and issued
228,572 shares of common stock. The transaction was accounted for as a purchase
of assets and goodwill recorded as part of the transaction was approximately
$1.1 million. The assets of Greenwood are now included as collateral as part of
the Company's line of credit. The Greenwood operation became part of Versar's
energy conservation segment.
NOTE C DISCONTINUED OPERATIONS
As a result of poor performance following its acquisition of SMC, the
Company determined to discontinue the operations of its management services and
engineering, design and construction services segments (acquired from SMC),
which provided services to the commercial and the petrochemical industries. The
engineering, design and construction services segment was severely impacted by
the recent downturn in the petrochemical industry and the winding down of a $20
million construction project, which reduced its sales volume by over 80%. Such a
downturn could not be reasonably anticipated as several pending projects were
put on hold or cancelled because the reduced oil prices did not make it
economically feasible for the projects. The management services segment of SMC
also suffered from the loss of three large contracts, which represented 75% of
the sales volume. SMC's sales for fiscal year 1998 were $33,283,000 and
$3,582,000 for the two months of fiscal year 1997.
In October 1998, the management services segment was sold to the
remaining SMC principals in exchange for the release of certain employment
obligations. In November 1998, the engineering, design and construction
segment's fixed assets were sold to an unrelated third party for book value. All
other remaining assets and liabilities were retained by the Company.
F-8
<PAGE> 34
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the decision for discontinuance of these
businesses, the Company recorded a loss from discontinued operations of
$10,429,000, net of $90,000 tax benefit, due to the write-off of goodwill
associated with its acquisition and operating losses of $7,376,000 (net of tax)
and accrued reserves of $3,053,000 to finalize the disposition. As part of the
accrued reserves, the Company reserved approximately $1,700,000 for operating
losses during the phase out period.
NOTE D ASSET DISPOSITIONS
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 guarantee of Sarnia's
$12,400,000 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. Sarnia has
paid down the debt that Versar has guaranteed to $900,000 at June 30, 1999, and
accordingly, Versar's current reserve is $900,000 against the guarantee. 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.
NOTE E ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
June 30,
-----------------------------
1999 1998
--------- ----------
(In thousands)
<S> <C> <C>
Billed receivables
U.S. Government .................. $ 3,534 $ 4,550
Commercial ....................... 7,134 4,665
Unbilled receivables
U.S. Government .................. 3,391 3,696
Commercial ....................... 2,489 2,336
-------- --------
16,548 15,247
Allowance for doubtful accounts .......... (609) (616)
-------- --------
$ 15,939 $ 14,631
======== ========
</TABLE>
Unbilled receivables represent amounts earned which have not yet been
billed and other amounts which can be invoiced upon completion of fixed-price
contracts, attainment of certain contract objectives, or completion of federal
and state governments' incurred cost audits. Management anticipates that the
June 30, 1999 unbilled receivables will be substantially billed and collected in
fiscal year 2000.
F-9
<PAGE> 35
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated June 30,
Useful Life ---------------------------
in Years 1999 1998
--------------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Furniture and fixtures.......................... 5 $ 1,499 $ 1,815
Equipment....................................... 3 to 10 5,538 7,176
Leasehold improvements.......................... Life of lease 2,105 2,207
---------- ----------
9,142 11,198
Accumulated depreciation
and amortization............................. (6,676) (8,419)
---------- ----------
$2,466 $ 2,779
========== ==========
</TABLE>
Depreciation and amortization of property and equipment included as
expense in the accompanying Consolidated Statements of Operations was $652,000,
$681,000, and $676,000 for the years ended June 30, 1999, 1998, and 1997,
respectively.
Maintenance and repair expenses approximated $322,000, $279,000, and
$248,000 for the years ended June 30, 1999, 1998, and 1997, respectively.
NOTE G DEBT
<TABLE>
<CAPTION>
June 30,
----------------------------
1999 1998
---------- -----------
(In thousands)
<S> <C> <C>
Bank line of credit, NationsBank, N.A............................. $ 4,108 3,664
Acquisition promissory note....................................... 688 1,438
Other............................................................. 447 364
---------- -----------
Total debt................................................... 5,243 5,466
Current portion of long-term debt................................. (1,135) (4,778)
---------- -----------
Long-term debt.................................................... $ 4,108 $ 688
========== ===========
</TABLE>
Versar's line of credit provides for advances up to $6,500,000 based on
qualifying receivables less the $900,000 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 eighty basis points (7.89% at June 30, 1999). 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, 1999 was approximately $2,392,000. The Company was in compliance with
its financial covenants at June 30, 1999. On May 24, 1999, the Company extended
its line of credit for eighteen months. As such, since the line of credit is
greater than one year, it has been classified as long-term on the balance sheet.
The loan has certain covenants related to maintenance of financial ratios.
Advances under the line are due upon demand or on November 30, 2000. Management
anticipates that by November 1999 the line of credit will be extended to
November 2001. Management
F-10
<PAGE> 36
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 2000.
Versar obtained a $2,000,000 promissory note from NationsBank on April
30, 1997 for the acquisition of SMC (See Note B). The interest on the note is
based on prime rate plus one half of one percent (.50%) per annum (8.25% at June
30, 1999). Principal payment commenced on May 31, 1997 and is scheduled to be
paid in full on April 30, 2000. At June 30, 1999, approximately $687,500 was the
remaining balance due on this loan.
Versar guarantees certain debt of Sarnia Corporation. Sarnia's balance
due on the term loan was $900,000 at June 30, 1999 and accordingly, Versar
reduced its reserve to $900,000 as of June 30, 1999. 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, 1999, 1998, and 1997, approximated
$4,906,000, $2,126,000 and $306,000, respectively, and the weighted average
interest rates for such periods were 8.00%, 8.19%, and 8.78%, respectively. The
maximum amount outstanding approximated $6,125,600, $4,449,700, and $1,146,000
during fiscal years 1999, 1998, and 1997, respectively. Weighted average
interest rates are computed by relating the interest expense to the average
month-end balance.
Interest payments were $533,000, $339,000, and $62,000 for the fiscal
years ended June 30, 1999, 1998, and 1997, respectively.
NOTE H STOCK OPTIONS
In November 1996, the stockholders approved the Versar 1996 Stock
Option Plan ("the 1996 Plan") to provide employees and directors of the Company
and certain other persons an incentive to remain as employees of the Company and
to encourage superior performance. The Company also maintains the Versar 1992
Stock Option Plan ("the 1992 Plan"), the 1982 Incentive Stock Option Plan ("the
1982 Plan"), and a Non-Qualified Option Plan adopted on April 30, 1987 ("the
1987 Plan"). Options have been granted from these plans to purchase the
Company's common stock.
At June 30, 1999, options to purchase an aggregate of approximately
1,405,000 shares of common stock were outstanding under the 1996, 1992 and 1982
Plans at per share exercise prices ranging from $1.750 to $5.375, and options to
purchase an aggregate of approximately 304,000 shares were outstanding under the
Non-Qualified Stock Option Plan at per share exercise prices ranging from $2.375
to $4.750.
Under the 1992 Plan, options 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. Certain 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.
F-11
<PAGE> 37
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options under the Stock Option 1982, 1992, and 1996 Plans are as follows:
<TABLE>
<CAPTION>
Optioned Option Price
Shares Per Share Total
------ -------------------- -----
(In thousands, except per share price)
<S> <C> <C> <C> <C>
Outstanding at June 30, 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
Issued......................... 326 3.375 to 5.375 1,466
Exercised...................... (61) 2.375 to 3.940 (176)
Cancelled...................... (19) 2.375 to 3.940 (61)
------ ---------
Outstanding at June 30, 1998 .......... 1,170 2.375 to 5.375 4,082
Issued......................... 394 1.750 to 3.063 730
Exercised...................... (5) 2.375 to 2.688 (13)
Cancelled...................... (154) 1.750 to 4.500 (527)
------ ---------
Outstanding at June 30, 1999 .......... 1,405 $ 1.750 to $ 5.375 $ 4,272
======== =========
</TABLE>
At June 30, 1999, 1998, and 1997, options of 859,000, 685,000, and
561,000 shares were exercisable under the 1982, 1992 and 1996 Plans.
Participants in the Non-Qualified Stock Option Plan include employees,
independent contractors, and, in certain circumstances, Directors of the
Company. This Plan has expired and no additional options may be granted under
its terms. The Company will continue to maintain the 1987 Plan until all options
previously granted under it have been exercised or have expired without
exercise.
F-12
<PAGE> 38
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options under the 1987 Non-Qualified Plan are as follows:
<TABLE>
<CAPTION>
Optioned Option Price
Shares Per Share Total
------ ------------------ -----
(In thousands, except per share price)
<S> <C> <C> <C> <C>
Outstanding at June 30, 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
Issued......................... --- --- to --- ---
Cancelled...................... (15) 3.125 to 3.125 (47)
Exercised...................... (10) 3.125 to 3.125 (31)
------ ---------
Outstanding at June 30, 1998 .......... 344 2.375 to 3.563 985
Issued......................... 10 4.750 to 4.750 48
Cancelled...................... (50) 3.125 to 3.125 (156)
Exercised...................... --- --- --- ---
------ --------
Outstanding at June 30, 1999 .......... 304 $ 2.375 to $ 4.750 $ 877
======= ========
</TABLE>
Non-Qualified stock options of 261,000, 250,000, and 212,000 shares
were exercisable at June 30, 1999, 1998, and 1997, respectively.
The Company applies Accounting Principles Board ("APB") Opinion No. 25
and related interpretations in accounting for its stock option plans.
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 these plans consistent with the method of SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
(In thousands, except
per share data)
<S> <C> <C> <C>
Net Income (Loss): As Reported $ 1,837 $ (10,153)
Pro Forma 1,761 (10,324)
Net Income (Loss) Per Share - Basic: As Reported $ .30 $ (1.78)
Pro Forma .28 (1.81)
</TABLE>
As permitted by SFAS No. 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.
F-13
<PAGE> 39
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average fair value of options granted was $0.97 and $2.05
during 1999 and 1998, 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 1999 and 1998: expected volatility of 53%
and 47% for 1999 and 1998, respectively; risk-free interest rate of 5.67% and
5.00% for 1999 and 1998, respectively; and expected lives of five years after
the grant date.
NOTE I INCOME TAXES
The (benefit) provision for income taxes applicable to income from
continuing operations consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Currently payable
<S> <C> <C> <C>
Federal .................. $ --- $ 95 $ 118
State .................... --- 43 77
Deferred
Federal .................. (407) (287) (135)
State .................... 121 --- ---
----- ----- -----
$(286) $(149) $ 60
===== ===== =====
</TABLE>
F-14
<PAGE> 40
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------- ---------
Deferred Tax Assets:
<S> <C> <C>
Employee benefits ..................... $ 776 $ 687
Bad debt reserves ..................... 230 314
All other reserves .................... 74 988
Discontinued operations reserves ...... 31 1,347
Alternative minimum tax credits ....... 132 22
Net operating losses .................. 1,415 ---
Net operating losses of purchased
business ............................ 1,000 1,000
State tax net operating losses ........ 262 262
Depreciation .......................... 42 50
Other ................................. 68 ---
------- -------
Total Deferred Tax Assets 4,030 4,670
Deferred Tax Liabilities:
Other ................................. (3) (1)
------- -------
Total Deferred Tax Liabilities (3) (1)
Net Deferred Tax Assets .................. 4,027 4,669
Valuation Allowance ...................... (2,455) (3,383)
------- -------
Net Deferred Tax Asset ................... $ 1,572 $ 1,286
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon generation of
sufficient income by Versar and in some cases sufficient income in specific
jurisdictions and by specific office locations. At June 30, 1999, the Company
had $132,000 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. The Company has established a valuation allowance until
the probability of realization of these assets becomes more certain.
SMC has net operating loss carryforwards of approximately $9,500,000
for federal income tax purposes, which will expire in the years 1999 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. The
utilization of the net operating losses is limited to approximately $300,000 per
year for the 12 remaining years. If the net operating losses are utilized, they
will favorably impact the results of operations as the related deferred tax
asset is fully reserved.
F-15
<PAGE> 41
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax (benefit) provision was composed of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Expected provision at federal
statutory rate .................. $ 527 $ 43 $ 397
Change in valuation allowance .......... (900) (300) (375)
State income tax, net of federal benefit 80 28 77
Permanent items ........................ 27 66 40
Other .................................. (20) 14 (79)
----- ----- -----
$(286) $(149) $ 60
===== ===== =====
</TABLE>
Income taxes paid for the years ended June 30, 1999, 1998, and 1997 were
$69,000, $ 414,000, and $307,000, respectively.
NOTE J 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. The
plan includes an Employee Stock Ownership Plan (ESOP) and an Employee Savings
Plan (401(k)). In June 1999, the plan was modified to permit voluntary
participation in the 401(k) Plan upon employment effective July 1, 1999. All
employees with at least 1,000 hours of service are eligible to participate in
the ESOP.
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
1999, 1998, and 1997, 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 their 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. All Company matching contributions were made in stock and approximated
$629,000, $514,000, and $492,000, for fiscal years 1999, 1998, and 1997,
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 made in fiscal year 1999. In fiscal year 1998, contributions
approximated $25,000. Vesting occurs over time, such that an employee is 100%
vested after seven years of participation.
F-16
<PAGE> 42
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K 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 1997 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 Company's consolidated financial position
and results of operations.
The Company leases approximately 204,000 square feet of office space,
including space leased from Sarnia, as well as data processing and other
equipment under agreements expiring through 2009. Minimum future obligations
under operating leases are as follows:
<TABLE>
<CAPTION>
Total
Years Ending June 30, Amount
--------------------- ------
(In thousands)
<S> <C> <C>
2000.................................... $ 3,127
2001.................................... 2,328
2002.................................... 2,075
2003.................................... 1,954
2004.................................... 1,689
2005 and thereafter..................... 5,959
------------
$ 17,132
============
</TABLE>
Certain of the lease payments are subject to adjustment for increases
in utility costs and real estate taxes. Total office rental expense approximated
$2,561,000, $2,663,000 and $2,658,000, for 1999, 1998 and 1997, 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-17
<PAGE> 43
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L CUSTOMER INFORMATION
A substantial portion of the Company's service revenue is derived from
contracts with the U.S. Government as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
1999 1998 1997
-------- ------- ------
(In thousands)
<S> <C> <C> <C>
U.S. Department of Defense $24,973 $16,771 $15,952
U.S. Environmental Protection Agency 3,496 3,493 3,339
Other U.S. Government Agencies 1,316 2,385 2,972
------- ------- -------
Total U.S. Government $29,785 $22,649 $22,263
======= ======= =======
</TABLE>
The Company's largest contract with the U.S. Air Force generated revenues
of approximately $7,756,000, $10,513,000 and $10,768,000 in fiscal years 1999,
1998 and 1997, respectively.
F-18
<PAGE> 44
VERSAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1999 and 1998 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year 1999
--------------------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sept 30
- ------------------------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Gross Revenue............... $ 15,015 $ 13,593 $ 15,479 $ 14,799
Net Service Revenue......... 9,660 9,605 9,414 10,042
Operating income (loss) from
continuing operations..... 639 257 601 340
Operating (loss) income from
discontinued operations... --- --- --- ---
Net income (loss)........... $ 639 $ 257 $ 601 $ 340
========= ========= ========= =========
Income (loss) per share from
continuing operations -
diluted................... $ .10 $ .04 $ .10 $ .06
========= ========= ========= =========
(Loss) income per share from
discontinued operations -
diluted................... $ --- $ --- $ --- $ ---
========= ========= ========= =========
Net income (loss) per
share - diluted........... $ .10 $ .04 $ .10 $ .06
========= ========= ========= =========
Weighted average number of
shares outstanding -
diluted................... 6,361 6,296 6,117 6,178
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1998
- -----------------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sept 30
- ------------------------------ -- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Gross Revenue............... $ 14,699 $ 13,505 $ 11,378 $ 10,838
Net Service Revenue......... 10,002 8,944 8,103 7,846
Operating income (loss) from
continuing operations..... (299) 112 379 84
Operating (loss) income from
discontinued operations... (10,442) (77) (29) 119
Net income (loss)........... $(10,741) $ 35 $ 350 $ 203
========= ========= ========== =========
Income (loss) per share from
continuing operations -
diluted................... $ (.05) $ .02 $ .06 $ .02
========= ========= ========== =========
(Loss) income per share from
discontinued operations -
diluted................... $ (1.72) $ .01 $ --- $ .02
========= ========= ========== =========
Net income (loss) per
share - diluted........... $ (1.77) $ .01 $ .06 $ .04
========= ========= ========== =========
Weighted average number of
shares outstanding -
diluted................... 6,060 6,393 6,109 5,597
========= ========= ========== =========
</TABLE>
Quarterly financial data may not equal annual totals due to rounding. Quarterly
earnings per share data may not equal annual total due to fluctuations in common
shares outstanding.
F-19
<PAGE> 45
SCHEDULE II
VERSAR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
YEAR EXPENSES CHARGE OFF YEAR
------------- ----------- ------------- -----------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
<S> <C> <C> <C> <C>
1997 $ 703,227 $ (3,862) $(109,826) $ 589,539
1998 589,539 268,485 (242,194) 615,830
1999 615,830 92,257 (99,540) 608,547
</TABLE>
F-20
<PAGE> 1
EXHIBIT 10.91
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 30th day of January, 1999, by and between VERSAR, INC., a
Delaware corporation ("Company"), its successors and assigns, and BENJAMIN M.
RAWLS ("you" or "your"). This Agreement promises you an employment relationship
and certain severance benefits during the Term of this Agreement. Capitalized
terms are defined in the last section of the Agreement.
1. PURPOSE.
The Company considers a sound and vital management team to be
essential. The Company desires to assure itself of your services which you are
willing to provide. Further, management personnel who become concerned about the
possibility that the Company may undergo a Change in Control may terminate
employment or become distracted. Accordingly, the Board has determined that
appropriate steps should be taken to minimize the distraction executives may
suffer from the possibility of a Change in Control. One step is to enter into
this Agreement with you.
2. EMPLOYMENT
Company hereby employs you and you accept employment with Company
on the terms and conditions set forth in this Agreement.
3. DUTIES
You shall serve as Chairman, President and Chief Executive Officer
of Company. Under the direction of the Board of Directors, you shall perform all
assigned duties reasonably required of an employee in such positions and shall
personally, diligently and faithfully perform these duties to the best of your
ability, on a full-time and exclusive basis.
4. COMPENSATION
Your compensation for the services performed under this Agreement
shall consist of a Base Salary and Incentive Compensation, if any, as described
below:
4.1 Base Salary. You shall receive the base salary approved by
Company's Board of Directors, payable in regular bi-weekly installments (the
"Base Salary"). The Base Salary will be reviewed annually by the Board of
Directors in accordance with standard salary review procedures in effect from
time to time for executive officers of Company. In no event shall the
26
<PAGE> 2
Base Salary be less than the Base Salary being paid to you on the date of this
Agreement, unless you agree to a reduction. In the event that your employment
with Company is terminated as provided in this Agreement, the Base Salary shall
be deemed to be your then current Base Salary or $275,000, whichever is greater.
4.2 Incentive Compensation. In addition to the Base Salary, you
shall be eligible to earn incentive compensation in the form of cash or
securities under bonus and incentive programs as may be in effect from time to
time for executive officers of Company generally ("Incentive Compensation").
4.3 Withholding. You agree and acknowledge that Company will
withhold from your compensation all taxes and other amounts which Company is
required by law to withhold, including without limitation (i) federal income
taxes, (ii) state income taxes, (iii) county, city or other local income taxes,
and (iv) social security taxes.
5. BENEFITS.
5.1 Generally. You shall be entitled to receive any and all
benefits made available to executive officers of Company generally and such
other benefits as the Board of Directors in its discretion may make available to
you from time to time.
5.2 Insurance. You shall be eligible to participate in all
medical, hospitalization, dental, life, disability and other insurance plans as
are in effect from time to time for executive officers of Company generally.
5.3 Other Benefit. In lieu of the deferred compensation program
offered in the March 21, 1991 employment letter, you shall be eligible to
participate in the Retired Executive's Insurance Program.
5.4 Personal Leave. You shall be entitled to take seven (7)
weeks of paid personal leave annually.
5.5 Reimbursement for Reasonable Business Expenses. Company
shall reimburse you for customary and reasonable expenses incurred in performing
your duties pursuant to this Agreement, in accordance with Company's then
current reimbursement policy (including appropriate itemization and
substantiation of expenses incurred).
6. TERM.
Subject to early termination of this Agreement in accordance with
Section 7 or 8 below, the term of your employment hereunder shall commence on
the date hereof, and shall continue for a period of two (2) years. You agree and
27
<PAGE> 3
acknowledge that Company has no obligation to renew this Agreement or to
continue your employment after the two-year term.
7. TERMINATION BY COMPANY.
7.1 Termination With Cause. Company shall be entitled to
terminate your employment and services immediately upon written notice to you,
except in the case of death, specifying the date of termination in the event
that (i) you fail to carry out assigned duties after being given prior warning
and an opportunity to remedy the failure; or (ii) you breach any material term
of this Agreement; (iii) you engage in fraud, dishonesty, willful misconduct,
gross negligence or breach of fiduciary duty (including without limitation any
failure to disclose a conflict of interest), in the performance of his duties
hereunder; (iv) you are convicted of a felony or crime involving moral
turpitude; (v) you suffer a permanent and total disability which for at least
six months prevents his performance of your duties hereunder if such permanent
disability is covered by Workers Compensation or long term disability insurance,
or both; or (vi) if you die. For eight weeks following Company's termination of
this Agreement with cause pursuant to this Section 7.1, Company shall continue
to pay your Base Salary in effect as of the date of termination and make
available the benefits set forth in Section 5. All other obligations of Company
hereunder shall cease as of the date of termination.
7.2 Termination Without Cause. Company shall be entitled to
terminate your employment and services without cause upon not less than sixty
(60) days' prior written notice to you specifying the date of termination. If
Company terminates your employment without cause at any time during the two-year
term, Company shall give you a lump sum payment equivalent to one year of your
then current Base Salary, any Incentive Compensation to which you would have
been entitled as of the date of termination, any deferred compensation, any
accrued personal leave and continue to make available the benefits set forth in
Section 5 for twelve (12) months. All other obligations of Company hereunder
shall cease as of the date of termination. Notwithstanding the foregoing, during
the eighteen months immediately following Company's termination of this
Agreement without cause, you shall be entitled to the vesting of any and all
stock options issued by Company pursuant to its Incentive Stock Option Plan in
accordance with the vesting schedule in your grant of options, and vesting of
any and all other options, warrants, or shares, and you shall have the right to
exercise such options or warrants, or purchase such shares under the same terms
and conditions applicable to you prior to termination.
8. TERMINATION BY YOU.
You may terminate your employment and services at any time and
for any reason by giving Company at least thirty (30) days' prior written notice
specifying the date of termination. If you terminate the Agreement in accordance
with this Section 8.1, then from the date of your notice to the date of
termination
28
<PAGE> 4
(provided that during this notice period, Company does not terminate you for
cause under Section 7.1 above), Company shall continue to pay you the Base
Salary in effect as of the date of termination, and any Incentive Compensation
to which you could have been entitled as of the date of termination, any
deferred compensation, any accrued personal leave and continue to make available
the benefits set forth in Section 5 until the date of termination. All other
obligations of Company hereunder shall cease as of the date of termination.
9. YOUR AGREEMENT ON CHANGE IN CONTROL
If one or more Potential Changes in Control occur during the Term
of this Agreement, you agree not to resign for at least six full calendar months
after a Potential Change in Control occurs, except as follows: (a) you may
resign after a Change in Control occurs; (b) you may resign if you are given
Good Reason to do so; and (c) you may terminate employment on account of
retirement on or after 65 or because you become unable to work due to serious
illness or injury.
10. EVENTS THAT TRIGGER SEVERANCE BENEFITS
10.1 Termination After a Change in Control. You will receive
Severance Benefits under this Agreement if, during the Term of this Agreement
and after a Change in Control has occurred, your employment is terminated by the
Company without Cause (other than on account of your Disability or death) or
you resign for Good Reason.
10.2 Termination After a Potential Change in Control. You also
will receive Severance Benefits under this Agreement if, during the Term of this
Agreement and after a Potential Change in Control has occurred but before a
Change in Control actually occurs, your employment is terminated by the Company
without Cause or you resign for Good Reason, but only if either: (i) you are
terminated at the direction of a Person who has entered into an agreement with
the Company that will result in a Change in Control; or (ii) the event
constituting Good Reason occurs at the direction of such Person.
10.3 Successor Fails to Assume This Agreement. You also will
receive Severance Benefits under this Agreement if, during the Term of this
Agreement, a successor to the Company fails to assume this Agreement, as
provided in Section 20.1.
11. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS
You will not be entitled to Severance Benefits if your employment
ends because you are terminated for Cause or on account of Disability or because
you resign without Good Reason, retire, or die. Except as provided in Section
10.3,
29
<PAGE> 5
you will not be entitled to Severance Benefits while you remain protected by
this Agreement and remain employed by the Company, its affiliates, or their
successors.
12. TERMINATION PROCEDURES
If you are terminated by the Company after a Change in Control and
during the Term of this Agreement, the Company shall provide you with 30 days'
advance written notice of your termination, unless you are being terminated for
Cause. The notice will indicate why you are being terminated and will set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
your termination. If you are being terminated for Cause, your notice of
termination will include a copy of a resolution duly adopted by the affirmative
vote of not less than 51% of the entire membership of the Board (at a meeting of
the Board called and held for the purpose of considering your termination (after
reasonable notice to you and an opportunity for you and your counsel to be heard
before the Board)) finding that, in the good faith opinion of the Board, Cause
for your termination exists and specifying the basis for that opinion in detail.
If you are purportedly terminated without the notice required by this Section,
your termination shall not be effective.
13. SEVERANCE BENEFITS
13.1 In General. If you become entitled to Severance Benefits
under this Agreement, you will receive all of the Severance Benefits described
in this Section.
13.2 Lump-Sum Payment in Lieu of Future Compensation. In lieu of
any further cash compensation for periods after your employment ends, you will
be paid a cash lump sum equal to two times your annual Base Salary in effect
when your employment ends or, if higher, in effect immediately before the Change
in Control, Potential Change in Control, or Good Reason event for which you
terminate employment. In addition, and without duplication, you will be paid a
cash lump sum equal to 2 times the higher of the amounts paid to you (if any)
under any existing bonus or incentive plans in the calendar year preceding the
calendar year in which your employment ends or in the calendar year preceding
the calendar year in which the Change in Control occurred (or in which the
Potential Change in Control occurred, if benefits are payable under Section 10.2
hereof).
13.3 Incentive Compensation and Options. The Company will pay you
a cash lump sum equal to any unpaid Incentive Compensation (that is not
otherwise paid to you) that you have been allocated or awarded under any
existing bonus or incentive plans for measuring periods completed before you
became entitled to Severance Benefits under this Agreement. All unvested options
to purchase Company common stock will immediately vest and remain
30
<PAGE> 6
exercisable for the longest period of time permitted under the applicable stock
option plan.
13.4 Group Insurance Benefit Continuation. During the period that
begins when you become entitled to Severance Benefits under this Agreement and
ends on the last day of the 24th calendar month beginning thereafter, the
Company shall provide, at no cost to you or your spouse or dependents, the life,
disability, accident, and health and dental insurance benefits (or substantially
similar benefits) it was providing to you and your spouse and dependents
immediately before you became entitled to Severance Benefits under this
Agreement (or immediately before a benefit reduction that constitutes Good
Reason, if you terminate employment for that Good Reason). These benefits shall
be treated as satisfying the Company's COBRA obligations. After benefit
continuation under this subsection ends, you and your spouse and dependents will
be entitled to any remaining COBRA rights.
14. TIME FOR PAYMENT
You will be paid your cash Severance Benefits within five days
after you become entitled to Severance Benefits under this Agreement (e.g.,
within five days following your termination of employment). If the amount you
are due cannot be finally determined within that period, you will receive the
minimum amount to which you are clearly entitled, as estimated in good faith by
the Company. The Company will pay the balance you are due (together with
interest at the rate provided in Internal Revenue Code Section 1274(b)(2)(B)) as
soon as the amount can be determined, but in no event later than 30 days after
you terminate employment. If your estimated payment exceeds the amount you are
due, the excess will be a loan to you, which you must repay to the Company
within five business days after demand by the Company (together with interest at
the rate provided in Code Section 1274(b)(2)(B)).
15. PAYMENT EXPLANATION
When payments are made to you, the Company will provide you with a
written statement explaining how your payments were calculated and the basis for
the calculations. This statement will include any opinions or other advice the
Company has received from auditors or consultants as to the calculation of your
benefits. If your benefit is affected by the golden parachute limitation in
Section 17, the Company will provide you with calculations relating to that
limitation and any supporting materials you reasonably need to permit you to
evaluate those calculations.
16. RELATION TO OTHER SEVERANCE PROGRAMS
Your Severance Benefits under this Agreement are in lieu of any
severance or similar benefits that may be payable to you under any other
employment agreement or other arrangement; to the extent any such benefits
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<PAGE> 7
are paid to you, they shall be applied to reduce the amount due under this
Agreement. This Agreement constitutes the entire agreement between you and the
Company and its affiliates with respect to such benefits.
17. POTENTIAL LIMITATIONS
17.1 Golden Parachute Limitation. Your aggregate payments and
benefits under this Agreement and all other contracts, arrangements, or programs
shall not exceed the maximum amount that may be paid without triggering golden
parachute penalties under Section 280G and related provisions of the Internal
Revenue Code, as determined in good faith by the Company's independent auditors.
The preceding sentence shall not apply to the extent the shareholder approval
requirements of Code Section 280G(b)(5) are satisfied. If your benefits must be
reduced to avoid triggering such penalties, your benefits will be reduced in the
priority order you designate or, if you fail promptly to designate an order, in
the priority order designated by the Company. If an amount in excess of the
limit set forth in this Section is paid to you, you must repay the excess amount
to the Company on demand, with interest at the rate provided in Code Section
1274(b)(2)(B). You and the Company agree to cooperate with each other reasonably
in connection with any administrative or judicial proceedings concerning the
existence or amount of golden parachute penalties on payments or benefits you
receive.
17.2 Section 162(m) Limitation. To the extent payments or benefits
under this Agreement would not be deductible under Code Section 162(m) if made
or provided when otherwise due under this Agreement, they shall be made or
provided later, immediately after Section 162(m) ceases to preclude their
deduction, with interest thereon at the rate provided in Code Section
1274(b)(2)(B).
17.3 Pooling of Interests Limitation. If the Company enters into a business
combination transaction that is intended to qualify for "pooling of interests"
accounting treatment and the transaction would qualify for such treatment but
for one or more provisions of this or any other agreement you have with the
Company, then such agreement, to the extent practicable, shall be interpreted so
as to permit such accounting treatment. To the extent that is not sufficient to
preserve pooling of interests accounting, any provisions of the Agreement that
would preclude such accounting treatment shall be void. All determinations under
this Section shall be made by the accounting firm whose pooling of interests
accounting opinion is required as a condition of the consummation of the
business combination transaction in question.
18. DISABILITY
Following a Change in Control, while you are absent from work as a
result of physical or mental illness, the Company will continue to pay you your
full salary and provide you all other compensation and benefits payable to you
under
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the Company's compensation or benefit plans, programs, or arrangements. These
payments will stop if and when your employment is terminated by the Company for
Disability or at the end of the Term of this Agreement, whichever is earlier.
Severance Benefits under this Agreement are not payable if you are terminated on
account of your Disability.
19. EFFECT OF REEMPLOYMENT
Your Severance Benefits will not be reduced by any other
compensation you earn or could have earned from another source.
20. SUCCESSORS
20.1 Assumption Required. In addition to obligations imposed by
law on a successor to the Company, during the Term of this Agreement the Company
will require any successor to all or substantially all of the business or assets
of the Company expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Company was required to perform. If
the Company fails to obtain such an assumption and agreement before the
effective date of a succession, you will be entitled to Severance Benefits as if
you were terminated by the Company without Cause on the effective date of that
succession.
20.2 Heirs and Assigns. This Agreement will inure to the benefit
of, and be enforceable by, your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
die while any amount is still payable to you under this Agreement, that amount
will be paid to the executor, personal representative, or administrator of your
estate.
21. GOVERNING LAW
This Agreement creates a "top hat" employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, and it shall be
interpreted, administered, and enforced in accordance with that law; the Company
is the "plan administrator." To the extent that state law is applicable, the
statutes and common law of the State of Virginia(excluding its choice of laws
statutes or common law) shall apply.
22. CLAIMS [ERISA REQUIREMENT]
22.1 When Required; Attorneys' Fees. You do not need to present a
formal claim to receive benefits payable under this Agreement. However, if you
believe that your rights under this Agreement are being violated, you must file
a formal claim with the Company in accordance with the procedures set forth in
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<PAGE> 9
this Section. The Company will pay your reasonable attorneys' fees and related
costs in enforcing your rights under this Agreement.
22.2 Initial Claim. Your claim must be presented to the Company in
writing. Within 30 days after receiving the claim, a claims official appointed
by the Company will consider your claim and issue his or her determination
thereon in writing. With your consent, the initial claim determination period
can be extended further. If you can establish that the claims official failed to
respond to your claim in a timely manner, you may treat the claim as having been
denied by the claims official.
22.3 Claim Decision. If your claim is granted, the benefits or
relief you are seeking will be provided. If your claim is wholly or partially
denied, the claims official shall, within three days, provide you with written
notice of the denial, setting forth, in a manner calculated to be understood by
you: (i) the specific reason or reasons for the denial; (ii) specific references
to the provisions on which the denial is based; (iii) a description of any
additional material or information necessary for you to perfect your claim,
together with an explanation of why the material or information is necessary;
and (iv) an explanation of the procedures for appealing denied claims. If you
establish that the claims official has failed to respond to your claim in a
timely manner, you may treat the claim as having been denied by the claims
official.
22.4 Appeal of Denied Claims. You may appeal the claims official's
denial of your claim in writing to an appeals official designated by the Company
(which may be a person, committee, or other entity) for a full and fair appeal.
You must appeal a denied claim within fifteen days after your receipt of written
notice denying your claim, or within 60 days after such written notice was due,
if the written notice was not sent. In connection with the appeals proceeding,
you (or your duly authorized representative) may review pertinent documents and
may submit issues and comments in writing. You may only present evidence and
theories during the appeal that you presented during the initial claims stage,
except for information the claims official requested you to provide to perfect
the claim. You will irrevocably waive any theories you do not in good faith
pursue through the appeal stage, such as by failing to file a timely appeal
request.
22.5 Appeal Decision. The decision by the appeals official will be
made within 10 days after your appeal request, unless special circumstances
require an extension of time, in which case the decision will be rendered as
soon as possible, but not later than fifteen days after your appeal request,
unless you agree to a greater extension of that deadline. The appeal decision
will be in writing, set forth in a manner calculated to be understood by you; it
will include specific reasons for the decision, as well as specific references
to the pertinent provisions of this Agreement on which the decision is based. If
you do not receive the appeal decision by the date it is due, you may deem your
appeal to have been denied.
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22.6 Procedures. The Company will adopt procedures by which
initial claims and appeals will be considered and resolved; different procedures
may be established for different claims. All procedures will be designed to
afford you full and fair consideration of your claim.
23. SURVIVAL.
This Agreement shall survive any Changes in Control, change in
management of Company, and any merger, consolidation, reorganization, sale of
assets or sale of stock of Company.
24. NON-COMPETITION AND NON-SOLICITATION.
24.1 Prohibition. You acknowledges that Company's business and
employee relationships are maintained at great expense and effort. You further
acknowledges that, by virtue of your employment under this Agreement, you will
have an extensive and unique opportunity to establish and maintain valuable
contacts with Company's customers and employees and the opportunity both during
and after employment to unfairly compete with Company, its subsidiaries and
affiliates. Therefore, you agree that during the term of your employment with
Company and for a period of the balance of the term of this Agreement or twelve
(12) months following termination of such employment, whichever is greater, you
shall not compete with the business of Company, its subsidiaries or affiliates.
For the purpose of this Agreement, activities among others which shall be deemed
competitive include: (i) encouraging any customers of Company, its subsidiaries
or affiliates to become a customer of you or of any other person except through
normal competitive bidding; or (ii) encouraging any employee of Company, its
subsidiaries or affiliates to become your employee or of any other person.
24.2 Remedies for Breach. You acknowledge that the damage to
Company, its subsidiaries and affiliates resulting from a breach of this Section
24 may cause irreparable injury. Therefore, in the event of any such breach,
Company, its subsidiaries and affiliates shall be entitled to seek such remedies
as are available at law or equity to restrain and enjoin you from continuing to
violate the provisions of this Section 24.
24.3 Binding Effect. In the event that any part of this Section
24 shall be deemed by a court of competent jurisdiction to be in violation of
applicable law for any reason whatsoever, than such part shall not be deemed to
be void, but shall be deemed to be modified so as to be valid and enforceable,
and the remaining provisions of this Section 24 or of this Agreement shall not
be affected. The provisions of Section 24 shall survive the termination of your
employment for any reason.
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25. CONFIDENTIALITY AND NON-DISCLOSURE.
25.1 Prohibition. You understand and acknowledge that the
success of Company's business is dependent upon the secrecy and non- disclosure
of many confidential plans, procedures and methods. Therefore, you agree that
you will not directly or indirectly disclose to any person or use for your own
purpose any confidential information, records, data, formulae, specifications,
customer lists, ideas, inventions, plans concerning business or product
development, business procedures, contract proposals or such proprietary
information or other trade secrets of Company, its subsidiaries or affiliates
("Confidential Information") provided such information is marked as such or you
have reason to know it is confidential. Upon termination of this Agreement and
employment hereunder, You agree to promptly deliver to Company all papers,
records, files, other documents and Confidential Information belonging to
Company, its subsidiaries and affiliates and to not retain any copies thereof.
25.2 Remedies for Breach. You acknowledge that the damage to
Company, its subsidiaries and affiliates resulting from a breach of this Section
25 may cause irreparable injury. Therefore, in the event of any such breach,
Company, its subsidiaries and affiliates shall be entitled to seek such remedies
as are available at law or equity to restrain and enjoin you from continuing to
violate the provisions of this Section 25.
25.3 Binding Effect. The provisions of Section 25 shall survive
the termination of this Agreement and your employment for any reason.
26. RESULTS AND PROCEEDS.
26.1 Ownership. As your employer, Company shall own all rights
in and to the results and proceeds connected with or arising out of, directly or
indirectly, your services hereunder. You hereby assign to Company all right,
title and interest in and to all intellectual property, discoveries and trade
secrets which you may solely or jointly conceive, design, develop, create or
suggest or cause to be conceived, designed or developed or created during the
term of your employment by Company, which relate to your employment or Company's
business. For purposes of this Agreement, the term "intellectual property" shall
include, without limitation, any ideas, concepts, literary material, designs,
drawings, illustrations, photographs, patentable ideas and musical compositions.
To the extent that any such intellectual property may be protectable pursuant to
applicable copyright law, you acknowledge that such property is a work for hire
within the meaning of such law.
26.2 Further Assurances. You hereby agree to execute any
documents necessary to evidence Company's proprietary interest in any
intellectual property, discovery or trade secrets referred to Section 26.1
above.
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In the event Company is unable, for any reason whatsoever, to secure your
signature to any lawful and necessary document required to apply for protection
of, or enforce any rights with respect to, any copyrights, trademark, patent or
other proprietary rights, you hereby irrevocably designates and appoints
Company, and its duly authorized officers and agents, as his agent and
attorney-in-fact, whose power is coupled with an interest, to act for and in
your behalf and stead, to execute such documents and to do all other lawful acts
to protect Company's interest in any such copyright, trademark, patent or other
proprietary right with the same legal force and effect as if executed by you.
27. AMENDMENTS.
This Agreement may be modified only by a written agreement
executed by you and an authorized officer of the Company.
28. VALIDITY
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
29. COUNTERPARTS
This Agreement may be executed in several counterparts, each of
which will be deemed an original, but all of which will constitute one and the
same instrument.
30. GIVING NOTICE
30.1 To the Company. All communications from you to the Company
relating to this Agreement must be sent to the Company to its principal business
office in Springfield, Virginia, in writing, by registered or certified mail, or
delivered personally.
30.2 To You. All communications from the Company to you relating
to this Agreement must be sent to you in writing, by registered or certified
mail, or delivered personally, addressed as indicated at the end of this
Agreement.
31. CONFORMITY WITH THE IMMIGRATION REFORM AND CONTROL ACT OF 1986.
Upon request, You agree to furnish Company with all documentation
needed to satisfy the requirements of the Immigration Reform and Control Act of
1986.
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32. WAIVER.
The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any term or condition.
33. RESIGNATION FROM OFFICES.
Upon termination of your employment, you shall be deemed to have
resigned as an officer and director of Company, its subsidiaries and affiliates,
if then so acting, as of the date of such termination.
34. BENEFIT.
This Agreement shall be binding upon and inure to the benefit of
and shall be enforceable by and against Company, its successors and assigns and
you, your heirs, beneficiaries and legal representatives. This Agreement may be
assigned by Company but may not be assigned by you.
35. DEFINITIONS
(a) Agreement
"Agreement" means this contract, as amended.
(b) Base Salary
"Base Salary" means the gross amount of money paid you annually as
your basic compensation. This amount is paid in regular bi-weekly installments.
(c) Beneficial Owner
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under
the Exchange Act.
(d) Board
"Board" means the Board of Directors of the Company.
(e) Cause
"Cause" means any of the following:
(1) you fail to carry out assigned duties after being given
prior warning and an opportunity to remedy the failure,
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<PAGE> 14
(2) you breach any material term of any employment agreement
with the Company,
(3) you engage in fraud, dishonesty, willful misconduct, gross
negligence, or breach of fiduciary duty (including without
limitation any failure to disclose a conflict of
interest)in the performance of your duties for the Company,
or
(4) you are convicted of a felony or crime involving moral
turpitude.
(f) Change in Control
"Change in Control" means the first of the following to occur
after the date of this Agreement, excluding any event that is Management Action:
(1) Acquisition of Controlling Interest. Any Person becomes the
Beneficial Owner, directly or indirectly, of securities of
the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities. In
applying the preceding sentence, securities acquired
directly from the Company or its affiliates with the
company's approval by or for the Person shall not be taken
into account.
(2) Change in Board Control. During the term of this Agreement,
individuals who constituted the Board as of the date of
this Agreement (or their approved replacements, as defined
in the next sentence) cease for any reason to constitute a
majority of the Board. A new director shall be considered
an "approved replacement" director if his or her election
(or nomination for election) was approved by a vote of at
least two-thirds of the directors then still in office who
either were directors at the beginning of the period or
were themselves approved replacement directors.
(3) Merger Approved. The shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation unless: (a) the voting securities of the
Company outstanding immediately before the merger or
consolidation would continue to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 75% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation; and (b) no Person
acquires more than 25% of the combined voting power of the
Company's then outstanding securities.
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(4) Sale of Assets. The shareholders of the Company approve an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(g) Code
"Code" means the Internal Revenue Code of 1986, as amended.
(h) Confidential Information
"Confidential Information" means any and all Company proprietary,
trade secret or other information identified in Section 25, whether written,
electronic or
oral.
(i) Company
"Company" means Versar, Inc. and any successor to its business or
assets that (by operation of law, or otherwise) assumes and agrees to perform
this Agreement. However, for purposes of determining whether a Change in Control
has occurred in connection with such a succession, the successor shall not be
considered to be the Company.
(j) Disability
"Disability" means that, due to physical or mental illness: (i)
you have been absent from the full-time performance of your duties with the
Company for substantially all of a period of six consecutive months; (ii) the
Company has notified you that it intends to terminate you on account of
Disability; and (iii) you do not resume the full-time performance of your duties
within [30] days after receiving notice of your intended termination on account
of Disability.
(k) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) Good Reason
"Good Reason" means the occurrence of any of the following without
your express written consent:
(1) Demotion. Your duties and responsibilities are
substantially and adversely altered from those in effect
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential
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Change in Control), other than merely as a result of the
Company ceasing to be a public company, a change in your
title, or your transfer to an affiliate.
(2) Pay Cut. Your annual Base Salary is reduced.
(3) Relocation. Your principal office is transferred to another
location, which increases your one-way commute to work by
more than 50 miles, based on your residence when the
transfer was announced or, if you consent to the transfer,
the Company fails to pay (or reimburse you) for all
reasonable moving expenses you incur in changing your
principal residence in connection with the relocation and
to indemnify you against any loss you may realize when you
sell your principal residence in connection with the
relocation in an arm's-length sale for adequate
consideration. For purposes of the preceding sentence, your
"loss" will be the difference between the actual sales
price of your residence and the higher of: (a) your
aggregate investment in the residence; or (b) the fair
market value of the residence, as determined by a real
estate appraiser designated by you and satisfactory to the
Company.
(4) Breach of Promise. The Company fails to pay you any present
or deferred compensation within seven days after it is due.
(5) Discontinuance of Compensation Plan Participation. The
Company fails to continue, or continue your participation
in, any compensation plan in which you participated
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control) that is
material to your total compensation, unless an equitable
substitute arrangement has been adopted or made available
on a basis not materially less favorable to you than the
plan in effect immediately before the Change in Control (or
the Potential Change in Control, if applicable), both as to
the benefits you receive and your level of participation
relative to other participants.
(6) Discontinuance of Benefits. The Company stops providing you
with benefits that, in the aggregate, are substantially as
valuable to you as those you enjoyed immediately before the
Change in Control (or, with respect to Section 3(b), the
Potential Change in Control) under the Company's pension,
savings, deferred compensation, life insurance, medical,
health, disability, accident, vacation, and fringe benefit
plans, programs, and arrangements.
(7) Improper Termination. You are purportedly terminated, other
than pursuant to a notice of termination satisfying the
requirements of Section 5.
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(8) Notice of Prospective Action. You are officially notified
or it is officially announced that the Company will take
any of the actions listed above during the Term of this
Agreement.
However, an event that is or would constitute Good Reason shall cease to be Good
Reason if: (a) you do not terminate employment within 180 days after the event
occurs; (b) the Company reverses the action or cures the default that
constitutes Good Reason before you terminate employment; or (c) you were a
primary instigator of the Good Reason event and the circumstances make it
inappropriate for you to receive benefits under this Agreement (e.g., you agree
temporarily to relinquish your position on the occurrence of a merger
transaction you negotiate). If you have Good Reason to terminate employment, you
may do so even if you are on a leave of absence due to physical or mental
illness or any other reason.
(m) Incentive Compensation
"Incentive Compensation" means the amount of cash and/or
securities paid to you under all bonus, incentive or other programs for
performance adopted by Company for its executive officers or other key
employees.
(n) Management Action
"Management Action" means any event, circumstance, or transaction
occurring during the six-month period following a Potential Change in Control
that results from the action of a Management Group.
(o) Management Group
"Management Group" means any entity or group that includes, is
affiliated with, or is wholly or partly controlled by one or more executive
officers of the Company in office before a Potential Change in Control.
(p) Person
"Person" has the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Section 13(d) of that Act, and shall include a
"group," as defined in Rule 13d-5 promulgated thereunder. However, a Person
shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries; (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
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(q) Potential Change in Control
"Potential Change in Control" means that any of the following has
occurred during the term of this Agreement, excluding any event that is
Management Action:
(1) Agreement Signed. The Company enters into an agreement that
will result in a Change in Control.
(2) Notice of Intent to Seek Change in Control. The Company or
any Person publicly announces an intention to take or to
consider taking actions that will result in a Change in
Control.
(3) Board Declaration. With respect to this Agreement, the
Board adopts a resolution declaring that a Potential Change
in Control has occurred.
(r) Severance Benefits
"Severance Benefits" means your benefits under Section 6 of this
Agreement.
(s) Term of this Agreement
"Term of this Agreement" means the period that commences on the
date of this Agreement and ends on the earlier of:
(1) Expiration. January 31, 2002; or
(2) Change in Control. The last day of the 24th calendar month
beginning after the calendar month in which a Change in
Control occurred during the Term of this Agreement. After a
Change in Control occurs, the end of the Term of this
Agreement shall solely be determined under this Section
21(p)(2).
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
/S/ Thomas J. Shields
By:_______________________________
Thomas J. Shields
Chairman, Compensation Committee
--------------------------------
/S/ Benjamin M. Rawls
-------------------------------
Benjamin M. Rawls
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EXHIBIT 10.92
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into this 30th day of January, 1999, by and between VERSAR, INC., a
Delaware corporation ("Company"), its successors and assigns, and THOMAS S.
ROONEY ("you" or "your"). This Agreement promises you an employment relationship
and certain severance benefits during the Term of this Agreement. Capitalized
terms are defined in the last section of the Agreement.
1. PURPOSE.
The Company considers a sound and vital management team to be
essential. The Company desires to assure itself of your services which you are
willing to provide. Further, management personnel who become concerned about the
possibility that the Company may undergo a Change in Control may terminate
employment or become distracted. Accordingly, the Board has determined that
appropriate steps should be taken to minimize the distraction executives may
suffer from the possibility of a Change in Control. One step is to enter into
this Agreement with you.
2. EMPLOYMENT
Company hereby employs you and you accept employment with Company
on the terms and conditions set forth in this Agreement.
3. DUTIES
You shall serve as Executive Vice President and Chief Operating
Officer of Company. Under the direction of the President, you shall perform all
assigned duties reasonably required of an employee in such positions and shall
personally, diligently and faithfully perform these duties to the best of your
ability, on a full-time and exclusive basis.
4. COMPENSATION
Your compensation for the services performed under this Agreement
shall consist of a Base Salary and Incentive Compensation, if any, as described
below:
4.1 Base Salary. You shall receive the base salary approved by
Company's Board of Directors, payable in regular bi-weekly installments (the
"Base Salary"). The Base Salary will be reviewed annually by the Board of
Directors in accordance with standard salary review procedures in effect from
time to time for executive officers of Company. In no event shall the
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<PAGE> 2
Base Salary be less than the Base Salary being paid to you on the date of this
Agreement, unless you agree to a reduction. In the event that your employment
with Company is terminated as provided in this Agreement, the Base Salary shall
be deemed to be your then current Base Salary or $195,000, whichever is greater.
4.2 Incentive Compensation. In addition to the Base Salary, you
shall be eligible to earn incentive compensation in the form of cash or
securities under bonus and incentive programs as may be in effect from time to
time for executive officers of Company generally ("Incentive Compensation").
4.3 Withholding. You agree and acknowledge that Company will
withhold from your compensation all taxes and other amounts which Company is
required by law to withhold, including without limitation (i) federal income
taxes, (ii) state income taxes, (iii) county, city or other local income taxes,
and (iv) social security taxes.
5. BENEFITS.
5.1 Generally. You shall be entitled to receive any and all
benefits made available to executive officers of Company generally and such
other benefits as the Board of Directors in its discretion may make available to
you from time to time.
5.2 Insurance. You shall be eligible to participate in all
medical, hospitalization, dental, life, disability and other insurance plans as
are in effect from time to time for executive officers of Company generally.
5.3 Personal Leave. You shall be entitled to take six (6) weeks
of paid personal leave annually.
5.4 Reimbursement for Reasonable Business Expenses. Company
shall reimburse you for customary and reasonable expenses incurred in performing
your duties pursuant to this Agreement, in accordance with Company's then
current reimbursement policy (including appropriate itemization and
substantiation of expenses incurred).
6. TERM.
Subject to early termination of this Agreement in accordance with
Section 7 or 8 below, the term of your employment hereunder shall commence on
the date hereof, and shall continue for a period of two (2) years. You agree and
acknowledge that Company has no obligation to renew this Agreement or to
continue your employment after the two-year term.
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7. TERMINATION BY COMPANY.
7.1 Termination With Cause. Company shall be entitled to
terminate your employment and services immediately upon written notice to you,
except in the case of death, specifying the date of termination in the event
that (i) you fail to carry out assigned duties after being given prior warning
and an opportunity to remedy the failure; or (ii) you breach any material term
of this Agreement; (iii) you engage in fraud, dishonesty, willful misconduct,
gross negligence or breach of fiduciary duty (including without limitation any
failure to disclose a conflict of interest), in the performance of his duties
hereunder; (iv) you are convicted of a felony or crime involving moral
turpitude; (v) you suffer a permanent and total disability which for at least
six months prevents his performance of your duties hereunder if such permanent
disability is covered by Workers Compensation or long term disability insurance,
or both; or (vi) if you die. For eight weeks following Company's termination of
this Agreement with cause pursuant to this Section 7.1, Company shall continue
to pay your Base Salary in effect as of the date of termination and make
available the benefits set forth in Section 5. All other obligations of Company
hereunder shall cease as of the date of termination.
7.2 Termination Without Cause. Company shall be entitled to
terminate your employment and services without cause upon not less than sixty
(60) days' prior written notice to you specifying the date of termination. If
Company terminates your employment without cause at any time during the two-year
term, Company shall give you a lump sum payment equivalent to one year of your
then current Base Salary, any Incentive Compensation to which you would have
been entitled as of the date of termination, any deferred compensation, any
accrued personal leave and continue to make available the benefits set forth in
Section 5 for twelve (12) months. All other obligations of Company hereunder
shall cease as of the date of termination. Notwithstanding the foregoing, during
the eighteen months immediately following Company's termination of this
Agreement without cause, you shall be entitled to the vesting of any and all
stock options issued by Company pursuant to its Incentive Stock Option Plan in
accordance with the vesting schedule in your grant of options, and vesting of
any and all other options, warrants, or shares, and you shall have the right to
exercise such options or warrants, or purchase such shares under the same terms
and conditions applicable to you prior to termination.
8. TERMINATION BY YOU.
You may terminate your employment and services at any time and
for any reason by giving Company at least thirty (30) days' prior written notice
specifying the date of termination. If you terminate the Agreement in accordance
with this Section 8.1, then from the date of your notice to the date of
termination (provided that during this notice period, Company does not terminate
you for cause under Section 7.1 above), Company shall continue to pay you the
Base
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Salary in effect as of the date of termination, and any Incentive Compensation
to which you could have been entitled as of the date of termination, any
deferred compensation, any accrued personal leave and continue to make available
the benefits set forth in Section 5 until the date of termination. All other
obligations of Company hereunder shall cease as of the date of termination.
9. YOUR AGREEMENT ON CHANGE IN CONTROL
If one or more Potential Changes in Control occur during the Term
of this Agreement, you agree not to resign for at least six full calendar months
after a Potential Change in Control occurs, except as follows: (a) you may
resign after a Change in Control occurs; (b) you may resign if you are given
Good Reason to do so; and (c) you may terminate employment on account of
retirement on or after 65 or because you become unable to work due to serious
illness or injury.
10. EVENTS THAT TRIGGER SEVERANCE BENEFITS
10.1 Termination After a Change in Control. You will receive
Severance Benefits under this Agreement if, during the Term of this Agreement
and after a Change in Control has occurred, your employment is terminated by the
Company without Cause (other than on account of your Disability or death) or
you resign for Good Reason.
10.2 Termination After a Potential Change in Control. You also
will receive Severance Benefits under this Agreement if, during the Term of this
Agreement and after a Potential Change in Control has occurred but before a
Change in Control actually occurs, your employment is terminated by the Company
without Cause or you resign for Good Reason, but only if either: (i) you are
terminated at the direction of a Person who has entered into an agreement with
the Company that will result in a Change in Control; or (ii) the event
constituting Good Reason occurs at the direction of such Person.
10.3 Successor Fails to Assume This Agreement. You also will
receive Severance Benefits under this Agreement if, during the Term of this
Agreement, a successor to the Company fails to assume this Agreement, as
provided in Section 20.1.
11. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS
You will not be entitled to Severance Benefits if your employment
ends because you are terminated for Cause or on account of Disability or because
you resign without Good Reason, retire, or die. Except as provided in Section
10.3, you will not be entitled to Severance Benefits while you remain protected
by this
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Agreement and remain employed by the Company, its affiliates, or their
successors.
12. TERMINATION PROCEDURES
If you are terminated by the Company after a Change in Control and
during the Term of this Agreement, the Company shall provide you with 30 days'
advance written notice of your termination, unless you are being terminated for
Cause. The notice will indicate why you are being terminated and will set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
your termination. If you are being terminated for Cause, your notice of
termination will include a copy of a resolution duly adopted by the affirmative
vote of not less than 51% of the entire membership of the Board (at a meeting of
the Board called and held for the purpose of considering your termination (after
reasonable notice to you and an opportunity for you and your counsel to be heard
before the Board)) finding that, in the good faith opinion of the Board, Cause
for your termination exists and specifying the basis for that opinion in detail.
If you are purportedly terminated without the notice required by this Section,
your termination shall not be effective.
13. SEVERANCE BENEFITS
13.1 In General. If you become entitled to Severance Benefits
under this Agreement, you will receive all of the Severance Benefits described
in this Section.
13.2 Lump-Sum Payment in Lieu of Future Compensation. In lieu of
any further cash compensation for periods after your employment ends, you will
be paid a cash lump sum equal to two times your annual Base Salary in effect
when your employment ends or, if higher, in effect immediately before the Change
in Control, Potential Change in Control, or Good Reason event for which you
terminate employment. In addition, and without duplication, you will be paid a
cash lump sum equal to 2 times the higher of the amounts paid to you (if any)
under any existing bonus or incentive plans in the calendar year preceding the
calendar year in which your employment ends or in the calendar year preceding
the calendar year in which the Change in Control occurred (or in which the
Potential Change in Control occurred, if benefits are payable under Section 10.2
hereof).
13.3 Incentive Compensation and Options. The Company will pay you
a cash lump sum equal to any unpaid Incentive Compensation (that is not
otherwise paid to you) that you have been allocated or awarded under any
existing bonus or incentive plans for measuring periods completed before you
became entitled to Severance Benefits under this Agreement. All unvested options
to purchase Company common stock will immediately vest and remain
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exercisable for the longest period of time permitted under the applicable stock
option plan.
13.4 Group Insurance Benefit Continuation. During the period that
begins when you become entitled to Severance Benefits under this Agreement and
ends on the last day of the 24th calendar month beginning thereafter, the
Company shall provide, at no cost to you or your spouse or dependents, the life,
disability, accident, and health and dental insurance benefits (or substantially
similar benefits) it was providing to you and your spouse and dependents
immediately before you became entitled to Severance Benefits under this
Agreement (or immediately before a benefit reduction that constitutes Good
Reason, if you terminate employment for that Good Reason). These benefits shall
be treated as satisfying the Company's COBRA obligations. After benefit
continuation under this subsection ends, you and your spouse and dependents will
be entitled to any remaining COBRA rights.
14. TIME FOR PAYMENT
You will be paid your cash Severance Benefits within five days
after you become entitled to Severance Benefits under this Agreement (e.g.,
within five days following your termination of employment). If the amount you
are due cannot be finally determined within that period, you will receive the
minimum amount to which you are clearly entitled, as estimated in good faith by
the Company. The Company will pay the balance you are due (together with
interest at the rate provided in Internal Revenue Code Section 1274(b)(2)(B)) as
soon as the amount can be determined, but in no event later than 30 days after
you terminate employment. If your estimated payment exceeds the amount you are
due, the excess will be a loan to you, which you must repay to the Company
within five business days after demand by the Company (together with interest at
the rate provided in Code Section 1274(b)(2)(B)).
15. PAYMENT EXPLANATION
When payments are made to you, the Company will provide you with a
written statement explaining how your payments were calculated and the basis for
the calculations. This statement will include any opinions or other advice the
Company has received from auditors or consultants as to the calculation of your
benefits. If your benefit is affected by the golden parachute limitation in
Section 17, the Company will provide you with calculations relating to that
limitation and any supporting materials you reasonably need to permit you to
evaluate those calculations.
16. RELATION TO OTHER SEVERANCE PROGRAMS
Your Severance Benefits under this Agreement are in lieu of any
severance or similar benefits that may be payable to you under any other
employment agreement or other arrangement; to the extent any such benefits
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are paid to you, they shall be applied to reduce the amount due under this
Agreement. This Agreement constitutes the entire agreement between you and the
Company and its affiliates with respect to such benefits.
17. POTENTIAL LIMITATIONS
17.1 Golden Parachute Limitation. Your aggregate payments and
benefits under this Agreement and all other contracts, arrangements, or programs
shall not exceed the maximum amount that may be paid without triggering golden
parachute penalties under Section 280G and related provisions of the Internal
Revenue Code, as determined in good faith by the Company's independent auditors.
The preceding sentence shall not apply to the extent the shareholder approval
requirements of Code Section 280G(b)(5) are satisfied. If your benefits must be
reduced to avoid triggering such penalties, your benefits will be reduced in the
priority order you designate or, if you fail promptly to designate an order, in
the priority order designated by the Company. If an amount in excess of the
limit set forth in this Section is paid to you, you must repay the excess amount
to the Company on demand, with interest at the rate provided in Code Section
1274(b)(2)(B). You and the Company agree to cooperate with each other reasonably
in connection with any administrative or judicial proceedings concerning the
existence or amount of golden parachute penalties on payments or benefits you
receive.
17.2 Section 162(m) Limitation. To the extent payments or benefits
under this Agreement would not be deductible under Code Section 162(m) if made
or provided when otherwise due under this Agreement, they shall be made or
provided later, immediately after Section 162(m) ceases to preclude their
deduction, with interest thereon at the rate provided in Code Section
1274(b)(2)(B).
17.3 Pooling of Interests Limitation. If the Company enters into a business
combination transaction that is intended to qualify for "pooling of interests"
accounting treatment and the transaction would qualify for such treatment but
for one or more provisions of this or any other agreement you have with the
Company, then such agreement, to the extent practicable, shall be interpreted so
as to permit such accounting treatment. To the extent that is not sufficient to
preserve pooling of interests accounting, any provisions of the Agreement that
would preclude such accounting treatment shall be void. All determinations under
this Section shall be made by the accounting firm whose pooling of interests
accounting opinion is required as a condition of the consummation of the
business combination transaction in question.
18. DISABILITY
Following a Change in Control, while you are absent from work as a
result of physical or mental illness, the Company will continue to pay you your
full salary and provide you all other compensation and benefits payable to you
under
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the Company's compensation or benefit plans, programs, or arrangements. These
payments will stop if and when your employment is terminated by the Company for
Disability or at the end of the Term of this Agreement, whichever is earlier.
Severance Benefits under this Agreement are not payable if you are terminated on
account of your Disability.
19. EFFECT OF REEMPLOYMENT
Your Severance Benefits will not be reduced by any other
compensation you earn or could have earned from another source.
20. SUCCESSORS
20.1 Assumption Required. In addition to obligations imposed by
law on a successor to the Company, during the Term of this Agreement the Company
will require any successor to all or substantially all of the business or assets
of the Company expressly to assume and to agree to perform this Agreement in the
same manner and to the same extent that the Company was required to perform. If
the Company fails to obtain such an assumption and agreement before the
effective date of a succession, you will be entitled to Severance Benefits as if
you were terminated by the Company without Cause on the effective date of that
succession.
20.2 Heirs and Assigns. This Agreement will inure to the benefit
of, and be enforceable by, your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If you
die while any amount is still payable to you under this Agreement, that amount
will be paid to the executor, personal representative, or administrator of your
estate.
21. GOVERNING LAW
This Agreement creates a "top hat" employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, and it shall be
interpreted, administered, and enforced in accordance with that law; the Company
is the "plan administrator." To the extent that state law is applicable, the
statutes and common law of the State of Virginia(excluding its choice of laws
statutes or common law) shall apply.
22. CLAIMS [ERISA REQUIREMENT]
22.1 When Required; Attorneys' Fees. You do not need to present a
formal claim to receive benefits payable under this Agreement. However, if you
believe that your rights under this Agreement are being violated, you must file
a formal claim with the Company in accordance with the procedures set forth in
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this Section. The Company will pay your reasonable attorneys' fees and related
costs in enforcing your rights under this Agreement.
22.2 Initial Claim. Your claim must be presented to the Company in
writing. Within 30 days after receiving the claim, a claims official appointed
by the Company will consider your claim and issue his or her determination
thereon in writing. With your consent, the initial claim determination period
can be extended further. If you can establish that the claims official failed to
respond to your claim in a timely manner, you may treat the claim as having been
denied by the claims official.
22.3 Claim Decision. If your claim is granted, the benefits or
relief you are seeking will be provided. If your claim is wholly or partially
denied, the claims official shall, within three days, provide you with written
notice of the denial, setting forth, in a manner calculated to be understood by
you: (i) the specific reason or reasons for the denial; (ii) specific references
to the provisions on which the denial is based; (iii) a description of any
additional material or information necessary for you to perfect your claim,
together with an explanation of why the material or information is necessary;
and (iv) an explanation of the procedures for appealing denied claims. If you
establish that the claims official has failed to respond to your claim in a
timely manner, you may treat the claim as having been denied by the claims
official.
22.4 Appeal of Denied Claims. You may appeal the claims official's
denial of your claim in writing to an appeals official designated by the Company
(which may be a person, committee, or other entity) for a full and fair appeal.
You must appeal a denied claim within fifteen days after your receipt of written
notice denying your claim, or within 60 days after such written notice was due,
if the written notice was not sent. In connection with the appeals proceeding,
you (or your duly authorized representative) may review pertinent documents and
may submit issues and comments in writing. You may only present evidence and
theories during the appeal that you presented during the initial claims stage,
except for information the claims official requested you to provide to perfect
the claim. You will irrevocably waive any theories you do not in good faith
pursue through the appeal stage, such as by failing to file a timely appeal
request.
22.5 Appeal Decision. The decision by the appeals official will be
made within 10 days after your appeal request, unless special circumstances
require an extension of time, in which case the decision will be rendered as
soon as possible, but not later than fifteen days after your appeal request,
unless you agree to a greater extension of that deadline. The appeal decision
will be in writing, set forth in a manner calculated to be understood by you; it
will include specific reasons for the decision, as well as specific references
to the pertinent provisions of this Agreement on which the decision is based. If
you do not receive the appeal decision by the date it is due, you may deem your
appeal to have been denied.
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22.6 Procedures. The Company will adopt procedures by which
initial claims and appeals will be considered and resolved; different procedures
may be established for different claims. All procedures will be designed to
afford you full and fair consideration of your claim.
23. SURVIVAL.
This Agreement shall survive any Changes in Control, change in
management of Company, and any merger, consolidation, reorganization, sale of
assets or sale of stock of Company.
24. NON-COMPETITION AND NON-SOLICITATION.
24.1 Prohibition. You acknowledges that Company's business and
employee relationships are maintained at great expense and effort. You further
acknowledges that, by virtue of your employment under this Agreement, you will
have an extensive and unique opportunity to establish and maintain valuable
contacts with Company's customers and employees and the opportunity both during
and after employment to unfairly compete with Company, its subsidiaries and
affiliates. Therefore, you agree that during the term of your employment with
Company and for a period of the balance of the term of this Agreement or twelve
(12) months following termination of such employment, whichever is greater, you
shall not compete with the business of Company, its subsidiaries or affiliates.
For the purpose of this Agreement, activities among others which shall be deemed
competitive include: (i) encouraging any customers of Company, its subsidiaries
or affiliates to become a customer of you or of any other person except through
normal competitive bidding; or (ii) encouraging any employee of Company, its
subsidiaries or affiliates to become your employee or of any other person.
24.2 Remedies for Breach. You acknowledge that the damage to
Company, its subsidiaries and affiliates resulting from a breach of this Section
24 may cause irreparable injury. Therefore, in the event of any such breach,
Company, its subsidiaries and affiliates shall be entitled to seek such remedies
as are available at law or equity to restrain and enjoin you from continuing to
violate the provisions of this Section 24.
24.3 Binding Effect. In the event that any part of this Section
24 shall be deemed by a court of competent jurisdiction to be in violation of
applicable law for any reason whatsoever, than such part shall not be deemed to
be void, but shall be deemed to be modified so as to be valid and enforceable,
and the remaining provisions of this Section 24 or of this Agreement shall not
be affected. The provisions of Section 24 shall survive the termination of your
employment for any reason.
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25. CONFIDENTIALITY AND NON-DISCLOSURE.
25.1 Prohibition. You understand and acknowledge that the
success of Company's business is dependent upon the secrecy and non- disclosure
of many confidential plans, procedures and methods. Therefore, you agree that
you will not directly or indirectly disclose to any person or use for your own
purpose any confidential information, records, data, formulae, specifications,
customer lists, ideas, inventions, plans concerning business or product
development, business procedures, contract proposals or such proprietary
information or other trade secrets of Company, its subsidiaries or affiliates
("Confidential Information") provided such information is marked as such or you
have reason to know it is confidential. Upon termination of this Agreement and
employment hereunder, You agree to promptly deliver to Company all papers,
records, files, other documents and Confidential Information belonging to
Company, its subsidiaries and affiliates and to not retain any copies thereof.
25.2 Remedies for Breach. You acknowledge that the damage to
Company, its subsidiaries and affiliates resulting from a breach of this Section
25 may cause irreparable injury. Therefore, in the event of any such breach,
Company, its subsidiaries and affiliates shall be entitled to seek such remedies
as are available at law or equity to restrain and enjoin you from continuing to
violate the provisions of this Section 25.
25.3 Binding Effect. The provisions of Section 25 shall survive
the termination of this Agreement and your employment for any reason.
26. RESULTS AND PROCEEDS.
26.1 Ownership. As your employer, Company shall own all rights
in and to the results and proceeds connected with or arising out of, directly or
indirectly, your services hereunder. You hereby assign to Company all right,
title and interest in and to all intellectual property, discoveries and trade
secrets which you may solely or jointly conceive, design, develop, create or
suggest or cause to be conceived, designed or developed or created during the
term of your employment by Company, which relate to your employment or Company's
business. For purposes of this Agreement, the term "intellectual property" shall
include, without limitation, any ideas, concepts, literary material, designs,
drawings, illustrations, photographs, patentable ideas and musical compositions.
To the extent that any such intellectual property may be protectable pursuant to
applicable copyright law, you acknowledge that such property is a work for hire
within the meaning of such law.
26.2 Further Assurances. You hereby agree to execute any
documents necessary to evidence Company's proprietary interest in any
intellectual property, discovery or trade secrets referred to Section 26.1
above.
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In the event Company is unable, for any reason whatsoever, to secure your
signature to any lawful and necessary document required to apply for protection
of, or enforce any rights with respect to, any copyrights, trademark, patent or
other proprietary rights, you hereby irrevocably designates and appoints
Company, and its duly authorized officers and agents, as his agent and
attorney-in-fact, whose power is coupled with an interest, to act for and in
your behalf and stead, to execute such documents and to do all other lawful acts
to protect Company's interest in any such copyright, trademark, patent or other
proprietary right with the same legal force and effect as if executed by you.
27. AMENDMENTS.
This Agreement may be modified only by a written agreement
executed by you and an authorized officer of the Company.
28. VALIDITY
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
29. COUNTERPARTS
This Agreement may be executed in several counterparts, each of
which will be deemed an original, but all of which will constitute one and the
same instrument.
30. GIVING NOTICE
30.1 To the Company. All communications from you to the Company
relating to this Agreement must be sent to the Company to its principal business
office in Springfield, Virginia, in writing, by registered or certified mail, or
delivered personally.
30.2 To You. All communications from the Company to you relating
to this Agreement must be sent to you in writing, by registered or certified
mail, or delivered personally, addressed as indicated at the end of this
Agreement.
31. CONFORMITY WITH THE IMMIGRATION REFORM AND CONTROL ACT OF 1986.
Upon request, You agree to furnish Company with all documentation
needed to satisfy the requirements of the Immigration Reform and Control Act of
1986.
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32. WAIVER.
The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any term or condition.
33. RESIGNATION FROM OFFICES.
Upon termination of your employment, you shall be deemed to have
resigned as an officer and director of Company, its subsidiaries and affiliates,
if then so acting, as of the date of such termination.
34. BENEFIT.
This Agreement shall be binding upon and inure to the benefit of
and shall be enforceable by and against Company, its successors and assigns and
you, your heirs, beneficiaries and legal representatives. This Agreement may be
assigned by Company but may not be assigned by you.
35. DEFINITIONS
(a) Agreement
"Agreement" means this contract, as amended.
(b) Base Salary
"Base Salary" means the gross amount of money paid you annually as
your basic compensation. This amount is paid in regular bi-weekly installments.
(c) Beneficial Owner
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under
the Exchange Act.
(d) Board
"Board" means the Board of Directors of the Company.
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(e) Cause
"Cause" means any of the following:
(1) you fail to carry out assigned duties after being given
prior warning and an opportunity to remedy the failure,
(2) you breach any material term of any employment agreement
with the Company,
(3) you engage in fraud, dishonesty, willful misconduct, gross
negligence, or breach of fiduciary duty (including without
limitation any failure to disclose a conflict of
interest)in the performance of your duties for the
Company, or
(4) you are convicted of a felony or crime involving moral
turpitude.
(f) Change in Control
"Change in Control" means the first of the following to occur
after the date of this Agreement, excluding any event that is Management Action:
(1) Acquisition of Controlling Interest. Any Person becomes
the Beneficial Owner, directly or indirectly, of
securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding
securities. In applying the preceding sentence, securities
acquired directly from the Company or its affiliates with
the company's approval by or for the Person shall not be
taken into account.
(2) Change in Board Control. During the term of this
Agreement, individuals who constituted the Board as of the
date of this Agreement (or their approved replacements, as
defined in the next sentence) cease for any reason to
constitute a majority of the Board. A new director shall
be considered an "approved replacement" director if his or
her election (or nomination for election) was approved by
a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of
the period or were themselves approved replacement
directors.
(3) Merger Approved. The shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation unless: (a) the voting securities of the
Company outstanding immediately before the merger or
consolidation would continue to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 75% of the
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combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation; and (b) no Person
acquires more than 25% of the combined voting power of the
Company's then outstanding securities.
(4) Sale of Assets. The shareholders of the Company approve an
agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets.
(g) Code
"Code" means the Internal Revenue Code of 1986, as amended.
(h) Confidential Information
"Confidential Information" means any and all Company proprietary,
trade secret or other information identified in Section 25, whether written,
electronic or oral.
(i) Company
"Company" means Versar, Inc. and any successor to its business or
assets that (by operation of law, or otherwise) assumes and agrees to perform
this Agreement. However, for purposes of determining whether a Change in Control
has occurred in connection with such a succession, the successor shall not be
considered to be the Company.
(j) Disability
"Disability" means that, due to physical or mental illness: (i)
you have been absent from the full-time performance of your duties with the
Company for substantially all of a period of six consecutive months; (ii) the
Company has notified you that it intends to terminate you on account of
Disability; and (iii) you do not resume the full-time performance of your duties
within [30] days after receiving notice of your intended termination on account
of Disability.
(k) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(l) Good Reason
"Good Reason" means the occurrence of any of the following without
your express written consent:
(1) Demotion. Your duties and responsibilities are
substantially and adversely altered from those in effect
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control), other
than merely as a result of the Company ceasing to be a
public company, a change in your title, or your transfer to
an affiliate.
(2) Pay Cut. Your annual Base Salary is reduced.
(3) Relocation. Your principal office is transferred to another
location, which increases your one-way commute to work by
more than 50 miles, based on your residence when the
transfer was announced or, if you consent to the transfer,
the Company fails to pay (or reimburse you) for all
reasonable moving expenses you incur in changing your
principal residence in connection with the relocation and
to indemnify you against any loss you may realize when you
sell your principal residence in connection with the
relocation in an arm's-length sale for adequate
consideration. For purposes of the preceding sentence, your
"loss" will be the difference between the actual sales
price of your residence and the higher of: (a) your
aggregate investment in the residence; or (b) the fair
market value of the residence, as determined by a real
estate appraiser designated by you and satisfactory to the
Company.
(4) Breach of Promise. The Company fails to pay you any present
or deferred compensation within seven days after it is due.
(5) Discontinuance of Compensation Plan Participation. The
Company fails to continue, or continue your participation
in, any compensation plan in which you participated
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control) that is
material to your total compensation, unless an equitable
substitute arrangement has been adopted or made available
on a basis not materially less favorable to you than the
plan in effect immediately before the Change in Control (or
the Potential Change in Control, if applicable), both as to
the benefits you receive and your level of participation
relative to other participants.
(6) Discontinuance of Benefits. The Company stops providing you
with benefits that, in the aggregate, are substantially as
valuable to you
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as those you enjoyed immediately before the Change in
Control (or, with respect to Section 3(b), the Potential
Change in Control) under the Company's pension, savings,
deferred compensation, life insurance, medical, health,
disability, accident, vacation, and fringe benefit plans,
programs, and arrangements.
(7) Improper Termination. You are purportedly terminated, other
than pursuant to a notice of termination satisfying the
requirements of Section 5.
(8) Notice of Prospective Action. You are officially notified
or it is officially announced that the Company will take
any of the actions listed above during the Term of this
Agreement.
However, an event that is or would constitute Good Reason shall cease to be Good
Reason if: (a) you do not terminate employment within 180 days after the event
occurs; (b) the Company reverses the action or cures the default that
constitutes Good Reason before you terminate employment; or (c) you were a
primary instigator of the Good Reason event and the circumstances make it
inappropriate for you to receive benefits under this Agreement (e.g., you agree
temporarily to relinquish your position on the occurrence of a merger
transaction you negotiate). If you have Good Reason to terminate employment, you
may do so even if you are on a leave of absence due to physical or mental
illness or any other reason.
(m) Incentive Compensation
"Incentive Compensation" means the amount of cash and/or
securities paid to you under all bonus, incentive or other programs for
performance adopted by Company for its executive officers or other key
employees.
(n) Management Action
"Management Action" means any event, circumstance, or transaction
occurring during the six-month period following a Potential Change in Control
that results from the action of a Management Group.
(o) Management Group
"Management Group" means any entity or group that includes, is
affiliated with, or is wholly or partly controlled by one or more executive
officers of the Company in office before a Potential Change in Control.
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(p) Person
"Person" has the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Section 13(d) of that Act, and shall include a
"group," as defined in Rule 13d-5 promulgated thereunder. However, a Person
shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries; (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
(q) Potential Change in Control
"Potential Change in Control" means that any of the following has
occurred during the term of this Agreement, excluding any event that is
Management Action:
(1) Agreement Signed. The Company enters into an agreement that
will result in a Change in Control.
(2) Notice of Intent to Seek Change in Control. The Company or
any Person publicly announces an intention to take or to
consider taking actions that will result in a Change in
Control.
(3) Board Declaration. With respect to this Agreement, the
Board adopts a resolution declaring that a Potential Change
in Control has occurred.
(r) Severance Benefits
"Severance Benefits" means your benefits under Section 6 of this
Agreement.
(s) Term of this Agreement
"Term of this Agreement" means the period that commences on the
date of this Agreement and ends on the earlier of:
(1) Expiration. January 31, 2002; or
(2) Change in Control. The last day of the 24th calendar month
beginning after the calendar month in which a Change in
Control occurred during the Term of this Agreement. After a
Change in Control occurs, the end of the Term of this
Agreement shall solely be determined under this Section
21(p)(2).
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above written.
VERSAR, INC.
/S/ Benjamin M. Rawls
By:_________________________________
Chairman & CEO
-----------------------------------
/S/ Thomas S. Rooney
-------------------------------
Thomas S. Rooney
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EXHIBIT 10.93
CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Agreement between Lawrence W. Sinnott ( "you") and VERSAR,
INC.("Company")has been entered into as of January 30, 1999. This Agreement
promises you severance benefits if, following a Change of Control, you are
terminated without Cause or resign for Good Reason during the Term of this
Agreement. Capitalized terms are defined in the last section of this Agreement.
1. PURPOSE
The Company considers a sound and vital management team to be
essential. Management personnel who become concerned about the possibility that
the Company may undergo a Change in Control may terminate employment or become
distracted. Accordingly, the Board has determined that appropriate steps should
be taken to minimize the distraction executives may suffer from the possibility
of a Change in Control. One step is to enter into this Agreement with you.
2. YOUR AGREEMENT
If one or more Potential Changes in Control occur during the Term
of this Agreement, you agree not to resign for at least six full calendar months
after a Potential Change in Control occurs, except as follows: (a) you may
resign after a Change in Control occurs; (b) you may resign if you are given
Good Reason to do so; and (c) you may terminate employment on account of
retirement on or after 65 or because you become unable to work due to serious
illness or injury.
3. EVENTS THAT TRIGGER SEVERANCE BENEFITS
(a) Termination After a Change in Control
You will receive Severance Benefits under this Agreement if,
during the Term of this Agreement and after a Change in Control has occurred,
your employment is terminated by the Company without Cause (other than on
account of your Disability or death) or you resign for Good Reason.
(b) Termination After a Potential Change in Control
You also will receive Severance Benefits under this Agreement if,
during the Term of this Agreement and after a Potential Change in Control has
occurred but before a Change in Control actually occurs, your employment is
terminated by the Company without Cause or you resign for Good Reason, but only
if either: (i) you are terminated at the direction of a Person who has entered
into an agreement with the Company that will result in a Change in Control; or
(ii) the event constituting Good Reason occurs at the direction of such Person.
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(c) Successor Fails to Assume This Agreement
You also will receive Severance Benefits under this Agreement if,
during the Term of this Agreement, a successor to the Company fails to assume
this Agreement, as provided in Section 13(a).
4. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS
You will not be entitled to Severance Benefits if your employment
ends because you are terminated for Cause or on account of Disability or because
you resign without Good Reason, retire, or die. Except as provided in Section
3(c), you will not be entitled to Severance Benefits while you remain protected
by this Agreement and remain employed by the Company, its affiliates, or their
successors.
5. TERMINATION PROCEDURES
If you are terminated by the Company after a Change in Control and
during the Term of this Agreement, the Company shall provide you with 30 days'
advance written notice of your termination, unless you are being terminated for
Cause. The notice will indicate why you are being terminated and will set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
your termination. If you are being terminated for Cause, your notice of
termination will include a copy of a resolution duly adopted by the affirmative
vote of not less than 51% of the entire membership of the Board (at a meeting of
the Board called and held for the purpose of considering your termination (after
reasonable notice to you and an opportunity for you and your counsel to be heard
before the Board)) finding that, in the good faith opinion of the Board, Cause
for your termination exists and specifying the basis for that opinion in detail.
If you are purportedly terminated without the notice required by this Section,
your termination shall not be effective.
6. SEVERANCE BENEFITS
(a) In General
If you become entitled to Severance Benefits under this Agreement,
you will receive all of the Severance Benefits described in this Section.
(b) Lump-Sum Payment in Lieu of Future Compensation
In lieu of any further cash compensation for periods after your
employment ends, you will be paid a cash lump sum equal to 2 times your annual
base salary in effect when your employment ends or, if higher, in effect
immediately before the Change in Control, Potential Change in Control, or Good
Reason event for which you terminate employment. In addition, and without
duplication, you will be paid a cash lump sum equal to 2 times the higher of the
amounts paid to you (if any) under any existing bonus or incentive plans in the
calendar year preceding the calendar year in which your employment ends or in
the calendar year preceding the calendar
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year in which the Change in Control occurred (or in which the Potential Change
in Control occurred, if benefits are payable under Section 3(b)hereof).
(c) Incentive Compensation and Options
The Company will pay you a cash lump sum equal to any unpaid
incentive compensation (that is not otherwise paid to you) that you have been
allocated or awarded under any existing bonus or incentive plans for measuring
periods completed before you became entitled to Severance Benefits under this
Agreement. All unvested options to purchase Company common stock will
immediately vest and remain exercisable for the longest period of time permitted
under the applicable stock option plan.
(d) Group Insurance Benefit Continuation
During the period that begins when you become entitled to
Severance Benefits under this Agreement and ends on the last day of the 24th
calendar month beginning thereafter, the Company shall provide, at no cost to
you or your spouse or dependents, the life, disability, accident, and health and
dental insurance benefits (or substantially similar benefits) it was providing
to you and your spouse and dependents immediately before you became entitled to
Severance Benefits under this Agreement (or immediately before a benefit
reduction that constitutes Good Reason, if you terminate employment for that
Good Reason). These benefits shall be treated as satisfying the Company's COBRA
obligations. After benefit continuation under this subsection ends, you and your
spouse and dependents will be entitled to any remaining COBRA rights.
7. TIME FOR PAYMENT
You will be paid your cash Severance Benefits within five days
after you become entitled to Severance Benefits under this Agreement (e.g.,
within five days following your termination of employment). If the amount you
are due cannot be finally determined within that period, you will receive the
minimum amount to which you are clearly entitled, as estimated in good faith by
the Company. The Company will pay the balance you are due (together with
interest at the rate provided in Internal Revenue Code Section 1274(b)(2)(B)) as
soon as the amount can be determined, but in no event later than 30 days after
you terminate employment. If your estimated payment exceeds the amount you are
due, the excess will be a loan to you, which you must repay to the Company
within five business days after demand by the Company (together with interest at
the rate provided in Code Section 1274(b)(2)(B)).
8. PAYMENT EXPLANATION
When payments are made to you, the Company will provide you with a
written statement explaining how your payments were calculated and the basis for
the calculations. This statement will include any opinions or other advice the
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Company has received from auditors or consultants as to the calculation of your
benefits. If your benefit is affected by the golden parachute limitation in
Section 10, the Company will provide you with calculations relating to that
limitation and any supporting materials you reasonably need to permit you to
evaluate those calculations.
9. RELATION TO OTHER SEVERANCE PROGRAMS
Your Severance Benefits under this Agreement are in lieu of any
severance or similar benefits that may be payable to you under any other
employment agreement or other arrangement; to the extent any such benefits are
paid to you, they shall be applied to reduce the amount due under this
Agreement. This Agreement constitutes the entire agreement between you and the
Company and its affiliates with respect to such benefits.
10. POTENTIAL LIMITATIONS
(a) Golden Parachute Limitation
Your aggregate payments and benefits under this Agreement and all
other contracts, arrangements, or programs shall not exceed the maximum amount
that may be paid without triggering golden parachute penalties under Section
280G and related provisions of the Internal Revenue Code, as determined in good
faith by the Company's independent auditors. The preceding sentence shall not
apply to the extent the shareholder approval requirements of Code Section
280G(b)(5) are satisfied. If your benefits must be reduced to avoid triggering
such penalties, your benefits will be reduced in the priority order you
designate or, if you fail promptly to designate an order, in the priority order
designated by the Company. If an amount in excess of the limit set forth in this
Section is paid to you, you must repay the excess amount to the Company on
demand, with interest at the rate provided in Code Section 1274(b)(2)(B). You
and the Company agree to cooperate with each other reasonably in connection with
any administrative or judicial proceedings concerning the existence or amount of
golden parachute penalties on payments or benefits you receive.
(b) Section 162(m) Limitation
To the extent payments or benefits under this Agreement would not
be deductible under Code Section 162(m) if made or provided when otherwise due
under this Agreement, they shall be made or provided later, immediately after
Section 162(m) ceases to preclude their deduction, with interest thereon at the
rate provided in Code Section 1274(b)(2)(B).
(c) Pooling of Interests Limitation
If the Company enters into a business combination transaction that
is intended to qualify for "pooling of interests" accounting treatment and the
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transaction would qualify for such treatment but for one or more provisions of
this or any other agreement you have with the Company, then such agreement, to
the extent practicable, shall be interpreted so as to permit such accounting
treatment. To the extent that is not sufficient to preserve pooling of interests
accounting, any provisions of the Agreement that would preclude such accounting
treatment shall be void. All determinations under this Section shall be made by
the accounting firm whose pooling of interests accounting opinion is required as
a condition of the consummation of the business combination transaction in
question.
11. DISABILITY
Following a Change in Control, while you are absent from work as a
result of physical or mental illness, the Company will continue to pay you your
full salary and provide you all other compensation and benefits payable to you
under the Company's compensation or benefit plans, programs, or arrangements.
These payments will stop if and when your employment is terminated by the
Company for Disability or at the end of the Term of this Agreement, whichever is
earlier. Severance Benefits under this Agreement are not payable if you are
terminated on account of your Disability.
12. EFFECT OF REEMPLOYMENT
Your Severance Benefits will not be reduced by any other
compensation you earn or could have earned from another source.
13. SUCCESSORS
(a) Assumption Required
In addition to obligations imposed by law on a successor to the
Company, during the Term of this Agreement the Company will require any
successor to all or substantially all of the business or assets of the Company
expressly to assume and to agree to perform this Agreement in the same manner
and to the same extent that the Company was required to perform. If the Company
fails to obtain such an assumption and agreement before the effective date of a
succession, you will be entitled to Severance Benefits as if you were terminated
by the Company without Cause on the effective date of that succession.
(b) Heirs and Assigns
This Agreement will inure to the benefit of, and be enforceable
by, your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If you die while any
amount is still payable to you under this Agreement, that amount will be paid to
the executor, personal representative, or administrator of your estate.
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14. AMENDMENTS
This Agreement may be modified only by a written agreement
executed by you and an authorized officer of the Company.
15. GOVERNING LAW
This Agreement creates a "top hat" employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, and it shall be
interpreted, administered, and enforced in accordance with that law; the Company
is the "plan administrator." To the extent that state law is applicable, the
statutes and common law of the State of Virginia(excluding its choice of laws
statutes or common law) shall apply.
16. CLAIMS [ERISA REQUIREMENT]
(a) When Required; Attorneys' Fees
You do not need to present a formal claim to receive benefits
payable under this Agreement. However, if you believe that your rights under
this Agreement are being violated, you must file a formal claim with the Company
in accordance with the procedures set forth in this Section. The Company will
pay your reasonable attorneys' fees and related costs in enforcing your rights
under this Agreement.
(b) Initial Claim
Your claim must be presented to the Company in writing. Within 30
days after receiving the claim, a claims official appointed by the Company will
consider your claim and issue his or her determination thereon in writing. With
your consent, the initial claim determination period can be extended further. If
you can establish that the claims official failed to respond to your claim in a
timely manner, you may treat the claim as having been denied by the claims
official.
(c) Claim Decision
If your claim is granted, the benefits or relief you are seeking
will be provided. If your claim is wholly or partially denied, the claims
official shall, within three days, provide you with written notice of the
denial, setting forth, in a manner calculated to be understood by you: (i) the
specific reason or reasons for the denial; (ii) specific references to the
provisions on which the denial is based; (iii) a description of any additional
material or information necessary for you to perfect your claim, together with
an explanation of why the material or information is necessary; and (iv) an
explanation of the procedures for appealing denied claims. If you establish that
the claims official has failed to respond to your claim in a timely manner, you
may treat the claim as having been denied by the claims official.
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(d) Appeal of Denied Claims
You may appeal the claims official's denial of your claim in
writing to an appeals official designated by the Company (which may be a person,
committee, or other entity) for a full and fair appeal. You must appeal a denied
claim within five days after your receipt of written notice denying your claim,
or within 60 days after such written notice was due, if the written notice was
not sent. In connection with the appeals proceeding, you (or your duly
authorized representative) may review pertinent documents and may submit issues
and comments in writing. You may only present evidence and theories during the
appeal that you presented during the initial claims stage, except for
information the claims official requested you to provide to perfect the claim.
You will irrevocably waive any theories you do not in good faith pursue through
the appeal stage, such as by failing to file a timely appeal request.
(e) Appeal Decision
The decision by the appeals official will be made within 60 days
after your appeal request, unless special circumstances require an extension of
time, in which case the decision will be rendered as soon as possible, but not
later than ten days after your appeal request, unless you agree to a greater
extension of that deadline. The appeal decision will be in writing, set forth in
a manner calculated to be understood by you; it will include specific reasons
for the decision, as well as specific references to the pertinent provisions of
this Agreement on which the decision is based. If you do not receive the appeal
decision by the date it is due, you may deem your appeal to have been denied.
(f) Procedures
The Company will adopt procedures by which initial claims and
appeals will be considered and resolved; different procedures may be established
for different claims. All procedures will be designed to afford you full and
fair consideration of your claim.
17. LIMITATION ON EMPLOYEE RIGHTS
This Agreement does not give you the right to be retained in the
service of the Company.
18. VALIDITY
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
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19. COUNTERPARTS
This Agreement may be executed in several counterparts, each of
which will be deemed an original, but all of which will constitute one and the
same instrument.
20. GIVING NOTICE
(a) To the Company
All communications from you to the Company relating to this
Agreement must be sent to the Company to its principal business office in
Springfield, Virginia, in writing, by registered or certified mail, or delivered
personally.
(b) To You
All communications from the Company to you relating to this
Agreement must be sent to you in writing, by registered or certified mail, or
delivered personally, addressed as indicated at the end of this Agreement.
21. DEFINITIONS
(a) Agreement
"Agreement" means this contract, as amended.
(b) Beneficial Owner
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under
the Exchange Act.
(c) Board
"Board" means the Board of Directors of the Company.
(d) Cause
"Cause" means any of the following:
(1) you fail to carry out assigned duties after being given
prior warning and an opportunity to remedy the failure,
(2) you breach any material term of any employment agreement
with the Company,
(3) you engage in fraud, dishonesty, willful misconduct, gross
negligence, or breach of fiduciary duty (including without
limitation any failure to
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disclose a conflict of interest)in the performance of your
duties for the Company, or
(4) you are convicted of a felony or crime involving moral
turpitude.
(e) Change in Control
"Change in Control" means the first of the following to occur
after the date of this Agreement, excluding any event that is Management Action:
(1) Acquisition of Controlling Interest. Any Person becomes the
Beneficial Owner, directly or indirectly, of securities of
the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities. In
applying the preceding sentence, securities acquired
directly from the Company or its affiliates with the
company's approval by or for the Person shall not be taken
into account.
(2) Change in Board Control. During the term of this Agreement,
individuals who constituted the Board as of the date of
this Agreement (or their approved replacements, as defined
in the next sentence) cease for any reason to constitute a
majority of the Board. A new director shall be considered
an "approved replacement" director if his or her election
(or nomination for election) was approved by a vote of at
least two-thirds of the directors then still in office who
either were directors at the beginning of the period or
were themselves approved replacement directors.
(3) Merger Approved. The shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation unless: (a) the voting securities of the
Company outstanding immediately before the merger or
consolidation would continue to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 75% of the
combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation; and (b) no Person
acquires more than 25% of the combined voting power of the
Company's then outstanding securities.
(4) Sale of Assets. The shareholders of the Company approve an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(f) Code
"Code" means the Internal Revenue Code of 1986, as amended.
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(g) Company
"Company" means Versar, Inc. and any successor to its business or
assets that (by operation of law, or otherwise) assumes and agrees to perform
this Agreement. However, for purposes of determining whether a Change in Control
has occurred in connection with such a succession, the successor shall not be
considered to be the Company.
(h) Disability
"Disability" means that, due to physical or mental illness: (i)
you have been absent from the full-time performance of your duties with the
Company for substantially all of a period of six consecutive months; (ii) the
Company has notified you that it intends to terminate you on account of
Disability; and (iii) you do not resume the full-time performance of your duties
within 30 days after receiving notice of your intended termination on account of
Disability.
(i) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) Good Reason
"Good Reason" means the occurrence of any of the following without
your express written consent:
(1) Demotion. Your duties and responsibilities are
substantially and adversely altered from those in effect
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control), other
than merely as a result of the Company ceasing to be a
public company, a change in your title, or your transfer to
an affiliate.
(2) Pay Cut. Your annual base salary is reduced.
(3) Relocation. Your principal office is transferred to another
location, which increases your one-way commute to work by
more than 50 miles, based on your residence when the
transfer was announced or, if you consent to the transfer,
the Company fails to pay (or reimburse you) for all
reasonable moving expenses you incur in changing your
principal residence in connection with the relocation and
to indemnify you against any loss you may realize when you
sell your principal residence in connection with the
relocation in an arm's-length sale for adequate
consideration. For purposes of the preceding sentence, your
"loss" will be the difference between the actual sales
price of your residence and the higher of: (a) your
aggregate investment in the residence; or (b) the fair
market value of the residence, as determined
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by a real estate appraiser designated by you and
satisfactory to the Company.
(4) Breach of Promise. The Company fails to pay you any present
or deferred compensation within seven days after it is due.
(5) Discontinuance of Compensation Plan Participation. The
Company fails to continue, or continue your participation
in, any compensation plan in which you participated
immediately before the Change in Control (or, with respect
to Section 3(b), the Potential Change in Control) that is
material to your total compensation, unless an equitable
substitute arrangement has been adopted or made available
on a basis not materially less favorable to you than the
plan in effect immediately before the Change in Control (or
the Potential Change in Control, if applicable), both as to
the benefits you receive and your level of participation
relative to other participants.
(6) Discontinuance of Benefits. The Company stops providing you
with benefits that, in the aggregate, are substantially as
valuable to you as those you enjoyed immediately before the
Change in Control (or, with respect to Section 3(b), the
Potential Change in Control) under the Company's pension,
savings, deferred compensation, life insurance, medical,
health, disability, accident, vacation, and fringe benefit
plans, programs, and arrangements.
(7) Improper Termination. You are purportedly terminated, other
than pursuant to a notice of termination satisfying the
requirements of Section 5.
(8) Notice of Prospective Action. You are officially notified
or it is officially announced that the Company will take
any of the actions listed above during the Term of this
Agreement.
However, an event that is or would constitute Good Reason shall cease to be Good
Reason if: (a) you do not terminate employment within 180 days after the event
occurs; (b) the Company reverses the action or cures the default that
constitutes Good Reason before you terminate employment; or (c) you were a
primary instigator of the Good Reason event and the circumstances make it
inappropriate for you to receive benefits under this Agreement (e.g., you agree
temporarily to relinquish your position on the occurrence of a merger
transaction you negotiate). If you have Good Reason to terminate employment, you
may do so even if you are on a leave of absence due to physical or mental
illness or any other reason.
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(k) Management Action
"Management Action" means any event, circumstance, or transaction
occurring during the six-month period following a Potential Change in Control
that results from the action of a Management Group.
(l) Management Group
"Management Group" means any entity or group that includes, is
affiliated with, or is wholly or partly controlled by one or more executive
officers of the Company in office before a Potential Change in Control.
(m) Person
"Person" has the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Section 13(d) of that Act, and shall include a
"group," as defined in Rule 13d-5 promulgated thereunder. However, a Person
shall not include: (i) the Company or any of its subsidiaries; (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries; (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
(n) Potential Change in Control
"Potential Change in Control" means that any of the following has
occurred during the term of this Agreement, excluding any event that is
Management Action:
(1) Agreement Signed. The Company enters into an agreement that
will result in a Change in Control.
(2) Notice of Intent to Seek Change in Control. The Company or
any Person publicly announces an intention to take or to
consider taking actions that will result in a Change in
Control.
(3) Board Declaration. With respect to this Agreement, the
Board adopts a resolution declaring that a Potential Change
in Control has occurred.
(o) Severance Benefits
"Severance Benefits" means your benefits under Section 6 of this
Agreement.
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(p) Term of this Agreement
"Term of this Agreement" means the period that commences on the
date of this Agreement and ends on the earlier of:
(1) Expiration. January 31, 2,002; or
(2) Change in Control. The last day of the 24th calendar month
beginning after the calendar month in which a Change in
Control occurred during the Term of this Agreement. After a
Change in Control occurs, the end of the Term of this
Agreement shall solely be determined under this Section
21(p)(2).
IN WITNESS WHEREOF, the parties have executed this Agreement as if the date set
forth above.
1/30/99
Date By: Versar, Inc.
----------------------
/S/ Benjamin M. Rawls
Name:
-----------------------------
Chairman & CEO
Title:
-----------------------------
1/30/99 /S/ Lawrence W. Sinnott
Date
---------------------- ---------------------------------
Lawrence W. Sinnott
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EXHIBIT 10.94
CHANGE OF CONTROL
SEVERANCE AGREEMENT
This Agreement between James C. Dobbs ("you") and VERSAR,
INC.("Company")has been entered into as of January 30, 1999. This Agreement
promises you severance benefits if, following a Change of Control, you are
terminated without Cause or resign for Good Reason during the Term of this
Agreement. Capitalized terms are defined in the last section of this
Agreement.
1. PURPOSE
The Company considers a sound and vital management team to be
essential. Management personnel who become concerned about the possibility that
the Company may undergo a Change in Control may terminate employment or become
distracted. Accordingly, the Board has determined that appropriate steps should
be taken to minimize the distraction executives may suffer from the possibility
of a Change in Control. One step is to enter into this Agreement with you.
2. YOUR AGREEMENT
If one or more Potential Changes in Control occur during the Term of
this Agreement, you agree not to resign for at least six full calendar months
after a Potential Change in Control occurs, except as follows: (a) you may
resign after a Change in Control occurs; (b) you may resign if you are given
Good Reason to do so; and (c) you may terminate employment on account of
retirement on or after 65 or because you become unable to work due to serious
illness or injury.
3. EVENTS THAT TRIGGER SEVERANCE BENEFITS
(a) Termination After a Change in Control
You will receive Severance Benefits under this Agreement if, during
the Term of this Agreement and after a Change in Control has occurred, your
employment is terminated by the Company without Cause (other than on account of
your Disability or death) or you resign for Good Reason.
(b) Termination After a Potential Change in Control
You also will receive Severance Benefits under this Agreement if,
during the Term of this Agreement and after a Potential Change in Control has
occurred but before a Change in Control actually occurs, your employment is
terminated by the Company without Cause or you resign for Good Reason, but only
if either: (i) you are terminated at the direction of a Person who has entered
into an agreement with
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the Company that will result in a Change in Control; or (ii) the event
constituting Good Reason occurs at the direction of such Person.
(c) Successor Fails to Assume This Agreement
You also will receive Severance Benefits under this Agreement if,
during the Term of this Agreement, a successor to the Company fails to assume
this Agreement, as provided in Section 13(a).
4. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS
You will not be entitled to Severance Benefits if your employment ends
because you are terminated for Cause or on account of Disability or because you
resign without Good Reason, retire, or die. Except as provided in Section
3(c), you will not be entitled to Severance Benefits while you remain protected
by this Agreement and remain employed by the Company, its affiliates, or their
successors.
5. TERMINATION PROCEDURES
If you are terminated by the Company after a Change in Control and
during the Term of this Agreement, the Company shall provide you with 30 days'
advance written notice of your termination, unless you are being terminated for
Cause. The notice will indicate why you are being terminated and will set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for your termination. If you are being terminated for Cause, your notice
of termination will include a copy of a resolution duly adopted by the
affirmative vote of not less than 51% of the entire membership of the Board (at
a meeting of the Board called and held for the purpose of considering your
termination (after reasonable notice to you and an opportunity for you and your
counsel to be heard before the Board)) finding that, in the good faith opinion
of the Board, Cause for your termination exists and specifying the basis for
that opinion in detail. If you are purportedly terminated without the notice
required by this Section, your termination shall not be effective.
6. SEVERANCE BENEFITS
(a) In General
If you become entitled to Severance Benefits under this Agreement, you
will receive all of the Severance Benefits described in this Section.
(b) Lump-Sum Payment in Lieu of Future Compensation
In lieu of any further cash compensation for periods after your
employment ends, you will be paid a cash lump sum equal to 2 times your annual
base salary in effect when your employment ends or, if higher, in effect
immediately before the Change in Control, Potential Change in Control, or Good
Reason event for which you terminate employment. In addition, and without
duplication, you will be paid a
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cash lump sum equal to 2 times the higher of the amounts paid to you (if any)
under any existing bonus or incentive plans in the calendar year preceding the
calendar year in which your employment ends or in the calendar year preceding
the calendar year in which the Change in Control occurred (or in which the
Potential Change in Control occurred, if benefits are payable under Section
3(b)hereof).
(c) Incentive Compensation and Options
The Company will pay you a cash lump sum equal to any unpaid incentive
compensation (that is not otherwise paid to you) that you have been allocated
or awarded under any existing bonus or incentive plans for measuring periods
completed before you became entitled to Severance Benefits under this
Agreement. All unvested options to purchase Company common stock will
immediately vest and remain exercisable for the longest period of time
permitted under the applicable stock option plan.
(d) Group Insurance Benefit Continuation
During the period that begins when you become entitled to Severance
Benefits under this Agreement and ends on the last day of the 24th calendar
month beginning thereafter, the Company shall provide, at no cost to you or
your spouse or dependents, the life, disability, accident, and health and
dental insurance benefits (or substantially similar benefits) it was providing
to you and your spouse and dependents immediately before you became entitled to
Severance Benefits under this Agreement (or immediately before a benefit
reduction that constitutes Good Reason, if you terminate employment for that
Good Reason). These benefits shall be treated as satisfying the Company's
COBRA obligations. After benefit continuation under this subsection ends, you
and your spouse and dependents will be entitled to any remaining COBRA rights.
7. TIME FOR PAYMENT
You will be paid your cash Severance Benefits within five days after
you become entitled to Severance Benefits under this Agreement (e.g., within
five days following your termination of employment). If the amount you are due
cannot be finally determined within that period, you will receive the minimum
amount to which you are clearly entitled, as estimated in good faith by the
Company. The Company will pay the balance you are due (together with interest
at the rate provided in Internal Revenue Code Section 1274(b)(2)(B)) as soon as
the amount can be determined, but in no event later than 30 days after you
terminate employment. If your estimated payment exceeds the amount you are
due, the excess will be a loan to you, which you must repay to the Company
within five business days after demand by the Company (together with interest
at the rate provided in Code Section 1274(b)(2)(B)).
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8. PAYMENT EXPLANATION
When payments are made to you, the Company will provide you with a
written statement explaining how your payments were calculated and the basis
for the calculations. This statement will include any opinions or other advice
the Company has received from auditors or consultants as to the calculation of
your benefits. If your benefit is affected by the golden parachute limitation
in Section 10, the Company will provide you with calculations relating to that
limitation and any supporting materials you reasonably need to permit you to
evaluate those calculations.
9. RELATION TO OTHER SEVERANCE PROGRAMS
Your Severance Benefits under this Agreement are in lieu of any
severance or similar benefits that may be payable to you under any other
employment agreement or other arrangement; to the extent any such benefits are
paid to you, they shall be applied to reduce the amount due under this
Agreement. This Agreement constitutes the entire agreement between you and the
Company and its affiliates with respect to such benefits.
10. POTENTIAL LIMITATIONS
(a) Golden Parachute Limitation
Your aggregate payments and benefits under this Agreement and all
other contracts, arrangements, or programs shall not exceed the maximum amount
that may be paid without triggering golden parachute penalties under Section
280G and related provisions of the Internal Revenue Code, as determined in good
faith by the Company's independent auditors. The preceding sentence shall not
apply to the extent the shareholder approval requirements of Code Section
280G(b)(5) are satisfied. If your benefits must be reduced to avoid triggering
such penalties, your benefits will be reduced in the priority order you
designate or, if you fail promptly to designate an order, in the priority order
designated by the Company. If an amount in excess of the limit set forth in
this Section is paid to you, you must repay the excess amount to the Company on
demand, with interest at the rate provided in Code Section 1274(b)(2)(B). You
and the Company agree to cooperate with each other reasonably in connection
with any administrative or judicial proceedings concerning the existence or
amount of golden parachute penalties on payments or benefits you receive.
(b) Section 162(m) Limitation
To the extent payments or benefits under this Agreement would not be
deductible under Code Section 162(m) if made or provided when otherwise due
under this Agreement, they shall be made or provided later, immediately after
Section 162(m) ceases to preclude their deduction, with interest thereon at the
rate provided in Code Section 1274(b)(2)(B).
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(c) Pooling of Interests Limitation
If the Company enters into a business combination transaction that is
intended to qualify for "pooling of interests" accounting treatment and the
transaction would qualify for such treatment but for one or more provisions of
this or any other agreement you have with the Company, then such agreement, to
the extent practicable, shall be interpreted so as to permit such accounting
treatment. To the extent that is not sufficient to preserve pooling of
interests accounting, any provisions of the Agreement that would preclude such
accounting treatment shall be void. All determinations under this Section
shall be made by the accounting firm whose pooling of interests accounting
opinion is required as a condition of the consummation of the business
combination transaction in question.
11. DISABILITY
Following a Change in Control, while you are absent from work as a
result of physical or mental illness, the Company will continue to pay you your
full salary and provide you all other compensation and benefits payable to you
under the Company's compensation or benefit plans, programs, or arrangements.
These payments will stop if and when your employment is terminated by the
Company for Disability or at the end of the Term of this Agreement, whichever
is earlier. Severance Benefits under this Agreement are not payable if you are
terminated on account of your Disability.
12. EFFECT OF REEMPLOYMENT
Your Severance Benefits will not be reduced by any other compensation
you earn or could have earned from another source.
13. SUCCESSORS
(a) Assumption Required
In addition to obligations imposed by law on a successor to the
Company, during the Term of this Agreement the Company will require any
successor to all or substantially all of the business or assets of the Company
expressly to assume and to agree to perform this Agreement in the same manner
and to the same extent that the Company was required to perform. If the
Company fails to obtain such an assumption and agreement before the effective
date of a succession, you will be entitled to Severance Benefits as if you were
terminated by the Company without Cause on the effective date of that
succession.
(b) Heirs and Assigns
This Agreement will inure to the benefit of, and be enforceable by,
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees, and legatees. If you die while any amount is
still payable to
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you under this Agreement, that amount will be paid to the executor, personal
representative, or administrator of your estate.
14. AMENDMENTS
This Agreement may be modified only by a written agreement executed by
you and an authorized officer of the Company.
15. GOVERNING LAW
This Agreement creates a "top hat" employee benefit plan subject to
the Employee Retirement Income Security Act of 1974, and it shall be
interpreted, administered, and enforced in accordance with that law; the
Company is the "plan administrator." To the extent that state law is
applicable, the statutes and common law of the State of Virginia(excluding its
choice of laws statutes or common law) shall apply.
16. CLAIMS [ERISA REQUIREMENT]
(a) When Required; Attorneys' Fees
You do not need to present a formal claim to receive benefits payable
under this Agreement. However, if you believe that your rights under this
Agreement are being violated, you must file a formal claim with the Company in
accordance with the procedures set forth in this Section. The Company will pay
your reasonable attorneys' fees and related costs in enforcing your rights
under this Agreement.
(b) Initial Claim
Your claim must be presented to the Company in writing. Within 30
days after receiving the claim, a claims official appointed by the Company will
consider your claim and issue his or her determination thereon in writing. With
your consent, the initial claim determination period can be extended further.
If you can establish that the claims official failed to respond to your claim
in a timely manner, you may treat the claim as having been denied by the claims
official.
(c) Claim Decision
If your claim is granted, the benefits or relief you are seeking will
be provided. If your claim is wholly or partially denied, the claims official
shall, within three days, provide you with written notice of the denial,
setting forth, in a manner calculated to be understood by you: (i) the specific
reason or reasons for the denial; (ii) specific references to the provisions on
which the denial is based; (iii) a description of any additional material or
information necessary for you to perfect your claim, together with an
explanation of why the material or information is necessary; and (iv) an
explanation of the procedures for appealing denied claims. If you establish
that the
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claims official has failed to respond to your claim in a timely manner, you may
treat the claim as having been denied by the claims official.
(d) Appeal of Denied Claims
You may appeal the claims official's denial of your claim in writing
to an appeals official designated by the Company (which may be a person,
committee, or other entity) for a full and fair appeal. You must appeal a
denied claim within five days after your receipt of written notice denying your
claim, or within 60 days after such written notice was due, if the written
notice was not sent. In connection with the appeals proceeding, you (or your
duly authorized representative) may review pertinent documents and may submit
issues and comments in writing. You may only present evidence and theories
during the appeal that you presented during the initial claims stage, except
for information the claims official requested you to provide to perfect the
claim. You will irrevocably waive any theories you do not in good faith pursue
through the appeal stage, such as by failing to file a timely appeal request.
(e) Appeal Decision
The decision by the appeals official will be made within 60 days after
your appeal request, unless special circumstances require an extension of time,
in which case the decision will be rendered as soon as possible, but not later
than ten days after your appeal request, unless you agree to a greater
extension of that deadline. The appeal decision will be in writing, set forth
in a manner calculated to be understood by you; it will include specific
reasons for the decision, as well as specific references to the pertinent
provisions of this Agreement on which the decision is based. If you do not
receive the appeal decision by the date it is due, you may deem your appeal to
have been denied.
(f) Procedures
The Company will adopt procedures by which initial claims and appeals
will be considered and resolved; different procedures may be established for
different claims. All procedures will be designed to afford you full and fair
consideration of your claim.
17. LIMITATION ON EMPLOYEE RIGHTS
This Agreement does not give you the right to be retained in the
service of the Company.
18. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
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19. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which
will be deemed an original, but all of which will constitute one and the same
instrument.
20. GIVING NOTICE
(a) To the Company
All communications from you to the Company relating to this Agreement
must be sent to the Company to its principal business office in Springfield,
Virginia, in writing, by registered or certified mail, or delivered personally.
(b) To You
All communications from the Company to you relating to this Agreement
must be sent to you in writing, by registered or certified mail, or delivered
personally, addressed as indicated at the end of this Agreement.
31. DEFINITIONS
(a) Agreement
"Agreement" means this contract, as amended.
(b) Beneficial Owner
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act.
(c) Board
"Board" means the Board of Directors of the Company.
(d) Cause
"Cause" means any of the following:
(1) you fail to carry out assigned duties after being given prior
warning and an opportunity to remedy the failure,
(2) you breach any material term of any employment agreement with
the Company,
(3) you engage in fraud, dishonesty, willful misconduct, gross
negligence, or breach of fiduciary duty (including without
limitation any failure to
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disclose a conflict of interest)in the performance of your duties
for the Company, or
(4) you are convicted of a felony or crime involving moral turpitude.
(e) Change in Control
"Change in Control" means the first of the following to occur after
the date of this Agreement, excluding any event that is Management Action:
(1) Acquisition of Controlling Interest. Any Person becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power
of the Company's then outstanding securities. In applying the
preceding sentence, securities acquired directly from the
Company or its affiliates with the company's approval by or
for the Person shall not be taken into account.
(2) Change in Board Control. During the term of this Agreement,
individuals who constituted the Board as of the date of this
Agreement (or their approved replacements, as defined in the
next sentence) cease for any reason to constitute a majority
of the Board. A new director shall be considered an "approved
replacement" director if his or her election (or nomination
for election) was approved by a vote of at least two-thirds of
the directors then still in office who either were directors
at the beginning of the period or were themselves approved
replacement directors.
(3) Merger Approved. The shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation unless: (a) the voting securities of the Company
outstanding immediately before the merger or consolidation
would continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity) at least 75% of the combined voting power of the
voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
and (b) no Person acquires more than 25% of the combined
voting power of the Company's then outstanding securities.
(4) Sale of Assets. The shareholders of the Company approve an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(f) Code
"Code" means the Internal Revenue Code of 1986, as amended.
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(g) Company
"Company" means Versar, Inc. and any successor to its business or
assets that (by operation of law, or otherwise) assumes and agrees to perform
this Agreement. However, for purposes of determining whether a Change in
Control has occurred in connection with such a succession, the successor shall
not be considered to be the Company.
(h) Disability
"Disability" means that, due to physical or mental illness: (i) you
have been absent from the full-time performance of your duties with the Company
for substantially all of a period of six consecutive months; (ii) the Company
has notified you that it intends to terminate you on account of Disability; and
(iii) you do not resume the full-time performance of your duties within 30 days
after receiving notice of your intended termination on account of Disability.
(i) Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) Good Reason
"Good Reason" means the occurrence of any of the following without
your express written consent:
(1) Demotion. Your duties and responsibilities are substantially
and adversely altered from those in effect immediately before
the Change in Control (or, with respect to Section 3(b), the
Potential Change in Control), other than merely as a result of
the Company ceasing to be a public company, a change in your
title, or your transfer to an affiliate.
(2) Pay Cut. Your annual base salary is reduced.
(3) Relocation. Your principal office is transferred to another
location, which increases your one-way commute to work by more
than 50 miles, based on your residence when the transfer was
announced or, if you consent to the transfer, the Company
fails to pay (or reimburse you) for all reasonable moving
expenses you incur in changing your principal residence in
connection with the relocation and to indemnify you against
any loss you may realize when you sell your principal
residence in connection with the relocation in an arm's-length
sale for adequate consideration. For purposes of the
preceding sentence, your "loss" will be the difference between
the actual sales price of your residence and the higher of:
(a) your aggregate investment in the residence; or (b) the
fair market value of the residence, as determined
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by a real estate appraiser designated by you and satisfactory
to the Company.
(4) Breach of Promise. The Company fails to pay you any present or
deferred compensation within seven days after it is due.
(5) Discontinuance of Compensation Plan Participation. The Company
fails to continue, or continue your participation in, any
compensation plan in which you participated immediately before
the Change in Control (or, with respect to Section 3(b), the
Potential Change in Control) that is material to your total
compensation, unless an equitable substitute arrangement has
been adopted or made available on a basis not materially less
favorable to you than the plan in effect immediately before
the Change in Control (or the Potential Change in Control, if
applicable), both as to the benefits you receive and your
level of participation relative to other participants.
(6) Discontinuance of Benefits. The Company stops providing you
with benefits that, in the aggregate, are substantially as
valuable to you as those you enjoyed immediately before the
Change in Control (or, with respect to Section 3(b), the
Potential Change in Control) under the Company's pension,
savings, deferred compensation, life insurance, medical,
health, disability, accident, vacation, and fringe benefit
plans, programs, and arrangements.
(7) Improper Termination. You are purportedly terminated, other
than pursuant to a notice of termination satisfying the
requirements of Section 5.
(8) Notice of Prospective Action. You are officially notified or
it is officially announced that the Company will take any of
the actions listed above during the Term of this Agreement.
However, an event that is or would constitute Good Reason shall cease to be
Good Reason if: (a) you do not terminate employment within 180 days after the
event occurs; (b) the Company reverses the action or cures the default that
constitutes Good Reason before you terminate employment; or (c) you were a
primary instigator of the Good Reason event and the circumstances make it
inappropriate for you to receive benefits under this Agreement (e.g., you agree
temporarily to relinquish your position on the occurrence of a merger
transaction you negotiate). If you have Good Reason to terminate employment,
you may do so even if you are on a leave of absence due to physical or mental
illness or any other reason.
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(k) Management Action
"Management Action" means any event, circumstance, or transaction
occurring during the six-month period following a Potential Change in Control
that results from the action of a Management Group.
(l) Management Group
"Management Group" means any entity or group that includes, is
affiliated with, or is wholly or partly controlled by one or more executive
officers of the Company in office before a Potential Change in Control.
(m) Person
"Person" has the meaning given in Section 3(a)(9) of the Exchange Act,
as modified and used in Section 13(d) of that Act, and shall include a "group,"
as defined in Rule 13d-5 promulgated thereunder. However, a Person shall not
include: (i) the Company or any of its subsidiaries; (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
any of its subsidiaries; (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities; or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
(n) Potential Change in Control
"Potential Change in Control" means that any of the following has
occurred during the term of this Agreement, excluding any event that is
Management Action:
(1) Agreement Signed. The Company enters into an agreement that
will result in a Change in Control.
(2) Notice of Intent to Seek Change in Control. The Company or any
Person publicly announces an intention to take or to consider
taking actions that will result in a Change in Control.
(3) Board Declaration. With respect to this Agreement, the Board
adopts a resolution declaring that a Potential Change in
Control has occurred.
(o) Severance Benefits
"Severance Benefits" means your benefits under Section 6 of this Agreement.
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(p) Term of this Agreement
"Term of this Agreement" means the period that commences on the date
of this Agreement and ends on the earlier of:
(1) Expiration. January 31, 2,002; or
(2) Change in Control. The last day of the 24th calendar month
beginning after the calendar month in which a Change in
Control occurred during the Term of this Agreement. After a
Change in Control occurs, the end of the Term of this
Agreement shall solely be determined under this Section
21(p)(2).
IN WITNESS WHEREOF, the parties have executed this Agreement as if the date set
forth above.
Date 1/30/99 By: Versar, Inc.
---------------------
Name: /S/ Benjamin M. Rawls
-------------------------
Title: Chairman & CEO
------------------------
Date 1/30/99 /S/ James C. Dobbs
---------------------- ------------------------------
James C. Dobbs
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EXHIBIT 10.95
SEVENTH AMENDMENT
TO FINANCING AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") made this 24th day of May, 1999 by and among VERSAR, INC., a
corporation organized under the laws of the State of Delaware ("Versar"),
GEOMET TECHNOLOGIES, INC., a corporation organized under the laws of the State
of Delaware ("Geomet"), SMC MCEVER, INC., a corporation organized under the
laws of the State of Texas, SMC ENVIRONMENTAL SERVICES GROUP, INC., a
corporation organized under the laws of the State of Pennsylvania, VERSAR
ACQUISITION II, CORP., a corporation organized under the laws of the
Commonwealth of Virginia, GREENWOOD PARTNERSHIP, LTD., a corporation organized
under the laws of the Commonwealth of Virginia (collectively called, the
"Borrowers" and each individually, a "Borrower") and NATIONSBANK, N.A., a
national banking association, its successors and assigns (the "Lender").
RECITALS
A. Versar and Geomet are parties to a certain Financing and
Security Agreement, along with the Lender dated March 31, 1997 (the Financing
and Security Agreement as thereafter amended, modified and renewed from time to
time, is called the "Financing Agreement").
B. Pursuant to the Financing Agreement the Lender has agreed,
among other things, to make available to the Borrowers a revolving credit
facility (the "Revolving Loan") in the maximum principal amount of Six Million
Five Hundred Thousand Dollars ($6,500,000) to be
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used by the Borrowers to finance Receivables and for working capital, all as
more fully described in the Financing Agreement.
C. The Borrowers have requested that the Lender extend the
maturity of the Revolving Loan and amend certain provisions of the Financing
Agreement, and the Lender has agreed on the condition, among others, that the
Borrowers execute and deliver this Agreement.
D. All capitalized terms used herein and not otherwise defined
shall have the meanings given to such terms in the Financing Agreement.
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:
1. Recitals. The parties hereto acknowledge and agree that the
above Recitals are true and correct in all respect and that the same are
incorporated herein and made a part hereof by reference.
2. Definitions. Effective as of the date hereof, the following
definitions are added to Section 1.01 of the Financing Agreement:
"EBITDAR" means as to the Borrowers for any period of
determination thereof, the sum of (a) EBITDA, plus (b) rent expense
for such period.
"Fixed Charge Coverage Ratio" means the ratio of (i)
EBITDAR to (ii) the sum of (a) interest expense, plus (b) required
principal on Indebtedness for Borrowed Money and capitalized leases
scheduled and/or paid in the prior twelve (12) month period, plus (c)
rent expense.
"Funded Debt" means for any period of determination
thereof an amount equal to the sum of all Indebtedness for Borrowed
Money (including, but not limited to senior debt, stockholder debt,
subordinated debt, the value of all capitalized leases, all letters of
credit issued on the account of any Borrower, and estimated
liabilities under
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existing earn-out and/or non-compete agreements) all as determined on
a consolidated basis.
3. Financial Covenants. From and after the effective date
hereof, Sections 7.02 (a)-(d) of the Financing Agreement are amended and
restated in their entirety as follows:
(a) Minimum Tangible Net Worth. Maintain at all
times, a Tangible Net Worth of not less than $4,200,000.
(b) Fixed Charge Coverage Ratio. Commencing with
the fiscal quarter ending June 30, 1999 and at all times thereafter,
maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00,
tested as of the last day of each of the Borrower's fiscal quarters
for the four (4) quarter period ending on that date.
(c) Omitted.
(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:
<TABLE>
<CAPTION>
Liabilities/Tangible Net Worth Fiscal Quarter Ending
------------------------------- ---------------------
<S> <C>
4.25 to 1.00 March 31, 1999 and thereafter until
June 30, 2000; and
3.50 to 1.00 June 30, 2000 and at
all times thereafter.
</TABLE>
Except as amended hereby, Section 7.02 of the Financing Agreement
shall remain unchanged.
4. Fees. In addition to the Fees set forth in the Financing
Agreement, in consideration of the Lender's agreement to enter into this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Borrowers, the Borrowers
jointly and severally agree to pay to the Lender the following fees by direct
debit to any of the Borrower's accounts with the Lender, the following times:
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(a) Unbilled Fee. If any advances are made against
Eligible Unbilled Receivables in any month, the Borrowers shall continue to pay
to the Lender, the Unbilled Fee in the amount of Ten Thousand Dollars ($10,000)
per month through the month ending September 30, 1999.
(b) Monitoring Fee. The Borrowers shall continue to pay
the Monitoring Fee on the first day of each calendar month through the period
ending September 30, 1999, in an amount equal to three tenths of one percent
(.30%) per annum of the outstanding balance of the Revolving Loan for the prior
calendar month. Notwithstanding the preceding, in no event will the Monitoring
Fee be less than Three Thousand Dollars ($3,000) or exceed Fifteen Thousand
Dollars ($15,000).
5. Books and Records. In addition to any and all rights of the
Lender under the Financing Agreement to examining, audit and inspect the books
and records of the Borrowers from time to time, the Borrowers acknowledge and
agree that prior to December 31, 1999 the Lender shall have the right to
perform an additional examination, audit and inspection of the Collateral and
the books and records pertaining thereto at the Borrowers' expense, which
expense the Lender estimates will not exceed $6,500.
6. Solvency. The Borrowers represent that the fair saleable
value of each Borrowers' assets (including goodwill minus disposition costs)
exceeds the fair value of their liabilities; no Borrower is left with
unreasonably small capital after the transactions contemplated by this
Agreement; and each Borrower is able to pay its debts (including trade debts)
as they mature.
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7. 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:
(a) The Restated Note issued and delivered by the
Borrowers in the form of EXHIBIT A-2 attached hereto and incorporated herein by
reference; and
(b) Such other information, instruments, opinions,
documents, certificates and reports as the Lender may deem necessary.
8. Replacement Note. EXHIBIT A-2 to the Financing Agreement is
being replaced in its entirety with EXHIBIT A-2 attached hereto. The Borrowers
shall execute and deliver to the Lender on the date hereof their Fifth Amended
and Restated Revolving Promissory Note in the form of EXHIBIT A-2 attached
hereto and incorporated herein by reference (the "Restated Note") in
substitution for and not satisfaction of, the issued and outstanding Fourth
Amended and Restated Revolving Promissory Note, and the Restated Note shall be
the "Revolving Promissory Note" for all purposes of the Financing Documents.
The Note being substituted pursuant to this Agreement shall be marked
"Replaced" and returned to the Borrowers promptly after the execution and
delivery of the Restated Note to the Lender.
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.
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
94
<PAGE> 6
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 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 issue, remake, ratify and confirm the
representations, warranties and covenants contained in the Financing Documents.
Nothing in this Agreement shall be deemed to waive any defaults existing under
any of the Financing Documents as of the date hereof.
12. Modifications. This Agreement may not be supplemented,
changed, waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
95
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered under seal by the duly authorized representatives as of
the date and year first written above.
WITNESS/ATTEST: VERSAR, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Vice President & CFO
WITNESS/ATTEST: GEOMET TECHNOLOGIES, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: SMC ENVIRONMENTAL SERVICES
GROUP, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: SMC MCEVER, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: VERSAR ACQUISITION II, CORP.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
96
<PAGE> 8
WITNESS/ATTEST: GREENWOOD PARTNERSHIP, LTD.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS: NATIONSBANK, N.A.
By: /S/ Elaine Eaton (SEAL)
- ------------------------------ --------------------------
Name: Elaine Eaton
Title: Senior Vice President
97
<PAGE> 1
EXHIBIT 10.96
FIFTH AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$6,500,000 McLean, Virginia
May 24, 1999
FOR VALUE RECEIVED, VERSAR, INC., a corporation organized under the
laws of the State of Delaware ("Versar"), GEOMET TECHNOLOGIES, INC., a
corporation organized under the laws of the State of Delaware ("Geomet"), SMC
MCEVER, INC., a corporation organized under the laws of the State of Texas,
SMC ENVIRONMENTAL SERVICES GROUP, INC., a corporation organized under the laws
of the State of Pennsylvania, VERSAR ACQUISITION II, CORP., a corporation
organized under the laws of the Commonwealth of Virginia (the "Borrowers", and
each individually, 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 SIX MILLION FIVE HUNDRED THOUSAND
DOLLARS ($6,500,000) (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 from the date hereof
through September 30, 1999 at the LIBOR Rate (as hereinafter defined), plus two
hundred and eighty basis points (i.e. 2.80%) and from and after October 1, 1999
at the LIBOR Rate, plus two hundred and fifty basis points (i.e.
98
<PAGE> 2
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
amounts advanced under this Note in a minimum amount of $100,000 and increments
of $50,000, bear interest from the date hereof through September 30, 1999 at
the Prime Rate (as hereinafter defined), plus three tenths of one percent
(.30%) per annum, and from and after October 1, 1999 at the Prime Rate. 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, Treasurer & Chief Financial Officer
99
<PAGE> 3
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.
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 June 1, 1999, 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, 2000.
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
100
<PAGE> 4
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") four percent (4%) per annum in excess
of the Prime Rate 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 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 4113103748 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.
101
<PAGE> 5
7. FINANCING AGREEMENT AND OTHER FINANCING DOCUMENTS. This Note
is the "Restated Note" described in that certain Seventh Amendment to Financing
and Security Agreement of even date herewith by and among the Borrowers and the
Lender, which Seventh Amendment to Financing and Security Agreement, further
amends that certain Financing and Security Agreement dated March 31, 1997 (the
"Original Financing Agreement") by and among Versar and Geomet. The Original
Financing Agreement as thereafter amended, modified, restated, substituted,
extended and renewed at any time and from time to time, is hereinafter called
the "Financing Agreement". The indebtedness evidenced by this Note is included
within the meaning of the term "Obligations" as defined in the Financing
Agreement. This Note amends and restates in its entirety that certain Fourth
Amended and Restated Revolving Promissory Note in the maximum principal amount
of Six Million Five Hundred Thousand Dollars ($6,500,000) dated November 30,
1998 (the "Prior Note") from the Borrowers in favor of the Lender. The term
"Financing Documents" as used in this Note, shall mean collectively this Note,
each Acquisition Note, the Financing Agreement and any other instrument,
agreement, or document previously, simultaneously, or hereafter executed and
delivered by any of 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.
It is expressly understood and agreed that the indebtedness evidenced by the
Prior Note has not been extinguished or discharged hereby. The Borrowers and
the Lender agree that the execution of this Note is not intended and shall not
cause or result in a novation with regard to the Prior Note.
8. SECURITY. This Note is secured as provided in the Financing
Agreement.
102
<PAGE> 6
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,
103
<PAGE> 7
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 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
104
<PAGE> 8
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 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
105
<PAGE> 9
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 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.
106
<PAGE> 10
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.
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
107
<PAGE> 11
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 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
108
<PAGE> 12
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. Section 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
109
<PAGE> 13
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.
110
<PAGE> 14
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/ATTEST: VERSAR, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Vice President & CFO
WITNESS/ATTEST: GEOMET TECHNOLOGIES, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: SMC ENVIRONMENTAL SERVICES GROUP, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: SMC MCEVER, INC.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
WITNESS/ATTEST: VERSAR ACQUISITION II, CORP.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
111
<PAGE> 15
WITNESS/ATTEST: GREENWOOD PARTNERSHIP, LTD.
/S/ May K. Tom By: /S/ Lawrence W. Sinnott (SEAL)
- ------------------------------ --------------------------
Name: Lawrence W. Sinnott
Title: Treasurer
112
<PAGE> 1
EXHIBIT 11
VERSAR, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
NET INCOME (LOSS)....................................................... $ 1,837 $ (10,153) $ 1,256
============ ============ ===========
(LOSS) INCOME FROM DISCONTINUED
OPERATIONS........................................................... $ --- $ (10,429) $ 147
============ ============ ===========
Weighted average common shares outstanding -
Basic................................................................ 6,190,485 5,695,212 5,041,455
============ ============ ===========
NET INCOME (LOSS) PER SHARE - BASIC..................................... $ .30 $ (1.78) $ 0.25
============ ============ ===========
(LOSS) INCOME PER SHARE FROM
DISCONTINUED OPERATIONS - BASIC...................................... $ --- $ (1.83) $ .03
============ ============ ===========
Common shares from above................................................ 6,190,485 5,695,212 5,041,455
Assumed exercise of options (treasury stock
method).............................................................. 92,885 --- 244,354
------------ ------------ -----------
6,283,370 5,695,212 5,285,809
============ ============ ===========
NET INCOME (LOSS) PER SHARE - DILUTED................................... $ .29 $ (1.78) $ 0.24
============ ============ ===========
(LOSS) INCOME PER SHARE FROM
DISCONTINUED OPERATIONS - DILUTED.................................... $ --- $ (1.83) $ .03
============ ============ ===========
</TABLE>
113
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 16,548
<ALLOWANCES> 609
<INVENTORY> 0
<CURRENT-ASSETS> 17,721
<PP&E> 9,142
<DEPRECIATION> 6,676
<TOTAL-ASSETS> 22,380
<CURRENT-LIABILITIES> 9,318
<BONDS> 4,108
0
0
<COMMON> 63
<OTHER-SE> 6,060
<TOTAL-LIABILITY-AND-EQUITY> 22,380
<SALES> 0
<TOTAL-REVENUES> 58,886
<CGS> 0
<TOTAL-COSTS> 56,814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 92
<INTEREST-EXPENSE> 521
<INCOME-PRETAX> 1,551
<INCOME-TAX> (286)
<INCOME-CONTINUING> 1,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,837
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.29
</TABLE>
