<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, 1996 NO. 0-24108
------------------------
SARNIA CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1215366
(State or other jurisdiction (I.R.S. employer identification no.)
incorporation or organization)
6850 VERSAR CENTER, SPRINGFIELD, VIRGINIA 22151
(Address of principal executive offices) (Zip code)
(703) 642-6800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 3, 1996 was approximately $1,181,541.
The number of shares of Common Stock outstanding as of September 3, 1996 was
4,572,545.
The Exhibit Index is located on Page 14 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 1996 Annual Meeting of Stockholders
scheduled to be held on November 14, 1996 are incorporated by reference into
Part III thereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Sarnia Corporation ("Sarnia" or "the Company") is the owner and operator
of commercial real estate. Its sole asset is an office park of approximately
18.3 acres located in Springfield, Virginia known as Versar Center. Sarnia was
incorporated in Virginia on November 22, 1982 (under the name of Versar
Virginia, Inc.) to acquire property from its then parent corporation, Versar,
Inc. ("Versar") in order to own, develop and manage the Versar Center complex.
On June 30, 1994, Versar spun-off Sarnia to Versar's shareholders on the basis
of one share of Sarnia common stock for every outstanding share of Versar
common stock. Sarnia is now a public company traded on the over-the-counter
market. The spin-off of Sarnia by Versar was designed to separate two distinct
businesses with different financial, investing, and operating characteristics
so that each can adopt strategies and pursue objectives appropriate to its
specific business.
Versar Center consists of two four-story office buildings: the 6850
Building (approximately 108,000 square feet) which was constructed in 1982, and
the 6800 Building (approximately 120,500 square feet) which was constructed in
1986. At the end of June 1996, the 6850 Building was 93% leased and the 6800
Building was 94% leased. On June 29, 1994, Versar and Sarnia entered into two
15-year leases through May 2009 pursuant to which Versar leased from Sarnia
108,506 square feet (99,588 of which was located in the 6850 Building). On
June 22, 1995, Versar's lease in the 6850 Building was modified to reduce the
square footage from 99,588 to 73,371. On July 1, 1996 Versar modified its
lease in the 6850 Building to further reduce the square footage from 73,371 to
68,239. Three other tenants, The General Services Administration ("GSA"),
C-Cubed Corporation and RGE Engineering, lease approximately 50% of the 6800
Building and have leases which terminate between February 1997 and September
1999.
Sarnia believes that the relatively stable employment base provided by
the federal government, supplemented by moderate business growth in the region,
makes Versar Center an attractive real estate investment. Because of the
presence of the federal government, the area has attracted a high percentage of
professional workers which provide the region with a private sector labor force
base particularly suited to an increasingly service- oriented national economy.
The shift toward business and commercial growth and employment in the private
sector has made the regional economy more subject to recessions.
Since 1985, the Washington, D.C. metropolitan area has had the sixth
highest employment base in the nation. Population and employment growth in
this metropolitan area have historically moved outward from the District of
Columbia, first to the immediate suburbs, and then to the adjacent counties,
with Montgomery County in Maryland and Fairfax County in Virginia absorbing
most of the growth. This metropolitan area has slowed its economic growth
considerably during the early 1990s due to many factors, including the lack of
affordable housing, the decrease in federal spending, the over-built office
market, poor general economic conditions and the tightening of credit standards
in the area.
Fairfax County, in which Versar Center is located, has experienced
growth in the past in terms of residential, commercial and industrial
development. Growth in the County has moderated considerably since 1988
resulting in lessened demand for office space. In the past two years, however,
the regional economy, especially in Northern Virginia and Fairfax County has
begun to expand. That, combined with the lack of new buildings under
construction has lead to an increase in occupancy and generally higher rentals
for vacant or renewed office space.
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<PAGE> 3
Versar Center competes for tenants with other properties throughout
Springfield and central Fairfax County. Competition for tenants is on the
basis of location and rent charged. The success of Sarnia depends on, among
other factors, the trends of the economy in the Washington, D.C. metropolitan
area, government spending and the ability of Sarnia to keep Versar Center
leased at profitable levels and controlled operating costs.
Sarnia's staff perform the actual day-to-day management functions of
Versar Center, including maintenance of the property and equipment, tenant
build-outs and other facilities management functions.
OPERATING DATA
The occupancy rate for the 6850 Building for fiscal years 1992 through
1996 was 93%, 94%, 93%, 99% and 93%, respectively. The occupancy rate for the
6800 Building for fiscal years 1992 through 1996 was 60%, 79%, 85%, 93% and
94%, respectively.
The principal businesses conducted by the tenants in the 6800 Building
and the 6850 Building are as follows: environmental consulting, government
agencies, government contractors, an architectural firm, a health care provider
organization and other various service businesses. Versar and National Capital
Preferred Provider Organization, Inc. ("NCPPO") are the only tenants which
occupy more than 10% of the total rentable space in the 6850 Building.
Versar's principal business is environmental engineering and consulting, and
NCPPO is a national health care provider. C-Cubed Corporation, Cornet, GSA and
RGE Engineering each occupy more than 10% of the rentable space in the 6800
building. The loss of any of these tenants, if not replaced, would have an
adverse effect on Sarnia's results of operations and financial condition.
Versar entered into lease agreements with Sarnia for 68,239 square feet
of office space in the 6850 Building, and 8,918 square feet of storage space in
the 6800 Building, at an annual aggregate rent of $1,070,000. Both leases
expire on May 31, 2009. The lease on 6850 Building has an annual 4% escalation
with fair market adjustment every five years at June 1, 1999 and June 1, 2004.
The lease on 6800 Building is subject to 2% annual escalation. There are no
renewal options in the leases. Refer to Note H of the Notes to Financial
Statements.
With respect to the 6850 Building, the average effective annual rental
per square foot was $13.59, $13.52, $13.41, $14.04 and $13.95 for fiscal years
1996, 1995, 1994, 1993 and 1992, respectively. With respect to the 6800
Building, the average rates were $11.76, $11.52, $11.29, $11.84 and $11.95 for
fiscal years 1996, 1995, 1994, 1993 and 1992, respectively. In addition, the
average net rental rates for both buildings were $6.09, $6.30, $5.42, $4.54 and
$6.63 for fiscal years 1996, 1995, 1994, 1993 and 1992, respectively. The net
rental rates for Versar alone, as a significant tenant, were $6.88, $7.06,
$7.57, $8.88 and $11.25 for fiscal years 1996, 1995, 1994, 1993 and 1992,
respectively. The average effective annual rental per square foot is derived
using annual rental income divided by occupied square feet. The net rental
rate represents the difference between income per square foot and operating
expense per square foot.
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<PAGE> 4
The following table sets forth the schedule of the lease expirations for
each of the ten years commencing with calendar year 1996:
<TABLE>
<CAPTION>
Percent of
Gross
Number of Tenants Total Square Annual Rent Rent
Whose Leases Feet Covered Represented Represented
Year Will Expire by Leases by Leases by Leases
- - ------ --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
1996 2 4,120 $ 52,000 2.0%
1997 4 40,659 $ 481,000 18.3%
1998 3 10,945 $ 127,000 4.8%
1999 3 32,572 $ 428,000 16.3%
2000 3 38,223 $ 449,000 17.1%
2001 -- --- --- ---
2002 -- --- --- ---
2003 -- --- --- ---
2004 -- --- --- ---
2005 -- --- --- ---
</TABLE>
The following table sets forth information with respect to the 6850
Building and the 6800 Building regarding tax depreciation:
<TABLE>
<CAPTION>
Original
Cost Rate Method Life
--------------- ---- ------ ----
<S> <C> <C> <C> <C>
6850 Building $ 6,072,575 6.70% Straight-line 15
Capitalized Interest $ 750,179 Fully depreciated
(6850 Building)
Land $ 650,000 Land is nondepreciable
Leaseholds to $ 532,507 3.17% Straight-line 31.5/39
6850 Building
6800 Building $ 8,325,674 5.26% ACRS 19
Straight-line
Capitalized Interest $ 584,179 10.00% Straight-line 10
(6800 Building)
Leaseholds to $ 528,443 3.17% Straight-line 31.5/39
6800 Building
Equipment $ 23,591 8.93% Double 7
Declining
Balance
Security System to $ 53,002 5.26% Straight-line 19
6850 Building
Security System to $ 51,520 5.26% Straight-line 19
6800 Building
</TABLE>
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The real property tax rate is $1.1614 per $100 of assessed value. Annual
real property taxes for 1996 are approximately $50,000 and $62,000 for the 6850
Building and the 6800 Building, respectively.
EMPLOYEES
At June 30, 1996, Sarnia employed nine (9) full time employees. Sarnia
considers relations with its employees to be good. No employees are
represented by labor unions.
EXECUTIVE OFFICERS
The current executive officers and directors of Sarnia, their ages as of
September 3, 1996, their current offices or positions and their business
experience for the past five years are set forth below.
<TABLE>
<CAPTION>
Name Age Business Experience
- - ---- --- -------------------
During Last Five Years
----------------------
and Other Information
---------------------
<S> <C> <C>
Charles I. Judkins, Jr. 65 PRESIDENT AND CHIEF EXECUTIVE OFFICER
President and Chief Executive Officer
from June 1994 to present; Retired
former Senior Vice President of
Versar from August 1992 to May 1993;
Senior Vice President and Chief
Financial Officer of Versar from July
1991 to August 1992; President of
GEOMET Technologies, Inc., a
subsidiary of Versar, from 1986 to
1991.
Benjamin M. Rawls 55 CHAIRMAN OF THE BOARD
Chairman of the Board since November
1993 and President and Chief
Executive Officer of Versar since
April 1991; President and Chief
Executive Officer of Rawls
Associates, Inc., a management
consulting firm, from April 1988 to
March 1991; President and Chief
Executive Officer of R-C Holding,
Inc., (currently known as Air & Water
Technologies Corporation) from July
1987 to April 1988; Chairman of
Metcalf & Eddy, Inc., a subsidiary of
Research-Cottrell, Inc. from 1984 to
April 1988.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Name Age Business Experience
- - ---- --- -------------------
During Last Five Years
----------------------
and Other Information
---------------------
<S> <C> <C>
Lawrence W. Sinnott 34 TREASURER
Chief Financial Officer and Treasurer
of Versar from May 1994 to present;
Treasurer and Controller of Versar
from June 1992 to April 1994;
Assistant Controller of Versar from
January 1991 to June 1992. From 1989
to 1991, he was Controller of a
venture capital company, Defense
Group, Inc.
Gerald T. Halpin 73 DIRECTOR
President and Chairman of the Board
of WEST GROUP, Inc., a real estate
development and construction firm,
and its predecessor, since 1970.
Michael Markels, Jr. 70 DIRECTOR
Co-founder of Versar; Chairman
Emeritus and Director of Versar;
Retired former Chairman of the Board
of Versar from March 1991 to November
1993; President, Chief Executive
Officer and Chairman of the Board of
Versar from 1969 to March 1991.
Thomas G. Hotz 36 DIRECTOR
Partner, Magnum Capital Partners,
L.L.C., 1996; Managing Director of
Julian J. Studley, Inc., a national
real estate firm, from 1989 through
1996.
William G. Denbo 53 VICE PRESIDENT AND GENERAL MANAGER
Maintenance supervision and general
manager of Versar Virginia for the
past five years.
James N.Schwarz 51 DIRECTOR
Partner of Ginsburg, Feldman and
Bress, a chartered law firm in
Washington, D.C., since February
1996; Senior Vice President, General
Counsel and Corporate Secretary of
Steuart Petroleum Company from 1991
to 1996.
</TABLE>
6
<PAGE> 7
ITEM 2. PROPERTIES
Versar Center is located at the east end of the 6900 block of Hechinger
Drive in Springfield, Virginia, one-half mile northwest of the intersection of
the Capital Beltway (I-495) and Shirley Highway (I-395). The 6800 Building and
the 6850 Building, the two four-story office buildings in Versar Center, are
located on a property encompassing 18.3 acres. The 6850 Building has
approximately 108,000 usable square feet, and the 6800 Building has
approximately 120,500 usable square feet. The property site is just inside the
Capital Beltway, approximately 14.5 miles southwest of downtown Washington,
D.C.
Springfield is a major retail center with the Springfield Regional Mall,
Springfield Plaza Shopping Center and other retail properties located within
its boundaries. Major industrial parks are found on both sides of Shirley
Highway inside the Capital Beltway. Springfield is generally considered a
Class B office location.
Versar Center is located in an I-5 zoning district, which is defined as a
general industrial district; its permitted uses include the existing office
use. Under existing zoning regulations, Sarnia could construct approximately
168,000 square feet of additional office space by right and up to an additional
391,000 square feet of office space by special exception.
The 6800 Building and the 6850 Building are secured by a first deed of
trust in favor of I.D.S. Life Insurance Company and a second deed of trust with
the Riggs National Bank. Refer to Footnote D on Page F-8 for details.
ITEM 3. LEGAL PROCEEDINGS
Sarnia is not a party to any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of fiscal year 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
At June 30, 1996, the Company had 832 stockholders of record, excluding
stockholders whose shares were held in nominee name.
The Company's common stock is traded on the over-the-counter market.
There is no established public trading market for the Company's common stock
and trades in the stock are sporadic. The quarterly high and
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<PAGE> 8
low actual trade prices without adjustments for mark-ups, mark-downs, or
commissions during fiscal years 1995 and 1996 are presented below.
<TABLE>
<CAPTION>
Fiscal Year High Low
- - ----------------------------- -------- --------
<S> <C> <C> <C>
1995 4th Quarter . . . . . . $ 0.3750 $ 0.1875
3rd Quarter . . . . . . 0.3750 0.1875
2nd Quarter . . . . . . 0.4375 0.2100
1st Quarter . . . . . . 0.6250 0.1250
1996 4th Quarter . . . . . . $ 0.5000 $ 0.3125
3rd Quarter . . . . . . 0.3750 0.3125
2nd Quarter . . . . . . 0.5000 0.3125
1st Quarter . . . . . . 0.4375 0.3125
</TABLE>
No dividends were paid on the Company's common stock in fiscal year 1996
or 1995 by Sarnia. 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.
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<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with Sarnia's Financial Statements and notes thereto beginning on page F-1 of
this report.
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
related data:
Gross rental revenue:
Versar $ 1,111 $ 1,415 $ 1,451 $ 1,462 $ 2,183
Other 1,660 1,261 995 879 519
-------- -------- -------- -------- --------
Total gross rental
revenue 2,771 2,676 2,446 2,341 2,702
Net loss before cumulative
effect of change in
accounting principle (235) (270) (684) (664) (281)
Cumulative effect of
adoption of SFAS 109 --- --- (440) --- ---
Net loss (235) (270) (1,124) (664) (281)
Net loss applicable to
common stock (269) (270) (1,124) (664) (281)
Balance Sheet related data:
Total assets 12,762 13,305 13,362 13,799 17,234
Short-term debt 452 1,405 355 860 6,216
Long-term debt 10,287 10,657 12,048 13,432 10,743
-------- -------- --------- -------- --------
Total debt 10,739 12,062 12,403 14,292 16,959
Total stockholders'
deficit (797) (1,278) (1,008) (1,980) (1,316)
Earnings per share
information:
Net loss per share before
cumulative effect of
change in accounting
principle $ (0.05) $ (0.06) $ (0.15) $ (0.15) ---
Net loss per share from
cumulative effect of
change in accounting
principle $ --- $ --- $ (0.10) --- ---
Net loss per share
applicable to
common stock $ (0.06) $ (0.06) $ (0.25) (0.15) ---
Number of shares out-
standing 4,573 4,573 4,573 4,573 ---
======== ======== ========= ======== ========
</TABLE>
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<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Real estate revenue in 1996 of $2,771,000 was $95,000 (4%) higher than the
$2,676,000 of rental revenue reported in 1995. The increase is attributable to
rent escalations and increased revenue from tenant requested improvements. Real
estate revenue in 1995 of $2,676,000 was $230,000 (9%) higher than that reported
in 1994. The increase is due to new tenants and increased tenant requested
services.
Real estate expenses in 1996 of $1,308,000 were $100,000 (8%) higher than
the $1,208,000 of expenses reported in 1995. The increase is due to the fact
that Sarnia received a real estate tax refund of $90,000 in fiscal year 1995
and no such refund was received in 1996. Real estate expenses in 1995 of
$1,208,000 were $19,000 (2%) higher than those reported in 1994. The increase
is due to the higher occupancy rate in both buildings, which resulted in an
increase in operating expenses in 1995.
Depreciation/amortization expenses in 1996 of $619,000 were $54,000 (10%)
higher than the $565,000 reported in 1995. The increase is due to the full
year's depreciation on the leasehold improvements that were placed in service
for the new tenants during 1995. Depreciation/amortization expenses in 1995 of
$565,000 were $7,000 (1%) lower than the $572,000 reported in 1994. The
decrease is due to the fully amortized assets that were placed in service in
prior years.
General and administrative expenses in 1996 of $102,000 were $7,000 (7%)
higher than the $95,000 reported in 1995. General and administrative expenses
in 1995 were $20,000 (27%) higher than 1994. Increases from both years were
due to higher insurance costs. After the spin-off from Versar, Sarnia entered
into separate insurance coverage on a stand-alone basis, which resulted in
higher insurance expenses.
Interest expense in 1996 of $977,000 was $101,000 (9%) lower than that
reported in 1995. Interest expense in 1995 of $1,078,000 was $76,000 (7%)
lower than the $1,154,000 in 1994. The decreases are due to the refinancing of
debt at lower interest rates in 1996 and the increased principal payment in
1994. Interest expense in fiscal year 1997 is expected to be lower than fiscal
year 1996, due to the refinancing of debt which took place in the middle of
fiscal year 1996, resulting in interest expense at a lower rate for six months.
In fiscal year 1996, Sarnia recorded $34,000 preferred stock dividends of
which $7,000 was paid in April 1996 and the remaining $27,000 was paid in
September 1996.
The net loss applicable to common stock of $269,000 in fiscal year 1996
remained relatively the same as the net loss of $270,000 in fiscal year 1995.
Higher rental revenue and lower interest expense were offset by increase in
real estate, depreciation and general and administration expenses. The net
loss in 1995 of $270,000 was $854,000 lower than the $1,124,000 net loss
reported in 1994. The improvement is due to the increase in rental income as
discussed above and the effect of the SFAS 109 tax adjustment recorded in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities was $508,000, $435,000 and
$692,000 for fiscal years 1996, 1995 and 1994, respectively. Principal
payments on the mortgages for fiscal years 1996, 1995 and 1994 were $1,323,000,
$341,000 and $889,000, respectively. In fiscal year 1996, Sarnia issued
$750,000 of preferred stock and received a $250,000 rent deposit from Versar.
In fiscal year 1995, Versar loaned $265,000 to Sarnia, primarily for leasehold
improvements. In fiscal year 1994, principal payments were paid through the
use of proceeds obtained from Versar of $1,273,000. The $1,445,000 of
intercompany debt owed by Sarnia to Versar was forgiven when the spin-off
occurred on June 30, 1994.
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<PAGE> 11
On January 25, 1996, Sarnia obtained a first mortgage of $9 million with
I.D.S. Life Insurance Company at the fixed rate of 7.75% to be amortized over
twenty-two years and with a balloon payment due in 2003. Sarnia also obtained
a second mortgage of $500,000 with the Riggs National Bank at the prime rate
reported in the Wall Street Journal plus 2% (currently 10.25%) payable in 12
equal monthly installments. On June 30, 1996, the maturity date of the second
mortgage was extended to July 1, 1997. Sarnia also entered into a $1.5 million
term loan with the Riggs National Bank at the prime rate reported in the Wall
Street Journal plus 1% (currently 9.25%). The term loan is amortized over
seven years payable in 66 equal monthly installments starting on the 18th month
from the date of funding. In addition, Sarnia has issued, for $750,000, Series
A Cumulative Convertible Preferred Stock to a group of private investors.
Sarnia received a rent deposit of $250,000 from Versar and repaid a portion of
the loans it owed to Versar.
During fiscal year 1994, Sarnia entered into an agreement with Riggs
National Bank ("Riggs") prior to the spin-off to modify two outstanding loans
from Riggs to Sarnia in the aggregate principal amount of $13,444,866, with a
principal balance of $3,031,510 being outstanding under a reducing revolving
loan, and a principal balance of $10,413,356 being outstanding under a term
loan. Versar and certain of Versar's affiliates assumed $1,000,000 of the
outstanding principal balance of the reducing revolving loan, and Sarnia
remained primarily liable for the remaining outstanding principal balance of
$2,031,510 of the reducing revolving loan. In fiscal year 1995, Versar paid
the $1,000,000 of outstanding principal balance of the reducing revolving loan.
The reducing revolving loan bore interest at the rate of prime plus 2.5% and
was scheduled to mature on June 1, 1997. The term loan bore interest at the
fixed rate of 8.27% and also was scheduled to mature on May 1, 1997. Both
loans were repaid on January 25, 1996 in connection with the refinancing
described above.
Sarnia expects that it will require $80,000 for capital expenditures to
be made during fiscal year 1997. It is anticipated that of such $80,000,
approximately $50,000 will be used for remodeling vacant space, and
approximately $30,000 will be used for other miscellaneous capital expenditures.
expenditures.
While Sarnia incurred operating losses in each of the fiscal years ended
June 30, 1996, 1995 and 1994, management believes that funds generated from
rents should be sufficient to meet Sarnia's operating needs, including capital
expenditures.
IMPACT OF ACCOUNTING STANDARDS NOT YET EFFECTIVE
In March 1995, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 is effective for fiscal year 1997, and requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
SFAS 121 will not have a material effect on the financial position of the
Company.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October, 1995 and is
effective for fiscal years beginning after December 15, 1995. The Statement
encourages, but does not require, adoption of the fair value based method of
accounting for employee stock options and other stock compensation plans. The
Company has opted to account for its stock option plan in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." By doing so, the
Company, beginning in fiscal year 1997, will be required to make proforma
disclosure of net income and earnings per share as if the fair value based
method for accounting defined in SFAS 123 had been applied.
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<PAGE> 12
IMPACT OF INFLATION
Sarnia continually seeks to protect itself from the effects of inflation.
The majority of its leases provide for annual increases based on fixed
percentages or increases in the Consumer Price Index.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data begin on
page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item with respect to directors of the
Company will be contained in the Company's proxy statement for its 1996 Annual
Meeting of Stockholders which is expected to be filed with the Commission not
later than 120 days after the Company's 1996 fiscal year and is incorporated
herein by reference.
Information required by this item with respect to executive officers of
the Company is included in Part I of this report and is incorporated herein by
reference.
For the purpose of calculating the aggregate market value of the voting
stock of Sarnia 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 Versar 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.
The information called for in Part III by:
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by these items is incorporated herein by reference
to the Company's proxy statement for its 1996 Annual Meeting of Stockholders,
which is expected to be filed with the Commission not later than 120 days after
the end of the Company's 1996 fiscal year.
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<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A)(1) Financial Statements:
The financial statements and financial statement schedules of Sarnia
Corporation are filed as part of this report and begin on page F- 1.
a) Report of Independent Public Accountants
b) Balance Sheets as of June 30, 1996 and 1995
c) Statements of Operations for the Years Ended June
30, 1996, 1995 and 1994
d) Statements of Changes in Stockholders' Deficit for the
Years Ended June 30, 1996, 1995 and 1994
e) Statements of Cash Flows for the Years Ended June 30,
1996, 1995 and 1994
f) Notes to Financial Statements
(2) Financial Statement Schedules:
There are no financial statement schedules applicable to the
Company.
(3) Exhibits:
The exhibits to this Form 10-K are set forth in a separate Exhibit
Index which is included on page 14 of this report.
(B) Reports on Form 8-K
No reports were filed on Form 8-K during the Company's last quarter
of fiscal year 1996.
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number/
Item No. Description Reference
- - -------- ----------- ---------
<S> <C> <C>
1 Sarnia Corporation Information Statement for
distribution to shareholders of Versar, Inc., the
outstanding shares of its wholly-owned subsidiary, Sarnia
Corporation, dated June 30, 1994 . . . . . . . . . . (A),(B)
3.1 Articles of Incorporation of Sarnia Corporation, as
amended . . . . . . . . . . . . . . . . . . 16
3.2 Bylaws of Sarnia Corporation . . . . . . . . . . . . . . (A)
10.5 Amended and Restated Office Lease, dated June 22, 1995,
between the Registrant and Versar, Inc . . . . . . . . . . (C)
10.6 Office Lease Agreement, dated October 28, 1994, between
the Registrant and National Capital Preferred Provider
Organization, Inc. . . . . . . . . . . . . . . . . . . (C)
10.7 Office Lease Agreement, dated October 28, 1994, between the
Registrant and Integrated Behavioral Care, Inc. . . . . . (C)
10.8 Sarnia 1994 Stock Option Plan . . . . . . . . . . . . . . (C)
10.9 The Riggs National Bank of Washington D.C.'s letter dated,
September 15, 1995, modifying certain provisions of the
Revolving Loan and Security Agreement, dated April 9, 1994 (C)
10.10 Promissory Note, dated January 25, 1996, between the
Registrant and IDS Life Insurance Company . . . . . . . . 32
10.11 Term Note, dated January 25, 1996, between the Registrant and
The Riggs National Bank of Washington, D.C . . . . . . . 39
10.12 Deed of Trust Note, dated January 25, 1996, between the
Registrant and The Riggs National Bank of Washington, D.C . 47
10.13 Preferred Stock Purchase Agreement, as amended . . . . . . 51
27 Financial Data Schedule . . . . . . . . . . . . . . . . .
</TABLE>
- - ------------------------------------------------------------------------------
(A) Incorporated by reference to similarly numbered exhibit to the
Registrant's Form 10 Information Statement ("Information
Statement"), effective June 30, 1994 (File No. 0-24108).
(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, 1994 ("FY 1994 Form 10-K") filed with the Commission on
September 27, 1994.
(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, 1995 ("FY 1995 Form 10K") filed with the Commission on September
29, 1995.
14
<PAGE> 15
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.
SARNIA CORPORATION
------------------------------
(Registrant)
Date: September 16, 1996 /S/ Charles I. Judkins, Jr.
------------------------------
Charles I. Judkins, Jr.
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- - ---------- ----- ----
/S/ Charles I. Judkins, Jr. President & CEO September 16, 1996
- - ----------------------------
Charles I. Judkins, Jr.
/S/ Benjamin M. Rawls Chairman & Director September 16, 1996
- - ----------------------------
Benjamin M. Rawls
/S/ Lawrence W. Sinnott Treasurer and Principal September 16, 1996
- - ---------------------------- Accounting Officer
Lawrence W. Sinnott
/S/ Michael Markels, Jr. Director September 16, 1996
- - ----------------------------
Michael Markels, Jr.
/S/ Gerald T. Halpin Director September 16, 1996
- - ----------------------------
Gerald T. Halpin
/S/ Thomas G. Hotz Director September 16, 1996
- - ----------------------------
Thomas G. Hotz
/S/ James N. Schwarz Director September 16, 1996
- - ----------------------------
James N. Schwarz
15
<PAGE> 16
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Sarnia Corporation:
We have audited the accompanying balance sheets of Sarnia Corporation (a
Virginia corporation) as of June 30, 1996 and 1995, and the related statements
of operations, changes in stockholders' deficit, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sarnia Corporation as of June
30, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note G to the financial statements, effective July 1, 1993, the
Company changed its method of accounting for income taxes.
/S/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Washington, D.C.,
September 16, 1996
F-1
<PAGE> 17
SARNIA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------
1996 1995
-------------------- --------------------
(In thousands)
<S> <C> <C>
ASSETS
Real estate at cost . . . . . . . . . . . . . . . . . . . . $ 17,444 $ 17,419
Other fixed assets at cost . . . . . . . . . . . . . . . . 136 122
Accumulated depreciation/amortization . . . . . . . . . . . (5,215) (4,670)
-------------------- --------------------
12,365 12,871
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 3
Rents and other receivables . . . . . . . . . . . . . . . . 145 138
Prepaid expenses and other assets . . . . . . . . . . . . . 197 293
-------------------- --------------------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 12,762 $ 13,305
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,739 $ 12,062
Accounts payable . . . . . . . . . . . . . . . . . . . . . 136 113
Due to Versar . . . . . . . . . . . . . . . . . . . . . . . 182 265
Accrued salaries . . . . . . . . . . . . . . . . . . . . . 30 26
Deferred income taxes . . . . . . . . . . . . . . . . . . . 1,756 1,756
Tenant security deposits . . . . . . . . . . . . . . . . . 456 96
Other liabilities . . . . . . . . . . . . . . . . . . . . . 260 265
-------------------- --------------------
Total liabilities . . . . . . . . . . . . . . . . . . . 13,559 14,583
-------------------- --------------------
Commitments and contingencies (Note D)
Stockholders' Deficit
Preferred stock, $25 par value; Series A
cumulative convertible; 1,000,000 shares
authorized; 30,000 shares issued and
outstanding at June 30, 1996 . . . . . . . . . . . 750 ---
Common stock, no par value; 20,000,000
and 6,000,000 shares authorized at June 30,
1996 and 1995, respectively; 4,572,545
shares issued and outstanding at June 30,
1996 and June 30, 1995 . . . . . . . . . . . . . . --- ---
Accumulated deficit . . . . . . . . . . . . . . . . . . (1,547) (1,278)
-------------------- --------------------
Total stockholders'
deficit . . . . . . . . . . . . . . . . . . . . (797) (1,278)
-------------------- --------------------
Total liabilities and
stockholders' deficit . . . . . . . . . . . . . $ 12,762 $ 13,305
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 18
SARNIA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------
1996 1995 1994
----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C>
Real estate rental revenue:
Versar . . . . . . . . . . . . . $ 1,111 $ 1,415 $ 1,451
Others . . . . . . . . . . . . . 1,660 1,261 995
------------- ------------ ---------
Total real estate rental revenue . . 2,771 2,676 2,446
Real estate expenses . . . . . . . . 1,308 1,208 1,189
------------- ------------ ---------
1,463 1,468 1,257
Depreciation/amortization . . . . . . 619 565 572
General and administrative . . . . . 102 95 75
------------- ------------ ---------
Income from real estate . . . . . . . 742 808 610
Interest expense . . . . . . . . . . 977 1,078 1,154
------------- ------------ ---------
Net loss before income taxes and
cumulative effect of change in
accounting principle . . . . . . (235) (270) (544)
Income taxes . . . . . . . . . . . . --- --- (140)
------------- ------------ ---------
Net loss before cumulative effect of
change in accounting principle . (235) (270) (684)
Cumulative effect of adoption of SFAS
109 . . . . . . . . . . . . . . . --- --- (440)
------------- ------------ ---------
Net loss . . . . . . . . . . . . . . (235) (270) (1,124)
Dividends on preferred stock . . . . 34 --- ---
------------- ------------ ---------
Net loss applicable to common stock . $ (269) $ (270) $ (1,124)
============= ============ =========
Net loss per share before cumulative
effect of change in accounting
principle . . . . . . . . . . . . $ (0.05) $ (0.06) $ (0.15)
============= ============ =========
Net loss per share from cumulative
effect of change in accounting
principle . . . . . . . . . . . . $ --- $ --- $ (0.10)
============= ============ =========
Net loss per share applicable to common
stock . . . . . . . . . . . . . . $ (0.06) $ (0.06) $ (0.25)
============= ============ =========
Weighted average number of
shares outstanding . . . . . . . 4,573 4,573 4,573
============= ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 19
SARNIA CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Total
Number Stock-
Preferred of Common Accumulated holders'
Stock Shares Stock Deficit Deficit
--------- ----------- ---------- ----------- -----------
Years Ended June 30, 1996, 1995, 1994
----------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 . . . . . . $ --- 1,000 $ 1 $ (1,981) $ (1,980)
Forgiveness/Assumption of Debt,
by Versar, net . . . . . . . . . --- (1,000) (1) 2,097 2,096
Net loss . . . . . . . . . . . . . --- --- --- (1,124) (1,124)
Issuance of Sarnia Stock
at no par value . . . . . . . . . --- 4,572,545 --- --- ---
--------- ----------- --------- ---------- ----------
Balance, June 30, 1994 . . . . . . --- 4,572,545 --- (1,008) (1,008)
--------- ----------- --------- ---------- ----------
Net loss . . . . . . . . . . . . . --- --- --- (270) (270)
--------- ----------- --------- ---------- ----------
Balance, June 30, 1995 . . . . . . --- 4,572,545 --- (1,278) (1,278)
--------- ----------- --------- ---------- ----------
Issuance of preferred stock . . . . 750 --- --- --- 750
Net loss . . . . . . . . . . . . . --- --- --- (235) (235)
Preferred stock dividend accrued . --- --- --- (34) (34)
--------- ----------- --------- ---------- ----------
Balance, June 30, 1996 . . . . . . $ 750 4,572,545 $ --- $ (1,547) $ (797)
========= =========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 20
SARNIA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1996 1995 1994
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flow from operating activities
Net loss applicable to common stock . . . . . . . . . . . . . $ (269) $ (270) $ (684)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization . . . . . . . . . . . . . 619 565 572
Cumulative effect of change
in accounting principle . . . . . . . . . . . . . . . --- --- 440
Changes in other assets and liabilities . . . . . . . . 158 140 224
Deferred income taxes . . . . . . . . . . . . . . . . . --- --- 140
---------- ---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . 508 435 692
---------- ---------- ----------
Cash flow from investing activities
Improvements to real estate . . . . . . . . . . . . . . . . . (43) (359) (76)
---------- ---------- ----------
Cash flow from financing activities
Mortgage principal payments . . . . . . . . . . . . . . . . . (12,062) (341) (889)
Refinanced new mortgage . . . . . . . . . . . . . . . . . . . 11,000 --- ---
Principal payments on new mortgage . . . . . . . . . . . . . (261) --- ---
Proceeds from Versar, net . . . . . . . . . . . . . . . . . . --- --- 273
(Payments to) advances from Versar, net . . . . . . . . . . . (83) 265 ---
Issuance of preferred stock . . . . . . . . . . . . . . . . . 750 --- ---
Payment of dividend on preferred stock . . . . . . . . . . . (7) --- ---
Tenant security deposit received . . . . . . . . . . . . . . 250 --- ---
---------- ---------- ----------
Net cash used in financing activities . . . . . . . . . . . . . . (413) (76) (616)
---------- ---------- ----------
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . 52 --- ---
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . 3 3 3
---------- ---------- ----------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . $ 55 $ 3 $ 3
========== ========== ==========
Supplemental schedule of non-cash financing activities:
Assumption of debt by Versar . . . . . . . . . . . . . . . . . . $ --- $ --- $ 1,000
Forgiveness of debt by Versar . . . . . . . . . . . . . . . . . . --- --- 1,445
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 21
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A GENERAL INFORMATION
Sarnia Corporation (the "Company"), formerly Versar Virginia, Inc.,
was a wholly-owned real estate subsidiary of Versar, Inc. ("Versar"). The
Company was established in 1982 to own and operate the 6850 Building and the
6800 Building in Versar Center, the headquarters buildings of Versar, Inc.
On June 30, 1994, Versar distributed to the holders of its common
stock substantially all of the common stock of the Company (the
"Distribution"). The Distribution provided Versar stockholders one share of
Sarnia common stock for every outstanding share of Versar common stock. The
Distribution was effected to separate two businesses with distinct financial,
investing and operating characteristics so that each can adopt strategies and
pursue objectives appropriate to its specific business.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: These financial statements are presented using the
accrual basis of accounting. The June 30, 1994 distribution did not affect the
carrying amount of assets and liabilities of the Company.
Certain general and administrative functions, including general
management, treasury, financial service, legal, benefits and human resources
administration, investor and public relations and information management are
provided by Versar on a fixed fee basis. Telephone expenses charged from
Versar based on the number of extensions used by the Company and its tenants
are included in real estate expenses. Management believes that these charges
are made on a reasonable basis; however, they do not necessarily indicate the
costs that would have been incurred by the Company separately.
The financial information prior to the Distribution reflects an
allocation for use of certain corporate assets and liabilities, and income tax
effects. See discussion of income taxes in Note G.
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.
Revenue recognition: Rental revenue is recognized based upon tenant lease
agreements. Provisions for any anticipated lease losses are made in the period
that the losses become evident.
Property and equipment: Property and equipment are carried at historical cost
until a decline in value which is other than temporary occurs. At such time,
the property will be reduced by a direct write-down for any impairment in value
if it is probable that the carrying amount of the property cannot be fully
recovered.
Depreciation and amortization: Depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the assets. Maintenance
and repair costs are expensed while improvements are capitalized.
F-6
<PAGE> 22
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Net loss per share: Net loss per share before cumulative effect of change in
accounting principle, net loss per share from cumulative effect of change in
accounting principle and net loss per share applicable to common stock, are
computed by dividing net loss by the number of shares outstanding during the
applicable period being reported upon.
Income taxes: The Company accounts for certain income and expense items
differently for financial reporting purposes than for income tax reporting
purposes. On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 mandates a liability method for computing deferred income taxes.
Provisions for deferred income taxes are made in recognition of temporary
differences between the book and tax bases of accounting.
Impact of Accounting Standards not yet Effective: In March 1995, the Financial
Accounting Standard Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121 is effective for fiscal year
1997, and requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of SFAS 121 will not have a
material effect on the financial position of the Company.
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued in October, 1995 and is
effective for fiscal years beginning after December 15, 1995. The Statement
encourages, but does not require, adoption of the fair value based method of
accounting for employee stock options and other stock compensation plans. The
Company has opted to account for its stock option plan in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." By doing so, the
Company, beginning in fiscal year 1997, will be required to make proforma
disclosure of net income and earnings per share as if the fair value based
method for accounting defined in SFAS 123 had been applied.
NOTE C PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated June 30,
Useful Life --------------------------
in Years 1996 1995
-------------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Land . . . . . . . . . . --- $ 650 $ 650
Buildings . . . . . . . . 40 15,733 15,732
Equipment . . . . . . . . 5 136 122
Leasehold improvements . Life of Lease 1,061 1,037
--------- ---------
17,580 17,541
Accumulated depreciation
and amortization . . . . (5,215) (4,670)
--------- ---------
$ 12,365 $ 12,871
========= =========
</TABLE>
Depreciation and amortization of property and equipment included as
expense in the accompanying Statements of Operations was $546,000, $506,000 and
$510,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
Amortization of brokerage fees of $73,000, $59,000 and $62,000 were included in
the Statements of Operations for the fiscal years ended June 30, 1996, 1995 and
1994, respectively.
F-7
<PAGE> 23
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Maintenance and repair expenses (included in real estate expenses)
approximated $206,000, $242,000 and $236,000, for the years ended June 30,
1996, 1995 and 1994, respectively.
NOTE D MORTGAGES
On January 25, 1996, the Company completed the refinancing of all its
outstanding debt.
With regard to the refinancing, Sarnia obtained a first mortgage of $9
million with I.D.S. Life Insurance Company at the fixed rate of 7.75% to be
amortized over twenty-two years and with a balloon payment due in 2003. The
IDS mortgage is collateralized by the first deed of trust on the 6800 and 6850
buildings. Sarnia also obtained a second mortgage of $500,000 with the Riggs
National Bank at the prime rate plus 2% payable in 12 equal monthly
installments. On June 30, 1996, the maturity date of the second mortgage was
extended to July 1, 1997. Sarnia also entered into a $1.5 million term loan
with the Riggs National Bank at the prime rate plus 1%. The term loan is
amortized over seven years payable in 66 equal monthly installments starting on
the 18th month from the date of funding. Versar guarantees Sarnia's $1.5
million term loan. In addition, Sarnia has issued $750,000 of its Series A
Cumulative Convertible Preferred stock to a group of private investors. Sarnia
received a rent deposit of $250,000 from Versar and repaid the majority of the
amounts it owed to Versar.
Outstanding balances at June 30, are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
----------- ----------
(In thousands)
<S> <C> <C>
Reducing revolving loan, dated June 24, 1994 . . . . . . . . $ --- $ 2,031
Term loan, dated June 24, 1994 . . . . . . . . . . . . . . . --- 10,031
I.D.S. mortgage . . . . . . . . . . . . . . . . . . . . . . 8,947 ---
Riggs mortgage . . . . . . . . . . . . . . . . . . . . . . . 292 ---
Riggs term loan . . . . . . . . . . . . . . . . . . . . . . 1,500 ---
----------- ----------
Total debt . . . . . . . . . . . . . . . . . . . . $ 10,739 $ 12,062
=========== ==========
</TABLE>
Maturity of the loans is as follows:
<TABLE>
<CAPTION>
Years Ending June 30, Amount
--------------------- ------
(In thousands)
<S> <C>
1997 $ 452
1998 435
1999 466
2000 482
2001 499
2002 and after 8,405
------------
$ 10,739
============
</TABLE>
During fiscal year 1994, as part of the Distribution, Sarnia
renegotiated its reducing revolving loan (revolver) and assumed primary
responsibility from Versar for its term loan with Riggs National Bank (Riggs).
Additionally, Versar assumed $1,000,000 of the outstanding principal balance of
the revolver loan. These loans were repaid on January 25, 1996. See
discussion on the effect of the Distribution in Note H.
F-8
<PAGE> 24
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
The revolver bore an interest rate of prime plus 2.5% (11.5% at June
30, 1995) and was secured by a first deed of trust on the 6850 Building.
Principal payments were scheduled over twenty five months commencing in June of
1995. The term loan bore an interest rate of 8.27% and was secured by a first
deed of trust on the 6800 Building and a second deed of trust on the 6850
Building. The term loan had an original payment schedule of ten years with a
thirty-year amortization. Both loans were repaid on January 25, 1996.
Interest payments were approximately $987,000, $979,000 and $1,192,000
for the years ended June 30, 1996, 1995 and 1994, respectively.
NOTE E STOCK OPTIONS
During fiscal year 1995, Sarnia adopted the Sarnia 1994 Stock Option
Plan (the "Plan"). The Plan, which is compensatory in nature, provides
employees of the Company and certain other persons an incentive to remain in
the employ of the Company and encourages superior performance for the Company's
benefit. The Company has segregated 300,000 shares of stock for inclusion in
the plan. During fiscal year 1996, options to purchase an aggregate of 262,500
shares of common stocks with exercise prices ranging from $0.1875 to $0.375
were granted to seven directors (175,000 shares), three officers (62,500
shares) and one service provider (25,000 shares) as required by the 1994 plan
on their first anniversary of membership.
Under the Plan, options may be granted to key employees at the fair
market value on the date of grant and vesting varies depending on the
discretion of the Compensation Committee. Unexercised options are cancelled on
the tenth anniversary of the grant.
NOTE F PREFERRED STOCK
At the Company's annual stockholders meeting on November 16, 1995, the
Sarnia stockholders approved an amendment to the Articles of Incorporation of
the Company authorizing the issuance of up to 1,000,000 shares of "blank-check"
preferred stock, the terms of which may be set by the Board of Directors
without further stockholder action. Following approval of the "blank-check"
preferred stock by the stockholders, the Board of Directors adopted an
amendment to the Company's Articles of Incorporation to authorize the issuance
of 30,000 shares of Series A Cumulative Convertible Preferred Stock, and to set
the rights, privileges and preferences of such series. All 30,000 shares of
the Series A preferred stock were issued by the Company on January 25, 1996 for
an aggregate price of $750,000. The Series A preferred stock bears a $25 par
value and is entitled to receive preferential cumulative dividends at the
annual rate of $2.625 per share. Also, the Series A preferred stock is
redeemable at the option of the Company and is convertible into common stock,
at the option of the holders, at a conversion price of $0.40 per share.
NOTE G INCOME TAXES
Through fiscal year 1994, Sarnia filed consolidated income tax returns
with Versar, Inc. Taxes calculated on a separate company basis are reflected
in the loss before extraordinary item and cumulative effect of change in
accounting principle.
On July 1, 1993, Sarnia adopted SFAS 109, which required Sarnia to
compute deferred income taxes using the liability method. Sarnia recognized a
charge of $440,000 in fiscal year 1994, representing the cumulative effect of
adoption of SFAS 109. For the year ended June 30, 1994, Sarnia recorded an
additional $140,000 of deferred income taxes related to additional
tax-over-book depreciation, which resulted in an additional deferred tax
liability and an additional loss carryforward.
F-9
<PAGE> 25
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
At June 30, 1996, the Company had, for tax reporting purposes,
approximately $2,477,000 of net operating loss carryforwards available to
offset future taxable income through 2009.
The provision for income taxes consists of the following :
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------------------------
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Deferred taxes
Federal . . . . . . . . . . . . . . . . $ --- $ --- $ (140)
State . . . . . . . . . . . . . . . . . --- --- ---
------- ------- -------
Income tax provision . . . . . . . . . . $ --- $ --- $ (140)
======= ======= =======
</TABLE>
Deferred tax (liabilities) assets are comprised of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Deferred tax liabilities
Depreciation . . . . . . . . . . . . . $ (2,188) $ (2,098)
Deferred tax assets
Net operating loss carryforwards . . . 941 774
Other . . . . . . . . . . . . . . . . . 32 ---
--------- ---------
(1,215) (1,324)
Valuation allowance . . . . . . . . . . (541) (432)
--------- ---------
Net deferred tax liabilities . . . . . . $ (1,756) $ (1,756)
========= =========
</TABLE>
The tax provision was composed of the following:
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------------
1996 1995 1994
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Expected benefit at Federal statutory rate $ 80 $ 92 $ 185
Limitation on use of net operating
losses . . . . . . . . . . . . . . . . . (80) (92) (325)
-------- ------- -------
Tax provision . . . . . . . . . . . . . . $ --- $ --- $ (140)
======== ======= =======
</TABLE>
The net change in the valuation allowance for deferred tax assets was
an increase of $109,000 for fiscal year 1996. The change resulted from an
increase in the net operating loss carryforwards due to the taxable losses in
fiscal year 1996.
F-10
<PAGE> 26
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE H RELATED PARTY TRANSACTIONS
On June 29, 1994, Versar initially rented 99,588 and 8,918 square feet
of space from Sarnia at a rate of $13.49 and $8.00 per foot, respectively.
Both spaces were subject to 2% annual rent escalators. In June of 1995, Versar
reduced the 99,588 square feet space to 73,371 square feet and increased the
related escalation to 4%. On July 1, 1996, National Capital Preferred Provider
Organization, Inc. ("NCPPO") occupied additional space of 5,132 square feet
which reduced Versar's space to 68,239 square feet. The leases cover 35% of
Sarnia's total space. Both leases are subject to adjustment on June 1, 1999
and 2004. At these dates, the lease payments will be adjusted to the current
fair value at that time. The adjusted lease payments are subject to the
contracted escalation in the following years.
Sarnia and Versar maintained certain intercompany balances in fiscal
year 1994. These intercompany balances were comprised of loans made from each
party to the other. At the end of fiscal year 1994, Sarnia owed Versar
$1,445,000. The $1,445,000 was forgiven when Sarnia was spun-off from Versar
in June 1994. In fiscal year 1995, Versar loaned $265,000 to Sarnia primarily
for payments of leasehold improvements, which was interest free. In fiscal
year 1996, Sarnia paid Versar $83,000 leaving the loan balance at $182,000 on
June 30, 1996.
During fiscal year 1994 in connection with the Distribution, Versar
assumed $1,000,000 of Sarnia's revolver loan and forgave Sarnia's intercompany
payable balance due to Versar. The assumption and forgiveness of the loan and
the payable, respectively, net of related transaction costs of $305,000, were
credited directly to Sarnia's accumulated deficit during fiscal year 1994.
The following expenses were allocated to Sarnia from Versar as
discussed in Note B:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Real estate expenses . . . . . . . . . . $ 23 $ 33 $ 52
General and administrative expenses . . . 36 36 75
</TABLE>
NOTE I RENTAL UNDER OPERATING LEASES
Leases between Sarnia and its tenants expire from 1997 to 2009.
During the years ended June 30, 1996, 1995 and 1994, rentals to major tenants
were as follows:
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Versar . . . . . . . . . . . . . . . . . $ 1,111 $ 1,415 $ 1,451
General Services Administration . . . . . 170 208 230
RGE Engineering . . . . . . . . . . . . . 300 286 254
C-Cubed Corporation . . . . . . . . . . . 216 210 162
NCPPO . . . . . . . . . . . . . . . . . . 236 --- ---
</TABLE>
F-11
<PAGE> 27
SARNIA CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Noncancellable leases provide for approximate minimum rental payments
during each of the next five years as set forth below. As to the Versar
leases, it is assumed that the payments for the second and third five-year
periods (the actual amounts of which will depend upon fair values at the
adjustment dates) will be the same as the payments for the first five years.
Certain of the other rentals may increase in future years based on changes in
the Consumer Price Index and other rental increase factors. At July 1, 1996,
93.4% of Sarnia's space was leased.
<TABLE>
<CAPTION>
Years ending June 30, Versar Total
--------------------- --------- ---------
(In thousands)
<S> <C> <C>
1997 $ 1,070 $ 2,486
1998 1,112 2,143
1999 1,154 1,812
2000 992 1,454
2001 1,030 1,030
Beyond 2001 8,692 8,692
--------- ---------
$ 14,050 $ 17,617
========= =========
</TABLE>
NOTE J QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for fiscal years 1996 and 1995 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1995
------------------------------------------ -------------------------------------------
Quarter ending Jun 30 Mar 31 Dec 31 Sept 30 Jun 30 Mar 31 Dec 31 Sept 30
- - -------------- -------- -------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate rental revenue . $ 718 $ 685 $ 672 $ 696 $ 728 $ 698 $ 636 $ 614
Net loss . . . . . . . . . . 47 46 59 83 58 51 75 86
Net loss applicable to
common stock . . . . . . . 74 53 59 83 58 51 75 86
Net loss per share applicable
to common stock . . . . . . $ 0.02 $ 0.01 $ 0.01 $ 0.02 $ 0.01 $ 0.01 $ 0.02 $ 0.02
======== ======== ======== ========= ======== ======== ======= =======
Weighted average number of
shares outstanding . . . . 4,573 4,573 4,573 4,573 4,573 4,573 4,573 4,573
======== ======== ======== ========= ======== ======== ======= =======
</TABLE>
Quarterly financial data may not equal annual totals due to rounding.
Quarterly earnings per share data will not equal annual total due to
fluctuations in common shares outstanding.
F-12
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SARNIA CORPORATION
I. NAME
The name of the corporation (hereinafter, the "Corporation") is
"Sarnia Corporation."
II. AMENDMENTS TO ARTICLES OF INCORPORATION
A. The third paragraph of Article Fifth paragraph (C) Section
2(a), Computation of Cumulative Dividends, is hereby amended to read in its
entirety as follows:
Such dividends on the Series A Preferred Stock shall
be cumulative so that if such dividends with respect to any
previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a
sum sufficient for payment thereof set apart, the deficiency
shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the
common stock. Payment to the holders of Series A Preferred
Stock for any deficiency in the payment of dividends shall be
applied to all accrued and unpaid dividends such that those
dividends most in arrears shall be paid first. Upon any
conversion of the Series A Preferred Stock under Section 5
hereof, all such accrued and unpaid dividends to and until the
date of such conversion shall become due and payable and shall
be paid upon delivery of shares of common stock to the holder
of the shares of Series A Preferred Stock being converted
under Section 5.
B. Article Fifth paragraph (C) Section 5(c), Conversion Price is
hereby amended to correct the language thereof and restated in its entirety to
read as follows:
(c) Conversion Price. The initial "Conversion Price" will be
$0.40 per share. In order to prevent dilution of the
conversion rights granted under this subdivision, the
Conversion Price will be subject to adjustment from time to
time as set forth in this Section 5; provided, however, that
there will be no adjustment of the Conversion Price as a
result of (i) issuances or deemed issuances of Common Stock
for incentive or compensatory purposes to directors, officers
and employees of, and consultants to, the Corporation and its
subsidiaries which are from time to time approved by the Board
of Directors, including, without limitation, grants of stock
options and the issuance of common stock upon the exercise
thereof ("Compensatory Stock"), or (ii) issuances or deemed
issuances of Common Stock upon exercise or conversion, as the
case may be, of warrants issued in connection with any debt of
the corporation or the Series A Preferred Stock ("Converted
Stock", and together with Compensatory Stock, the "Excluded
Stock"). Anything herein to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless
such adjustment, either by itself or with other adjustments
not
<PAGE> 2
previously made, would require a change of at least $0.01 in
such price; provided, however, that any adjustment which by
reason of this sentence is not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
C. Article Fifth paragraph (C) Section 6(d), Surrender of
Certificates, is hereby amended to clarify the terms thereof and restated in
its entirety to read as follows:
(d) Surrender of Certificates. Each holder of shares of
Series A Preferred Stock to be redeemed shall surrender the
certificate(s) representing such shares to the Corporation at
the place designated in the redemption notice received from
the Corporation and, on the date of such surrender, the Series
A Redemption Price for such shares as set forth in this
Section 6 shall be paid to the order of the person whose name
appears on such certificate(s) and each surrendered
certificate(s) shall be cancelled and retired.
D. The foregoing amendments were adopted by the Board of
Directors of the Corporation on February 8, 1996. In reliance on Article Fifth
paragraph (B) of the Articles of Incorporation and Section 639 of the Virginia
Stock Corporation Act, such amendments were appropriately adopted by the Board
of Directors and shareholder action was not required.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be duly executed by its duly authorized officers on the 8th day of
February, 1996.
SARNIA CORPORATION
By: /S/ Charles I. Judkins, Jr.
---------------------------------
Name: Charles I. Judkins, Jr.
Title: President
[CORPORATE SEAL]
ATTEST: /S/ Pamela J. John
---------------------------
Secretary
<PAGE> 3
EXHIBIT 3.1
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF SARNIA CORPORATION
I. NAME
The name of the corporation (hereinafter the "Corporation") is "Sarnia
Corporation."
II. AMENDMENT TO ARTICLES OF INCORPORATION
The first sentence of Article Fifth, paragraph (C), Section 2(a) of
the Corporation's Articles of Incorporation is hereby amended to correct a
reference therein and shall read in its entirety as follows:
The holders of the outstanding shares of Series A Preferred Stock
shall be entitled to receive preferential cumulative dividends
accruing, whether or not earned or whether or not paid, at the annual
rate of $2.625 per share in the case of Series A Preferred Stock,
payable in arrears on the first day of March, June, September and
December of each year.
III. APPROVAL OF BOARD OF DIRECTORS
The foregoing amendment was adopted by the Board of Directors of the
Corporation on May 9, 1996. In reliance on Article Fifth, Paragraph (B) of the
Articles of Incorporation and Section 639 of the Virginia Stock Corporation
Act, such amendment was appropriately adopted by the Board of Directors and
shareholder action was not required.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be duly executed by its duly authorized officers on the 9th day of
May, 1996.
SARNIA CORPORATION
By: /S/ Charles I. Judkins, Jr.
--------------------------------
Name: Charles I. Judkins, Jr.
Title: President
[CORPORATE SEAL]
Attest:
/S/ Pamela J. John
- - ------------------------
Secretary
<PAGE> 4
RESOLUTIONS TO BE ADOPTED BY THE
BOARD OF DIRECTORS OF SARNIA CORPORATION
WHEREAS, on September 7, 1995, the Board of Directors of Sarnia
Corporation ("the Corporation") adopted an Amendment to the Articles of
Incorporation of the Corporation to add Paragraph (C) to Article Fifth thereof,
to set the rights, preferences and privileges of a Class of Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"), subject to
certain approvals by the shareholders of the Corporation, and, following
receipt of such approvals, the Board of Directors ratified such amendment to
the Articles of Incorporation on November 16, 1995;
WHEREAS, the Board of Directors has determined that an incorrect
reference was made in Section 2(a) of Paragraph (C) in connection with the
description of the days on which dividends would be payable on the Series A
Preferred Stock; and
WHEREAS, to correct Section 2(a) to change the dividend payment date
from the first day of October to the first day of September of each year to
comply with the intent of the Corporation that dividends would be payable
quarterly, the Board of Directors wishes to amend Paragraph (C) of Article
Fifth as set forth herein:
NOW, THEREFORE, BE IT RESOLVED, that the first sentence of Article
Fifth, Paragraph (C), Section 2(a) be, and it is hereby, amended to read in its
entirety as follows:
The holders of the outstanding shares of Series A Preferred Stock
shall be entitled to receive preferential cumulative dividends
accruing, whether or not earned and whether or not paid, as the annual
rate of $2.625 per share in the case of Series A Preferred Stock,
payable in arrears on the first day of March, June, September and
December of each year.
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and they are hereby, authorized, empowered and directed to take any and all
such actions as they deem necessary and appropriate to carry out the purposes
and intention of the foregoing resolutions.
<PAGE> 5
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SARNIA CORPORATION
I. NAME
The name of the corporation (hereinafter, the "Corporation") is
"Sarnia Corporation".
II. AMENDMENT BY SHAREHOLDERS
A. ARTICLE FIFTH of the Articles of Incorporation of the
Corporation shall be amended to read as follows:
FIFTH: (A) The Corporation shall have the authority to issue an
aggregate of Twenty-One Million (21,000,000) shares of capital stock,
of which Twenty Million (20,000,000) shares shall be common stock, no
par value per share, and One Million (1,000,000) shares shall be
preferred stock, $25.00 par value per share.
(B) Shares of preferred stock may be issued from time to time in one
or more series. Authority is hereby vested in the Board of Directors
of the Corporation to amend these Articles of Incorporation from time
to time to establish series of preferred stock, to establish the
number of shares to be included in each such series and to fix the
preferences, limitations and relative, participating, optional,
conversion and other special rights and qualifications, limitations or
restrictions, of each such series.
B. The foregoing amendment was duly adopted by the shareholders
of the Corporation on November 16, 1995.
C. The foregoing amendment was proposed by the Board of Directors
of the Corporation to the Corporation's shareholders in accordance with the
provisions of the Virginia Stock Corporation Act. On the date of the adoption
of the amendment by the shareholders of the Corporation, there were 4,572,545
shares of common stock of said Corporation outstanding and entitled to vote,
constituting the only class of stock outstanding, and the amendment to Article
Fifth to insert paragraph (A) was approved by the affirmative vote of the
holders of 4,063,960 shares, which number was sufficient for approval of this
amendment, and the amendment of Article Fifth to insert paragraph (B) was
approved by the affirmative vote of the holders of 3,115,142 shares, which
number was sufficient for approval of this amendment.
III. AMENDMENT BY BOARD OF DIRECTORS
A. Following approval by the shareholders on November 16, 1995 of
the amendments described above, the Board of Directors of the Corporation,
acting upon the authority granted by Article Fifth (B) of the Articles of
Incorporation, as amended, adopted an amendment to the Articles of
Incorporation of the Corporation to provide for the addition of paragraph (C)
to Article Fifth to read in its entirety as follows:
<PAGE> 6
"FIFTH: (C) 1. Designation. A total of 30,000 shares of the
Corporation's preferred stock shall be designated the "Series A
Cumulative Convertible Preferred Stock" (the "Series A Preferred
Stock"). As used herein, the term "Preferred Stock" used without
reference to the Series A Preferred Stock means the shares of Series A
Preferred Stock and all other shares of Series Preferred Stock of the
Corporation issued, authorized and designated from time to time by a
resolution or resolutions of the Board of Directors, share for share
alike without distinction as to class, except as otherwise expressly
provided for in this Article Fifth or as the context otherwise
requires.
2. Dividends.
(a) Computation of Cumulative Dividends. The holders of
the outstanding shares of Series A Preferred Stock shall be
entitled to receive preferential cumulative dividends
accruing, whether or not earned and whether or not paid, at
the annual rate of $2.625 per share in the case of Series A
Preferred Stock, payable in arrears on the first day of March,
June, October and December of each year. Such dividends shall
accrue from day-to-day on each share of Series A Preferred
Stock beginning on the date of original issue, whether or not
earned or declared, until paid upon the schedule set forth
above when and as declared by the Corporation's Board of
Directors and to the extent permitted under the Virginia Stock
Corporation Act.
All numbers relating to calculation of cumulative
dividends shall be subject to equitable adjustment in the
event of any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of
the Preferred Stock to preserve the dollar amount of dividends
payable per initial share of Series A Preferred Stock.
Such dividends on the Series A Preferred Stock shall
be cumulative so that if such dividends with respect to any
previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a
sum sufficient for payment thereof set apart, the deficiency
shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the
common stock. Upon any conversion of the Series A Preferred
Stock under Section 5 hereof, all such accrued and unpaid
dividends to and until the date of such conversion shall be
forfeited and shall not be due and payable.
If at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the
Series A Preferred Stock, such payment will be distributed
ratably among the holders of Series A Preferred Stock on the
basis of the amount of accrued and unpaid dividends with
respect to the shares of Series A Preferred Stock owned by
each such holder.
(b) Restrictions on Distributions. Unless all accrued
dividends on each share of the Series A Preferred Stock shall
have been paid or declared and a sum sufficient for the
payment thereof set apart, no dividend shall be paid or
declared, and no distribution shall be made, on any common
stock (other than a stock dividend on common stock solely in
the form of additional shares of common stock). Furthermore,
except to the extent in any instance approval is provided by
the holders of a majority of the outstanding shares of Series
A Preferred Stock, the Corporation shall not declare or pay
any dividends, or purchase, redeem, retire, or otherwise
acquire for value any of its capital stock (or rights, options
or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its stockholders as such,
or make any distribution of assets to its stockholders as
such, or permit any subsidiary to do any of the foregoing,
except that subsidiaries may declare and make payment of cash
and stock dividends, return capital and make distributions of
assets to the Corporation, and except that nothing herein
contained shall prevent the Corporation from:
<PAGE> 7
(i) effecting a stock split or declaring or
paying any dividend consisting of shares of any class
of capital stock to the holders of shares of such
class of capital stock;
(ii) complying with any specific provision of the
terms of the Series A Preferred Stock;
(iii) repurchasing any stock of a director, officer,
employee or consultant subject to a shareholders'
agreement, stock repurchase agreement or stock
restriction agreement under which the Corporation has
the right or obligation to repurchase such shares in
the event of termination of employment or of the
consulting arrangement, or other similar
discontinuation of relationship; or
(iv) redeeming or repurchasing any shares of
common stock (or warrants or options for common
stock) held by any holder of debt securities of the
Corporation.
(c) Additional Dividends. After cumulative dividends on
the Series A Preferred Stock for all past dividend periods and
the then current dividend period shall have been declared and
paid or set apart, in accordance with the provisions of this
Section 2, the Board may elect to declare additional dividends
on the common stock, the holders of the Series A Preferred
Stock having no right to participate therein.
3. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, or in the
event of its insolvency, before any distribution or payment is
made to any holders of any shares of common stock or any other
class or series of capital stock of the Corporation designated
to be junior to the Series A Preferred Stock, and subject to
the liquidation rights and preferences of any class or series
of Preferred Stock designated to be senior to, or on a parity
with, the Series A Preferred Stock, the holders of each share
of Series A Preferred Stock shall be entitled to be paid first
out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of
all classes whether such assets are capital, surplus or
earnings, an amount equal to $25.00 per share of Series A
Preferred Stock (which amount shall be subject to equitable
adjustment whenever there shall occur a stock dividend, stock
split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in
the capital structure of the Series A Preferred Stock) plus
all accrued unpaid dividends thereon, whether or not earned or
declared, up to and including the date full payment shall be
tendered to the holders of the Series A Preferred Stock with
respect to such liquidation, dissolution or winding up.
(b) Pro Rata Payment. If upon liquidation, dissolution
or winding up of the Corporation, the assets of the
Corporation available for distribution to its stockholders are
insufficient to pay the holders of the Series A Preferred
Stock the full amount to which they otherwise would be
entitled, the holders of Series A Preferred Stock shall share
ratably in any distribution of available assets according to
the respective amounts which would otherwise be payable with
respect to the shares of Series A Preferred Stock held by them
upon such liquidating distribution if all amounts payable on
or with respect to said shares were paid in full, based upon
the aggregate liquidation value of the Series A Preferred
Stock.
(c) Payments to Common Stockholders. After such payment
shall have been made in full to the holders of the Series A
Preferred Stock, or funds necessary for such payment shall
have been set aside by the Corporation in trust for the
account of holders of the Series A Preferred
<PAGE> 8
Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably
among the holders of the common stock.
(d) Reorganization, Merger or Consolidation. The
provisions of this Section 3 and Section 5(f) shall not apply
to any reorganization, merger or consolidation involving (i)
only a change in the state of incorporation of the
Corporation, (ii) a merger of the Corporation with or into a
wholly-owned subsidiary of the Corporation that is
incorporated in the United States of America, or (iii) an
acquisition by merger, reorganization or consolidation, of
which the Corporation is the surviving corporation and
operates as a going concern, of another corporation
incorporated in the United States.
(e) Distributions Other than Cash. Whenever the
distribution provided for in this Section 3 shall be payable
in property other than cash, the value of such distribution
shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation.
4. Non-Voting Status of Preferred Stock.
(a) General. Except as provided herein or otherwise
required by law, the entire voting power of the Corporation
shall be vested in the holders of the shares of common stock
and the holders of the shares of Series A Preferred Stock
shall have no voting power including, without limitation, with
respect to any proposed increase or decrease of the aggregate
number of authorized shares of Preferred Stock, shall not have
the right to participate in any meeting of stockholders and
shall not be entitled to any notice of any such meeting and
shall not be considered stockholders for the purpose of any
election, meeting, consent or waiver of notice, under the
provisions of any law now in force or which may hereafter be
enacted.
(b) Director Election Right. Upon failure of the
Corporation to pay accrued dividends on the Series A Preferred
Stock or to declare and set apart a sum sufficient for the
payment thereof, pursuant to Section 2 hereof, for four
consecutive dividend periods, the number of directors
constituting the Corporation's Board of Directors, at the
request of the holders of a majority of the Series A Preferred
Stock then outstanding, shall be increased from five to eleven
by the amendment of the Corporation's By-laws by the Board of
Directors to increase the aggregate number of directors to
eleven by increasing the numbers of directors in each class by
two. The vacancies created by this increase shall be filled
with members designated by the holders of a majority of the
outstanding shares of the Series A Preferred Stock, acting
separately as a class, such six directors to be designated as
of or as soon as practicable after the date such increase is
effective. Each such additional director shall stand for
reelection as of the date that other members of the class of
which such director is a member stand for reelection and shall
be subject to reelection or replacement solely at the option
of the holders of a majority of the Series A Preferred Stock.
Any director elected by the holders of the Series A
Preferred Stock may be removed during his or her term of
office, without cause, by and only by, the affirmative vote or
written consent of the holders of a majority of the
outstanding shares of the Series A Preferred Stock.
Such increase in the number of directors constituting
the Corporation's Board of Directors and the right of the
holders of the Series A Preferred Stock to appoint such
additional directors shall continue following the date on
which the increase is first effected until dividends have been
declared and paid in accordance with Section 2 hereof for
eight consecutive dividend periods.
<PAGE> 9
5. Conversion Rights. The shares of the Series A Preferred Stock
shall be converted into shares of common stock in accordance
with and subject to the following provisions:
(a) General. Subject to and in compliance with the
provisions of this Section 5, the shares of the Series A
Preferred Stock may, at the option of the holder, be converted
at any time into fully-paid and non-assessable shares of
common stock. The number of shares of common stock to which a
holder of Series A Preferred Stock shall be entitled to
receive upon conversion shall be computed by dividing (a) the
number of shares of Series A Preferred Stock to be converted
times $25.00 per share, by (b) the Conversion Price (as
defined in subsection (c) below).
(b) Effect of Conversion. Each conversion of Series A
Preferred Stock will be deemed to have been effected as of the
close of business on the date on which the certificate or
certificates representing Series A Preferred Stock to be
converted have been surrendered at the principal office of the
Corporation. At such time as such conversion has been
effected, the rights of the holder of such Series A Preferred
Stock as such holder will cease and the person or persons in
whose name or names any certificate or certificates for shares
of common stock are to be issued upon such conversion will be
deemed to have become the holder or holders of record of the
shares of common stock represented thereby.
(c) Conversion Price. The initial "Conversion Price"
will be $0.40 per share. In order to prevent dilution of the
conversion rights granted under this subdivision, the
Conversion Price will be subject to adjustment from time to
time as set forth in this Section 5; provided, however, that
there will be no adjustment of the Conversion Price as a
result of (i) issuances or deemed issuances of common stock
for incentive or compensatory purposes to directors, officers
and employees of, and consultants to, the Corporation and its
subsidiaries which are from time to time approved by the Board
of Directors, including, without limitation, grants of stock
options and the issuance of common stock upon the exercise
thereof ("Compensatory Stock"), (ii) any split, subdivision or
combination of common stock into a different number of
securities of the same class ("Split Stock"), or (iii)
issuances or deemed issuances of common stock upon exercise or
conversion, as the case may be, of warrants issued in
connection with any debt of the Corporation or the Series A
Preferred Stock ("Converted Stock", and together with
Compensatory Stock and Split Stock the "Excluded Stock").
Anything herein to the contrary notwithstanding, no adjustment
in the Conversion Price shall be required unless such
adjustment, either by itself or with other adjustments not
previously made, would require a change of at least $0.01 in
such price; provided, however, that any adjustment which by
reason of this sentence is not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
(d) Adjustment of Conversion Price. If and whenever,
after the date of issuance of the Series A Preferred Stock,
the Corporation issues or sells, or in accordance with Section
5(e) is deemed to have issued or sold, any shares of its
common stock (other than Excluded Stock) for a consideration
per share less than the Conversion Price in effect immediately
prior to the time of such issuance or sale, then forthwith
upon such issuance or sale the Conversion Price will be
reduced to the conversion price determined by dividing (i) the
sum of (A) the product derived by multiplying the Conversion
Price in effect immediately prior to such issuance or sale
times the number of shares of common stock deemed outstanding
immediately prior to such issuance or sale, plus (B) the
consideration, if any, received or deemed received by the
Corporation upon such issuance or sale, by (ii) the number of
shares of common stock deemed outstanding immediately prior to
such issuance or sale plus the number of shares of common
stock issued or deemed to have been issued in such sale
pursuant to this Section 5.
<PAGE> 10
(e) Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Conversion Price under
Section 5(d), the following will be applicable:
(1) Issuance of Rights or Options. If the
Corporation in any manner grants, issues or sells any
right, warrant or option to subscribe for or to
purchase common stock or any stock or other
securities convertible into or exchangeable for
common stock (such rights, warrants or options being
herein called "Options," and such convertible or
exchangeable stock or securities being herein called
"Convertible Securities") (other than Excluded Stock)
and the price per share for which common stock is
issuable upon the exercise of such Options or upon
conversion or exchange of any such Convertible
Securities is less than the Conversion Price in
effect immediately prior to the time of the granting,
issuance or sale of such Options, then the total
maximum number of shares of common stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of
such Options shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the
time of the granting of such Options for such price
per share. For purposes of this Section, the "price
per share for which common stock is issuable" shall
be determined by dividing (A) the total amount, if
any, received or receivable by the Corporation as
consideration for the granting of such Options, plus
the minimum aggregate amount of additional
consideration payable to the Corporation upon
exercise of all such Options, plus in the case of
such Options which relate to Convertible Securities,
the minimum aggregate amount of additional
consideration, if any, payable to the Corporation
upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of common
stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the
Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of
such Options or when common stock is actually issued
upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(2) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any
Convertible Securities (other than Excluded Stock)
and the price per share for which common stock is
issuable upon conversion or exchange thereof is less
than the Conversion Price in effect immediately prior
to the time of such issue or sale, then the maximum
number of shares of common stock issuable upon
conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been
issued and sold by the Corporation at the time of the
issuance or sale of such Convertible Securities for
such price per share. For the purposes of this
Section, the "price per share for which common stock
is issuable" shall be determined by dividing (A) the
total amount received or receivable by the
Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of
shares of common stock issuable upon the conversion
or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be
made when common stock is actually issued upon the
conversion or exchange of such Convertible
Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price
had been or are to be made pursuant to other
provisions of this Section 5, no further adjustment
of the Conversion Price shall be made by reason of
such issue or sale.
<PAGE> 11
(3) Change In Option Price or Conversion Rate.
If the purchase price provided for in any Option, the
additional consideration (if any) payable upon the
issue, conversion or exchange of any Convertible
Security, or the rate at which any Convertible
Security is convertible into or exchangeable for
common stock change at any time, and such change is
not due solely to the operation of anti-dilution
provisions similar in nature to those set forth in
this Section 5, the Conversion Price in effect at the
time of such change shall be readjusted to the
Conversion Price which would have been in effect at
such time had such Option or Convertible Security
originally provided for such changed purchase price,
additional consideration or changed conversion rate,
as the case may be, at the time initially granted,
issued or sold.
(4) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any
Option or the termination of any right to convert or
exchange any Convertible Security without the
exercise of any such Option or right, the Conversion
Price then in effect hereunder will be adjusted to
the Conversion Price which would have been in effect
at the time of such expiration or termination had
such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued.
(5) Calculation of Consideration Received. If
any common stock, Option or Convertible Security is
issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be
deemed to be the gross amount received by the
Corporation therefor. If any common stock, Options
or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the
consideration other than cash received by the
Corporation will be the fair value of such
consideration, except where such consideration
consists of securities, in which case the amount of
consideration received by the Corporation will be the
market price thereof as of the date of receipt. If
any common stock, Option or Convertible Security is
issued in connection with any merger in which the
Corporation is the surviving company, the amount of
consideration therefor will be deemed to be the fair
value of such portion of the net assets and business
of the non-surviving company as is attributable to
such common stock, Options or Convertible Securities,
as the case may be. The fair value of any
consideration other than cash and securities will be
determined jointly by the Corporation and the holders
of a majority of the outstanding Series A Preferred
Stock. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event
requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined by an
independent appraiser jointly selected by the
Corporation and the holders of a majority of the
outstanding Series A Preferred Stock; provided if
such parties are unable to reach agreement upon the
selection of any independent appraiser within fifteen
(15) days after the Valuation Event, within twenty-
five (25) days after the Valuation Event, the
Corporation and the holders of a majority of Series A
Preferred Stock then outstanding will each choose a
qualified independent appraiser reasonably acceptable
to the other party and each such appraiser will
deliver in writing its determination of the fair
value of such consideration. If the difference
between the two appraisals is 10% or less of the
lower amount, the fair value will be the average of
such two appraisals. If the difference between the
two appraisals is greater than 10% of the lower
amount, the two appraisers will, within thirty-five
(35) days after the Valuation Event, jointly choose a
third qualified independent appraiser. Within
forty-five (45) days after the Valuation Event, the
third appraiser will deliver its determination of
fair value and the final determination of the fair
value of such consideration will be equal to the
average of the two (2) appraisals which are nearest
to each other. The expenses of the appraisers will
be paid one-half by the
<PAGE> 12
Corporation and one-half by the holders of Series A
Preferred Stock (pro rata based on the number of
shares of Series A Preferred Stock held).
(6) Treasury Shares. The number of shares of
common stock outstanding at any given time does not
include shares owned or held by or for the account of
the Corporation or any subsidiary, and the
disposition of any shares so owned or held will be
considered an issue or sale of common stock.
(7) Record Date. If the Corporation takes a
record of the holders of common stock for the purpose
of entitling them (i) to receive a dividend or other
distribution payable in common stock, Options or
Convertible Securities or (ii) to subscribe for or
purchase common stock, Options or Convertible
Securities, then such record date will be deemed to
be the date of the issue or sale of the shares of
common stock deemed to have been issued or sold upon
the declaration of such dividend or upon the making
of such other distribution or the date of the
granting of such right of subscription or purchase,
as the case may be.
(f) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding
shares of common stock into a greater number of shares, the
Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced, and if the
Corporation at any time combines (by combination, reverse
stock split or otherwise) its outstanding shares of common
stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be
proportionately increased.
(g) Capital Reorganization, Merger or Sale of Assets. If
at any time or from time to time there shall be a capital
reorganization of the common stock (other than a subdivision,
combination, recapitalization, reclassification or exchange of
shares provided for elsewhere in this Section 5) or a merger
or consolidation of the Corporation with or into another
corporation (other than a merger or reorganization involving
only a change in the state of incorporation of the Corporation
or the acquisition by the Corporation of other businesses
where the Corporation survives as a going concern, as further
provided in Section 3(b) hereof), or the sale of all or
substantially all of the Corporation's capital stock or assets
to any other person, then, as a part of such reorganization,
merger, or consolidation or sale, provision shall be made so
that the holders of the Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation, or of the
successor corporation resulting from such merger,
consolidation or sale, to which such holder would have been
entitled if such holder had converted its shares of Series A
Preferred Stock immediately prior to such capital
reorganization, merger, consolidation or sale. In any such
case, appropriate adjustment shall be made in the application
of the provisions of this Section 5 to the end that the
provisions of this Section 5 (including adjustment of the
Conversion Price then in effect and the number of shares of
common stock or other securities issuable upon conversion of
such shares of Series A Preferred Stock) shall be applicable
after that event in as nearly equivalent a manner as may be
practicable.
(h) Certificate as to Adjustments; Notice by Corporation.
In each case of an adjustment or readjustment of the
Conversion Price, the Corporation at its expense will furnish
each holder of Series A Preferred Stock with a certificate
prepared by the Treasurer or Chief Financial Officer of the
Corporation, showing such adjustment or readjustment, and
stating in detail the facts upon which such adjustment or
readjustment is based.
<PAGE> 13
(i) Exercise of Conversion Privilege. To exercise its
conversion obligations hereunder a holder of Series A
Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the
Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder
elects to convert such shares. Such notice shall also state
the name or names (with address or addresses) in which the
certificate or certificates for shares of common stock
issuable upon such conversion shall be issued. The
certificate or certificates for shares of Series A Preferred
Stock surrendered for conversion shall be accompanied by
proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation,
together with the certificate or certificates representing the
shares of Series A Preferred Stock being converted, shall be
the "Conversion Date." As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver
to the holder of the shares of Series A Preferred Stock being
converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares
of common stock issuable upon the conversion of such shares of
Series A Preferred Stock in accordance with the provisions of
this Section 5, and cash, as provided in Section 5(i) in
respect of any fraction of a share of common stock issuable
upon such conversion.
(j) Cash in Lieu of Fractional Shares. No fractional
shares of common stock or scrip representing fractional shares
shall be issued upon the conversion of shares of Series A
Preferred Stock. Instead of any fractional shares of common
stock which would otherwise be issuable upon conversion of
Series A Preferred Stock, the Corporation shall pay to the
holder of the shares of Series A Preferred Stock which were
converted a cash adjustment in respect of such fractional
shares in an amount equal to the same fraction of the market
price per share of the common stock (as determined in a
reasonable manner prescribed by the Board of Directors) at the
close of business on the Conversion Date. The determination
as to whether or not any fractional shares are issuable shall
be based upon the aggregate number of shares of Series A
Preferred Stock being converted at any one time by any holder
thereof, not upon each share of Series A Preferred Stock being
converted.
(k) Partial Conversion. In the event some but not all of
the shares of Series A Preferred Stock represented by a
certificate(s) surrendered by a holder are converted, the
Corporation shall execute and deliver to or on the order of
the holder, at the expenses of the Corporation, a new
certificate(s) representing the number of shares of Series A
Preferred Stock which were not converted.
(l) Reservation of Common Stock. The Corporation shall
at all times reserve and keep available out of its authorized
but unissued shares of common stock, solely for the purpose of
effecting the conversion of the shares of the Series A
Preferred Stock, such number of its shares of common stock as
shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred Stock
(including any shares of Series A Preferred Stock represented
by any warrants, options, subscription or purchase rights for
Series A Preferred Stock), and if at any time the number of
authorized but unissued shares of common stock shall not be
sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred Stock (including any shares
of Series A Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Preferred
Stock), the Corporation shall take such action as may be
necessary to increase its authorized but unissued shares of
common stock to such number of shares as shall be sufficient
for such purpose.
<PAGE> 14
(m) No Reissuance of Preferred Stock. No share or shares
of Series A Preferred Stock acquired by the Corporation by
reason of conversion or otherwise shall be reissued, and all
such shares shall be cancelled, retired and eliminated from
the shares which the Corporation shall be authorized to issue.
The Corporation shall from time to time take such appropriate
action as may be necessary to reduce the authorized number of
shares of the Series A Preferred Stock.
6. Optional Redemption. Commencing at any time on or after the
second anniversary of the date of original issuance of the
Series A Preferred Stock, the Corporation may, at its sole
option, redeem all, but not less than all, outstanding shares
of Series A Preferred Stock, at the price and on the terms
stated in the following provisions:
(a) Series A Redemption Price. The redemption price for
each share of Series A Preferred Stock redeemed pursuant to
this Section 6 shall be $25.00 per share of Series A Preferred
Stock, plus all accrued and unpaid dividends, if any, whether
or not earned or declared, on such share up to and including
the date fixed for redemption (the "Series A Redemption
Price").
(b) Adjustment of Series A Redemption Price. The Series
A Redemption Price set forth in this Section 6 shall be
subject to equitable adjustment whenever there shall occur a
stock split, stock dividend, combination, reorganization,
recapitalization, reclassification or other similar event
involving a change in the preferred stock.
(c) Notice of Redemption. If the Corporation elects to
redeem the outstanding shares of Series A Preferred Stock
pursuant to this Section 6, notice to that effect shall be
given to the then holders of the Series A Preferred Stock at
least thirty (30) days prior to the redemption date set by the
Board of Directors, which notice shall set forth the date
fixed for redemption and the Series A Redemption Price. The
notice shall also set forth the manner by which each holder of
the Series A Preferred Stock is to surrender to the
Corporation, and the place designated for such surrender, its
certificate or certificates representing the shares of Series
A Preferred Stock to be redeemed.
(d) Surrender of Certificates. Each holder of shares of
Series A Preferred Stock to be redeemed shall surrender the
certificate(s) representing such shares to the Corporation at
the place designated in the redemption notice received from
the Corporation and thereupon the Series A Redemption Price
for such shares as set forth in this Section 6 shall be paid
to the order of the person whose name appears on such
certificate(s) and each surrendered certificate(s) shall be
cancelled and retired.
(e) Dividend and Conversion Rights. From and after the
date set for redemption as set forth in the notice provided by
the Corporation to the holders of Series A Preferred Stock, no
shares of Series A Preferred Stock shall be entitled to any
further dividends pursuant to Section 2 hereof or to the
conversion provisions set forth in Section 5 hereof.
7. No Dilution or Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any
reorganization, transfer of capital stock or assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of the
Series A Preferred Stock set forth herein, but will at all
times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the holders
of the Series A Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing,
the Corporation (a) will not increase the par value of any
shares of stock receivable on the conversion of the Series A
Preferred Stock above the amount payable
<PAGE> 15
therefor on such conversion, (b) will take all such action as
may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable
shares of stock on the conversion of all Series A Preferred
Stock from time to time outstanding, and (c) will not transfer
all or substantially all of its properties and assets to any
other person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to
consolidate with or merge into the Corporation (if the
Corporation is not the surviving person), unless such other
person shall expressly assume in writing and will be bound by
all the terms of the Series A Preferred Stock set forth
herein.
8. Notices of Record Date. In the event of: (a) any capital
reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any
merger or consolidation of the Corporation, or any transfer of
all or substantially all of the assets of the Corporation to
any other Corporation, or any other entity or person, or (b)
any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the
Corporation shall mail or cause to be mailed to each holder of
Series A Preferred Stock a notice specifying (i) the date on
which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become
effective, and (ii) the time, if any, that is to be fixed, as
to when the holders of record of common stock (or other
securities) shall be entitled to exchange their shares of
common stock (or other securities) for securities or other
property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice
shall be mailed by first class mail, postage prepaid, at least
five (5) days prior to the date specified in such notice on
which such action is to be taken.
9. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of Series A
Preferred Stock. Upon the surrender of any certificate
representing Series A Preferred Stock at such place, the
Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's
expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of
Series A Preferred Stock represented by the surrendered
certificate. Each such new certificate will be registered in
such name and will represent such number of shares of Series A
Preferred Stock as is requested by the holder of the
surrendered certificate and will be substantially identical in
form to the surrendered certificate; provided, however, that
any transfer shall be subject to any applicable restrictions
on the transfer of such shares and the payment of any
applicable transfer taxes, if any, by the holder thereof.
10. Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder will
be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of any certificate evidencing shares
of Series A Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender of such certificate, the
Corporation will (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind
representing the number of shares of Series A Preferred Stock
represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed
or mutilated certificate."
B. The foregoing amendment was originally adopted by the Board of
Directors of the Corporation on September 7, 1995, subject to approval by the
shareholders of the Corporation of Article Fifth (B), and was ratified
following receipt of shareholder approval on November 16, 1995. Shareholder
action was not required.
<PAGE> 16
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be duly executed by its duly authorized officers on the 4th day
of December, 1995.
SARNIA CORPORATION
By /S/ Charles I. Judkins, Jr.
------------------------------------
Name: CHARLES I. JUDKINS, JR.
Title: PRESIDENT
(CORPORATE SEAL)
ATTEST:
/S/ Pamela J. John
- - ---------------------------
Secretary
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
$9,000,000.00 January 25, 1996
Springfield, Virginia
1. AGREEMENT TO PAY. For value received, the undersigned, Sarnia
Corporation, a Virginia corporation (hereinafter referred to as "Borrower"),
whose mailing address is: 6850 Versar Center, Springfield, Virginia 22151,
hereby agrees and promises to pay to order of IDS Life Insurance Company, a
Minnesota corporation, its endorses, successors and assigns (hereinafter
referred to as "Lender"), at its principal office and mailing address: 733
Marquette Avenue, Minneapolis, Minnesota 55402, Attention: Real Estate Loan
Management, Unit #401, or such other address as Lender may from time to time
designate, the principal sum of Nine Million and 00/100 Dollars ($9,000,000.00)
or so much as may from time to time be disbursed hereon, together with interest
on the unpaid principal balance hereof from the date hereof until said amounts
shall have been paid in full at the rate provided for herein and all other sums
due as provided herein, payable in lawful money of the United States of
America, which shall be legal tender for public and private debt at the time of
payment (the "Loan").
2. INTEREST RATE. The outstanding principal balance hereof shall
bear interest at the rate of seven and three fourths percent (7.75%) per annum
(the "Regular Rate") computed on the basis of the actual days elapsed on the
assumption that each month contains thirty (30) days and each year contains
three hundred sixty (360) days.
3. MONTHLY PAYMENT. Principal and interest upon this Note shall
be paid as follows:
(a) On the date hereof, interest only at the Regular Rate shall be
due and payable on (the unpaid principal balance hereof or Initial
Principal Balance) equal to accrued interest from the date of
disbursement hereunder through the last day of January, 1996.
(b) On the first day of March 1996, and continuing on the first
day of each month thereafter through and including January, 2003,
interest at the Regular Rate and principal payments shall be made in
eighty- three (83) equal installments of Seventy-One Thousand One
Hundred Twenty-Four and 55/100 Dollars ($71,124.55) each (based on a
twenty-two (22) year amortization of the principal amount of this Note
commencing on February 1, 1996).
(c) On the first day of February, 2003 (the "Maturity Date"), a
final payment shall be due and payable in the amount of the entire
unpaid principal and interest on this Note.
(d) This is a balloon note, and on the Maturity Date a substantial
portion of the principal amount of this Note will remain unpaid by the
monthly payments above required.
(e) All payments shall be applied first to late charges due
hereunder, second to any prepayment fee due hereunder, third to
accrued interest at the rate then in effect under the terms hereof,
and fourth to principal. However, upon occurrence of an Event of
Default (as hereinafter defined), any monies received shall be
applied, at the option and discretion of Lender, to any sums due under
the Note or instrument securing this Note, including, without
limitation, attorneys' fees and other costs of collection as provided
herein.
(f) All payments hereunder which are due on a Saturday, Sunday or
holiday shall be deemed to be payable on the next business day.
<PAGE> 2
4. DEFAULT INTEREST RATE. Upon the earlier to occur of (a) the
date on which the indebtedness evidenced hereby is accelerated by Lender, or
(b) the date on which an Event of Default (as hereinafter defined) occurs which
is not cured within thirty (30) days, or (c) upon non-payment at the Maturity
Date, the interest rate payable hereunder shall thereafter increase and shall
be payable on the whole of the unpaid principal balance at a rate equal to the
lesser of (i) four percent (4%) per annum in excess of the rate of interest
then in effect under the terms of this Note or (ii) the highest rate of
interest permitted under the laws of the Commonwealth of Virginia (hereinafter
referred to as the "Default Rate"). Interest on this Note at the Default Rate
shall be immediately due and payable without notice or demand. The Default
Rate shall be applicable whether or not Lender has exercised its option to
accelerate the maturity of this Note and declare the entire unpaid principal
indebtedness to be due and payable. The Default Rate shall continue until
Borrower has cured all defaults as permitted herein, Borrower has paid all
indebtedness evidenced by this Note in full, or all foreclosure proceedings
have been completed and all redemption periods have expired, whichever shall
occur first. This provision shall not be deemed to excuse a default and shall
not be deemed a waiver of any other rights Lender may have, including the right
to declare the entire unpaid principal balance and accrued interest immediately
due and payable.
5. LATE CHARGE. Any monthly installment payment, including
monthly payments of escrows for real estate taxes, special assessments and/or
insurance premiums required by the "Deed of Trust" (as hereinafter defined),
not made by Borrower within ten (10) days of the due date shall be subject to a
late payment charge equal to five percent (5%) of the amount of such monthly
payment. The late charge shall apply individually to all payments past due
with no daily adjustment and shall be used to defray the cost of Lender
incident to collecting such late payment. This provision shall not be deemed
to excuse a late payment or be deemed a waiver of any other rights Lender may
have, including the right to declare the entire unpaid principal balance and
accrued interest immediately due and payable.
6. SECURITY. This Note is given to evidence an actual loan in
the above amount and is the Note referred to in and secured by:
(a) A Deed of Trust, and Security Agreement And Fixture Financing
Statement With Assignment Of Leases And Rents (the "Deed of Trust")
given by Borrower, as grantor, to Lender, as beneficiary, of a
contemporaneous date herewith, encumbering certain real property and
the improvements thereon located in the County of Fairfax,
Commonwealth of Virginia (the "Premises").
(b) An Assignment of Leases (the "Assignment of Leases") and
Assignment of Rents (the "Assignment of Rents") given by the Borrower,
as assignor, to Lender, as assignee, of a contemporaneous date
herewith, assigning to assignee all of the rents, issues, profits and
leases of the Premises.
(c) Other collateral security agreements (the "Security Document")
given by Borrower or guarantors of the Loan to Lender, all of a
contemporaneous date herewith.
(d) A Guaranty and Indemnity Agreement (the "Guaranty Agreement")
given by Borrower, and Versar, Inc., a Delaware corporation
("Guarantor") to Lender of a contemporaneous date herewith
guaranteeing payment of the Indebtedness Guaranteed (as defined in the
Guaranty Agreement).
(e) A Hazardous Materials Indemnity Agreement (the "Hazardous
Materials Agreement") given by Borrower and Guarantor to Lender of a
contemporaneous date herewith providing indemnification to Lender for
claims, losses, liabilities, etc. for matters arising out of Hazardous
Materials or violation of Laws (as those two terms are more
particularly defined in the Hazardous Materials Agreement).
Reference is hereby made to the Deed of Trust, the Assignment of Leases, the
Assignment of Rents, the Security Documents, the Guaranty Agreement and the
Hazardous Materials Agreement (which are incorporated herein by reference as
fully and with the same effect as if set forth herein at length) for a
description of Premises, a statement
<PAGE> 3
of the covenants and agreements, a statement of the rights and remedies and
securities afforded thereby and all other matters contained therein and are
individually and collectively referred to as the "Loan Documents".
7. DEFAULT AND ACCELERATION. If a default be made in any payment
of principal, interest or any other sum or charge when due in accordance with
the terms and conditions of this Note or the Deed of Trust, or if an Event of
Default (as that term is defined in the Deed of Trust) occurs in the Deed of
Trust, or if there is a default (subject to applicable grace or cure periods)
in or nonperformance of any term or obligation of any of the Loan Documents,
such event shall constitute an Event of Default hereunder (an "Event of
Default"), and the entire unpaid principal balance, together with accrued
interest thereon and the prepayment fee, if appropriate, shall become, without
notice, immediately due and payable at the option of Lender.
8. LOAN YEAR. "Loan Year" shall mean a period consisting of
twelve (12) consecutive months commencing on the first calendar month
subsequent to the date hereof, or on any anniversary thereof, the first Loan
Year being a Loan Year commencing the first day of February, 1996.
9. PREPAYMENT PRIVILEGE. For an in consideration of the
prepayment fee, to which Borrower and Lender have agreed, the indebtedness
evidenced hereby may be prepaid in accordance with the provisions of this
Section and not otherwise.
(a) Borrower shall have the right to prepay this Note in full, but
not in part during the entire term hereof provided that any such
prepayment, for whatever reason, whether voluntary or involuntary,
shall be subject to a prepayment fee which shall be computed as a
percentage of the amount of the principal prepaid, and which shall be
payable as follows:
<TABLE>
<CAPTION>
Prepayment During Loan Years Prepayment Fee
---------------------------- --------------
<S> <C>
1, 2 & 3 One year's interest
4 4%
5 3%
6 2%
7 1%
</TABLE>
(b) No prepayment fee shall be due if the indebtedness evidenced
hereby is paid in full during the last one hundred eighty (180) days
prior to the Maturity Date.
(c) At the option of Lender, this Note is also subject to
mandatory prepayment, without prepayment fee of any kind, upon certain
events set forth in the Deed of Trust, if Lender at its option does
not make proceeds of insurance and condemnation awards available for
repair or restoration of the Premises.
(d) Prepayments (other than prepayments pursuant to subsection (c)
above) shall be made only upon advance written notice of at least
thirty (30) days to Lender and shall be made on a regularly scheduled
installment payment date. Notice of prepayment shall not suspend nor
reduce required installment payments.
(e) No prepayment fee shall be due on any insurance or
condemnation proceeds that Lender does not make available for
restoration or repair.
(f) In the event Lender does not make insurance proceeds available
for reconstruction, Borrower shall have the right to prepay this Note
in full without a prepayment fee.
<PAGE> 4
(g) In the event Borrower shall default under the terms of the
Loan Documents and Lender shall accelerate this Note as part of a
foreclosure proceeding or otherwise and Borrower shall then tender
payment of this Note in full, such tender shall constitute prepayment
and the fee provided for in this Section shall be due.
(h) For purposes of this Section, prepayment during the initial
partial month shall be considered prepayment during the first Loan
Year and the prepayment fee calculated accordingly.
Borrower hereby expressly agrees that such prepayment fee constitutes
additional bargained-for consideration given by Borrower to Lender in order to
induce Lender to make the loan to Borrower.
10. PAYMENT UPON AN EVENT OF DEFAULT. Upon the occurrence of an
Event of Default and following acceleration of maturity hereof by Lender, a
tender of payment of or entry of judgment for the amount necessary to satisfy
the entire unpaid principal balance due and payable shall be deemed to
constitute an attempted evasion of the aforesaid restrictions on the right of
prepayment and shall be deemed a prepayment hereunder, and such a payment or
judgment must, therefore, include the prepayment fee then in effect under the
terms hereof. Lender shall have the right to include and bid in such
prepayment fee as an amount due to Lender in connection with any foreclosure
sale.
11. EFFECT OF APPLICATION OF INSURANCE OR CONDEMNATION PROCEEDS.
Notwithstanding anything herein to the contrary, in the event that Lender is
unwilling to make the proceeds of a condemnation award or insurance settlement
on the Premises available for repair or restoration and elects to apply such
award or settlement towards the reduction of the principal balance of this Note
pursuant to the terms of the Deed of Trust, and the proceeds thereof do not pay
in full the balance outstanding on this Note, then the unpaid principal balance
shall be reamortized over the remaining portion of the amortization period and
the debt service payments set forth in Section 3(b) hereof shall be reduced
accordingly.
12. COSTS OF COLLECTION. Borrower agrees that if, and as often
as, this Note is placed in the hands of an attorney for collection or to defend
or enforce any of Lender's rights hereunder, or under the Deed of Trust, the
Assignment of Leases or any other Security Document or Loan Document securing
payment of this Note, Borrower will pay to Lender its attorneys' and
paralegals' fees nd costs, including, without limitation, all fees and costs
incurred in litigation, mediation, arbitration, bankruptcy and administrative
proceedings, and appeals therefrom, and all court costs and other expenses,
including, without limitation, appraisal fees and costs of environmental
review, incurred in connection therewith.
13. TIME. Time is of the essence of this Note and each of the
provisions hereof.
14. GOVERNING LAW. This Note shall be governed by the laws of the
Commonwealth of Virginia.
15. INTEREST LIMITATION. All agreements between Borrower and
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance, loaning or detention of the indebtedness
evidenced hereby exceed the maximum permissible under applicable law. If from
any circumstance whatsoever, fulfillment of any provision hereof or of the Deed
of Trust, Assignment of Leases or any other Security Document or Loan Document
at any time given the amount paid or agreed to be paid shall exceed the maximum
permissible under applicable law, then, the obligation to be fulfilled shall
automatically be reduced to the limit permitted by applicable law, and if from
any circumstance Lender should ever receive as interest an amount which would
exceed the highest lawful rate of interest, such amount which would be in
excess of such highest lawful rate of interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between Borrower and Lender and shall be binding upon and available to any
subsequent holder of this Note.
<PAGE> 5
16. WAIVERS BY BORROWER.
(a) Borrower and all other persons or entities liable for all or
part of the principal balance evidenced by this Note severally hereby
waive presentment for payment, protest and notice of non-payment.
(b) Borrower and all persons and entities liable for all or part
of the principal balance evidenced by this Note hereby consent,
without affecting their liability, to the granting, with or without
notice, of any extension or alteration of time for payment of any sum
or sums due hereunder or under the Loan Documents, or for the
performance of any covenant, condition or agreement contained herein
or therein on the ground of any other indulgence, or the taking or
releasing or subordinating of any security for the indebtedness
hereunder, or the acceptance of additional security of any kind, or
any other modification or amendment of this Note or of any of the Loan
Documents, any release of, or resort to any party liable for payment
hereof, and agree that such action will in no way release or discharge
the liability of such parties, whether or not granted or done with the
knowledge or consent of such parties.
(c) Borrower and all persons and entities liable for all or a part
of the principal balance evidenced by this Note hereby waive and
renounce, to the extent permitted by applicable law, all rights to the
benefits of any statute of limitations and any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension,
redemption, appraisement, exemption andhomestead now provided, or
which may hereafter be provided, by the Constitution or laws of the
United States of America or the Commonwealth of Virginia, both as to
itself and in and to all of its property, real and personal, against
the enforcement and collection of the obligations evidenced by this
Note and the Loan Documents.
(d) Borrower and all persons and entities liable for all or a part
of the principal balance evidenced by this Note waive any right to
setoff and/or recoupment against Lender in connection with claims
against Lender relating to any other claim it now or hereafter may
have against Lender, and agrees it will not urge or assert any claim
including but not limited to a setoff and/or recoupment, it may have
now or hereafter, against Lender as a defense against payment of this
Note.
17. NO WAIVER BY LENDER.
(a) Lender shall not be deemed to have waived any of its rights or
remedies under this Note unless such waiver is expressed in writing by
Lender, and no delay or omission by Lender in exercising, or failure
by Lender on any one or more occasions to exercise, any of Lender's
rights hereunder or under the Loan Documents, or at law or in equity,
including, without limitation, Lender's right, after the occurrence of
any Event of Default by Borrower, to declare the entire indebtedness
evidenced hereby immediately due and payable, shall be construed as a
novation of this Note or shall operate as a waiver or prevent the
subsequent exercise of any or all such rights.
(b) Acceptance by Lender of any portion or all of any sum payable
hereunder, whether before, on or after the due date of such payment
shall not be a waiver of Lender's right either to require prompt
payment when due of all other sums payable hereunder or to exercise
any of Lender's rights, powers and remedies hereunder or under the
Loan Documents. A waiver of any right in writing on one occasion
shall not be construed as a waiver of Lender's rights to insist
thereafter upon strict compliance with the terms hereof without
previous notice of such intention being given to Borrower, and no
exercise of any right by Lender shall constitute or be deemed to
constitute an election of remedies by Lender precluding the subsequent
exercise by Lender of any or all of the rights, powers and remedies
available to it hereunder or under the Loan Documents, or at law or in
equity. Borrower expressly waives the benefit of any statute or rule
of law or of equity now provided, or which may hereafter be provided,
which would produce a result contrary to, or in conflict with, the
foregoing.
<PAGE> 6
18. DISBURSEMENTS. Funds representing the proceeds of the
indebtedness evidenced hereby which are disbursed by Lender by mail, wire
transfer or other commercially reasonable means of delivery to Borrower, to
escrows or otherwise for the benefit of Borrower shall, for all purposes, be
deemed outstanding hereunder and to have been received by Borrower as of the
date of such mailing, wire transfer, or other delivery and until repaid,
notwithstanding the fact that such funds may not at any time have been remitted
by such escrows to Borrower or for its benefit
19. EXEMPTED TRANSACTION. Borrower agrees that (a) the payment
obligations evidenced by this Note and the other instruments securing this Note
are exempted transactions under the Truth in Lending Act 15 USC Section 1601,
et seq.; (b) the proceeds of the indebtedness evidenced by this Note will not
be used for the purchase of the registered equity securities within the purview
of Regulation "U" issued by the Board of Governors of the Federal Reserve
System; and (c) on the Maturity Date, Lender shall not have any obligation to
refinance the indebtedness evidenced by this Note or to extend further credit
to Borrower.
20. CAPTIONS. The captions to the Sections of this Note are for
convenience only and shall not be deemed part of the text of the respective
Sections and shall not vary, by implication or otherwise, any of the provisions
of this Note.
21. NOTICES. All notices required or committed to be given
hereunder to Borrower or Lender shall be given in the manner and to the place
as provided in the Deed of Trust for notices to the "Grantor" or the
"Beneficiary."
22. MISCELLANEOUS. Notwithstanding anything to the contrary
herein, it is expressly understood and agreed that Borrower and any guarantors,
jointly and severally, shall be liable for the payment to Lender of (a) any
condemnation awards and insurance proceeds received by Borrower, its
shareholders or principals unless such award or proceeds were released to
Borrower with the prior written consent of Lender; (b) all security deposits,
prepaid rents, income and profits (i) collected with respect to the Premises
more than thirty (30) days in advance, (ii) collected with respect to periods
after Lender has exercised its rights to such rents, income and/or profits and
(iii) regardless of default, for any fee or consideration for lease termination
not consented to by Lender; (c) damages sustained by Lender as a direct or
indirect result of any fraud and/or misrepresentation of Borrower or its
shareholders; (d) losses sustained by Lender from hazardous substances and/or
environmental pollution in connection with the Premises; (e) real estate taxes
and insurance premiums which have accrued to the date Lender has received a
deed in lieu of foreclosure to the Premises or the date the Premises are sold
pursuant to a judicial foreclosure (for purposes of this Section, such date is
referred to as the "Transfer Date"), less any money held by Lender as of the
Transfer Date in an escrow established as a reserve for such payments and less
any additional money actually collected from tenants of the Premises which are
payable under such tenants' leases as their share of the real estate taxes or
insurance premiums for the Premises accruing prior to the Transfer Date; and
(f) any damages sustained by Lender as a result of claims made by tenants of
the Premises arising out of matters occurring prior to the date on which Lender
succeeds to the interest of Borrower under the leases, unless such tenants have
agreed in writing that Lender is not responsible for such claims in the event
Lender succeeds to the interest of Borrower. Nothing herein contained shall
affect, limit or impair the liability or obligation of any guarantor or other
person who, by separate instrument, shall be or become liable upon any of the
indebtedness evidenced hereby.
23. LIMITATIONS ON SALE OR FINANCING. The Deed of Trust includes
certain limitations on the right of Borrower to sell, convey, contract to sell,
convey, assign or encumber any property, real or personal, encumbered by the
Deed of Trust or to sell, convey, assign or encumber certain interests in
Borrower. Reference to the Deed of Trust must be made for the terms of these
provisions. Such provisions are incorporated herein by this reference.
24. JOINT AND SEVERAL LIABILITY. The promises and agreements
herein shall be construed to be and are hereby declared to be the joint and
several promises and agreements of all Borrowers and shall constitute the
<PAGE> 7
joint and several obligations of each Borrower and shall be fully binding upon
and enforceable against each Borrower. Neither the death nor release of any
person or party to this Note shall affect or release the joint and several
liability of any other person or party. Lender may at its option enforce this
Note against one or all of Borrowers, and Lender shall not be required to
resort to enforcement against each Borrower and the failure to proceed against
or join any Borrower shall not affect the joint and several liability of any
other Borrower.
25. MISCELLANEOUS. The provisions of this Note may not be waived,
changed or discharged orally, but only by an agreement in writing signed by
Borrower and Lender; and any oral waiver, change or discharge of any term or
provision of this Note shall be without authority and of no force or effect.
The invalidity or enforceability of any provision of this Note shall not affect
the validity or enforceability of any other term or provision hereof.
26. JURY TRIAL. NEITHER BORROWER, LENDER, ANY GUARANTOR OR ANY
OTHER PERSON OR ENTITY LIABLE FOR THE INDEBTEDNESS EVIDENCED HEREBY, OR ANY
ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF LENDER, BORROWER, ANY
GUARANTOR OR ANY OTHER PERSON OR ENTITY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR
ARISING OUT OF THIS NOTE, THE DEED OF TRUST, OR ANY INSTRUMENT SECURING THIS
NOTE, ANY COLLATERAL FOR THE PAYMENT HEREOF OR THE DEALINGS OR THE RELATIONSHIP
BETWEEN OR AMONG SUCH PERSONS OR ENTITIES, OR ANY OF THEM. NEITHER LENDER,
BORROWER NOR ANY GUARANTOR OR ANY SUCH OTHER PERSON OR ENTITY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY
OTHER ACTION WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND
THE PROVISIONS HEREOF SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY
WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS
SECTION WILL NO BE FULLY ENFORCED IN ALL INSTANCES. BORROWER ACKNOWLEDGES THAT
IT HAS BEEN INFORMED BY LENDER THAT THE PROVISIONS OF THIS SECTION CONSTITUTE A
MATERIAL INDUCEMENT UPON WHICH LENDER HAS RELIED, IS RELYING AND WILL RELY IN
MAKING THE LOAN. BORROWER ACKNOWLEDGES THAT IT HAS CONSULTED WITH AN ATTORNEY
AND FULLY UNDERSTANDS THE LEGAL EFFECT OF THE PROVISIONS OF THIS SECTION.
Borrower has executed this Promissory Note as of the date and year first above
written.
"BORROWER"
SARNIA CORPORATION,
a Virginia corporation
By: /S/ Lawrence W. Sinnott
------------------------------------
Lawrence W. Sinnott, its Treasurer
<PAGE> 1
EXHIBIT 10.11
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH
CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS A
CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
TERM NOTE
$1,500,000.00 January 25, 1996
Washington, D.C.
FOR VALUE RECEIVED, SARNIA CORPORATION, a Virginia corporation (the
"Borrower"), promises to pay to the order of THE RIGGS NATIONAL BANK OF
WASHINGTON, D.C., a national banking association (the "Lender"), at 808 17th
Street, N.W., Washington, D.C. 20006, or at such other place as the holder
hereof may from time to time designate in writing, in lawful money of the
United States of America, without defense, setoff or counterclaim, the
principal sum of ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS
($1,500,000.00), together with interest as described below on the principal
balance hereof from time to time outstanding, all in accordance with the
following terms and provisions:
1. INTEREST RATE. The unpaid principal balance of this Term Note
(as the same may be amended, modified or supplemented from time to time, the
"Note") outstanding from time to time shall bear interest at a per annum rate
equal to the Prime Rate (as defined below) plus 1.00%. The term "Prime Rate"
shall mean the rate of interest reported in The Wall Street Journal newspaper
in its "Money Rates" column as the "Prime Rate," the higher or highest such
rate, changing when and as such rate shall change. If The Wall Street Journal
shall cease to publish the "Prime Rate," then "Prime Rate" shall mean that rate
announced by the Lender from time to time as its prime rate of interest. The
Prime Rate (determined by either method) is not necessarily the lowest rate of
interest charged by the Lender on loans to its customers. The Borrower
acknowledges that, with respect to all matters relevant hereto, a certificate
signed by an officer of the Lender setting forth the Prime Rate in effect on
any applicable date shall be binding and conclusive. Accrued interest shall be
computed for actual days elapsed on the basis of a year of 365 or 366 days, as
applicable.
2. INTEREST PAYMENTS. Accrued interest shall be paid monthly in
arrears on the first day of each calendar month, beginning on February 1, 1996,
and on the Maturity Date (as defined below).
3. PRINCIPAL PAYMENTS. The principal sum of this Note shall be
paid in monthly installments of $22,727.28 each, due on the first day of each
calendar month, beginning on July 1, 1997, and continuing on the first day of
each succeeding calendar month thereafter until January 1, 2003 (the "Maturity
Date"). The entire unpaid principal balance hereof together with all accrued
and unpaid interest shall be due and payable in full on the Maturity Date.
4. PREPAYMENT. This Note may be prepaid in whole or in part at
any time, without premium or penalty. Partial prepayments shall be applied to
installments due hereunder in the inverse order of their maturities.
5. APPLICATION OF PAYMENTS. Payments made hereunder shall be
applied first to accrued late charges, next to accrued interest hereon and any
remainder to the principal balance hereof.
6. LOAN DOCUMENTS. The performance of the Borrower's obligations
hereunder are guaranteed by Versar, Inc. and its subsidiaries (the
"Guarantors") pursuant to the Guaranty Agreement of even date herewith (as
<PAGE> 2
the same may be amended, modified or supplemented from time to time, the
"Guaranty") from the Guarantors in favor of the Lender. This Note, the
Guaranty and any other document executed or delivered by the Borrower in
connection herewith shall be referred to herein as the "Loan Documents."
7. REPRESENTATIONS AND WARRANTIES: The Borrower represents and
warrants that:
(a) Organization. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and is duly qualified as a foreign corporation and in good
standing under the laws of each others jurisdiction in which such qualification
is required. The Borrower has no subsidiaries.
(b) Execution and Delivery. The Borrower has the
corporate power, and has taken all the necessary corporate actions, to execute
and deliver and perform its obligations under this Note, and this Note is a
binding obligation of the Borrower, enforceable in accordance with its terms.
(c) Corporate Power. The Borrower has the corporate
power and authority to own its properties and to carry on its business as now
being conducted.
(d) Financial Statements. All financial statements and
information delivered to the Lender by the Borrower (including, without
limitation, the Borrower's balance sheet and income statement for the period of
nine months ended on September 30, 1995), were prepared in accordance with
generally accepted accounting principles, are correct and complete and present
fairly the financial condition, and reflect all known liabilities, contingent
or otherwise, of the Borrower as of the dates of such statements and
information, and since such dates no material adverse change in the assets,
liabilities, financial condition, business or operations of the Borrower has
occurred.
(e) Taxes. All tax returns and reports of the Borrower
and its predecessors required by law to be filed have been duly filed, and all
taxes, assessments, other governmental charges or levies (other than those
presently payable without penalty or interest and those that are being
contested in good faith in appropriate proceedings) upon the Borrower and its
predecessors and upon any of their properties, assets, income or franchises,
that are due and payable have been paid.
(f) Litigation. There is no action, suit or proceeding
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower that, either in any case or in the aggregate, may result in any
material adverse change in the business, properties or assets or in the
condition, financial or otherwise, of the Borrower or that may result in any
material liability on the part of the Borrower, or that questions the validity
of this Note or any action taken or to be taken in connection with this Note.
(g) No Breach. The execution and delivery of this Note,
and compliance with the provisions of this Note, will not conflict with or
violate any provisions of law or conflict with, result in a breach of, or
constitute a default under the charter or bylaws of the Borrower, any judgment,
order or decree binding on the Borrower, or any other agreements to which the
Borrower is a party.
(h) No Defaults. The Borrower is not in default with
respect to any debt, direct or indirect.
(i) Compliance. The Borrower is in compliance in all
material respects with all applicable laws and regulations, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
<PAGE> 3
(j) Approvals. No authorizations, approvals or consents
of, and no filings and registrations with, any governmental or regulatory
authority or agency are necessary for the execution, delivery or performance of
this Note by the Borrower.
(k) Title to Assets. The Borrower has good and
marketable title to all of its assets, subject only to the liens and security
interests permitted by this Note.
(l) Use of Proceeds. The proceeds of the loan evidenced
hereby shall be used only for the purpose of refinancing existing debt of the
Borrower. No proceeds of such loan shall be used to purchase or carry any
margin stock, as such term is defined in Regulation U of the Board of Governors
of the Federal Reserve System.
8. COVENANTS. In consideration of credit extended or to be
extended by the Lender, the Borrower covenants and agrees as follows:
(a) Financial Information. The Borrower shall deliver to
the Lender, (1) within 90 days after the close of each of its fiscal year,
audited financial statements prepared in accordance with generally accepted
accounting principles, including a balance sheet and statements of income,
stockholders' equity and cash flow, prepared by an independent certified public
accountant acceptable to the Lender, who shall render an unqualified opinion
with respect to such financial statements; (2) within 45 days after the
conclusion of each quarter of each fiscal year of the Borrower, financial
statements of the Borrower, including a balance sheet and income statement,
prepared in accordance with generally accepted accounting principles and
certified to be accurate by the president, treasurer or chief financial officer
of the Borrower, and (3) from time to time, such other financial data and
information regarding the Borrower as the Lender reasonably may request.
(b) Taxes. The Borrower shall pay or cause to be paid
all taxes, assessments or governmental charges lawfully levied or imposed on or
against it and its properties prior to the time they become delinquent;
provided that this covenant shall not apply to any tax, assessment or charge
that is being contested in good faith and with respect to which adequate
reserves as determined in good faith by the Borrower have been established and
are being maintained.
(c) Compliance with Laws. The Borrower shall comply with
all applicable laws and regulations, including, without limitation, ERISA.
(d) Maintain Existence. The Borrower shall maintain its
corporate existence in good standing, maintain and keep its properties in good
condition, comply at all times with the provisions of all leases to which it is
a party and maintain adequate insurance for all of its property with
financially sound and reputable insurers. The Borrower shall remain in the
same line of business as it is in on the date of this Note and shall not enter
into any new lines of business without the prior written consent of the Lender.
(e) Notices. As soon as it has actual knowledge, the
Borrower shall notify the Lender of (1) the institution or threat of any
material litigation or administrative proceeding of any nature involving the
Borrower, and (2) the occurrence of an Event of Default under this Note, or any
event that, with the giving of notice or lapse of time, or both, would
constitute an Event of Default.
(f) Books and Records. The Borrower shall maintain
complete and accurate books of account and records. The principal books of
account and records shall be kept and maintained at 6850 Versar Center,
Springfield, Virginia. The Borrower shall not remove such books of account and
records without giving the Lender at least 30 days' prior written notice. The
Borrower, upon reasonable notice from the Lender, shall permit the Lender, or
any officer, employee or agent designated by the Lender, to examine the books
of account and records maintained by the Borrower, and agrees that the Lender
or such officer, employee or agent may audit and verify
<PAGE> 4
the books and records. All accounting records and financial reports furnished
to the Lender pursuant to this Note shall be maintained and prepared in
accordance with generally accepted accounting principles consistently applied.
(g) Liens. Without the prior written consent of the
Lender, the Borrower shall not create, incur, assume or permit to exist any
mortgage, deed of trust, assignment, pledge, lien, security interest, charge or
encumbrance, including, without limitation, the right of a vendor under a
conditional sale contract or the lessor under a capitalized lease
(collectively, the "Liens") of any kind or nature in or upon any of its assets
except:
(1) Liens created or deposits made that are
incidental to the conduct of the business of the Borrower, that are not
incurred in connection with any borrowing or the obtaining of any credit and
that do not and will not interfere with the use by the Borrower of any of its
assets in the normal course of its business or materially impair the value of
such assets for the purpose of such business;
(2) Liens securing indebtedness to the Lender;
and
(3) Liens on existing real estate assets that
secure indebtedness not exceeding a principal sum of $9,000,000 in the
aggregate at any time outstanding.
(h) Debt. Without the prior written consent of the
Lender, the Borrower shall not incur or permit to exist any debt for borrowed
funds, the deferred purchase price of goods or services or capitalized lease
obligations, except for (1) trade debt incurred in the ordinary course of
business, (2) indebtedness to the Lender, and (3) other indebtedness not
exceeding a principal sum of $9,000,000 in the aggregate at any time
outstanding.
(i) Contingent Liabilities. Without the prior written
consent of the Lender, the Borrower shall not guarantee, endorse, become
contingently liable upon or assume the obligation of any person or entity, or
permit any such contingent liability to exist, except by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
(j) Sale of Assets. Without the prior written consent of
the Lender, the Borrower shall not sell, lease, assign or otherwise dispose of
any of its assets except for (1) leases in the ordinary course of business of
real estate owned by the Borrower, and (2) the disposition of assets that are
not longer needed or useful in the Borrower's business.
(k) Mergers and Acquisitions. Without the prior written
consent of the Lender, the Borrower shall not merge or consolidate with, or
acquire all or substantially all of the assets, stock, partnership interests or
other ownership interests of, any other person or entity.
(l) Loans and Advances. Without the prior written
consent of the Lender, the Borrower shall not make any loan or advance to any
affiliate, shareholder, director, officer or employee of the Borrower, or any
other person or entity, except for the creation of accounts receivable in the
ordinary course of business on terms that are no less favorable than would
apply in an arm's-length transaction.
(m) Dividends. Without the prior written consent of the
Lender, the Borrower shall not (1) declare or pay any dividends or make any
other payments on its capital stock or (2) issue, redeem, repurchase or retire
any of its capital stock, or make any distribution to its stockholders,
provided that, as long as the Borrower is not in default hereunder, the
Borrower may pay dividends at an annual rate of $2.625 per share to the holders
of its Series A Preferred Stock outstanding on the date hereof.
<PAGE> 5
(n) Subsidiaries and Joint Ventures. Without the prior
written consent of the Lender, the Borrower shall not form any subsidiary,
become a general or limited partner in any partnership or become a party to a
joint venture. If the Lender grants its consent to the formation or
acquisition of a subsidiary by the Borrower, the Borrower shall cause each such
subsidiary to perform and observe all of the covenants contained in this Note.
9. EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" under this Agreement:
(a) Failure to Pay. If the Borrower fails to make when
due any installment or other payment owing to the Lender under the terms of
this Note and such failure shall continue for a period of ten days after
written notice of such failure has been given to the Borrower by the Lender
(which may be a computer- generated late payment notice);
(b) Failure to Give Notices. If the Borrower fails to
give the Lender any notice required by Paragraph 8(e) of this Note within ten
days after it has actual knowledge of the event giving rise to the obligation
to give such notice;
(c) Failure to Permit Inspections. If the Borrower
refuses to permit the Lender to inspect the Borrower's books and records in
accordance with the provisions of Paragraph 8(f) of this Note;
(d) Failure to Observe Other Covenants. If the Borrower
fails to perform or observe any other term, covenant, warranty or agreement
contained in this Note and such failure shall continue for a period of 30 days
after written notice of such failure has been given to the Borrower;
(e) Defaults under Guaranty. If an event of default
shall occur under the Guaranty shall not be cured within any applicable grace
period;
(f) Breach of Representation. Discovery that any
representation or warranty made or deemed made by the borrower in this Note or
in any statement or representation made in any certificate, report or opinion
delivered pursuant to this Note or in connection with any borrowing under this
Note was materially untrue when made or deemed made, or is breached in any
material respect;
(g) Voluntary Bankruptcy. If the Borrower or a Guarantor
makes an assignment for the benefit of creditors, files a petition in
bankruptcy, petitions or applies to any tribunal for any receiver or any
trustee of the Borrower or a Guarantor or any substantial part of the property
of the Borrower or a Guarantor, or commences any proceeding relating to the
Borrower or a Guarantor under any reorganization, arrangement, composition,
readjustment, liquidation or dissolution law or statute of any jurisdiction,
whether in effect now or after this Note is executed;
(h) Involuntary Bankruptcy. If, within 60 days after the
filing of a bankruptcy petition or the commencement of any proceeding against
the Borrower or a Guarantor seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, the proceeding shall not have
been dismissed, or, if within 60 days, after the appointment, without the
consent or acquiescence of the Borrower or a Guarantor, of any trustee,
receiver or liquidator of the borrower or a Guarantor or all or any substantial
part of the properties of the Borrower or a Guarantor, the appointment shall
not have been vacated;
(i) Cross Default. If, as a result of default, any
present or future obligations of the Borrower or a Guarantor to the Lender or
any other creditor are declared to be due and payable prior to the expressed
majority of such obligations, unless and to the extent that the declaration is
being contested in good faith in a court of appropriate jurisdiction;
<PAGE> 6
(j) Material Adverse Change. A material adverse change
occurs in the financial or business condition of the Borrower or any Guarantor;
(k) Judgment. If a judgment, attachment, garnishment or
other process in excess of $50,000 is entered against the Borrower or any
Guarantor and is not vacated or bonded within 30 days after entry;
(l) Change in Control. If any person or entity or two or
more persons or entities acting in concert shall acquire beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission)
directly or indirectly of the more than 25% of the outstanding voting stock of
the Borrower;
(m) Dissolution. The dissolution, liquidation or
termination of existence of the Borrower or a Guarantor; or
(n) Termination of Guaranty. If a Guarantor gives
written notice to the Lender purporting to terminate the obligations of such
Guarantor under the Guaranty.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of
Default hereunder, the entire principal balance hereof, all accrued interest
thereon and all other amounts payable hereunder shall become immediately due
and payable at the option of the Lender. Any delay by the Lender in exercising
or any failure of the Lender to exercise the aforesaid option to accelerate
with respect to an Event of Default shall not constitute a waiver of its right
to exercise such option with respect to that or any subsequent Event of
Default. Acceleration of maturity, once claimed hereunder by the holder hereof
may be rescinded, at such holder's option, by written acknowledgement to that
effect, but the tender and acceptance of partial payment or partial performance
alone shall not in any way affect or rescind such acceleration of maturity.
After the occurrence of an Event of Default, interest shall accrue on all
amounts due hereunder at a rate of 2.0% per annum above the rate or rates of
interest then payable hereunder.
11. LATE CHARGE. The Borrower shall pay to the Lender a late
charge equal to 5% of any amount due hereunder that is not received by the
Lender within ten days after the date on which such amount is due.
12. WAIVER; EXTENSIONS. Presentment, demand, notice of dishonor,
protest and the benefits of the homestead and all other exemptions provided
debtors are hereby waived. The Borrower agrees that it shall remain liable for
the payment hereof notwithstanding any agreement for the extension of the due
date of any amount payable hereunder made by the Lender after the maturity
thereof.
13. CONFESSION OF JUDGMENT. Upon the occurrence of an Event of
Default hereunder, the Borrower does hereby duly constitute and appoint Robert
C. Roane, C. Christopher Giragosian, Linda Lemmon Najjoum, or Bradley R.
Duncan, or any of them, as the true and lawful attorney-in-fact for the
Borrower in its name, place and stead, to confess judgment against the
borrower, in favor of the Lender in the amount of the unpaid principal balance
of this Note together with any accrued and unpaid interest and late charges and
reasonable attorneys' fees and costs, to consent to jurisdiction and to
acknowledge service of process necessary in such a confession, in the Circuit
Court of Fairfax County, Virginia, or in the United States District Court for
the Eastern District of Virginia, Alexandria Division, hereby ratifying and
confirming the acts of said attorney-in-fact as if done by the Borrower. No
single exercise of the foregoing power to confess judgment shall be deemed to
exhaust the power, whether or not any such exercise shall be held by any court
to be invalid, voidable or void, but the power shall continue undiminished, and
it may be exercised from time to time as often as the Lender shall elect, until
such time as the Lender shall have received payment in full of all indebtedness
of the Borrower to the Lender, together with all other costs and indebtedness
of the Borrower under this Note.
<PAGE> 7
14. WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER IRREVOCABLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS NOTE, THE TRANSACTIONS CONTEMPLATED IN THIS
AND ANY RELATED DOCUMENTS, AND THE BORROWER FURTHER WAIVES ANY RIGHT TO FILE
ANY SUCH COUNTERCLAIM AS PART OF ANY ACTION OR PROCEEDING FILED OR MAINTAINED
BY THE LENDER TO COLLECT ANY INDEBTEDNESS OF ANY PARTY TO THE LENDER OR TO
EXERCISE ANY RIGHTS OR REMEDIES AVAILABLE TO THE LENDER UNDER THE DOCUMENTS
EVIDENCING OR SECURING SUCH INDEBTEDNESS, AT LAW, IN EQUITY OR OTHERWISE IN
CONNECTION WITH OR RELATED TO SUCH INDEBTEDNESS.
15. COLLECTION COSTS AND EXPENSES. The Borrower shall pay all
reasonable costs, fees and expenses (including court costs and reasonable
attorneys' fees) incurred by the Lender in collecting or attempting to collect
any amount that becomes due hereunder or in seeking legal advice with respect
to such collection or an Event of Default hereunder.
16. NOTICES. All notices, requests, demands and other
communications with respect hereto or any other Loan Document shall be in
writing and shall be delivered by hand, sent prepaid by Federal Express (or a
comparable overnight delivery service) or sent by the United States mail,
certified, postage prepaid, return receipt requested, to the following
addresses:
If to the Lender,
The Riggs National Bank of Washington, D.C.
808 17th Street, N.W.
Washington, D.C. 20006
Attention: Ms. Ana G. Tejblum
If to the Borrower,
Sarnia Corporation
6850 Versar Center
Springfield, Virginia 22151
Attention: James C. Dobbs, Esq.
Any notice, request, demand or other communication delivered or sent in the
manner aforesaid shall be deemed given or made (as the case may be) upon the
earliest of (a) the date it actually received, (b) the business day after the
day on which it is delivered by hand, (c) the business day after the day on
which it is properly delivered to Federal Express (or a comparable overnight
delivery service), or (d) the third business day after the day on which it is
deposited in the United States mail. The Borrower or the Lender may change its
address by notifying the other party of the new address in any manner permitted
by this Paragraph 16.
17. SEVERABILITY. If any provision of this Note, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of the provisions of this Note, or the
application of such provision to other persons or circumstances, shall not be
affected thereby, and each provision of this Note shall be valid and
enforceable to the fullest extent permitted by law.
18. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and
inure to the benefit of the Borrower and the Lender, and their respective
successors and assigns; provided, however, that the Borrower may not assign or
delegate its obligations hereunder without the prior written consent of the
Lender.
19. PAYMENTS. All payments due hereunder shall be made in
immediately available funds.
<PAGE> 8
20. OFFSET. If an Event of Default occurs hereunder and is not
cured within any applicable grace period, then the Lender shall have the right
to offset any amounts due hereunder against any deposit account now or
hereafter maintained with the Lender by the Borrower.
21. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without reference
to conflict of laws principles.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
by its duly authorized representative as of the day and year first above
written.
SARNIA CORPORATION,
a Virginia corporation
By: /S/ C. I. Judkins, Jr.
----------------------------------
Name: C. I. Judkins, Jr.
--------------------------------
Title: President
-------------------------------
<PAGE> 1
EXHIBIT 10.12
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH
CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS A
CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
DEED OF TRUST NOTE
$500,000.00 January 25, 1996
Washington, D.C.
FOR VALUE RECEIVED, SARNIA CORPORATION, a Virginia corporation (the
"Borrower"), promises to pay to the order of THE RIGGS NATIONAL BANK OF
WASHINGTON, D.C., a national banking association (the "Lender"), at 808 17th
Street, N.W., Washington, D.C. 20006, or at such other place as the holder
hereof may from time to time designate in writing, in lawful money of the
United States of America, without defense, setoff or counterclaim, the
principal sum of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00),
together with interest as described below on the principal balance hereof from
time to time outstanding, all in accordance with the following terms and
provisions:
1. INTEREST RATE. The unpaid principal balance of this Deed of
Trust Note (as the same may be amended, modified or supplemented from time to
time, the "Note") outstanding from time to time shall bear interest at a per
annum rate equal to the Prime Rate (as defined below) plus 2.00%. The term
"Prime Rate" shall mean the rate of interest reported in The Wall Street
Journal newspaper in its "Money Rates" column as the "Prime Rate" and, if more
than one rate or a range of rates is reported as the "Prime Rate," the higher
or highest such rate, changing when and as such rate shall change. If The Wall
Street Journal shall cease to publish the "Prime Rate," then "Prime Rate" shall
mean that rate announced by the Lender from time to time as its prime rate of
interest. The Prime Rate (determined by either method) is not necessarily the
lowest rate of interest charged by the Lender on loans to its customers. The
Borrower acknowledges that, with respect to all matters relevant hereto, a
certificate signed by an officer of the Lender setting forth the Prime Rate in
effect on any applicable date shall be binding and conclusive. Accrued
interest shall be computed for actual days elapsed on the basis of a year of
365 or 366 days, as applicable.
2. INTEREST PAYMENTS. Accrued interest shall be paid monthly in
arrears on the first day of each calendar month, beginning on February 1, 1996,
and on the Maturity Date (as defined below).
3. PRINCIPAL PAYMENTS. The principal sum of this Note shall be
paid in monthly installments of $41,667 each, due on the first day of each
calendar month, beginning on February 1, 1996, and continuing on the first day
of each succeeding calendar month thereafter until January 1, 1997 (the
"Maturity Date"). The entire unpaid principal balance hereof together with all
accrued and unpaid interest thereon shall be due and payable in full on the
Maturity Date. The Borrower acknowledges and agrees that any extension of the
Maturity Date granted by the Lender (which may be granted or denied by the
Lender in its sole and absolute discretion) may not extend the Maturity Date
beyond July 1, 1997, unless an extension beyond such date is approved in
writing by IDS Life Insurance Company, a Minnesota corporation ("IDS").
4. PREPAYMENT. This Note may be prepaid in whole or in part at
any time, without premium or penalty. Partial prepayments shall be applied to
installments due hereunder in the inverse order of their maturities.
<PAGE> 2
5. APPLICATION OF PAYMENTS. Payments made hereunder shall be
applied first to accrued late charges, next to any amounts due under the Loan
Documents (as defined below), next to accrued interest hereon and any remainder
to the principal balance hereof.
6. LOAN DOCUMENTS. The performance of the Borrower's obligations
hereunder is secured by (a) a Deed of Trust, Assignment and Security Agreement
of even date herewith (as the same may be amended, modified or supplemented
from time to time, the "Deed of Trust") from the Borrower to C. Christopher
Giragosian and Sandra P. Mozingo, as trustees, granting a second lien on
certain property owned by the Borrower and located in Fairfax County, Virginia,
and more particularly described in the Deed of Trust (the "Property"). This
Note, the Deed of Trust and any other document executed or delivered by the
Borrower in connection herewith shall be referred to herein as the "Loan
Documents."
7. DEFAULT. An Event of Default shall occur hereunder if (a) the
borrower shall fail to pay any amount due under this Note and such failure
shall continue for a period of seven days, or (b) if a default or an "Event of
Default" occurs under a Loan Document and is not cured within any applicable
grace period. Upon the occurrence of an Event of Default hereunder, the entire
principal balance hereof, all accrued interest thereon and all other amounts
payable hereunder and under the Loan Documents shall become immediately due and
payable at the option of the Lender. Any delay by the Lender in exercising or
any failure of the Lender to exercise the aforesaid option to accelerate with
respect to an Event of Default shall not constitute a waiver of its right to
exercise such option with respect to that or any subsequent Event of Default.
Acceleration of maturity, once claimed hereunder by the holder hereof may be
rescinded, at such holder's option, by written acknowledgement to that effect,
but the tender and acceptance of partial payment or partial performance alone
shall not in any way affect or rescind such acceleration of maturity. After
the occurrence of an Event of Default, interest shall accrue on all amounts due
hereunder at a rate of 2.0% per annum above the rate or rates of interest then
payable hereunder. Notwithstanding the foregoing, or any term or provision
contained elsewhere herein or in any other Loan Document to the contrary, an
Event of Default hereunder or under any Loan Document shall not be deemed to
have occurred until IDS shall have received notice thereof and an additional
twenty (20)-day period after actual receipt of such notice by IDS shall have
expired and IDS fails within such time period to cure such Event of Default.
8. LATE CHARGE. The Borrower shall pay to the Lender a late
charge equal to 5% of any amount due hereunder that is not received by the
Lender within ten days after the date on which such amount is due.
9. WAIVER; EXTENSIONS. Presentment, demand, notice of dishonor,
protest and the benefits of the homestead and all other exemptions provided
debtors are hereby waived. The Borrower agrees that it shall remain liable for
the payment hereof notwithstanding any agreement for the extension of the due
date of any amount payable hereunder made by the Lender after the maturity
thereof.
10. CONFESSION OF JUDGMENT. Upon the occurrence of an Event of
Default hereunder, the borrower does hereby duly constitute and appoint Robert
C. Roane, C. Christopher Giragosian, Linda Lemmon Najjoum, or Bradley R.
Duncan, or any of them, as the true and lawful attorney-in-fact for the
Borrower in its name, place and stead, to confess judgment against the
Borrower, in favor of the Lender in the amount of the unpaid principal balance
of this Note together with any accrued and unpaid interest and late charges and
reasonable attorneys' fees and costs, to consent to jurisdiction and to
acknowledge service of process necessary in such a confession, in the Circuit
Court of Fairfax County, Virginia, or in the United States District Court for
the Eastern District of Virginia, Alexandria Division, hereby ratifying and
confirming the acts of said attorney-in-fact as if done by the Borrower. No
single exercise of the foregoing power to confess judgment shall be deemed to
exhaust the power, whether or not any such exercise shall be held by any court
to be invalid, voidable or void, but the power shall continue undiminished, and
it may be exercised from time to time as often as the Lender shall elect, until
such time as
<PAGE> 3
the Lender shall have received payment in full of all indebtedness of the
Borrower to the Lender, together with all other costs and indebtedness of the
Borrower under the Loan Documents. Any judgment lien so obtained shall be
subject to the first lien rights and interests of IDS under the first lien deed
of trust from the Borrower securing its obligations to IDS.
11. WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER IRREVOCABLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS NOTE AND ANY OTHER LOAN DOCUMENT, THE
TRANSACTIONS CONTEMPLATED IN THE LOAN DOCUMENTS, THE DOCUMENTS AND INSTRUMENTS
EVIDENCING OR SECURING ANY PRIOR INDEBTEDNESS OF THE BORROWER TO THE LENDER AND
ANY RELATED DOCUMENTS, AND THE BORROWER FURTHER WAIVES ANY RIGHT TO FILE ANY
SUCH COUNTERCLAIM AS PART OF ANY ACTION OR PROCEEDING FILED OR MAINTAINED BY
THE LENDER TO COLLECT ANY INDEBTEDNESS OF ANY PARTY TO THE LENDER OR TO
EXERCISE ANY RIGHTS OR REMEDIES AVAILABLE TO THE LENDER UNDER THE DOCUMENTS
EVIDENCING OR SECURING SUCH INDEBTEDNESS, AT LAW, IN EQUITY OR OTHERWISE IN
CONNECTION WITH OR RELATED TO SUCH INDEBTEDNESS.
12. COLLECTION COSTS AND EXPENSES. The Borrower shall pay all
reasonable costs, fees and expenses (including court costs and reasonable
attorneys' fees) incurred by the Lender in collecting or attempting to collect
any amount that becomes due hereunder or in seeking legal advice with respect
to such collection or an Event of Default hereunder.
13. NOTICES. All notices, requests, demands and other
communications with respect hereto or any other Loan Document shall be in
writing and shall be delivered by hand, sent prepaid by Federal Express (or a
comparable overnight delivery service) or sent by the United States mail,
certified, postage prepaid, return receipt requested, to the following
addresses:
If to the Lender,
The Riggs National Bank of Washington, D.C.
808 17th Street, N.W.
Washington, D.C. 20006
Attention: Ms. Ana G. Tejblum
If to the Borrower,
Sarnia Corporation
6850 Versar Center
Springfield, Virginia 22151
Attention: James C. Dobbs, Esq.
If to IDS,
IDS Life Insurance Company
733 Marquette Avenue
Minneapolis, Minnesota 55402
Attention: Real Estate Loan Management, Unit
#401
Any notice, request, demand or other communication delivered or sent in the
manner aforesaid shall be deemed given or made (as the case may be) upon the
earliest of (a) the date it is actually received, (b) the business day after
the day on which it is delivered by hand, (c) the business day after the day on
which it is properly delivered to
<PAGE> 4
Federal Express (or a comparable overnight delivery service), or (d) the third
business day after the day on which it is deposited in the United States mail.
The Borrower or the Lender may change its address by notifying the other party
of the new address in any manner permitted by this Paragraph 13.
14. SEVERABILITY. If any provision of this Note, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of the provisions of this Note, or the
application of such provision to other persons or circumstances, shall not be
affected thereby, and each provision of this Note shall be valid and
enforceable to the fullest extent permitted by law.
15. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and
inure to the benefit of the Borrower and the Lender, and their respective
successors and assigns; provided, however, that the Borrower may not assign or
delegate its obligations hereunder without the prior written consent of the
Lender.
16. PAYMENTS. All payments due hereunder shall be made in
immediately available funds.
17. OFFSET. If an Event of Default occurs hereunder and is not
cured within any applicable grace period, then the Lender shall have the right
to offset any amounts due hereunder against any deposit account now or
hereafter maintained with the Lender by the Borrower.
18. GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, without reference
to conflict of laws principles.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
by its duly authorized representative as of the day and year first above
written.
SARNIA CORPORATION,
a Virginia corporation
By: /S/ C. I. Judkins, Jr.
-----------------------------------
Name: Charles I. Judkins, Jr.
---------------------------------
Title: President
--------------------------------
<PAGE> 1
EXHIBIT 10.13
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into this 11th day of December, 1995, by and between, on the one hand,
SARNIA CORPORATION, a Virginia corporation (the "Company") and, on the other
hand and severally, each of the individuals listed on Exhibit A (each an
"Investor" and, collectively, the "Investors").
R E C I T A L S
WHEREAS:
A. The Board of Directors of the Company has approved, and has obtained
the necessary approval of the shareholders of the Company at a meeting
of the shareholders held on November 16, 1995 for, the issue and sale
of its Series A Cumulative Convertible Preferred Stock having the
rights, preferences and privileges, including the right of each holder
thereof to convert such shares into shares of the Company's common
stock, and subject to the terms and conditions, set forth on Exhibit B
(the "Preferred Stock").
B. Neither the Preferred Stock nor the common stock into which the
Preferred Stock is convertible (the "Conversion Stock") (collectively,
the "Securities") will be registered under either the Securities Act
of 1933, as amended (the "Securities Act"), or applicable state
securities laws, and, accordingly, the Securities will not be
transferable except as permitted hereunder and in accordance with
applicable exemptions from registration contained in the Securities
Act and applicable state securities laws, or upon satisfaction of the
registration and prospectus delivery requirements of the Securities
Act and applicable state securities laws.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Investors hereby agree as follows:
1. Sale and Purchase of Preferred Stock. Upon the terms and
subject to the conditions herein contained, the Company agrees to sell to each
Investor, and each Investor agrees to purchase from the Company, at the Closing
(as hereinafter defined) on the Closing Date (as hereinafter defined), the
number of shares of Preferred Stock (the "Preferred Shares"), set forth
opposite each Investor's name on Exhibit A for the consideration set forth on
Exhibit A.
2. Closing. The closing of the sale to and purchase by the
Investors of the Preferred Stock (the "Closing") shall occur at a time and
date, following satisfaction of all conditions to the parties obligations
hereunder, mutually agreeable by the Company and the Investors (the "Closing
Date") and at a location mutually agreeable to such parties. At the Closing,
the Company shall register upon the books of the Company the Preferred Stock
purchased by each Investor, against delivery to the Company of payment by check
or wire transfer in an amount equal to the payment required of each Investor as
set forth on Exhibit A.
3. Subscription for Preferred Shares. At least two business days
prior to the Closing Date, the Investors shall deliver to the Company payment
for the Preferred Shares by check or wire transfer in an amount equal to the
payment required of each Investor set forth on Exhibit A, together with an
executed copy of this Agreement to be held by the Company in escrow pending
satisfaction of the conditions set forth in Section 7. Upon satisfaction of
such conditions, the Closing shall be held in accordance with Section 2 hereof.
If the condition described in Section 7.3(a) is not satisfied within ________
days following subscription for the Preferred Shares by the Investors, all such
funds shall be returned to the Investors, without interest, and the parties
hereto shall have no further obligations hereunder.
<PAGE> 2
4 Representations and Warranties by Each Investor. In
connection with each Investor's purchase of the Preferred Stock, each Investor
hereby acknowledges as follows:
4.1 Purchased for Own Account. The Preferred Shares are
being purchased for the Investor's own account without the participation of any
other person, with the intent of holding the Preferred Shares for investment
and without the intent of participating, directly or indirectly, in a
distribution of any of the Preferred Stock and not with a view to, or for
resale in connection with, any distribution of the Preferred Stock or any
portion thereof, nor is the Investor aware of the existence of any distribution
of the Company's securities.
4.2 No Representation About Value. The Investor is not
acquiring the Preferred Shares based upon any representation, oral or written,
by any person with respect to the future value of, or income from, the
Preferred Stock, but rather upon an independent examination and judgment as to
the prospects of the Company.
4.3 No Public Advertisements. The Preferred Stock was
not offered to the Investor by means of publicly disseminated advertisements or
sales literature, nor is the Investor aware of any offers made to other persons
by such means.
4.4 Investor Provided Adequate Information. The Company
has delivered to the Investor sufficiently in advance of the Closing Date for
the Investor carefully to evaluate the contents thereof a copy of each of (i)
its Form 10-K for the fiscal year ended June 30, 1995 filed with the Securities
and Exchange Commission (the "Commission"), which is hereto attached as Exhibit
C, (ii) its Form 10-Q for the fiscal quarter ended September 30, 1995 filed
with the Commission, which is attached as Exhibit D, (iii) its most recent
Annual Report to Shareholders for the fiscal year ended June 30, 1995, which is
attached as Exhibit E and (iv) the Company's proxy statement dated October 19,
1995 relating to the annual meeting of shareholders held on November 16, 1995,
which is attached as Exhibit F.
4.5 All Information Necessary. The Investor has asked
all questions he or she desires to ask of the Company and its officers and
directors including, but not limited to, questions concerning the Preferred
Stock and the Company's business plan, financial position and capitalization,
and the Investor has received answers to all such questions to the Investor's
satisfaction.
4.6 No Obligation to Register. The Investor understands
and agrees that the Company shall be under no obligation to register the
Securities or to comply with any exemption available for the sale of the
Securities without registration. The Company is under no obligation to act in
any manner so as to maintain the availability of Rule 144 under the Securities
Act with respect to the Securities.
4.7 Certificates for Preferred Stock. The Investor
understands and agrees that the following legend indicating that the Preferred
Shares have not been registered under the Securities Act or any state
securities laws and referring to the restrictions on transferability and sale
of the Preferred Shares will be placed on the certificate or certificates
delivered to the Investor, or any substitute therefor; that a similar legend
may be placed by the Company on any of the other Securities; and that any
transfer agent of the Company will be instructed to require compliance
therewith:
THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE BEEN ISSUED OR SOLD IN RELIANCE ON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT")
AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN TAKEN
FOR INVESTMENT PURPOSES ONLY AND NOT WITH THE VIEW TO THE DISTRIBUTION
THEREOF AND MAY NOT BE OFFERED FOR SALE, PLEDGED, SOLD OR TRANSFERRED
OTHER THAN (i) PURSUANT TO AN EFFECTIVE REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE 1933 ACT AND APPLICABLE STATE
<PAGE> 3
SECURITIES LAWS AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE
SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT AND ANY OTHER
APPLICABLE FEDERAL OR STATE SECURITIES LAWS. THE ISSUER SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT WITH
RESPECT TO COMPLIANCE WITH THE ABOVE LAWS PRIOR TO EFFECTING ANY
TRANSFER THEREOF.
4.8 Investor to Bear Risk. The Investor acknowledges
that he or she must continue to bear the economic risk of the investment in the
Preferred Stock for an indefinite period.
4.9 The Company's Reliance. The Investor acknowledges
that reliance by the Company on exemptions from registration of the Preferred
Stock is predicated in part on the Investor's representations set forth in this
Agreement.
5. Representations and Warranties by the Company. The Company
hereby represents and warrants to each Investor as follows:
5.1 Organization, Standing, etc. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia, and has all requisite power and authority
to carry on its business and to enter into this Agreement and to issue the
Preferred Stock.
5.2 Capital Stock. The authorized capital stock of the
Company currently consists of twenty million (20,000,000) shares of common
stock and one million (1,000,000) shares of undesignated preferred stock, of
which 30,000 shares have been designated Series A Cumulative Convertible
Preferred Stock. Four million, five hundred seventy two thousand, five hundred
and forty-five (4,572,545) shares of common stock are issued and outstanding,
and such shares are duly authorized, validly issued, fully paid and
nonassessable. No shares of preferred stock are currently outstanding. The
offer, issuance and sale of such shares of common stock were (a) effected in
accordance with the registration and prospectus delivery requirements of the
Securities Act or an exemption therefrom, (b) registered or qualified (or were
exempt from registration or qualification) under the registration or
qualification requirements of all applicable state securities laws, and (c) to
the best of the Company's knowledge, accomplished in conformity with all other
federal and applicable state securities laws, rules and regulations. The
Company has reserved a total of three hundred thousand (300,000) shares of
common stock for issuance to directors, employees and service providers
pursuant to the terms of its existing employee benefit plans, in all cases
subject to approval of the Board of Directors of the Company. Except as
expressly provided in this Agreement or in accordance with the terms of the
Preferred Stock, the Company has no outstanding subscription, option, warrant,
call, contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatever under which the
Company is or may be obligated to issue common stock, preferred stock or other
equity securities of any kind.
5.3 Preferred Stock. The Preferred Stock has been duly
authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will have the rights, preferences and privileges and be subject
to terms specified in Exhibit B and will be free and clear of all Liens (as
hereinafter defined) and restrictions, other than Liens that might have been
created by Investors and restrictions on transfer imposed by (i) Section 6
hereof, (ii) applicable state securities laws and (iii) the Securities Act.
5.4 Reservation. The Conversion Stock has been reserved
by the Company from among duly authorized common stock of the Company and when
the Conversion Stock is issued it will be duly authorized, validly issued,
fully paid and nonassessable common stock of the Company and free and clear of
all Liens and restrictions, other than Liens that might have been created by
Investors and restrictions imposed by (i) Section 6 hereof, (ii) applicable
state securities laws and (iii) the Securities Act.
<PAGE> 4
5.5 Corporate Acts and Proceedings. All corporate acts
and proceedings required for the authorization, execution and delivery of this
Agreement, the offer, issuance and delivery of the Preferred Stock and the
Conversion Stock and the performance of this Agreement and the terms of the
Preferred Stock have been lawfully and validly taken or will have been so taken
prior to the Closing.
5.6 Changes. Since the respective effective dates of the
documents delivered to each Investor as referenced in Section 4.4, no material
event of the type requiring disclosure under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or applicable state
securities laws that has not been disclosed to the Investors in the documents
referenced in Section 4.4 or otherwise has occurred.
6. Non-transfer Covenants of Each Investor. Each Investor
covenants to the Company and agrees that the Investor will not offer for sale,
sell or transfer the Securities other than (i) pursuant to an effective
registration under all applicable state securities laws or in a transaction
which is otherwise in compliance with such laws; (ii) pursuant to an effective
registration under the Securities Act or in a transaction otherwise in
compliance with the Securities Act; and (iii) upon delivery to the Company of
evidence satisfactory to it of compliance with the applicable securities laws
of other jurisdictions. The Company may, if it so desires, refuse to permit
the transfer of any Securities unless the request for transfer is accompanied
by an opinion of counsel acceptable to the Company to the effect that neither
the sale nor the proposed transfer will result in any violation of the
Securities Act or the securities laws of any other jurisdiction.
7. Conditions of Parties' Obligations.
7.1 Conditions of Investors' Obligations. The obligation
of each Investor to purchase and pay for the Preferred Stock that it has agreed
to purchase on the Closing Date is subject to the fulfillment prior to or on
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Investors:
(a) Truthfulness of Representations and
Warranties. The representations and warranties of the Company under this
Agreement shall be deemed to have been made again on the Closing Date and shall
then be true and correct.
(b) Compliance with all Covenants. The Company
shall have complied with all agreements and covenants required of it hereby on
or prior to the Closing Date.
7.2 Conditions of Company's Obligations. The Company's
obligation to issue and sell the Preferred Stock to the Investors on the
Closing Date is subject to the fulfillment prior to or on the Closing Date of
the following conditions, any of which may be waived in whole or in part by the
Company:
(a) Investor Questionnaire. Each Investor shall
have duly executed an Investor Questionnaire, the form of which is attached as
Exhibit G, and each Investor shall qualify, in the sole opinion of the Company,
as an "accredited investor" as such term is used in the Securities Act,
applicable state securities laws, and rules and regulations related to the
foregoing.
(b) Truthfulness of Representations and
Warranties. The representations and warranties of each Investor under this
Agreement and in the Investor Questionnaire shall be deemed to have been made
again at the Closing Date.
(c) Payment. All of the Investors listed on
Exhibit A shall have tendered payment for the shares to the Company and such
amounts shall be available for transfer to the Company from escrow.
<PAGE> 5
7.3 Conditions of All Parties' Obligations. The
obligation of each party to this Agreement to perform under this Agreement is
subject to the fulfillment prior to or on the Closing Date of the following
condition:
(a) Additional Financing. A $9,000,000 mortgage
loan between the Company and IDS Life Insurance Company and a $500,000 mortgage
loan and $1,500,000 term loan between the Company and Riggs Bank, all of which
are currently being negotiated, shall be finalized and shall close
simultaneously with the Closing.
8. Definitions. Unless the context otherwise requires, the term
defined in this Section 8 shall have the meaning herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
"Liens" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction and including any lien or
charge arising by statute or other law.
9. Miscellaneous.
9.1 Survival of Representations and Warranties, etc. All
representations and warranties made in, pursuant to or in connection with this
Agreement shall survive the execution and delivery of this Agreement.
9.2 Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement and of each other agreement entered into pursuant to this
Agreement, shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
9.3 Choice of Law. It is the intention of the parties
that the internal substantive laws, and not the laws of conflicts, of Virginia
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of
the parties.
9.4 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
SARNIA CORPORATION
By
---------------------------------
Charles I. Judkins, President
and
------------------------------
Pamela J. John, Secretary
INVESTOR:
-----------------------------------
<PAGE> 6
EXHIBIT 10.13
AMENDMENT NO. 1 TO
PREFERRED STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 to the PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") by and between SARNIA CORPORATION (the "Company") and
______________, dated December 11, 1995.
WHEREAS: the Board of Directors of the Company has approved changes requested
by certain Investors to the terms of the Series A Cumulative Convertible
Preferred Stock at meetings held on February 8, 1996 and May 9, 1996.
NOW THEREFORE, in consideration of the mutual agreements and other good and
valuable consideration the Company and ______________ hereby agree to amend the
Agreement as follows:
1. That the first sentence of Section 2(a) of the Form of Designation of
Series A Cumulative Convertible Preferred Stock, Exhibit B, be, and it is
hereby, amended to read in its entirety as follows:
The holders of the outstanding shares of Series A Preferred
Stock shall be entitled to receive preferential cumulative
dividends accruing, whether or not earned and whether or not
paid, at the annual rate of $2.625 per share in the case of
Series A Preferred Stock, payable in arrears on the first day
of March, June, September and December of each year.
2. The third paragraph of the Form of Designation of Series A Cumulative
Convertible Preferred Stock, Exhibit B, Section 2(a) be, and it is hereby,
amended to read in its entirety as follows:
Such dividends on the Series A Preferred Stock shall be
cumulative so that if such dividends with respect to any
previous or current annual dividend period, at the annual rate
specified above, shall not have been paid or declared and a
sum sufficient for payment thereof set apart, the deficiency
shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the
common stock. Payment to the holders of Series A Preferred
Stock for any deficiency in the payment of dividends shall be
applied to all accrued and unpaid dividends such that those
dividends most in arrears shall be paid first. Upon any
conversion of the Series A Preferred Stock under Section 5
hereof, all such accrued and unpaid dividends to and until the
date of such conversion shall become due and payable and shall
be paid upon delivery of shares of common stock to the holder
of the shares of Series A Preferred Stock being converted
under Section 5.
3. That Section 5(c) of the Form of Designation of Series A Cumulative
Convertible Preferred Stock, Exhibit B, be, and it is hereby, amended to read
in its entirety as follows:
(c) Conversion Price. The initial "Conversion Price" will be
$0.40 per share. In order to prevent dilution of the
conversion rights granted under this subdivision, the
Conversion Price will be subject to adjustment from time to
time as set forth in this Section 5; provided, however, that
there will be no adjustment of the Conversion Price as a
result of (i) issuances or deemed
<PAGE> 7
issuances of Common Stock for incentive or compensatory
purposes to directors, officers and employees of, and
consultants to, the Corporation and its subsidiaries which are
from time to time approved by the Board of Directors,
including, without limitation, grants of stock options and the
issuance of common stock upon the exercise thereof
("Compensatory Stock"), or (ii) issuances or deemed issuances
of Common Stock upon exercise or conversion, as the case may
be, of warrants issued in connection with any debt of the
corporation or the Series A Preferred Stock ("Converted
Stock", and together with Compensatory Stock, the "Excluded
Stock"). Anything herein to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless
such adjustment, either by itself or with other adjustments
not previously made, would require a change of at least $0.01
in such price; provided, however, that any adjustment which by
reason of this sentence is not required to be made shall be
carried forward and taken into account in any subsequent
adjustment.
4. That Section 6(d) of the Form of Designation of Series A Cumulative
Convertible Preferred Stock, Exhibit B, be, and it is hereby, amended to read
in its entirety as follows:
(d) Surrender of Certificates. Each holder of shares of
Series A Preferred Stock to be redeemed shall surrender the
certificate(s) representing such shares to the Corporation at
the place designated in the redemption notice received from
the Corporation and, on the date of such surrender, the Series
A Redemption Price for such shares as set forth in this
Section 6 shall be paid to the order of the person whose name
appears on such certificate(s) and each surrendered
certificate(s) shall be cancelled and retired.
IN WITNESS WHEREOF, the parties hereto have signed this Amendment No. 1 the
date set forth below.
SARNIA CORPORATION
-----------------------------
Charles I. Judkins, President
INVESTOR:
-----------------------------
Date:
--------------------
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<PERIOD-START> JUL-01-1995
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