<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER: 0-25094
BTG, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
VIRGINIA 54-1194161
- ---------------------------------------------------- ------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3877 FAIRFAX RIDGE ROAD, FAIRFAX, VIRGINIA 22030-7448
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 383-8000
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
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CLASS OUTSTANDING AT OCTOBER 27, 1997
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COMMON STOCK 8,547,288
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BTG, INC.
INDEX TO FORM 10-Q
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<CAPTION>
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1997 (unaudited)
and March 31, 1997 3
Consolidated Statements of Operations for the three
months ended September 30, 1997 and 1996 and the six
months ended September 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the six
months ended September 30, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14-15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15-16
SIGNATURES 17
EXHIBIT INDEX 18
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------ -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 171,284 $ 99,017
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,265 16,716
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,957 8,424
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,682 2,546
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 226,188 $ 126,703
---------- ----------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 7,938 6,461
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,356 16,267
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . 4,008 4,199
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,073 2,450
---------- ----------
$ 263,563 $ 156,080
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . $ 100 $ 100
Current maturities of capital lease obligations . . . . . . . . . . . . . 807 557
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,717 30,902
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,096 9,894
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018 1,111
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 588
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . $ 124,143 $ 43,152
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,450 30,021
Long-term debt, excluding current maturities . . . . . . . . . . . . . . . 14,325 14,225
Capital lease obligations, excluding current maturities . . . . . . . . . . 1,362 1,179
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 770
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 488
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,682 $ 89,835
---------- ----------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Common stock, no par value, 20,000,000 shares authorized; 8,550,718
and 8,443,844 shares issued and outstanding at September 30, 1997
and March 31, 1997, respectively . . . . . . . . . . . . . . . . . . . . 52,815 52,079
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,593 14,693
Treasury stock, at cost, 50,057 shares . . . . . . . . . . . . . . . . . (527) (527)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 64,881 $ 66,245
---------- ----------
$ 263,563 $ 156,080
========== ==========
</TABLE>
See notes to consolidated financial statements.
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BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Contract revenue . . . . . . . . . . . . . . . $ 48,367 $ 28,975 $ 87,687 $ 49,504
Product sales . . . . . . . . . . . . . . . . . 141,435 86,150 221,995 141,063
----------- ----------- ----------- -----------
189,802 115,125 309,682 190,567
Direct costs:
Contract costs . . . . . . . . . . . . . . . . 33,649 19,125 60,276 30,073
Cost of product sales . . . . . . . . . . . . . 131,811 75,553 202,598 123,332
----------- ----------- ----------- -----------
165,460 94,678 262,874 153,405
Indirect, general and administrative
expenses . . . . . . . . . . . . . . . . . . . 24,823 15,366 44,924 29,437
Amortization and other operating costs, net . . . 1,253 501 1,856 949
----------- ----------- ----------- ----------
191,536 110,545 309,654 183,791
Operating income (loss) . . . . . . . . . . . . . (1,734) 4,580 28 6,776
Interest expense . . . . . . . . . . . . . . . . (2,081) (1,643) (3,648) (2,909)
Equity in earnings of unconsolidated affiliate . 72 663 257 1,060
Other income . . . . . . . . . . . . . . . . . . 51 -- 106 --
----------- ----------- ----------- -----------
Income (loss) before income taxes . . . . . . . . (3,692) 3,600 (3,257) 4,927
Income tax expense (benefit) . . . . . . . . . . (1,357) 1,606 (1,157) 2,176
----------- ----------- ----------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $ (2,335) $ 1,994 $ (2,100) $ 2,751
=========== =========== =========== ==========
Earnings (loss) per common and common
equivalent share . . . . . . . . . . . . . . . $ (0.27) $ 0.31 $ (0.25) $ 0.43
============ =========== =========== ==========
Weighted average shares of common stock
and common stock equivalents . . . . . . . . . 8,525 6,418 8,501 6,371
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
BTG, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
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Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,100) $ 2,751
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 2,658 1,752
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (60)
Reserves for accounts receivable and inventory . . . . . . . . . . . . . . . 1,167 1,223
Loss on sale or disposal of property and equipment . . . . . . . . . . . . . 76 11
Changes in assets and liabilities, net of the effects from purchases
of subsidiaries:
(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . -- 47
(Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . . . (64,117) (40,946)
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . . . . (25,473) (13,670)
(Increase) decrease in prepaid expenses and other current assets . . . . . . (2,864) (4,938)
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . 653 (203)
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . 71,344 34,463
Increase (decrease) in accrued expenses . . . . . . . . . . . . . . . . . . 5,295 2,223
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . (639) (1,122)
Increase (decrease) in income taxes currently payable . . . . . . . . . . . -- (553)
----------- -----------
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . $ (14,000) $ (19,022)
----------- -----------
Cash flows from investing activities:
Purchase of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (200)
Purchase of note receivable . . . . . . . . . . . . . . . . . . . . . . . . . -- (300)
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . (1,334) (442)
Purchases of subsidiaries, net of cash acquired . . . . . . . . . . . . . . . (10,129) --
Capitalized product development costs . . . . . . . . . . . . . . . . . . . . (690) (297)
----------- -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . $ (12,153) $ (1,239)
----------- -----------
Cash flows from financing activities:
Net advances under line of credit . . . . . . . . . . . . . . . . . . . . . . 26,416 20,053
Principal payments on long-term debt and capital lease obligations . . . . . (899) (73)
Payment of debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . . (100) (28)
Proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . 736 309
----------- -----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . $ 26,153 $ 20,261
----------- -----------
Increase (decrease) in unrestricted cash and equivalents . . . . . . . . . . . -- --
Unrestricted cash and equivalents, beginning of period . . . . . . . . . . . . -- --
----------- -----------
Unrestricted cash and equivalents, end of period . . . . . . . . . . . . . . . $ -- $ --
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated interim financial statements included herein have
been prepared by BTG, Inc. and Subsidiaries ("BTG" or the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of interim period results. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are adequate
to make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended March 31, 1997. The results of
operations for the six-month period ended September 30, 1997, are not
necessarily indicative of the results to be expected for the full fiscal year
ending March 31, 1998.
2. SUBORDINATED NOTES PAYABLE
On February 16, 1996, the Company issued $15.0 million in senior
subordinated notes (the "Notes") under a Note and Warrant Purchase Agreement
with Nomura Holding America, Inc. ("Nomura"). Under this agreement, the Notes,
which are due in 2001, accrued interest at a rate of 12.875% per annum. In
addition, this agreement restricted the Company's ability to borrow in excess
of $65.0 million under its revolving line of credit facility.
On August 29, 1997, Blue Ridge Investments, L.L.C. ("Blue Ridge"), an
affiliate of NationsBank, N.A., acquired the Notes from Nomura for a purchase
price equal to 106% of the principal amount thereof plus accrued and unpaid
interest. In connection with this transaction, the Company agreed to increase
the annual interest rate on the Notes to 13.875% during any fiscal quarter in
which the Company's borrowings under its revolving line of credit exceed $65.0
million. In addition, at the option of Blue Ridge, the agreement provides that
the interest rate can be permanently increased to 13.875% at any time on or
after December 31, 1997. At September 30, 1997, the Company obtained a waiver
from the lending financial institution for non-compliance with certain
financial covenants included in the agreement.
3. BUSINESS COMBINATION
On August 29, 1997, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Micros-To-Mainframes, Inc. ("M-T-M") under which
BTG would acquire all of the outstanding stock of M-T-M for cash and common
stock consideration. M-T-M, which is a publicly-held company having its
principal facilities in New York state, specializes in network integration for
commercial enterprises. Under the Agreement, the aggregate value of the
consideration to be paid to the shareholders of M-T-M will be $25.0 million;
however, such amount and the individual components of cash and common stock
consideration are subject to adjustment as further provided in the Agreement.
The Company expects that the acquisition of M-T-M, which has 120 employees and
reported revenues of $58.1 million in its fiscal year ended March 31, 1997,
will complement and expand BTG's private sector business, and BTG intends to
use the acquisition of M-T-M as a platform for the further development of
network integration capabilities throughout the United States. The Company
plans to account for the acquisition of M-T-M using the purchase method of
accounting. The acquisition is expected to be completed early January 1998,
subject to, among other things, approval of the transaction by M-T-M's
shareholders.
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<PAGE> 7
BTG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1997
(Unaudited)
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("Statement 128"). Statement 128 simplifies the earnings per share ("EPS")
computations currently required under Accounting Principles Board Opinion No.
15, Earnings Per Share, and revises the related disclosure requirements. In
simplifying the EPS computations, the presentation of primary EPS is replaced
with basic EPS, with the principal difference being that common stock
equivalents are not considered in computing basic EPS. In addition, Statement
128 requires dual presentation of basic and diluted EPS. Statement 128 is
effective for both interim and annual financial statements issued for periods
ending after December 15, 1997. Had Statement 128 been effective for the
second quarter of fiscal 1998, basic EPS would have been ($0.27) and ($0.25)
for the three and six month periods ended September 30, 1997 and $0.32 and
$0.45 for the three and six month periods ended September 30, 1996. Diluted
EPS would have been ($0.27) and ($0.25) for the three and six month periods
ended September 30, 1997 and $0.31 and $0.43 for the three and six month
periods ended September 30, 1996.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
BTG, Inc. ("BTG" or the "Company") is an information
technology company providing complete solutions to a broad range of the complex
systems and product needs of the United States Government and its agencies and
departments (the "Government"), state and local governments and commercial
clients. The Company provides systems development, integration, engineering and
network design, implementation and security expertise services. In addition,
the Company resells computer hardware, software and integrated systems. The
Company's common stock is quoted on the NASDAQ National Market under the symbol
"BTGI".
The Company's revenues are derived from both contract
activities and product sales. Contract revenue is typically less seasonal than
product sales but fluctuates month-to-month based on contract delivery
schedules. Contract revenue is typically characterized by lower direct costs
than product sales, yet generally requires a higher relative level of
infrastructure support. Year-to-year increases in contract revenue have
generally resulted from increases in volume, driven by additional work
requirements under Government contracts, rather than price increases, which are
generally limited to escalation factors of 3-4% on direct labor costs. Product
sales tend to be seasonal, with the Company's second and third fiscal quarters
typically accounting for the greatest proportion of revenues each year.
Product sales are characterized by higher direct costs than contract revenue;
however, indirect expenses associated with product sales are generally lower in
comparison. Year-to-year increases in product sales have generally been driven
by higher volumes as opposed to price increases.
The Company's operating performance is affected by both the
number and type of contracts held, the timing of the installation or delivery
of the Company's services and products, and the relative margins of the
services performed or products sold. In general, the Company recognizes its
highest margins on its most specialized systems engineering and software
development projects and lower margins on sales of commercial-off-the-shelf
products, which sales contracts tend to have lower services components and a
more competitive after-contract award environment.
In August 1996, the Company formed a new subsidiary, Community
Networks, Inc. ("CNI"), in which the Company maintains a majority interest at
September 30, 1997. CNI was created to allow broadband network operators to
sell enhanced Internet services to residential consumers and businesses. CNI's
initial market has been high-speed Internet access via cable television plants,
focused on mid-sized and independent cable operators. During fiscal 1997 and
the six months ended September 30, 1997, the Company's operating income has
reflected losses generated by CNI of approximately $1.2 million and $2.5
million, respectively. In addition, at September 30, 1997, the Company's
consolidated balance sheet reflects net capitalized costs of approximately $1.9
million associated with the development of CNI's proprietary software products.
The Company has recently initiated efforts to significantly reduce operating
expenses at CNI and, thereby, reduce the negative impact on the Company's
operating results. In the future, CNI will focus on providing licensed
software, as well as systems integration and related Internet applications
support, primarily on a fee for service basis, to the telecommunications
industry.
On June 12, 1997, the Company acquired Nations, Inc.
("Nations"), which is primarily involved in software engineering, modeling and
simulation, program management support services, systems engineering, and
integrated logistics support services, principally to the Government.
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<PAGE> 9
RESULTS OF OPERATIONS
The following table presents for the periods indicated: (i)
the percentage of revenues represented by certain income and expense items and
(ii) the percentage period-to-period increase (decrease) in such items:
<TABLE>
<CAPTION>
% PERIOD-TO-PERIOD
PERCENTAGE OF REVENUE INCREASE (DECREASE) OF DOLLARS
-------------------------------------------- -----------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS SIX MONTHS
SEPTEMBER 30, SEPTEMBER 30, ENDED SEPT. ENDED SEPT.
-------------------------------------------- 30, 1997 30, 1997
COMPARED TO COMPARED TO
THREE MONTHS SIX MONTHS
ENDED SEPT. ENDED SEPT.
1997 1996 1997 1996 30, 1996 30, 1996
---- ---- ---- ---- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue . . . . . . . . . 25.5% 25.2% 28.3% 26.0% 66.9% 77.1%
Product sales . . . . . . . . . . 74.5 74.8 71.7 74.0 64.2 57.4
Total revenue . . . . . . . . . 100.0 100.0 100.0 100.0 64.9 62.5
Direct costs:
Contract costs (as a % of
contract revenue) . . . . . . . 69.6 66.0 68.7 60.7 75.9 100.4
Cost of product sales (as a %
of product sales) . . . . . . . 93.2 87.7 91.3 87.4 74.5 64.3
Total direct costs (as a %
of total revenue) . . . . . . 87.2 82.2 84.9 80.5 74.8 71.4
Indirect, general and administrative
expenses . . . . . . . . . . . . . 13.1 13.3 14.5 15.4 61.5 52.6
Amortization and other operating costs,
net . . . . . . . . . . . . . . . 0.7 0.4 0.6 0.5 150.1 95.6
Operating income (loss) . . . . . . . (0.9) 4.0 0.0 3.6 (137.9) (99.6)
Interest expense . . . . . . . . . . 1.1 1.4 1.2 1.5 26.7 25.4
Equity in earnings of affiliate
and other income . . . . . . . . . 0.1 0.6 0.1 0.6 (81.4) (65.8)
Income (loss) before income taxes . . (1.9) 3.1 (1.1) 2.6 (202.6) (166.1)
Income tax expense (benefit) . . . . (0.7) 1.4 (0.4) 1.2 (184.5) (153.2)
Net income (loss) . . . . . . . . . . (1.2) 1.7 (0.7) 1.4 (217.1) (176.3)
</TABLE>
Three Months Ended September 30, 1997 Compared With Three Months Ended
September 30, 1996
Revenues for the three months ended September 30, 1997 increased by
$74.7 million, or 64.9%, from the three months ended September 30, 1996. Of
this increase, $19.4 million was attributable to contract revenue, and $55.3
million was attributable to product sales. Major factors affecting the
increase in contract revenue in the three months ended September 30, 1997 were
the acquisition of Nations, Inc. in June 1997, and the work performed in
connection with the National Institutes of Health ("NIH") ImageWorld contract,
which was awarded to the Company in August 1996. The increase in product sales
was primarily driven by shipments made under two recently awarded Government
contracts: the U.S. Army PC-2 contract, which was awarded to the Company in
October 1996, and the U.S. Department of State contract, which was awarded to
the Company in April 1997; an increase in sales under General Services
Administration ("GSA") Schedule contracts, either directly from the Company's
GSA Schedule contracts or from sales to other prime contractors with GSA
Schedule contracts; and several large open market orders to another prime
contractor of the Government. In the three months ended September 30, 1997,
approximately 92.2% of the Company's revenues were derived from contracts or
subcontracts with and product sales to the Government, as compared with 90.5%
in the three months ended September 30, 1996.
Direct costs, expressed as a percentage of total revenue, increased
from 82.2% in the three months ended September 30, 1996 to 87.2% in the three
months ended September 30, 1997. Contract costs, which include labor,
subcontract, material and other costs directly related to contract revenue,
increased as a percentage of contract revenue from 66.0% in the three months
ended September 30, 1996 to 69.6% in the three months ended September 30, 1997.
This increase was primarily the result of increased integration and networking
contracts and contracts acquired in connection with the acquisition of Nations,
both of which require higher levels of material and other direct costs than
does BTG's historical contract base. Cost of product sales as a percentage of
product sales increased from 87.7% in the three months ended September 30, 1996
to 93.2% in the three
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<PAGE> 10
months ended September 30, 1997. This increase was due in large part to both
the startup costs of several large indefinite delivery-indefinite quantity
("IDIQ") Government contracts and lower gross margins on certain enterprise
license software sales. Gross margins on large, IDIQ hardware contracts tend
to be lower in the early stages of the contract and generally increase as the
contract matures due to a variety of factors including higher volumes and the
purchase of newer technology. However, due to the increasing levels of
competition for IDIQ contracts and the inherent uncertainty of the product mix
or quantity of Government purchases thereunder, the Company cannot accurately
estimate future profitability levels under these contracts.
Indirect, general and administrative expenses include the costs of
indirect labor, fringe benefits, overhead, sales and administration, bid and
proposal, and research and development. Indirect, general and administrative
expenses for the three months ended September 30, 1997 increased by $9.5
million, or 61.5%, from the same period in 1996. The increase was due
primarily to indirect expenses incurred by Nations, which was acquired in June
1997; higher indirect expenses incurred by CNI; and indirect expenses resulting
from an increase in the overall volume of business as compared to the
comparable period of the prior year. Expressed as a percentage of total
revenues, indirect, general and administrative expenses decreased for the three
months ended September 30, 1997 to 13.1% from 13.3% in the three months ended
September 30, 1996.
Amortization and other operating costs, which include both
amortization expense associated with goodwill and other intangible assets and
other operating expenses which are non-reimbursable under Government contracts,
increased by $752,000 in the three months ended September 30, 1997, as compared
with the comparable period of the prior year. This increase was primarily
attributable to the amortization of product development costs associated with
the development of certain software products designed for use by CNI, as well
as certain financial advisory fees which were incurred during the period.
Interest expense for the three months ended September 30, 1997
increased by $438,000, or 26.7%, from the comparable period of the prior year.
This increase was due in large part to the significant growth in revenue during
the three months ended September 30, 1997 as compared with the comparable
period of the prior year, which resulted in higher receivable and inventory
balances, thereby resulting in higher levels of required financing under the
Company's line of credit. In addition, increased interest costs resulted from
the Company's acquisition of Nations in June 1997, the purchase of which was
financed through the Company's line of credit. As a percentage of total
revenues, interest expense decreased for the three months ended September 30,
1997 to 1.1% from 1.4% in the three months ended September 30, 1996. This
decrease is attributable to both the follow-on common stock offering which was
completed in December 1996 and improved accounts receivable collections.
Equity in the earnings of unconsolidated affiliates was $72,000 during
the three months ended September 30, 1997, and resulted from the Company's
interest in an unincorporated joint venture. The joint venture entity, which
is with an unrelated company, was created for the purpose of performing under a
specific contract and was acquired by the Company in connection with its
acquisition of CAI. Income from this source decreased by $591,000 in the three
months ended September 30, 1997, as compared to the comparable period of the
prior year, as the result of a lower demand for products under this contract.
The Company does not anticipate significant future product demand under the
contract for which this joint venture was formed, since the contract is nearing
completion.
Income tax expense, as a percentage of income before income taxes, was
44.6% during the three months ended September 30, 1996; however, due to the
pre-tax loss experienced by the Company during the three months ended September
30, 1997, there was an income tax benefit, which as a percentage of the loss
before income taxes, was 36.8% for the three month period.
Net income for the three months ended September 30, 1997 decreased by
$4.3 million, or 217.1%, from the three months ended September 30, 1996, due to
the reasons discussed above.
- 10 -
<PAGE> 11
Six Months Ended September 30, 1997 Compared With Six Months Ended September
30, 1996
Revenues for the six months ended September 30, 1997 increased by
$119.1 million, or 62.5%, from the six months ended September 30, 1996. Of
this increase, $38.2 million was attributable to contract revenue, and $80.9
million was attributable to product sales. Major factors affecting the
increase in contract revenue in the six months ended September 30, 1997 were
the acquisition of Nations in June 1997; work performed in connection with the
NIH ImageWorld contract; and increased revenues generated under the Company's
Integration for Command, Control, Communications, Computers and Intelligence
("IC4I") contract. The increase in product sales was primarily driven by
shipments made under two recently awarded Government contracts: the U.S. Army
PC-2 contract and the U.S. Department of State contract; an increase in sales
under GSA Schedule contracts, either directly from the Company's GSA Schedule
contracts or from sales to other prime contractors with GSA Schedule contracts;
several large open market orders to another prime contractor of the Government;
and increased sales under the Company's TDA-2 contract with the U.S. Department
of Treasury. The overall increase in product sales was offset by a reduction
in shipments under the Company's contract with the Tennessee Valley Authority.
In the six months ended September 30, 1997, approximately 90.3% of the
Company's revenues were derived from contracts or subcontracts with and product
sales to the Government, as compared with 89.6% in the six months ended
September 30, 1996.
Direct costs, expressed as a percentage of total revenue, increased
from 80.5% in the six months ended September 30, 1996 to 84.9% in the six
months ended September 30, 1997. Contract costs as a percentage of contract
revenue increased from 60.7% in the six months ended September 30, 1996 to
68.7% in the six months ended September 30, 1997, primarily as a result of
increased revenues generated from the IC4I contract; from contracts acquired in
connection with the acquisition of Nations; and from an increase in revenues
generated from systems integration and networking contracts. The IC4I
contract, the contracts acquired from the acquisition of Nations, and the
Company's systems integration and networking contracts require higher levels of
material and other direct costs than does BTG's historical contract base, which
has a more labor intensive, higher gross margin profile. Cost of product sales
as a percentage of product sales increased from 87.4% in the six months ended
September 30, 1996 to 91.3% in the six months ended September 30, 1997. This
increase was due in large part to both the startup of several large IDIQ
Government contracts and lower gross margins on certain enterprise license
software sales. Gross margins on large, IDIQ hardware contracts are usually
lower in the early stages of the contract and generally increase as the
contract matures due to a variety of factors including higher volumes and the
purchase of newer technology. However, due to the increasing levels of
competition for IDIQ contracts and the inherent uncertainty of the product mix
or quantity of Government purchases thereunder, the Company cannot accurately
estimate future profitability levels under these contracts.
Indirect, general and administrative expenses for the six months ended
September 30, 1997 increased by $15.5 million, or 52.6%, from the same period
in 1996. The increase was due primarily to indirect expenses incurred by
Nations and CNI, neither of which were consolidated with the Company for the
complete six months ended September 30, 1996, as well as from an increase in
the overall volume of business as compared to the comparable period of the
prior year. Expressed as a percentage of total revenues, indirect, general and
administrative expenses decreased for the six months ended September 30, 1997
to 14.5% from 15.4% in the six months ended September 30, 1996.
Amortization and other operating costs, which include amortization
expense associated with goodwill and other intangible assets and other
operating expenses which are non-reimbursable under Government contracts,
increased by $907,000, or 95.6%, for the six months ended September 30, 1997 as
compared with the same period in the previous year. This increase was primarily
attributable to the amortization of product development costs associated with
the development of certain software products designed for use by CNI, certain
financial advisory fees incurred during the period, and costs associated with
merger and acquisition activities.
- 11 -
<PAGE> 12
Interest expense for the six months ended September 30, 1997 increased
by $739,000, or 25.4%, from the comparable period of the prior year. This
increase was due in large part to the significant growth in revenue during the
six months ended September 30, 1997 as compared with the comparable period of
the prior year, which resulted in higher receivable and inventory balances,
thereby resulting in higher levels of required financing under the Company's
line of credit. In addition, higher interest costs were incurred during the
six months ended September 30, 1997 due to interest paid on borrowings related
to the Company's acquisition of Nations. As a percentage of total revenues,
interest expense decreased for the six months ended September 30, 1997 to 1.2%
from 1.5% in the six months ended September 30, 1996. This decrease is
attributable to both the follow-on common stock offering which was completed in
December 1996 and improved accounts receivable collections.
Equity in earnings of affiliate was $257,000 during the six months
ended September 30, 1997, and resulted from the Company's interest in an
unincorporated joint venture. Income from this source decreased by $803,000 in
the six months ended September 30, 1997, as compared to the comparable period
of the prior year, as the result of a lower demand for products under the
contract vehicle for which the joint venture was formed. The Company does not
anticipate significant product demand under this contract because it is
nearing completion.
Income tax expense, as a percentage of income before income taxes, was
44.2% during the six months ended September 30, 1996; however, due to the
pre-tax loss experienced by the Company during the six months ended September
30, 1997, there was an income tax benefit, which as a percentage of the loss
before income taxes, was 35.5% for the six month period.
Net income for the six months ended September 30, 1997 decreased by
$4.9 million, or 176.3%, from the six months ended September 30, 1996, due to
the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash of approximately $14.0 million was used in operating
activities during the six months ended September 30, 1997. This net use of
cash largely resulted from a significant increase in accounts receivable, which
was due to the revenue growth experienced by the Company during the six months
ended September 30, 1997 as compared with the comparable period of the prior
year. In addition, increases in inventory contributed to the net use of cash
in the six months ended September 30, 1997, offset by increases in accounts
payable and accrued expenses.
Investing activities used cash of approximately $12.2 million during
the six months ended September 30, 1997. This was primarily due to the
acquisition of Nations in June 1997, for which the Company invested cash of
approximately $10.1 million. In addition, the Company invested cash of
approximately $1.3 million in the purchase of office and computer-related
equipment and in leasehold improvements at certain of its facilities, as well
as approximately $690,000 in the development of software products designed for
use by the Company's newly-formed subsidiary, CNI.
During the six months ended September 30, 1997, the Company's
financing activities provided cash of approximately $26.2 million, resulting
primarily from $26.4 million in increased borrowings under the Company's
revolving line of credit facility, $11.7 million of which was used to fund the
cash portion of the Nations purchase price and to repay borrowings outstanding
under Nations' then existing credit facility. The remaining net advances under
the revolving line of credit facility were used to finance the Company's
increased business volume. At September 30, 1997, the Company obtained a
waiver from the lending financial institution for non-compliance with certain
financial covenants included in the agreement. The Company also made $899,000
in payments under both outstanding debt and capital lease obligations, the
former of which included certain debt acquired in connection with the
acquisition of Nations. In addition, the Company received proceeds of $736,000
from sales of stock under certain employee benefit plans during the six months
ended September 30, 1997.
- 12 -
<PAGE> 13
Working capital was $102.0 million as of September 30, 1997, compared
to $83.6 million at March 31, 1997. This increase was primarily due to the
significant increase in the volume of business during the six months ended
September 30, 1997, which resulted in significantly higher receivable and
inventory balances. At September 30, 1997, the Company had approximately $26.6
million available for borrowing under its revolving line of credit facility.
In addition to the revolving line of credit facility, the Company has
an inventory financing facility under which it can borrow up to $35.0 million
to finance inventory purchases. Outstanding advances to the Company under the
inventory financing facility at September 30, 1997 totaled $21.8 million. At
September 30, 1997, the Company obtained a waiver from the lending financial
institution for non-compliance with certain financial covenants included in the
inventory financing facility agreement.
On February 16, 1996, the Company issued $15.0 million in senior
subordinated notes (the "Notes") under a Note and Warrant Purchase Agreement
with Nomura Holding America, Inc. ("Nomura"). Under the original agreement,
the Notes, which are due in 2001, accrued interest at a rate of 12.875% per
annum. In addition, the original agreement restricted the Company's ability to
borrow in excess of $65.0 million under its revolving line of credit facility.
On August 29, 1997, Blue Ridge Investments, L.L.C. ("Blue Ridge"), an affiliate
of NationsBank, N.A., acquired the Notes from Nomura for a purchase price equal
to 106% of the principal amount thereof plus accrued and unpaid interest. In
connection with this transaction, the Company agreed to increase the annual
interest rate on the Notes to 13.875% during any fiscal quarter in which the
Company's borrowings under its revolving line of credit exceed $65.0 million.
In addition, at the option of Blue Ridge, the agreement provides that the
interest rate can be permanently increased to 13.875% at any time on or after
December 31, 1997. At September 30, 1997, the Company obtained a waiver from
the lending financial institution for non-compliance with certain financial
covenants included in the agreement.
Due to the significant growth recently experienced by BTG and the
projected levels of product sales in the Company's third and fourth fiscal
quarters, the Company will need to increase the availability of funds under its
revolving line of credit and inventory financing facilities. As a result, the
Company is currently negotiating amendments to its financing facilities to
provide for the estimated additional funding. Management believes that it will
be able to refinance its current facilities in a manner that will provide
sufficient funds for the Company's growth and operations during the next year.
- 13 -
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or any subsidiary is a party or to which any of their property is
subject, other than ordinary routine litigation incidental to the
business of the Company or any subsidiary.
ITEM 2. CHANGES IN SECURITIES
No changes in security holders' rights have taken place.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No defaults upon senior securities have taken place.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on September 17,
1997, the following proposals were adopted by the margins indicated:
1. To elect two nominees for Director:
<TABLE>
<CAPTION>
For Withheld Authority
--- ------------------
<S> <C> <C>
Edward H. Bersoff 7,077,514 100,678
Donald M. Wallach 7,078,259 99,933
</TABLE>
The following Directors continued their terms of office: Ruth M.
Davis, James V. Kimsey, Alan G. Merten, Raymond T. Tate, and Ronald L.
Turner.
2. To approve the Company's Non-Employee Director Stock Purchase
Plan:
<TABLE>
<S> <C>
For 4,122,041
Against 130,037
Abstain 98,021
Broker Non-Votes 2,828,093
</TABLE>
3. To approve an amendment to the Company's Articles of
Incorporation to increase the total number of authorized shares of
common stock from 10,000,000 to 20,000,000:
<TABLE>
<S> <C>
For 6,994,330
Against 173,428
Abstain 10,434
</TABLE>
- 14 -
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - CONTINUED
4. To approve an amendment to the Company's 1995 Employee Stock
Option Plan increasing the number of shares authorized to be issued
pursuant to options granted under the Plan from 750,000 to 1,250,000:
<TABLE>
<S> <C>
For 3,552,254
Against 736,454
Abstain 12,831
Broker Non-Votes 2,876,653
</TABLE>
5. To ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending March 31,
1998:
<TABLE>
<S> <C>
For 7,164,848
Against 6,092
Abstain 7,252
</TABLE>
ITEM 5. OTHER INFORMATION
No information to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
The following exhibits are either filed with this Report or are
incorporated herein by reference:
3.1 Amendment to the Amended and Restated Articles of
Incorporation of BTG, Inc.
3.2 Amended and Restated Articles of Incorporation of BTG, Inc.
3.3 Amended and Restated By-laws of BTG, Inc. (incorporated by
reference to exhibit 3.4 to BTG, Inc.'s registration statement
on Form S-1 (File No. 33-85854)).
4.1 Specimen certificate of share of Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement
on Form S-8 (File No. 33-97302)).
10.1 Fifth Modification, dated June 27, 1997, to Business Loan and
Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
10.2 Sixth Modification, dated August 12, 1997, to Business Loan
and Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
10.3 Fourth Amendment, dated August 29, 1997, between BTG, Inc. and
Blue Ridge Investments, L.L.C., to Note and Warrant Purchase
Agreement, dated February 16, 1996, between BTG, Inc. and
Nomura Holding America, Inc.
- 15 -
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K- CONTINUED
10.4 Non-Employee Director Stock Purchase Plan (incorporated by
reference to BTG, Inc.'s registration statement on Form S-1
(File No. 333-14767)).*
10.5 Employment Agreement between the Company and Edward H.
Bersoff.*
10.6 Amendment to Employee Stock Purchase Plan.*
10.7 Agreement and Plan of Merger by and among BTG, Inc.,
Micros-To-Mainframes, Inc. and BTG Merger Sub, Inc. dated as
of August 29, 1997 (incorporated by reference to BTG, Inc.'s
Schedule 13D (File No. 005-48499)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
------------------------------------
* Management contract or compensatory plan or arrangement.
B. REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
DATE OF REPORT SUBJECT OF REPORT
-------------- -----------------
<S> <C>
August 14, 1997 On June 12, 1997, BTG, Inc. consummated the
acquisition of all the issued
and outstanding shares of Nations, Inc.
</TABLE>
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1997 BTG, INC.
/s/ John M. Hughes
----------------------------------
John M. Hughes
Duly Authorized Signatory and
Chief Financial Officer
- 17 -
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 Amendment to the Amended and Restated Articles of
Incorporation of BTG, Inc.
3.2 Amended and Restated Articles of Incorporation of BTG, Inc.
3.3 Amended and Restated By-laws of BTG, Inc. (incorporated by
reference to exhibit 3.4 to BTG, Inc.'s registration statement
on Form S-1 (File No. 33-85854)).
4.1 Specimen certificate of share of Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement
on Form S-8 (File No. 33-97302)).
10.1 Fifth Modification, dated June 27, 1997, to Business Loan and
Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
10.2 Sixth Modification, dated August 12, 1997, to Business Loan
and Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A.
10.3 Fourth Amendment, dated August 29, 1997, between BTG, Inc. and
Blue Ridge Investments, L.L.C., to Note and Warrant Purchase
Agreement, dated February 16, 1996, between BTG, Inc. and
Nomura Holding America, Inc.
10.4 Non-Employee Director Stock Purchase Plan (incorporated by
reference to BTG, Inc.'s registration statement on Form S-1
(File No. 333-14767)).*
10.5 Employment Agreement between the Company and Edward H.
Bersoff.*
10.6 Amendment to Employee Stock Purchase Plan.*
10.7 Agreement and Plan of Merger by and among BTG, Inc.,
Micros-To-Mainframes, Inc. and BTG Merger Sub, Inc. dated as
of August 29, 1997 (incorporated by reference to BTG, Inc.'s
Schedule 13D (File No. 005-48499)).
11 Statement regarding computation of per share earnings.
27 Financial data schedule.
</TABLE>
--------------------------------
* Management contract or compensatory plan or arrangement.
- 18 -
<PAGE> 1
Exhibit 3.1
AMENDMENT TO BTG, INC.'S
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
Article 3 of BTG, Inc.'s Amended and Restated Articles of
Incorporation is hereby amended and restated as follows:
ARTICLE 3. CAPITAL STOCK
The total number of shares that the Company shall
have the authority to issue is twenty-one million (21,000,000)
shares, of which twenty million (20,000,000) shares shall be
Common Stock ("Common Stock") and one million (1,000,000)
shares shall be Preferred Stock ("Preferred Stock"). To the
extent permitted by the Virginia Stock Corporation Act, the
Board of Directors, by an adoption of an amendment to the
articles of incorporation, may fix in whole or part, the
preferences, limitations and relative rights of (i) any class
of shares before the issuance of any shares of that class or
(ii) one or more series within a class before the issuance of
any shares of that series.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BTG, INC.
ARTICLE 1. NAME
The name of this corporation is BTG, Inc. (the "Corporation").
ARTICLE 2. PURPOSE
The purpose of the Corporation is to engage in any lawful
business not required to be set forth in the articles of incorporation for
which corporations may be organized under the Virginia Stock Corporation Act.
ARTICLE 3. CAPITAL STOCK
The total number of shares that the Corporation shall have
authority to issue is eleven million (11,000,000) shares, of which ten million
(10,000,000) shares shall be Common Stock ("Common Stock") and one million
(1,000,000) shares shall be Preferred Stock ("Preferred Stock"). To the extent
permitted by the Virginia Stock Corporation Act, the Board of Directors, by an
adoption of an amendment to the articles of incorporation, may fix in whole or
part, the preferences, limitations and relative rights of (i) any class or
shares before the issuance of any shares of that class or (ii) one or more
series within a class before the issuance of any shares of that series.
ARTICLE 4. DURATION
The duration of the Corporation shall be perpetual.
ARTICLE 5. BOARD OF DIRECTORS
5.1 TERMS OF DIRECTORS
The directors shall be classified with respect to the time for
which they severally hold office into three classes, Class I, Class II and
Class III, with each group containing one-third of the total, as near as may
be, and as shall be adjusted from time to time by the Board of Directors of the
Corporation to maintain such proportionality. Each initial director in Class I
shall hold office for a term expiring
<PAGE> 2
at the 1997 annual meeting of shareholders; each initial director in Class II
shall hold office for a term expiring at the 1996 annual meeting of
shareholders; and each initial director in Class III shall hold office for a
term expiring at the 1995 annual meeting of shareholders. Notwithstanding the
foregoing provisions of this Section 5.1, each director shall serve until such
director's successor is duly elected and qualified or until such director's
earlier death, resignation or removal. At each annual meeting of shareholders,
the successors to the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
shareholders held in the third year following the year of their election and
until their successors have been duly elected and qualified or until any such
director's earlier death, resignation or removal.
5.2 NUMBER OF DIRECTORS
(a) The total number of directors on the Board of
Directors shall be within a variable range of a maximum of fifteen (15)
directors and a minimum of seven (7) directors. The number of directors shall
be as fixed or changed from time to time by (i) the Board of Directors, within
the minimum and maximum, or (ii) the affirmative vote, at a meeting of the
shareholders called for such a purpose, of not less than 66-2/3% of the total
number of votes of the then outstanding shares of stock of the Corporation
entitled to vote, voting together as a single class, but only if notice of such
proposal was contained in the notice of such meeting.
(b) In the event of any increase or decrease in the
number of directors, the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to maintain such classes as nearly
as equal as possible. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
5.3 REMOVAL OF DIRECTORS
(a) Except as otherwise provided pursuant to the
provisions of the articles of incorporation relating to the rights of the
holders of any class or series of shares of Preferred Stock, voting separately
by class or series, to elect directors under specified circumstances, any
director or directors may be removed from office at any time, but only for
cause (as defined in Section 5.3(b) hereof) and only by the affirmative vote,
at a meeting of the shareholders called for such a purpose, of not less than
66-2/3% of the total number of votes of the then outstanding shares of stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, but only if notice of such proposal was contained
in the notice of such meeting. At least 30 days prior to such meeting of
shareholders, written notice shall be sent to the director or directors whose
removal will be considered at such meeting.
- 2 -
<PAGE> 3
(b) For purposes of this Section 5.3, "cause" shall mean
(i) conduct as a director of the Corporation or any subsidiary involving
dishonesty of a material nature or (ii) criminal conduct (other than minor
infractions and traffic violations) that relates to the performance of the
director's duties as a director of the Corporation or any subsidiary.
5.4 VACANCIES ON THE BOARD OF DIRECTORS
Any vacancy occurring on the Board of Directors resulting from
resignation, removal, death, an increase in the number of directors, or
otherwise shall be filled only by vote of a majority of the directors then in
office, whether or not a quorum, and the term of any directors so chosen shall
expire at the next shareholders meeting at which directors are elected and
until their successors shall be elected and qualified or until any such
director's earlier death, resignation or removal.
5.5 DIRECTORS ELECTED BY HOLDERS OF PREFERRED STOCK
The Board of Directors shall have the authority to authorize
the election of all or a specified number of directors by the holders of one or
more authorized classes of shares of Preferred Stock. Each class, or classes,
of shares entitled to elect one or more directors is a separate voting group
for purposes of the election of directors.
ARTICLE 6. PREEMPTIVE RIGHTS
No shareholder of the Corporation shall have any preemptive
rights to purchase, subscribe for or otherwise acquire any stock or other
securities of the Corporation, whether now or hereafter authorized, and any and
all preemptive rights hereby are denied.
ARTICLE 7. SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time
but only by (i) the Chairman of the Board of Directors of the Corporation, (ii)
the President of the Corporation, (iii) a majority of the directors in office,
even if less than a quorum, or (iv) the holders of more than 50% of the total
number of votes of the then outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, if such holders sign, date and deliver to the Corporation's
secretary one or more written demands for the meeting describing the purpose or
purposes for which it is to be held, provided that if an annual shareholders'
meeting has not been held within 15 months after the Corporation's last annual
shareholders' meeting, then the requisite percentage in clause (iv) of this
Article 7 is 20%.
- 3 -
<PAGE> 4
ARTICLE 8. CRITERIA FOR EVALUATING CERTAIN OFFERS
The Board of Directors, when evaluating any offer of another
party to (i) make a tender or exchange offer for any equity security of the
Corporation, (ii) merge or consolidate the Corporation with another
institution, or (iii) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its shareholders, be authorized to give due consideration to
any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(a) the interests of the shareholders of the Corporation;
(b) whether the proposed transaction might violate
federal or state laws;
(c) the consideration being offered in the proposed
transaction, in relation to the then current market price for the outstanding
capital stock of the Corporation, the market price for the capital stock of the
Corporation over a period of years, the estimated price that might be achieved
in a negotiated sale of the Corporation as a whole or in part or through
orderly liquidation, the premiums over market price for the securities of other
corporations in similar transactions, current political, economic and other
factors bearing on securities prices and the Corporation's financial condition
and estimated future value as an independent entity; and
(d) the social, legal and economic effects upon
employees, suppliers, subscribers and others having similar relationships with
the Corporation, and the communities in which the Corporation conducts its
business.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board
of Directors may determine.
ARTICLE 9. CONTROL SHARE ACQUISITIONS
Article 14.1 of the Virginia Stock Corporation Act shall not
apply to acquisitions of shares of the Corporation.
ARTICLE 10. LIMITATION ON LIABILITY
To the fullest extent permitted by the laws of the
Commonwealth of Virginia, as presently in effect or as the same hereafter may
be amended and supplemented, in any proceeding brought by or in the right of
the Corporation or brought by or on behalf of shareholders of the Corporation,
the damages assessed
- 4 -
<PAGE> 5
against an officer or director arising out of the single transaction,
occurrence or course of conduct shall not exceed the sum of one dollar ($1.00).
The liability of an officer or director shall not be limited as provided in
this Article 10 if the officer or director engaged in willful misconduct or a
knowing violation of the criminal law or of any federal or state securities
law, including, without limitation, any claim of unlawful insider trading or
manipulation of the market for any security.
ARTICLE 11. INDEMNIFICATION
(a) The Corporation shall to the fullest extent permitted
by the laws of the Commonwealth of Virginia, as presently in effect or as the
same hereafter may be amended and supplemented, indemnify an individual who is
or was a director or officer of the Corporation and who was, is, or is
threatened to be made a named defendant or respondent in any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (collectively, a
"proceeding"), against any obligation to pay a judgment, settlement, penalty,
fine (including any excise tax assessed with respect to any employee benefit
plan) or other liability and reasonable expenses (including counsel fees)
incurred with respect to such a proceeding, except such liabilities and
expenses as are incurred because of such director's or officer's willful
misconduct or knowing violation of the criminal law. The Corporation is
authorized to contract in advance to indemnify and to make advances and
reimbursements for expenses to any of its directors or officers to the same
extent provided in this Article 11.
(b) Unless a determination has been made that
indemnification is not permissible, the Corporation shall make advances and
reimbursements for expenses reasonably incurred by a director or officer in a
proceeding as described above upon receipt of an undertaking from such director
or officer to repay the same if it is ultimately determined that such director
or officer is not entitled to indemnification. Such undertaking shall be an
unlimited, unsecured general obligation of the director or officer and shall be
accepted without reference to such director's or officer's ability to make
repayment.
(c) The determination that indemnification under this
Article 11 is permissible, the authorization of such indemnification (if
applicable), and the evaluation as to the reasonableness of expenses in a
specific case shall be made as provided by law. Special legal counsel selected
to make determinations under this Article 11 may be counsel for the
Corporation. The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not of
itself create a presumption that a director or officer acted in such a manner
as to make him or her ineligible for indemnification.
(d) For the purposes of this Article 11, every reference
to a director or officer shall include, without limitation, (i) every
individual who is a director or
- 5 -
<PAGE> 6
officer of the Corporation, (ii) an individual who, while a director or
officer, is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
(iii) an individual who formerly was a director or officer of the Corporation
or who, while a director or officer, occupied at the request of the Corporation
any of the other positions referred to in clause (ii) of this sentence, and
(iv) the estate, personal representative, heirs, executors and administrators
of a director or officer of the Corporation or other person referred to herein.
Service as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise controlled by the Corporation shall be deemed
service at the request of the Corporation. A director or officer shall be
deemed to be serving an employee benefit plan at the Corporation's request if
such person's duties to the Corporation also impose duties on, or otherwise
involve services by, such person to the plan or to participants in or
beneficiaries of the plan.
(e) Indemnification pursuant to this Article 11 shall not
be exclusive of any other right of indemnification to which any person may be
entitled, including indemnification pursuant to a valid contract,
indemnification by legal entitles other than the Corporation and
indemnification under policies of insurance purchased and maintained by the
Corporation or others. No person shall be entitled to indemnification by the
Corporation, however, to the extent such person is actually indemnified by
another entity, including an insurer. In addition to any insurance that may be
maintained on behalf of any director, officer or other person, the Corporation
is authorized to purchase and maintain insurance against any liability it may
have under this Article 11 to protect any of the persons named above against
any liability arising from their service to the Corporation or to any other
enterprise at the Corporation's request, regardless of the Corporation's power
to indemnify against such liability. The provisions of this Article 11 shall
not be deemed to preclude the Corporation from entering into contracts
otherwise permitted by law with any individuals or entities other than those
named in this Article 11.
(f) The provisions of this Article 11 shall be applicable
from and after its adoption even though some or all of the underlying conduct
or events relating to a proceeding may have occurred before such adoption. No
amendment, modification or repeal of this Article 11 shall diminish the rights
provided hereunder to any person arising from conduct or events occurring
before the adoption of such amendment, modification or repeal. If any
provision of this Article 11 or its application to any person or circumstance
is held invalid by a court of competent jurisdiction, the invalidity shall not
affect other provisions or applications of this Article 11, and to this end the
provisions of this Article 11 are severable.
- 6 -
<PAGE> 7
ARTICLE 12. AMENDMENT OF BYLAWS
To the extent permitted by the Virginia Stock Corporation Act,
the bylaws may be amended only by (i) the Board of Directors or (ii) the
affirmative vote, at a meeting of the shareholders called for such a purpose,
of not less than 66-2/3% of the total number of votes of the then outstanding
shares of stock of the Corporation entitled to vote, voting together as a
single class, but only if notice of such proposal was contained in the notice
of such meeting.
- 7 -
<PAGE> 1
EXHIBIT 10.1
FIFTH MODIFICATION TO BUSINESS LOAN AND SECURITY AGREEMENT
THIS FIFTH MODIFICATION TO BUSINESS LOAN AND SECURITY AGREEMENT (this
"Modification") is made as of the 27th day of June, 1997, by and among (i)
NATIONSBANK, N.A., a national banking association ("NationsBank"), having
offices at 8300 Greensboro Drive, Suite 550, McLean, Virginia 22102; (ii)
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet"), having offices
at 300 Galleria Parkway Northwest, Suite 800, Atlanta, Georgia 30339; (iii)
SIGNET BANK, a Virginia banking corporation ("Signet"), having offices at 7799
Leesburg Pike, Falls Church, Virginia 22043; and (iv) BTG, INC., a Virginia
corporation ("BTG"); ADVANCED COMPUTER TECHNOLOGY, INC., a Delaware corporation
("ACTECH"); BDS, INC., a Virginia corporation ("BDS"); DELTA RESEARCH
CORPORATION, a Virginia corporation ("DELTA"); BTG PRODUCTS, INC., a Virginia
corporation ("BTGPRO"); CONCEPT AUTOMATION, INC. OF AMERICA, a Virginia
corporation ("CAI"); CONCEPT AUTOMATION SERVICES, INC., a Virginia corporation
("CAS") and NATIONS, INC., a New Jersey corporation ("NINC"); all having
principal offices at 3877 Fairfax Ridge Road, 4B, Fairfax, Virginia 22030-7448.
For purposes hereof, (a) NationsBank (acting in its capacity as agent for the
Lenders) is referred to herein as the "Agent"; (b) NationsBank (acting on its
own behalf as a Lender), Fleet and Signet and each other person or entity
hereafter becoming a "Lender" pursuant to the Loan Agreement (as defined in
Exhibit A hereto) are hereinafter referred to individually as a "Lender" and
collectively as the "Lenders"; and (c) BTG, ACTECH, BDS, DELTA, BTGPRO, CAI,
CAS, NINC and each other person or entity hereafter executing a "Joinder
Agreement" pursuant to the Loan Agreement are hereinafter referred to
individually as a "Borrower" and collectively as the "Borrowers". Capitalized
terms used, but not defined, in this Modification shall have the meanings
attributed to such terms in the Loan Agreement.
W I T N E S S E T H T H A T:
WHEREAS, pursuant to the terms and conditions of the Loan Agreement, the
Borrowers obtained a loan (the "Loan") from the Lenders in the aggregate maximum
principal amount of Eight-five Million and No/100 Dollars ($85,000,000.00),
currently evidenced by three (3) separate Revolving Promissory Notes (as defined
in Exhibit A), in the aggregate maximum principal amount of Eight-five Million
and No/100 Dollars ($85,000,000.00), and secured by, among other things, certain
collateral more fully described in Article III, Section 1 of the Loan Agreement;
and
WHEREAS, the Borrowers and the Lenders have agreed, subject to the
terms and conditions set forth herein, to (i) modify the definition of Interest
Period; (ii) modify the Additional Libor Percentage; (iii) decrease the
Borrowers' Tangible Net Worth requirements; (iv) modify the limitation on the
amount of investments and/or capital expenditures which the Borrowers are
permitted to make or expend during the fiscal year ending March 31, 1998; (v)
modify the Borrowers' Leverage Ratio requirements; (vi)
<PAGE> 2
modify the Borrowers' Fixed Charge Coverage ratio requirements; (vii) increase
the maximum amount of Eligible Unbilled Costs which may be used in the
calculation of the Maximum Borrowing Base; (viii) modify the form Request for
Advance and Certification attached to the Loan Agreement as Exhibit 4; (ix)
modify the form Borrowing Base Certificate attached to the Loan Agreement as
Exhibit 5; and (x) increase the number of Libor segments which may be
outstanding at any time.
NOW THEREFORE, for Ten Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are hereby incorporated herein by
this reference and made a part hereof, with the same force and effect as if
fully set forth herein.
2. The definition of "Interest Period" set forth in the
"Certain Definitions" section of the Loan Agreement is hereby deleted in its
entirety and the following substituted in lieu thereof:
"INTEREST PERIOD" means as to any Loan proceeds for which
the Borrowers have elected LIBOR based interest in
accordance with this Agreement, the period commencing on
and including the date such LIBOR election is effective
(or the effective date of the Borrowers' election to
convert any portion of the Loan to a LIBOR interest basis
in accordance with the provisions of this Agreement) and
ending on and including the day which is between 15 and
180 days, as available, and as selected by the Borrowers
in accordance with the provisions of this Agreement;
provided, however, that: (i) the first day of any
Interest Period shall be a Business Day; (ii) if any
Interest Period would end on a day that would not be a
Business day, such Interest Period shall be extended to
the next succeeding Business Day; and (iii) no Interest
Period shall extend beyond the maturity date of the
Loan."
3. Subsection (iv) of Section 3(a) of Article I of the Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
"the lesser of (x) fifty percent (50%) of the Borrower's
Eligible Unbilled Costs; or (y) Five Million Dollars
($5,000,000)."
2
<PAGE> 3
4. The Tangible Net Worth Covenant set forth in Section 15
of Article VI of the Loan Agreement is hereby deleted in its entirety and the
following substituted in lieu thereof:
"Tangible Net Worth. The Borrowers will maintain on a
consolidated basis at all times during the following
periods, Tangible Net Worth of not less than the
following amounts:
<TABLE>
<CAPTION>
Required Tangible
Periods Net Worth
------- ---------
<S> <C>
From 06/30/97 through 09/29/97 $36,500,000
From 09/30/97 through 12/30/97 $39,500,000
From 12/31/97 through 03/30/98 $42,500,000
From 03/31/98 through the Maturity Date $43,700,000
</TABLE>
For purposes of this Agreement, "Tangible Net Worth"
shall mean all capital stock, paid in capital and
retained earnings, less all Treasury stock, amounts due
from officers, directors, stockholders and members of
their immediate families, amounts due from affiliates (to
the extent that such amounts are part of the Borrowers'
consolidated net worth), investments in non-marketable
securities, notes receivable of affiliated companies (to
the extent that such amounts are part of the Borrowers'
consolidated net worth), leasehold improvements,
goodwill, non-competition agreements, capitalized
organization and development costs, capitalized expenses,
loan costs, patents, trademarks, copyrights, franchises,
licenses and other intangible assets."
5. Section 10 of Article VII of the Loan Agreement is hereby
deleted in its entirety and the following substituted in lieu thereof:
"CAPITAL EXPENDITURES. On a consolidated basis, make any
investment or capital expenditure including, but not
limited to, expenditures for leasehold improvements or
the acquisition of the assets of any other firm, person,
company, corporation or enterprise, in excess of One
Million Eight Hundred Thousand Dollars ($1,800,000)
during the Borrowers' fiscal year ending March 31, 1998,
and during any fiscal year thereafter; and"
6. Sections 17(b) and 17(c) of Article VI of the Loan
Agreement are hereby deleted in their entireties and the following substituted
in lieu thereof:
3
<PAGE> 4
"(b) Maintenance of Leverage Ratio. The Company shall
not permit the ratio of (i) Consolidated Total
Indebtedness as of each date set forth below to (ii)
Consolidated EBITDA of the Company for the four
consecutive fiscal quarters of the Company ended on such
date to exceed the corresponding amount set forth
opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
June 30, 1997 4.8 to 1.0
September 30, 1997 4.9 to 1.0
December 31, 1997 5.3 to 1.0
March 31, 1998 and the last day
of any subsequent fiscal quarter
of the Company 4.0 to 1.0
</TABLE>
(c) Maintenance of Fixed Charge Coverage. The Company shall
not permit the ratio of (i) Consolidated EBITDA of the
Company, to (ii) Consolidated Fixed Charges, measured as
of each date set forth below for the period of four
consecutive full fiscal quarters of the Company ended on
such date, to be less than the ratio set forth opposite
such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Ratio
-------------------- -----
<S> <C>
June 30, 1997 1.2 to 1.0
September 30, 1997 1.3 to 1.0
December 31, 1997 and the last day
of any subsequent fiscal quarter of the Company" 1.4 to 1.0
</TABLE>
7. The form Request for Advance and Certification attached
to the Loan Agreement as Exhibit 4 is hereby deleted in its entirety and the
form Request for Advance and Certification attached hereto as "Exhibit 4"
substituted in lieu thereof.
8. The form Borrowing Base Certificate attached to the Loan
Agreement as Exhibit 5 is hereby deleted in its entirety, and the form
Borrowing Base Certificate attached hereto as "Exhibit 5" substituted in lieu
thereof.
9. The "ADDITIONAL LIBOR PERCENTAGE" provision set forth in
Exhibit 7 attached to the Loan Agreement is hereby deleted in its entirety and
the following substituted in lieu thereof:
4
<PAGE> 5
"ADDITIONAL LIBOR PERCENTAGE
The term Additional Libor Percentage shall mean one and
three-quarters percent (1.75%)."
10. Section B of Exhibit 7 attached to the Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
"B. No more than five (5) different LIBOR funding
segments may be outstanding at any time;"
11. Each Borrower hereby acknowledges, agrees, represents and
warrants that (i) there are no set-offs or defenses against the Notes, the Loan
Agreement or any other Loan Document; (ii) except as specifically amended
hereby, all of the terms and conditions of the Notes, the Loan Agreement and
the other Loan Documents shall remain unmodified and in full force and effect;
(iii) the Notes, the Loan Agreement and the other Loan Documents (as modified
hereby) are hereby expressly approved, ratified and confirmed; and (iv) the
execution, delivery and performance by each Borrower of this Modification (a)
is within its corporate powers, (b) has been duly authorized by all necessary
corporate action, and (c) does not require the consent or approval of any other
person or entity.
12. Concurrent with the execution of this Modification, the
Borrowers shall pay all of the Agent's costs and expenses associated with this
Modification and the transactions referenced herein or contemplated hereby,
including, without limitation, the Agent's reasonable legal fees and expenses.
13. This Modification shall be governed by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
14. This Modification may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one and the same instrument.
[remainder of page intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have signed, sealed and
delivered this Modification on the day and year first above written.
<TABLE>
<S> <C>
BORROWERS:
---------
[Corporate Seal] BTG, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
[Corporate Seal] ADVANCED COMPUTER
ATTEST: TECHNOLOGY, INC., a Delaware
corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
[Corporate Seal] BDS, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] DELTA RESEARCH CORPORATION,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] BTG PRODUCTS, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
</TABLE>
[Signatures Continue on Following Page]
6
<PAGE> 7
<TABLE>
<S> <C>
[Corporate Seal] CONCEPT AUTOMATION, INC. OF
ATTEST: AMERICA, a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] CONCEPT AUTOMATION SERVICES,
ATTEST: INC., a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] NATIONS, INC., a New Jersey corporation
ATTEST:
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- -------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
AGENT:
------
NATIONSBANK, N.A., a
national banking association, acting in its
capacity as Agent
By: /s/ DOUGLAS T. BROWN
----------------------
Name: Douglas T. Brown
Title: Vice President
LENDER(S):
---------
NATIONSBANK, N.A., a
national banking association
By: /s/ DOUGLAS T. BROWN
----------------------
Name: Douglas T. Brown
Title: Vice President
</TABLE>
[Signatures Continue on Following Page]
7
<PAGE> 8
<TABLE>
<S> <C>
FLEET CAPITAL CORPORATION, a
Rhode Island corporation
By: /s/ STUART SOLOMON
----------------------
Name: Stuart Solomon
Title: Senior Vice President
SIGNET BANK, a Virginia banking
corporation
By: /s/ R. MARK SWAAK
----------------------
Name: R. Mark Swaak
Title: Assistant Vice President
</TABLE>
8
<PAGE> 1
EXHIBIT 10.2
SIXTH MODIFICATION TO BUSINESS LOAN AND SECURITY AGREEMENT
THIS SIXTH MODIFICATION TO BUSINESS LOAN AND SECURITY AGREEMENT (this
"Modification") is made as of the 12 day of August, 1997, by and among (i)
NATIONSBANK, N.A., a national banking association ("NationsBank"), having
offices at 8300 Greensboro Drive, Suite 550, McLean, Virginia 22102; (ii)
FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet"), having offices
at 300 Galleria Parkway Northwest, Suite 800, Atlanta, Georgia 30339; (iii)
SIGNET BANK, a Virginia banking corporation ("Signet"), having offices at 7799
Leesburg Pike, Falls Church, Virginia 22043; and (iv) BTG, INC., a Virginia
corporation ("BTG"); ADVANCED COMPUTER TECHNOLOGY, INC., a Delaware corporation
("ACTECH"); BDS, INC., a Virginia corporation ("BDS"); DELTA RESEARCH
CORPORATION, a Virginia corporation ("DELTA"); BTG PRODUCTS, INC., a Virginia
corporation ("BTGPRO"); CONCEPT AUTOMATION, INC. OF AMERICA, a Virginia
corporation ("CAI"); CONCEPT AUTOMATION SERVICES, INC., a Virginia corporation
("CAS"); and NATIONS, INC., a New Jersey Corporation ("NI"); all having
principal offices at 3877 Fairfax Ridge Road, 4B, Fairfax, Virginia 22030-7448.
For purposes hereof, (a) NationsBank (acting in its capacity as agent for the
Lenders) is referred to herein as the "Agent"; (b) NationsBank (acting on its
own behalf as a Lender), Fleet and Signet and each other person or entity
hereafter becoming a "Lender" pursuant to the Loan Agreement (as defined in
Exhibit A hereto) are hereinafter referred to individually as a "Lender" and
collectively as the "Lenders"; and (c) BTG, ACTECH, BDS, DELTA, BTGPRO, CAI,
CAS, NI and each other person or entity hereafter executing a "Joinder
Agreement" pursuant to the Loan Agreement are hereinafter referred to
individually as a "Borrower" and collectively as the "Borrowers". Capitalized
terms used, but not defined, in this Modification shall have the meanings
attributed to such terms in the Loan Agreement.
W I T N E S S E T H T H A T:
WHEREAS, pursuant to the terms and conditions of the Loan Agreement,
the Borrowers obtained a loan (the "Loan") from the Lenders in the aggregate
maximum principal amount of Eight-five Million and No/100 Dollars
($85,000,000.00), currently evidenced by three (3) separate Revolving
Promissory Notes (as defined in Exhibit A), in the aggregate maximum principal
amount of Eight-five Million and No/100 Dollars ($85,000,000.00), and secured
by, among other things, certain collateral more fully described in Article III,
Section 1 of the Loan Agreement; and
WHEREAS, BTG is the owner of all of the issued and outstanding capital
stock of ACTECH, BDS, DELTA, BTGPRO, CAI and NI, and CAI is the owner of all of
the issued and outstanding capital stock of CAS; and
WHEREAS, BTG has requested the Lenders' approval of a proposed
corporate restructuring (the "Corporate Restructuring") pursuant to which (i)
BTG Technology
<PAGE> 2
Resources, Inc. ("Resources") will be formed as a Florida corporation and be a
wholly owned subsidiary of BTG; (ii) BTG will transfer to Resources all of its
right, title and interest in and to the capital stock of ACTECH, BDS and CAI,
and will transfer certain of its assets to DELTA, (iii) BTGPRO will be
dissolved; (iv) DELTA will adopt a trade name of "BTG Systems Engineering,
Inc."; (v) ACTECH will merge with BDS, and BDS, as the surviving entity of such
merger, will adopt a trade name of "BTG Technology Systems, Inc."; (vi) CAS
will merge with CAI, and CAI, as the surviving entity of such merger, will
adopt a trade name of "BTG Integration and Network Systems, Inc."; and (vii)
certain intangible assets of the Borrowers will be transferred to and
thereafter owned by Resources; and
WHEREAS, after giving effect to the Corporate Restructuring, Resources
will be the wholly owned subsidiary of BTG, and ACTECH, BDS and CAI will be the
only wholly owned subsidiaries of Resources; and
WHEREAS, BTG and CAI have requested that the Agent release its security
interest in and to certain stock pledged by BTG and CAI to the Agent as
collateral security for repayment of the Loan to enable the Borrowers to
effectuate the transactions contemplated by the Corporate Restructuring; and
WHEREAS, the Lenders have agreed to the foregoing, subject to the terms
and provisions of this Modification.
NOW THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. The foregoing recitals are hereby incorporated herein by this
reference and made a part hereof, with the same force and effect as if fully
set forth herein.
2. The Lenders hereby consent to the Corporate Restructuring for all
purposes for which such consent is required, and hereby waive all covenants and
conditions set forth in the Loan Agreement which would have been violated by
effectuating the Corporate Restructuring, but for this Modification, subject to
the other terms and conditions set forth in this Modification.
3. Concurrent with the execution of this Modification, BTG and the
Agent shall enter into an Amendment to BTG Stock Security Agreement and Partial
Release, pursuant to which (i) the Agent shall release its security interest in
all of BTG's right, title and interest in and to the stock of CAI (the "CAI
Stock"), and (ii) BTG shall pledge to the Agent all of BTG's right, title and
interest in and to the stock of Resources, and acknowledge and agree that such
pledged stock shall be subject to the terms and conditions of the BTG Stock
Security Agreement (as defined in Exhibit A hereto).
2
<PAGE> 3
4. Concurrent with the execution of this Modification, the Agent and
CAI shall execute a Release and Termination of CAI Stock Security Agreement,
pursuant to which the Agent shall release its security interest in all of CAI's
right, title and interest in and to the stock of CAS (the "CAS Stock").
5. Resources will not be required to become a Borrower under the
Loan Agreement or pledge its assets in connection therewith; provided that,
concurrent with the execution of this Modification, Resources executes and
delivers to the Agent (for the benefit of the Lenders, ratably) a Negative
Pledge and Covenant Not to Encumber in form and substance satisfactory to the
Agent, pursuant to which Resources agrees not to sell, assign, transfer, pledge
or otherwise encumber any of its assets to or for the benefit of any person or
entity (other than a Borrower) so long as the Obligations remain outstanding or
the Loan Agreement remains in effect.
6. The negative covenant set forth in Section 1 of Article VII of
the Loan Agreement (i.e., prohibiting any Borrower from selling, assigning,
leasing, transferring or otherwise disposing of a substantial part of its
property or assets) is hereby waived for the limited purpose of permitting each
Borrower to transfer the intangible assets listed in Exhibit B hereto (the
"Intangible Assets") to Resources and the transfer of other assets listed on
Exhibit C hereto (the "Other Assets") between the Borrowers solely for the
purpose of effectuating the Corporate Restructuring; it being understood and
agreed that (a) the Agent's security interest in and to the Intangible Assets
shall be automatically released upon the effective date of such transfer; (b)
the maximum amount secured by the Other Assets shall be limited to the
transferor Borrower's tax basis in such transferred assets as of the date such
assets are transferred; and (c) except for the release of the Agent's security
interest in the CAI Stock, CAS Stock and Intangible Assets described in this
Modification, no other lien of Agent or any Lender is being released, and all
other Collateral (which has not been previously released by the Agent or any
Lender), whether now existing or hereafter created, arising or acquired, shall
continue to secure the full amount of the Obligations.
7. The representation and warranty set forth in Section 15 of
Article V of the Loan Agreement (i.e, that no Borrower pays any royalty to
anyone in connection with the use of any intellectual property) shall not be
deemed violated by any Borrower's payment of a royalty for the use of
intellectual property owned by Resources; provided that the aggregate amount of
any and all consideration payable or paid by a Borrower in connection with such
Borrower's use of such intellectual property does not exceed commercially
reasonable amounts which would be payable in a comparable, arm's-length
transaction with an unaffiliated and unrelated entity or person. Each
Borrower hereby acknowledges, agrees and confirms that all of each Borrower's
right, title and interest in and to any and all documents, instruments and
agreements (including, without limitation licensing agreements) executed and/or
delivered in connection with each Borrower's use of the intellectual property
of Resources is subject to the security interest of the Agent and/or
3
<PAGE> 4
Lenders granted in and to such documents, instruments and agreements by each
Borrower pursuant to the Loan Agreement, securing the Obligations.
8. Each Borrower hereby acknowledges, agrees, represents and
warrants that (i) there are no set-offs or defenses against the Notes, the Loan
Agreement or any other Loan Document; (ii) except as specifically amended
hereby and by the modification documents expressly referenced herein, all of
the terms and conditions of the Notes, the Loan Agreement and the other Loan
Documents shall remain unmodified and in full force and effect; (iii) the
Notes, the Loan Agreement and the other Loan Documents (as modified hereby and
by the other documents expressly referenced herein) are hereby expressly
approved, ratified and confirmed; and (iv) the execution, delivery and
performance by each Borrower of this Modification (a) is within its corporate
powers, (b) has been duly authorized by all necessary corporate action, and (c)
does not require the consent or approval of any other person or entity.
9. Concurrent with the execution of this Modification, the Borrowers
shall pay all of the Agent's costs and expenses associated with this
Modification and the transactions referenced herein or contemplated hereby,
including, without limitation, the Agent's reasonable legal fees and expenses.
10. This Modification shall be governed by the laws of the
Commonwealth of Virginia and shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
11. This Modification may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall be
deemed one and the same instrument.
IN WITNESS WHEREOF, the undersigned have signed, sealed and delivered
this Modification on the day and year first above written.
<TABLE>
<S> <C>
BORROWERS:
---------
[Corporate Seal] BTG, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
</TABLE>
[Signatures Continue on Following Page]
4
<PAGE> 5
<TABLE>
<S> <C>
[Corporate Seal] ADVANCED COMPUTER
ATTEST: TECHNOLOGY, INC., a Delaware
corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President
[Corporate Seal] BDS, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] DELTA RESEARCH CORPORATION,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] BTG PRODUCTS, INC.,
ATTEST: a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] CONCEPT AUTOMATION, INC. OF
ATTEST: AMERICA, a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
[Corporate Seal] CONCEPT AUTOMATION SERVICES,
ATTEST: INC., a Virginia corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- --------------------------- ----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: CEO
</TABLE>
[Signatures Continue on Following Page]
5
<PAGE> 6
<TABLE>
<S> <C>
Corporate Seal] NATIONS, INC.,
ATTEST: a New Jersey corporation
/s/ MARILYNN D. BERSOFF By: /s/ EDWARD H. BERSOFF
- ------------------------- -----------------------
Name: Marilynn D. Bersoff Name: Edward H. Bersoff
Title: Secretary Title: President and CEO
AGENT:
------
NATIONSBANK, N.A., a
national banking association, acting in its
capacity as Agent
By: /s/ DOUGLAS T. BROWN
---------------------
Name: Douglas T. Brown
Title: Vice President
LENDER(S):
---------
NATIONSBANK, N.A., a
national banking association
By: /s/ DOUGLAS T. BROWN
----------------------
Name: Douglas T. Brown
Title: Vice President
FLEET CAPITAL CORPORATION, a
Rhode Island corporation
By: /s/ STUART SOLOMON
----------------------
Name: Stuart Solomon
Title: Senior Vice President
SIGNET BANK, a Virginia banking
corporation
By: /s/ R. MARK SWAAK
--------------------
Name: R. Mark Swaak
Title: Assistant Vice President
</TABLE>
6
<PAGE> 1
EXHIBIT 10.3
FOURTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT
THIS FOURTH AMENDMENT TO NOTE AND WARRANT PURCHASE AGREEMENT (this
"Amendment") is made as of August 29, 1997, by and between BTG, Inc., a
Virginia corporation (together with its successors, assigns and transferees,
the "Company"), and Blue Ridge Investments, L.L.C., a Delaware limited
liability corporation (together with its successors, assigns and transferees,
the "Holder"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in that certain Note and Warrant Purchase
Agreement, dated as of February 16, 1996, by and between the Company and Nomura
Holding America, Inc., a Delaware corporation (the "Purchaser"), as amended by
the First Amendment thereto dated as of October 1, 1996, the Second Amendment
thereto dated as of October 31, 1996 and the Third Amendment thereto dated as
of August 25, 1997 (as so amended, the "Purchase Agreement").
R E C I T A L S
A. Pursuant to the Purchase Agreement, the Purchaser on February
16, 1996, purchased the Company's 12.875% Senior Subordinated Notes Due 2001 in
the aggregate principal amount of $15,000,000 (as amended, the "Loans").
B. The Company has incurred certain senior secured Indebtedness
(the "Senior Indebtedness") pursuant to that certain Business Loan and Security
Agreement dated as of November 28, 1995, as amended, by and among the Company,
certain of its subsidiaries, NationsBank, N.A., individually and as agent, and
certain other lenders, as amended, and that certain Agreement For Wholesale
Financing dated as of October 31, 1996 between the Company and Deutsche
Financial Services Corporation ("DFS"), as supplemented by the DFS Addendum and
as modified by that certain Amendment to Agreement For Wholesale Financing
dated as of October 31, 1996 between the Company and DFS as supplemented and
amended from time to time after the date hereof.
C. The Holder has agreed to purchase from the Purchaser the Loans
at a price of 106% of the principal amount thereof plus accrued interest
thereon simultaneously with the execution, delivery and effectiveness of this
Fourth Amendment.
D. The Company and the Holder have agreed that effective upon the
purchase by the Holder of the Loans from the Purchaser, the Purchase Agreement
be amended in certain respects.
NOW THEREFORE, in consideration of the terms and conditions contained
herein and of other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendments to the Purchase Agreement.
Effective on the Effective Date (as defined below), the
Purchase Agreement is hereby amended as follows:
(a) The definition of the term
"Prepayment Premium" contained in Section 1.1 of the
Purchase Agreement is hereby amended to read, in
full, as follows:
<PAGE> 2
" 'Prepayment Premium' means (i) with
respect to any prepayment of Notes pursuant
to Section 3.1 occurring at any time prior to
December 31, 1997, an amount equal to 6.0% of
the aggregate principal amount of the Notes
being prepaid at such time, and (ii) with
respect to any prepayments of Notes pursuant
to Section 3.1 occurring at any time during
any of the periods set forth below, an amount
equal to the percentage set forth opposite
such period of the aggregate principal amount
of the Notes being prepaid at such time:
<TABLE>
<CAPTION>
Percentage of Principal
Period Amount Being Prepaid
------ --------------------
<S> <C>
December 31, 1997 to and 6.0%
including December 31, 1998
January 1, 1999 to and 5.0%
including December 31, 1999
January 1, 2000 to and 3.0%
including December 31, 2000
At all times after December 31, 2000 1.0%"
through but excluding the final
maturity date of the Loan
</TABLE>
(b) Subsection (a) of Section 2.1 of the Purchase
Agreement is hereby amended to read, in full, as follows:
"(a) The Company has duly authorized
the issuance, sale and delivery of its
12.875% Senior Subordinated Notes Due 2001 in
the aggregate principal amount of
$15,000,000, to be dated the date of issue
thereof, to bear interest (computed on the
basis of a 360-day year of twelve 30-day
months) from such date at the rate of 12.875%
per annum (except that the rate of interest
thereon shall be 13.875% per annum at all
times either (x) during any Interest Period
with respect to which, at any time during
such Interest Period, the aggregate
outstanding principal amount of all
Indebtedness incurred pursuant to the Senior
Loan Documents (including Indebtedness
incurred pursuant to the Credit Agreement and
DFS Indebtedness) or any Permitted
Refinancing thereof shall exceed $65,000,000
or (y) from and after the date of written
notice to the Company by Blue Ridge
Investments, L.L.C., a Delaware limited
liability company ("BRI") given at any time
on or after December 31, 1997 if the Company
has not issued on or prior to such date at
least $100 million in aggregate principal
amount of debt securities in a transaction in
which NationsBanc Capital Markets, Inc. acted
as lead underwriter or lead initial purchaser
in accordance with the terms of the
Engagement Letter dated the date hereof
between the Company and NationsBanc Capital
Markets, Inc. and payable in cash quarterly
in arrears on the first day of January,
April, July and October in each year
commencing on the first such date after the
date of issue hereof) and at maturity, and to
bear interest (so computed) payable in cash
on demand, on any overdue principal and
Prepayment
<PAGE> 3
Premium, if any, and, to the extent permitted
by applicable law, on any overdue interest,
until the same shall be paid, at a rate equal
to the sum of (i) 3.125% per annum plus (ii)
the rate per annum that would otherwise
accrue hereunder on principal not overdue, to
mature on February 16, 2001, and to be
substantially in the form of Exhibit A hereto
attached (all such Notes originally issued
pursuant to this Agreement, or delivered in
substitution or exchange for any thereof,
being collectively called the "Notes" and
individually a "Note")."
(c) All references to the
"Purchaser" in the Purchase Agreement shall
be deemed to be references to Blue Ridge
Investments,L.L.C.
2. Amendments to the Notes. Effective on the
Effective Date, each of Exhibit A to the Purchase Agreement
and the currently outstanding Note, No. R-3, held by the
Holder, is hereby amended as follows:
(a) The following words are hereby added
in the first sentence of each of Exhibit A and such
outstanding Note immediately following the words
"12.875% per annum":
"(except that the rate of interest thereon
shall be 13.875% per annum at all times (x)
during any Interest Period with respect to
which, at any time during such Interest
Period, the aggregate outstanding principal
amount of all Indebtedness incurred pursuant
to the Senior Loan Documents (including
Indebtedness incurred pursuant to the Credit
Agreement and DFS Indebtedness) or any
Permitted Refinancing thereof shall exceed
$65,000,000 or (y) from and after the date of
written notice to the Company by Blue Ridge
Investments, L.L.C., a Delaware limited
liability company ("BRI") given at any time
on or after December 31, 1997 if the Company
has not issued on or prior to such date at
least $100 million in aggregate principal
amount of debt securities in a transaction in
which NationsBanc Capital Markets, Inc. acted
as lead underwriter or lead initial purchaser
in accordance with the terms of the
Engagement Letter dated the date hereof
between the Company and NationsBanc Capital
Markets, Inc."
(b) All references to the "Purchaser" in
the Note shall be deemed to be references to
Blue Ridge Investments, L.L.C.
3. Fee. In consideration of the agreements of
the Holder contained in this Amendment, the Company shall pay
to the Holder at the time of execution hereof a
non-reimburseable cash fee in the amount of $100,000.
4. Effectiveness; Conditions. This Amendment
and the provisions hereof shall become and be effective on the
date (the "Effective Date") on which all of the following
conditions shall be satisfied, or waived in writing by the
Holder:
(a) Execution of Amendment. The Company
and the Holder shall each have executed and delivered
a counterpart of this Amendment.
(b) Corporate Proceedings. All
corporate and other proceedings taken or to be taken
in connection with the transactions contemplated
hereby and all
<PAGE> 4
documents incident thereto shall be satisfactory in
form and substance to the Holder, and the Holder
shall have received all such counterpart originals or
certified or other copies of such documents as it may
reasonably request.
(c) Loan Purchase. The Holder shall
have acquired the Loan from the Purchaser and such
Loan shall have been exchanged for a new Loan from
the Company payable to the order of the Holder.
(d) Consents of Senior Lenders. Each of
NationsBank, N.A., individually and as Agent under
the Credit Agreement and DFS shall have duly executed
and delivered a written consent to this Amendment and
the transactions hereby contemplated satisfactory in
form and substance to the Holder.
(e) Exchange of Note. The Company shall
have duly executed and issued to the Holder a new
Note (as hereby amended), substantially in the form
of Exhibit A to the Purchase Agreement (as hereby
amended), in the principal amount of $15,000,000 in
exchange for the outstanding Note currently held by
the Purchaser, which shall be canceled and retired.
(f) Payment of Fee. The fee of $100,000
referred to in Section 4 hereof shall have been paid
to the Holder.
5. Representations and Warranties of the
Company. The Company represents and warrants to the Holder
that:
(a) Representations in the Purchase
Agreement; No Defaults. Each of the representations
and warranties made by the Company in the Purchase
Agreement is true and correct on and as of the date
hereof to the same extent as if made on and as of the
date hereof except to the extent that such
representations and warranties specifically relate to
an earlier date, in which case they are true and
correct as of such earlier date, and such
representations and warranties are hereby
incorporated by reference as if set forth herein in
full. No event has occurred and is continuing or
will result from the transactions contemplated hereby
which constitutes (or with notice or the passage of
time would constitute) an Event of Default under the
Purchase Agreement as it existed before this
Amendment or as it exists after the effectiveness of
this Amendment, except such as are being waived
pursuant to this Amendment.
(b) Corporate Authority. The execution,
delivery and performance by the Company of this
Amendment (i) is within its corporate powers, (ii)
has been duly authorized by all necessary corporate
action on the part of its Board of Directors and
stockholders, and (iii) does not require the consent,
authorization or approval of, or any registration,
filing or declaration with, any Governmental body or
non-governmental Person, other than NationsBank,
N.A., individually and as Agent under the Credit
Agreement, and DFS.
<PAGE> 5
(c) Binding Effect. This Amendment is
the legal, valid and binding obligation of the
Company, enforceable against the Company in
accordance with its terms, except as such
enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium,
or other laws relating to or affecting the
enforcement of creditors' rights generally in effect
from time to time and by general principals of
equity.
6. Effect of Amendment. Except as specifically
provided herein, this Amendment does not in any way affect or
impair the terms, conditions and other provisions of the
Purchase Agreement or any of the Notes, or the obligations of
the Company thereunder, and all terms, conditions and other
provisions of the Purchase Agreement, and the Notes shall
remain in full force and effect except to the extent
specifically amended, modified or waived pursuant to the
provisions of this Amendment.
7. Payment of Fees. The Company agrees to pay
all fees, costs and expenses incurred by the Holder in
connection with the negotiation, preparation, execution and
delivery of this Amendment and all other documents executed
pursuant to or in connection herewith, including, without
limitation, the fees and disbursements of Latham & Watkins,
special counsel to the Holder, in connection herewith.
8. Counterparts. This Amendment may be executed
in any number of counterparts, each of which shall be deemed
an original, and all of which taken together shall be deemed
to constitute one and the same instrument.
9. Governing Law. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
10. Headings. Section headings are included
herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purposes.
11. Amendments and Modifications. Any term,
covenant, agreement or condition of this Amendment may, with
the consent of the parties hereto, be amended, or compliance
therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), by one or
more substantially concurrent written instruments signed by
the parties hereto.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first written above.
BTG, INC.
By: /s/ Edward H. Bersoff
----------------------------------
Name: Edward H. Bersoff
Title: President, CEO
BLUE RIDGE INVESTMENTS, L.L.C.
By: /s/ John E. Mack
----------------------------------
Name: John E. Mack
Title: President and Treasurer
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective for all
purposes and in all respects as of the 24th day of October, 1997, by and
between (i) BTG, INC., a Virginia corporation (hereinafter referred to as
"Employer"), and (ii) EDWARD H. BERSOFF (hereinafter referred to as
"Employee").
WHEREAS, Employer desires to employ Employee in the capacity of its
President and Chief Executive Officer;
WHEREAS, Employee desires to be employed by Employer in the aforesaid
capacities; and
WHEREAS, Employer and Employee desire to amend the terms and
conditions of their agreements and understandings as previously set out in an
Employment Agreement entered into as of the 28th day of October, 1994.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
1. Term of Agreement. The term of employment under this
Agreement (the "Term") shall be for the period commencing on October 24, 1997
(the "Effective Date") and ending on March 31, 2002. The Term shall be
automatically extended without further action by either party for a successive
or successive two (2) year period or periods, unless written notice of either
party's intention to terminate this Agreement pursuant to this Section 1 has
been given to the other party at least six (6) months prior to the expiration
of the Term or any two (2) year extension of the Term, or unless notice of
termination is otherwise given pursuant to Section 5 hereof. As used in this
Agreement, (i) "Initial Term" shall mean the period commencing on the Effective
Date and ending on March 31, 2002 and (ii) "Contract Year" shall mean the
twelve-month period during the Term beginning on each April 1 and ending on the
following March 31.
2. Duties of Employee.
A. Duties and Responsibilities. Subject to the
provisions of this Agreement, during the Term, Employer shall employ Employee
and Employee shall serve Employer as President and Chief Executive Officer of
Employer. During the Term, Employee shall discharge the obligations and
responsibilities normally associated with such offices and shall perform such
other duties and responsibilities as the Board of Directors of Employer (the
"Board") shall determine from time to time that are consistent with Employee's
positions and the terms of this Agreement.
B. Full-time Efforts. Employee covenants and agrees
that, at all times during the Term, Employee shall devote his full-time efforts
to his duties as an employee of Employer.
<PAGE> 2
3. Compensation. As compensation for the services to be rendered
to Employer by Employee under this Agreement, Employee shall be paid cash
compensation in any consecutive twelve month period , during the Initial Term
of this Agreement, of not less than Four Hundred Thousand Dollars. The minimum
annual cash compensation shall increase by ten percent at the start of each
successive two year extension of the Term hereof. Such cash compensation shall
be paid in accordance with Employer's standard pay policies. In the event that
Employee shall be given significant new or additional responsibilities (without
a corresponding decrease in existing responsibilities) at any time during the
Term, Employer and Employee agree to discuss the amount, if any, of increase in
Employee's Cash Compensation that is warranted as a result of such new or
additional responsibilities.
4. Additional Benefits. In addition to the compensation referred
to in Section 3 hereof, Employee shall be entitled to receive the following
additional benefits during the Term:
A. Insurance. Employer shall provide Employee with such
health, medical, disability dependent health care, life and other insurance as
Employer generally makes available to its executive officers in such Contract
Year.
B. Vacation. For each Contract Year during the Term,
Employee shall be entitled to paid annual leave, plus normal company holidays
in accordance with Employer's then current policies and shall retain unused
accrued annual leave in accordance with such polices.
C. Business Expenses. Employee shall be entitled to
reimbursement by Employer of customary business expenses, in accordance with
Employer's guidelines, limits and procedures relating thereto that apply to
executive employees of Employer.
5. Termination
A. Termination for Cause. Employee's employment
hereunder and all of Employer's obligations hereunder (except as hereinafter
provided) may be terminated by Employer immediately for Cause (as hereinafter
defined) by giving written notice of such termination to Employee. For
purposes of this Agreement, "Cause" shall mean: (i) Employee's willful and
gross misconduct which has, or could reasonably be expected to have, a material
adverse effect on the business, assets, operations, results of operations or
financial condition of Employer. A termination for Cause pursuant hereto shall
take effect ten (10) days after the delivery of written notice to Employee
describing such Cause unless Employee shall, during such ten (10) day period,
remedy the Cause specified in such notice; provided however, that such
termination shall take effect immediately upon the giving of such notice if the
Board specifically determines in good faith that such Cause is unremediable.
B. Death and Disability. Except as otherwise provided
in this Section 5, Employee's employment hereunder and all of Employer's
obligations hereunder (except as hereinafter provided) shall be terminated by
the death of Employee and also may be terminated by the Board by giving
written notice of such termination to Employee if Employee
2
<PAGE> 3
shall be rendered incapable by illness or any physical or mental disability
from substantially complying with the terms, conditions and provisions on his
part to be observed and performed for a period in excess of six (6) consecutive
months during the Term. In the event of a termination of Employee's
employment pursuant to this Section 5, as a result of his death or disability,
Employer shall pay to Employee or his estate, as the case may be, his salary
pursuant to Section 3 for a period of three (3) months following the date of
death or termination for disability.
6. Board Seat. Employer agrees that, during the Term, for so
long as Employee shall remain employed by Employer, Employer shall cause
Employee to be nominated to serve on the Board.
7. Director and Officer Liability. Employer agrees to indemnify
Employee in connection with his serving as an officer and director of Employer,
in a manner consistent with Employer's Articles of Incorporation, Bylaws and
current practices and policies. In the event that Employer shall enter into
any indemnification agreement with any officer or director of Employer or any
subsidiary, Employer shall promptly enter into an agreement containing similar
provisions with respect to indemnification with Employee.
8. Covenant Not To Compete. Employee covenants and agrees that
he will not, at any time during his employment by Employer or for a period of
two years thereafter, directly or indirectly, whether as principal or as agent,
officer, director, employee, consultant, or otherwise, alone or in association
with any other person, firm, corporation or other business organization, carry
on, or be engaged, concerned or take part in, or render services to, or own any
interest or share in the earnings of or invest in the stock, bonds or other
securities of, any person, firm, corporation or other business organization
which is in the business of providing to any commercial or government entity
any goods or services that are competitive with any product offered for sale or
being developed by Employer during the Term. The foregoing covenant is
applicable in the United States and in any other country in which Employer has
marketed goods or services during the Term. Nothing herein contained, however,
shall be deemed to prohibit Employee from owning stock in public companies in
pursuance of his passive investment program so long as he does not become an
affiliate thereof, as such term is defined in the Securities Exchange Act of
1934, as amended.
9. Tax Withholding. Payments to Employee of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes or other amounts required
by law or regulation.
10. Amendment; Waiver. This Agreement may not be modified,
amended or waived in any manner except by an instrument in writing signed by
the parties hereto. The waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be
construed as a wavier of any provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
11. Governing Law. In view of the fact that the principal office
of Employer is located in the Commonwealth of Virginia, it is understood and
agreed that the construction and
3
<PAGE> 4
interpretation of this Agreement shall at all times and in all respects be
governed by the substantive laws of the Commonwealth of Virginia without regard
to its rules regarding conflicts of laws.
12. Severability. The provisions of this Agreement (including
particularly, but not limited to, the provisions of Section 8 hereof) shall be
deemed severable, and the invalidity or unenforceability of any one or more of
the provisions hereof shall not affect the validity and enforceability of the
other provisions hereof.
13. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by courier service (with proof of service),
facsimile transmission, hand delivery or certified or registered mail (return
receipt requested and first-class postage prepaid), to his residence in the
case of Employee, and to its principal office in the case of Employer.
14. Entire Agreement. This Agreement contains the entire
agreement and understanding by and between Employer and Employee with respect
to the employment herein referred to, and no representations, promises,
agreements or understandings, written or oral, not contained herein shall be of
any force or effect.
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement under seal as of the day and year first above written.
BTG, INC.
By: /s/ JOHN M. HUGHES
-------------------------------
John M. Hughes
Senior Vice President, CFO
EMPLOYEE
/s/ EDWARD H. BERSOFF
----------------------------------
Edward H. Bersoff
4
<PAGE> 1
EXHIBIT 10.6
AMENDMENT TO THE BTG, INC.
1995 EMPLOYEE STOCK OPTION PLAN
Effective August 20, 1997, the second sentence of paragraph 1 of
Article 3 of the BTG, Inc.1995 Employee Stock Option Plan is hereby deleted in
its entirety and replaced with the following sentence:
The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the
aggregate 1,250,000 shares of Stock, which number of shares is
subject to adjustment as provided in Section 19 hereof.
<PAGE> 1
EXHIBIT 11
BTG, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (2,335) $ 1,994 $ (2,100) $ 2,751
========= ======== ======== =========
Weighted average common stock
shares outstanding during the
period 8,525 6,160 8,501 6,146
Dilutive effect of common stock
equivalents -- 258 -- 225
--------- -------- -------- ---------
Weighted average shares of common
stock and common stock equivalents 8,525 6,418 8,501 6,371
========= ======== ======== =========
Earnings (loss) per common and
common equivalent share $ (0.27) $ 0.31 $ (0.25) $ 0.43
========= ======== ======== =========
</TABLE>
- 19 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 171,284
<ALLOWANCES> 951
<INVENTORY> 41,265
<CURRENT-ASSETS> 226,188
<PP&E> 17,068
<DEPRECIATION> 9,130
<TOTAL-ASSETS> 263,563
<CURRENT-LIABILITIES> 124,143
<BONDS> 72,775
0
0
<COMMON> 52,815
<OTHER-SE> 12,066
<TOTAL-LIABILITY-AND-EQUITY> 263,563
<SALES> 221,995
<TOTAL-REVENUES> 309,682
<CGS> 202,598
<TOTAL-COSTS> 262,874
<OTHER-EXPENSES> 46,538
<LOSS-PROVISION> 242
<INTEREST-EXPENSE> 3,648
<INCOME-PRETAX> (3,257)
<INCOME-TAX> (1,157)
<INCOME-CONTINUING> (2,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,100)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
