-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSd+ct95H8bM15RpcWCgGDbMZJuNJHDzYHps2TJADfy2pX/BcW2c5N0K5/2zruzM 8ueSJPiydfgNvNC48a4dww== 0000950130-99-001630.txt : 19990325 0000950130-99-001630.hdr.sgml : 19990325 ACCESSION NUMBER: 0000950130-99-001630 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUTLER INTERNATIONAL INC /MD/ CENTRAL INDEX KEY: 0000786765 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 061154321 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14951 FILM NUMBER: 99571483 BUSINESS ADDRESS: STREET 1: 110 SUMMIT AVE CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2015738000 MAIL ADDRESS: STREET 1: 110 SUMMIT AVENUE STREET 2: 110 SUMMIT AVENUE CITY: MONTVALE STATE: NJ ZIP: 07645 FORMER COMPANY: FORMER CONFORMED NAME: NORTH AMERICAN VENTURES INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the period ended December 31, 1998 ------------------------------------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ------------------------------------ Commission file number 0-14951 -------------------------------------------- BUTLER INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Maryland 06-1154321 ------------------------ -------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 Summit Avenue, Montvale, New Jersey 07645 ---------------------------------------------- Address of principal executive offices (Zip Code) Registrant's telephone number, including area code: (201) 573-8000 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share --------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X. No . - -- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]. The aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $126,584,000. Such aggregate market value has been computed by reference to the $20.50 per share closing sale price of such stock as of March 8, 1999. As of March 8, 1999, 6,626,233 shares of the registrant's single class of common stock, par value $.001 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1998 are incorporated by reference in Part II hereof. A definitive proxy statement pursuant to Regulation 14A will be filed with the Commission not later than April 30, 1999. Portions of the proxy statement for the 1999 Annual Meeting of Stockholders are incorporated by reference in Part III hereof. PART I Item 1. Business -------- Butler International, Inc. ("the Company"), through its subsidiaries, provides a wide range of technical and information technology services to companies worldwide. The Company provides strategic outsourcing, project management and staff augmentation services on a contractual basis to clients in a wide variety of industries and service lines, including financial services, telecommunications, banking, quality assurance, brokerage, computer software, voice data and video communications, cable TV, entertainment, CAD design, electronics, energy, consumer products, environmental, aerospace, aircraft, food processing, marine, petrochemical, pharmaceutical, automotive, fleet services, trucking, utilities and courier. As of March 5, 1999, the Company had approximately 5,600 employees, of which approximately 5,000 billable employees provide services, generally at client facilities, from a network of 45 offices in the United States and abroad. Through its international operations, the Company currently provides similar services from offices in the United Kingdom. In 1998, the Company had net sales of $444 million from its domestic and foreign operations. The Company was incorporated in Maryland on November 27, 1985. The principal executive offices of the Company are located at 110 Summit Avenue, Montvale, New Jersey 07645, and its telephone number is (201) 573-8000. Description of the Business Contract and information technology services are utilized by the Company's clients for: (i) outsourcing services, (ii) project management and (iii) staff augmentation, as follows: Outsourcing services involves instances where the Company manages an entire on-going operation on behalf of a client, thereby reducing the client's cost and the burden of maintaining that operation. Outsourcing provides clients with an efficient access to needed expertise. Such services are typically provided by the Company at facilities established by the Company for that purpose. 2 Project management services involve projects wherein the Company assumes responsibility for specifically defined projects. Depending upon the nature of the assignment, the type of equipment required for the task and the particular needs of the client, project management services may be provided either on-site at the client's facilities or at a Company-owned facility designed for the client's specific purpose. The Company frequently obtains the necessary equipment for a project (if not available from the client) on a lease basis for the expected term of the project. Staff augmentation services are provided to supplement a client's existing work force with technical professionals whose skills are tailored to the particular needs of that business. Staff augmentation is currently the largest contributor of the Company's revenues. Staff can be added or removed as needed, avoiding extra costs of employing specially skilled people during slack times. Contract technical personnel reduce a client's personnel costs and administrative burdens. Charges for the Company's services are billed to clients based on (i) an hourly rate per contract employee, (ii) an hourly rate plus equipment charges (and overhead charges, if applicable), or (iii) a fixed price or a fixed unit price. Fixed price arrangements typically are subject to bid. Staff augmentation typically is billed on an hourly rate per contract employee supplied, and upon termination of the assignment there is no further cost to the Company or to the client for the services of the contract employee. Outsourcing and project management services may be billed on an hourly, per unit, or fixed price basis, or a combination of such billing arrangements. Business Units The Company's outsourcing services, project management and staff augmentation services are provided through the following operating segments: (i) Butler Technology Solutions, (ii) Butler Telecom, (iii) Butler Fleet Services, (iv) Butler Technical Group. Additional segment information is included in Note 14 in the Company's 1998 Annual Report, which is incorporated herein by reference. Butler Technology Solutions provides a complete and broad range of information technology expertise including, technical staffing, project management, and technology solutions. To augment its service offerings the Company recently established practice areas such as Quality Assurance, Enterprise Networking, Web Solutions and Enterprise Architecture. Butler Technology Solutions serves all sectors of the information technology industry, from development through testing and final software quality assurance. Butler employees provide a broad range of information technology specialists with expertise in a wide variety of applications, operating systems and platforms. Butler Telecom provides a full range of installation and test services, specialty project services and human resource staffing to the voice, data, and video communications industry through a national network of branch offices. Butler Telecom contract personnel provide applied engineering services, install, test and maintain central office and customer premise equipment for voice and data applications, with both standard coaxial cable and fiber optic capabilities. Such services are also provided for both campus and multi-story telecommunications management. Butler Telecom also provides drafting, design, printing and graphics services to a wide range of industries. 3 Butler Fleet Services provides customized fleet operation services to major ground fleet-holders nationwide ranging from vehicle maintenance and repair to total fleet management solutions. Butler Fleet provides services including: preventive maintenance, mobile maintenance repair and service, scheduling service and inspections, computerized fleet tracking systems (including inventory control), training, fluid level checks and total fleet management. Most of these services are provided by A.S.E.(Automotive Service Excellence) certified technicians. Industries served through this division include telecommunications, utilities, municipalities, courier, and trucking. Recently, Butler introduced its Technicians on Demand service, a program which offers highly qualified technicians to all types of businesses nationwide, regardless of project scope or length. Butler Technical Group provides skilled technical and engineering personnel, project management, and total outsourcing solutions to companies worldwide and to industries ranging from aerospace to pharmaceuticals to energy and electronics. It also provides engineering support services including strategic consulting, project management, drafting and design, and total outsourcing, while specializing in establishing, managing, and staffing dedicated engineering support centers carrying out both long-term and short-term projects. Engineering support services include product and facilities design, drafting, computer programming, technical writing and illustration. In 1998, the Company combined its Project Engineering Services, Contract Technical Services and Butler Service Group, UK Ltd. Operations to form Butler Technical Group. International Operations The Company's international operations ("International Operations") are directed from offices in the United Kingdom. Currently, approximately 4.5% of the Company's personnel are employed in its International Operations. International Operations accounted for approximately 3.6% of the Company's net sales in 1998, principally from the United Kingdom. Current Markets and Marketing Plans Management believes that in today's environment of ever-increasing competition, companies are searching for ways to differentiate themselves. This has led to the evolution of customized product and service offerings. An integral part of customization is having the capability to quickly respond to individual opportunities and to quickly introduce products into the market. Companies are analyzing the most cost-effective and efficient methods for handling each function or activity within their businesses. Many have realized the benefits of outsourcing with a dedicated provider, such as Butler. The search for strategic business partners has created a transition in the technical services industry - from providing narrowly defined temporary help to supplying technical and professional services and business solutions. Butler has recognized this transformation and has proactively sought to meet the needs of emerging markets with project management and human resource based solutions. From product development to process improvements, Butler is committed to creating value for its client. By utilizing Butler's expertise, customers are able to gain a strategic advantage in terms of knowledge, quality, cost, timing and flexibility. 4 As the market continues to change, management believes the Company will remain an industry leader by merging people and technology to deliver value. Through learning policies and initiatives, Internet/intranet capabilities, and quality programs (including customer satisfaction and value gap assessment programs) Butler seeks to continually improve its services. Management believes that the Company's recent marketing successes in the Technology Solutions and Telecom Services are the result of: (i) its attention to client needs and devotion to achieving client satisfaction, (ii) its commitment to quality, (iii) its ability to quickly locate and assemble the right person/team through BRASS, its proprietary computerized recruiting system and Internet capabilities (described below, see "Employees"), and (iv) its ability to successfully bid on projects and differentiate itself from the competition. In addition, management works diligently with clients to define the job/project and to determine: the client's needs and expectations, skill sets required, education and background suited for the tasks or projects, proper work environment, location and duration of the project, special training needs, equipment and tool requirements, and proper scheduling of personnel and deployment of equipment and materials. A personalized approach to understanding and meeting client needs enables the Company to respond to clients' expectations, as well as to particular job requirements. As leading corporations around the world move toward doing business with a reduced number of "preferred suppliers", they tend to form long-term supplier partnerships with quality providers who are able to respond to a wide range of needs in the most efficient manner. The Company received its first ISO 9000 certification in 1993 and to date, has received a total of ten (10) ISO 9000 certifications covering a number of different locations in the United States and the United Kingdom. The Company has received at least one ISO 9000 certification in each of its major business units. Management believes that its commitment to quality will enhance Butler's standing as a provider of quality technical services throughout the world. In 1998, Butler received three prestigious awards signifying the Company's dedication to quality and customer satisfaction. Butler was the winner of the New Jersey Technology Council (NJTC) award for Customer Service Company of the Year. The Company's website was ranked as one of the Top 100 websites by the Internet Business Network (IBN), out of more than 15,000 reviewed sites. Butler was also recognized as one of the top 5 third party recruiting sites for excellence in the electronic recruiting industry, signifying that the Company's job board is among the best in its category. The Company was named as one of the Top 3 companies worldwide in exceeding customer expectations by the Arthur Andersen International Best Practices AwardsSM. Butler was the winner in the same category for the Metro New York Area. Butler's vision is to be the Number One Client-Rated Company in its industry. The company's future marketing plans include a strong proactive branding effort to let the marketplace know Butler is striving to be the best, gaining recognition as the best and fueling its quest with strong core values that will not change. Business Expansion and Acquisitions In recent years, the Company completed several acquisitions in its Technology Solutions and Telecommunications businesses. The Company believes acquisitions in the information technology and telecommunication services 5 markets will increase its overall margins and add to the Company's future growth in terms of sales and profits. The Company is currently deploying a focused growth strategy. In 1997 an agreement was reached with GE Capital Corporation to provide a $15 million credit facility dedicated to financing the Company's acquisition program. This acquisition line of credit was increased to $35 million in 1998. This four year facility provides additional resources to selectively expand and broaden the Company's higher margin Technology Solutions and Telecommunication Services businesses. On March 3, 1998, the Company acquired the operations of Argos Adriatic Corporation ("Argos"), a Silicon Valley information technology ("IT") company headquartered in Fremont, CA. The purchase price includes $5.1 million paid in cash ($4.1 million charged against the Company's acquisition line and $1.0 million against the revolving credit facility), plus a contingent payout to be paid over three years based on the future earnings of Argos in excess of certain annual thresholds. Argos provides a variety of IT support services to a wide range of clients in Northern California, and generates approximately $10 million in annual revenues with a staff of approximately 90 full-time employees. On April 1, 1998, the Company acquired the operations of Norwood Computer Services, Inc. ("Norwood") an IT services company headquartered in Hicksville, NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn down on the acquisition line and $1.7 charged to the revolving credit facility), plus a contingent payout of $1.3 million that was paid in March 1999. Norwood has been serving a wide range of mid-sized and Fortune 500 companies in the New York metropolitan area since 1978 and generates approximately $17 million in annual revenues through a staff of approximately 120 consultants. On June 2, 1998, the Company's Telecommunication Services operation acquired WCC Telephone Services, Inc. ("WCC") a California based telecommunications services company. WCC specializes in central office services for customers such as Pacific Bell and Northern Telecom. It generates annual sales of approximately $2 million. This business has been merged with the existing Butler Telecom business in Southern California. The purchase price includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition line and $0.4 million charged to the revolving credit facility), plus a contingent payout based on the earnings of WCC for the next year. Also, on June 2, 1998, the Company's Technology Solutions operation acquired certain assets of the Reston, VA branch operations of Automated Concepts, Inc. This business generates annual sales of approximately $3 million. Employees and consultants of this operation have been merged with the existing Butler office in McLean, VA. The purchase price was $550,000 of which $440,000 was drawn down on the acquisition line and $110,000 was charged to the revolving credit facility plus a contingent payout based on earnings for one year. On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a Chicago area IT services business. The purchase price was $10.3 million ($8.2 charged to the acquisition line and $2.1 charged against the revolving credit facility). DPI has provided a variety of IT support services to a wide range of customers in the Chicago marketplace for the past eleven years. Its offerings include contract programming, software consulting, IT staffing and 6 Year 2000 project work. DPI currently generates approximately $10 million in annual revenues through its staff of 80 consultants. On August 5, 1998, the Company completed the acquisition of ISL International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ. The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn down on acquisition line and $1.5 charged to the revolving credit facility), plus a multi-year contingent payout based on the future earnings of ISL. ISL has provided services to a wide range of companies in the metropolitan New York area since 1978. It generates approximately $20 million in annual revenues through a staff of approximately 150 consultants. In connection with these 1998 acquisitions, the Company acquired substantially all of the operating assets and assumed certain liabilities of the acquired businesses. The transactions were recorded using the purchase method of accounting. Excess cost over net assets of businesses acquired has been recorded as goodwill and is being amortized over forty years. The Company continues to review potential acquisition candidates in the information technology and telecommunications service industries. There are no acquisition transactions currently pending. Clients The Company provides its services to over 1,600 clients. In 1998, Boeing accounted for approximately 11.7% of the Company's net sales. No other clients individually represented 10% of the Company's net sales in 1998. A substantial amount of the Company's 1998 net sales were derived from U.S. companies included in the "Fortune 500" companies list. Employees The Company currently has approximately 5,600 employees in the United States and abroad, and believes that its relationship with its employees is positive. Approximately 10% of the Company's employees are covered by collective bargaining agreements. Historically, the Company has been able to attract and retain high caliber employees and utilize them effectively to serve client needs quickly, efficiently and at competitive costs. The Company's number one priority is to exceed its customers' expectations by providing superior customer value. By empowering their employees through innovative training initiatives, the Company continuously improves the services it provides to its customers. Included in the Company's training initiatives are Butler On-Line Learning, video, and seminar training. Through such training opportunities, employees are able to update their skills as soon as new products reach the market, giving both the employees and the Company an advantage over the competition. Butler On-Line Learning offers over 150 training titles available via the Company's Internet/intranet site. Self-paced, interactive training experiences from the desktop allow employees to develop the skills necessary to work with today's most desired technologies. Video and seminar training opportunities enable employees to enhance their knowledge in many technical and management topics. Guided by its Corporate Learning Policy, the Company provides personal learning programs with measurable objectives for each staff employee. 7 The Company's Internet strategy is an example of how the Company uses technology to enhance communication and the sharing of knowledge. Staff employees have Internet access at their desktops. Through Butler's web site, technical/professional employees participate in chatrooms to discuss jobs, training, compensation and other important topics with their peers. The Company's services are provided by technical/professional employees who are hired by the Company and assigned to work on a full-time basis for a specific client project. The duration of the assignment depends on the demand for the skills individual employees possess, and averages approximately five to eight months. Technical/professional fall into three categories (1) salaried employees, (2) contracted employees, and (3) independents. Salaried employees continue to work for Butler after an assignment ends, usually starting their next assignment immediately, but sometimes working on internal projects while "on the bench." Contracted and independent employees are terminated if a new assignment is not identified. However, Butler has many initiatives and programs in place to secure reassignment of technical/professional employees. Management believes that technical personnel are attracted to this type of project employment because it provides varied opportunities to work on high-end technological advancements with industry leaders and offers diversity as to the geographic location and type of industry assigned. Company employees are on the Company's payroll, and are subject to its administrative control only during the period that the employee provides services to the client. The client typically retains technical and supervisory control over the performance of the employees. Management expects that changing technologies will continue to create demands for new skills faster than the permanent workforce can respond, resulting in a shortage of specialized technical skills. At the same time, early retirees and increased labor force mobility provide a sizable labor pool available to technical service companies like the Company. As a result, the Company expects that an adequate supply of qualified people will continue to be available to recruit and satisfy client needs. In addition, the Company will proactively increase the pool of qualified people through training, communication via the Internet, and aggressive recruiting efforts. Company recruiters are trained to be skilled at providing a proper match between the candidate and the client's requirements. Candidates are screened on the basis of their overall career experience and technical competency. In 1996, the Company's recruiting system was replaced with BRASS, a state-of-the-art fulfillment system that allows for full text searches, on-line reporting, systematic management of requirements, and shared databases across all divisions. In 1998, BRASS was recognized by the Internet Business Network for its recruiting capabilities. Identification of personnel to add to the Company's employee candidate base comes from multiple sources, including national and international advertising, the Internet, employee referrals and industry contacts, including early retirees. The Company's strategic direction for the sales and recruiting organization is (i) to significantly lower overhead costs by centralizing field operations and upgrading technology; achieving process standardization and cost management; and creating a platform for integration with future systems (payroll/billing, finance, etc.); and (ii) to have a customer-driven strategy by creating mobile sales and recruiting organizations that can move in and out of markets. The new system is expected to result in lower costs and productivity gains in the entire sales and recruiting process. 8 Competition The Company's industry in the United States is highly fragmented and characterized by specialized regional and local firms serving specific geographic territories and industries. The Company is one of only a few international companies with the breadth of personnel and resources to respond quickly to the large scale and rapidly changing personnel requirements of major corporate clients worldwide. Based on this characteristic, management believes the Company is a preferred provider of contract technical services and solutions to major corporations with the ability to serve a broad range of client needs. Some national and international companies are larger than the Company or are associated with companies that have greater financial, technical, or other resources than the Company. Management believes, however, that the Company's ability to efficiently handle the broad spectrum of specialized client needs, its commitment to quality, the extensive network of the Company's offices, the wide array of technical skills available, and its unique computerized system of identifying qualified personnel for specialized tasks enable it to compete favorably with other providers in the industry. Rather than aspiring to be the biggest, the Company is clearly focused on being the number one client-rated company in the industry. Item 2. Properties ---------- The Company owns its corporate office facility located at 110 Summit Avenue, Montvale, New Jersey, 07645. At March 5, 1999, Butler maintained office space at the following locations for predominantly sales, recruiting and administrative functions: UNITED STATES Albuquerque, NM Hicksville, NY Raleigh, NC Aurora, IL Huntington Beach, CA Redmond, WA Austin, TX Indianapolis, IN Riverside, CA Baltimore, MD Irving, TX Rochester, NY Burlington, MA Iselin, NJ Rolling Meadows, IL Center Line, MI King of Prussia, PA Saginaw, MI Chillicothe, IL Lake St. Louis, MO San Jose, CA Cincinnati, OH Maryland Heights, MO Schaumburg, IL Encino, CA McLean, VA Shelton, CT Euclid, OH New York, NY St. Louis, MO Fairport, NY Norcross, GA Tempe, AZ Fort Wayne, IN Ontario, CA Twinsburg, OH Fremont, CA Park Ridge, IL Gaylord, MI Pleasanton, CA INTERNATIONAL Portsmouth, England London, England Redhill, Surrey, England Except for its corporate headquarters facility in Montvale, New Jersey, the Company does not own any real estate and generally leases office space. 9 The Company makes modest investments in leasehold improvements, equipment and other tangible property, principally computer equipment, as required. Item 3. Legal Proceedings ----------------- In 1995, the Company filed a complaint against CIGNA Property and Casualty Insurance Company regarding CIGNA's and other defendants' acts and omissions in the processing, handling and investigation of claims against the Company under general liability and workmen's compensation insurance contracts. In 1997, the Company entered into an agreement with CIGNA which, in the absence of a settlement, would result in the respective parties undertaking binding arbitration in late 1998. In accordance with the terms of the agreement the Company paid $2.1 million to CIGNA. In August 1998, the Company exercised its option to settle the remaining disputed amounts with CIGNA for $1.5 million plus interest of $255,000. This settlement had no impact on current year operating results. The Company and its subsidiaries are parties to various legal proceedings and claims incidental to its normal business operations for which no material liability is expected beyond which is recorded. While the ultimate resolution of the above matters is not known, management does not expect that the resolution of such matters will have a material adverse effect on the Company's financial statements and results of operations. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder ------------------------------------------------------------------ Matters ------- Information regarding the market for the Company's common stock and related stockholder matters is on page 40 of the Company's 1998 Annual Report, which information is incorporated herein by reference. Item 6. Selected Financial Data ----------------------- Selected financial data is included on page 39 of the Company's 1998 Annual Report, which is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Results of Operations and ------------------------------------------------------------------ Financial Condition ------------------- Management's discussion and analysis of results of operations and financial condition is included on pages 14-19 of the Company's 1998 Annual Report, which discussion and analysis are incorporated herein by reference. Item 8. Financial Statements and Supplementary Data ------------------------------------------- The following financial statements and supplementary data are herein incorporated by reference to the Company's 1998 Annual Report: Consolidated Balance Sheets at December 31, 1998 and December 31, 1997 PAGE 20 10 Consolidated Statements of Operations for the years ended December 31, 1998, December 31, 1997, and December 31, 1996 PAGE 21 Consolidated Statements of Cash Flows for the years ended December 31, 1998, December 31, 1997, and December 31, 1996 PAGE 22 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, December 31, 1997, and December 31, 1996 PAGE 23 Notes to Consolidated Financial Statements PAGES 24-37 Independent Auditors' Report PAGE 38 Other supporting schedules are submitted in a separate section of this report following Item 14. Item 9. Changes in and Disagreements with Accountants on Accounting and ---------------------------------------------------------------- Financial Disclosure -------------------- Not Applicable. PART III A definitive proxy statement pursuant to Regulation 14A will be filed with the Commission not later than April 30, 1999, which is 120 days after the close of the Registrant's fiscal year. The proxy statement will be incorporated in Part III (Items 10 through 13) of Form 10-K. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- (a)(1) The following consolidated financial statement schedules of Butler International, Inc. and subsidiaries are included following Item 14: Schedule I - Condensed financial information of Registrant Schedule II - Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a)(3) Exhibits: The exhibit listing and exhibits follow the schedules. (b) No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 1998. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 24, 1999 BUTLER INTERNATIONAL, INC. (Registrant) By: /s/Edward M. Kopko ------------------- Edward M. Kopko, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Title Date - ---- ----- ---- /s/Edward M. Kopko Chairman of the Board of March 24, 1999 - ------------------ Directors and CEO Edward M. Kopko (Principal Executive Officer) /s/Michael C. Hellriegel Senior Vice President March 24, 1999 - ------------------------ and Chief Financial Officer Michael C. Hellriegel /s/John F. Hegarty Director March 24, 1999 - ------------------ John F. Hegarty /s/Frederick H. Kopko, Jr. Director March 24, 1999 - -------------------------- Frederick H. Kopko, Jr. /s/Hugh G. McBreen Director March 24, 1999 - ------------------ Hugh G. McBreen /s/Nikhil S. Nagaswami Director March 24, 1999 - ---------------------- Nikhil S. Nagaswami 12 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Butler International, Inc.: We have audited the consolidated financial statements of Butler International, Inc. as of December 31, 1998 and December 31, 1997, and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated February 26, 1999; such financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of Butler International, Inc. listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP - ------------------------ Parsippany, New Jersey February 26, 1999 13 Schedule I - ---------- BUTLER INTERNATIONAL, INC. - PARENT CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEETS (in thousands) December 31, ------------------ 1998 1997 -------- -------- ASSETS - ------ Total current assets $ 5,820 $ 3,937 Investment in and receivable from subsidiaries 56,710 43,832 Other assets 116 112 ------- -------- Total assets $62,646 $ 47,881 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Accounts payable and accrued liabilities $ 4,287 $ 632 Current portion of long-term debt 127 127 -------- -------- Total current liabilities 4,414 759 -------- -------- Long-term liabilities 3,033 2,033 -------- -------- Stockholders' equity: Preferred stock 3 3 Common stock 7 6 Foreign exchange translation (133) (64) Additional paid-in capital 95,244 94,710 Accumulated deficit (39,922) (49,566) -------- -------- Total stockholders' equity 55,199 45,089 -------- -------- Total liabilities and stockholders' equity $ 62,646 $ 47,881 ======== ======== The accompanying notes are an integral part of these financial statements. 14 Schedule I (continued) - ----------------------- BUTLER INTERNATIONAL, INC. - PARENT CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS (in thousands) Year ended December 31, -------------------------- 1998 1997 1996 ------- ------- ------- Revenues Interest income (includes intercompany interest of $160, $118 and $1,181) $ 172 $ 167 $1,200 ------- ------- ------ Expenses Administrative and operating expenses 456 721 630 Interest expense 13 11 12 ------- ------- ------ 469 732 642 ------- ------- ------ Equity in income of subsidiaries 12,946 7,573 4,363 ------- ------- ------ Income from operations before income taxes 12,649 7,008 4,921 Income taxes (benefit) 2,805 (1,725) 130 ------- ------- ------ Net income $ 9,844 $ 8,733 $4,791 ======= ======= ====== The accompanying notes are an integral part of these financial statements. 15 Schedule I (continued) - ---------------------- BUTLER INTERNATIONAL, INC. - PARENT CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, ---------------------------- 1998 1997 1996 -------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,844 $ 8,733 $ 4,791 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1 2 9 Gains of subsidiaries (12,946) (7,573) (4,363) (Increase) decrease in assets, increase (decrease) in liabilities: Other current assets (1,883) (3,859) 41 Accounts payable and accrued liabilities 3,654 (7) 107 Long-term liabilities 1,000 1,900 - -------- ------- ------- Net cash (used in) provided by operating activities (330) (804) 585 -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in note receivable from Butler Service Group, Inc. - - (1,181) Capital expenditures - net - (4) - Other (5) (42) - -------- ------- ------- Net cash used in investing activities (5) (46) (1,181) -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from the exercise of common stock options and warrants 335 831 547 Net payments of note payable - 19 47 -------- ------- ------- Net cash provided by financing activities 335 850 594 -------- ------- ------- Net decrease in cash - - (2) Cash at beginning of year - - 2 -------- ------- ------- Cash at end of year $ - $ - $ - ======== ======= ======= The accompanying notes are an integral part of these financial statements. 16 Schedule I (continued) - ---------------------- BUTLER INTERNATIONAL, INC. PARENT NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT AT DECEMBER 31, 1998 NOTE 1 - ACCOUNTING POLICIES: The investments in the Company's subsidiaries are carried at the Company's equity of the subsidiary which represents amounts invested less the Company's equity in the losses to date. Significant intercompany balances and activities have not been eliminated in this unconsolidated financial information. No cash dividends were received from subsidiaries during the past three years. Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. Accordingly, these financial statements should be read in conjunction with the Company's consolidated financial statements in its 1998 Annual Report to Stockholders. NOTE 2 - CONTINGENT LIABILITIES: The Company has guaranteed the Butler Service Group, Inc. ("BSG") revolving credit loan. Under the terms of the agreement, transfer of funds to the Company by BSG is restricted (see Note 4 of the Company's consolidated financial statements in its 1998 Annual Report). 17 Schedule II - ----------- BUTLER INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS Additions ----------------------------------- Balance at Charged to Charged to Balance at beginning costs and other end of Description of period expenses accounts Deductions period - -------------------------------------------------------------------------- 1996 -------------- Allowance for uncollectible accounts receivable $1,574,000 $ 453,000 - $ 572,000 $1,455,000 Reserve for discontinued operations $ 254,000 - - $ 118,000 $ 136,000 1997 -------------- Allowance for uncollectible accounts receivable $1,455,000 $1,004,000 - $ 994,000 $1,465,000 Reserve for discontinued operations $ 136,000 - - $ 89,000 $ 47,000 1998 -------------- Allowance for uncollectible accounts receivable $1,465,000 $2,058,000 - $ 214,000 $3,309,000 Reserve for discontinued operations $ 47,000 - - $ 47,000 - 18 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 3.1 Articles of Incorporation of the Registrant, as amended, filed as Exhibit No. 3(a) to the Registrant's Registration Statement on Form S-4, Registration No. 33-10881 (the "S-4"), and hereby incorporated by reference. 3.2 By-laws of the Registrant, as amended, filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 10-K"), and hereby incorporated by reference. 4.1 Specimen Stock Certificate for the Registrant's common stock, par value $.001 per share, filed as Exhibit No. 4.1 to the Registrant's Registration Statement on Form S-1, Registration No. 33-2479 (the "S-1"), and hereby incorporated by reference. 4.2 Articles Supplementary to the Articles of Incorporation of the Registrant's 7 1/2% Senior Cumulative Convertible Preferred Stock, filed as Exhibit No. 4.1 to Form 10-Q for the period ended September 27, 1992, and hereby incorporated by reference. 4.3 Specimen Stock Certificate representing the Registrant's Series B 7% Cumulative Convertible Preferred Stock, par value $.001 per share, filed as Exhibit No. 4.5 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (the "1992 10-K"), and hereby incorporated by reference. 10.1* Incentive Stock Option Plan of the Registrant, as amended, filed as Exhibit No. 10.1 to the 1990 10-K, and hereby incorporated by reference. 10.2* Stock Option Plan of the Registrant, as amended, filed as Exhibit No. 10.2 to the 1990 10-K, and hereby incorporated by reference. 10.3* 1989 Directors Stock Option Plan of the Registrant, dated November 1, 1988, as amended, filed as Exhibit 10.18 to the 1990 10-K, and hereby incorporated by reference. 10.4* Stock Purchase Agreement, dated September 19, 1990, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit 10.31 to the 1990 10-K, and hereby incorporated by reference. 10.5* Plan Pledge Agreement, dated September 19, 1990, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.32 to the 1990 10-K, and hereby incorporated by reference. 10.6* Plan Promissory Note, dated January 16, 1991, executed by Edward M. Kopko, and made payable to the order of North American Ventures, Inc. in the amount of $445,000, filed as Exhibit No. 10.33 to the 1990 10-K, and hereby incorporated by reference. *Denotes compensatory plan, compensation arrangement, or management contract. E-1 Exhibit No. Description - ----------- ----------- 10.7* Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.34 to the 1990 10-K, and hereby incorporated by reference. 10.8* Promissory Note, dated January 16, 1991, executed by Edward M. Kopko and made payable to the order of North American Ventures, Inc. in the amount of $154,999.40, filed as Exhibit No. 10.35 to the 1990 10-K, and hereby incorporated by reference. 10.9* Form of Plan Pledge Agreement, dated September 19, 1990, between North American Ventures, Inc. and each of John F. Hegarty, Hugh G. McBreen, and Frederick H. Kopko, Jr. ("Outside Directors"), filed as Exhibit No. 10.36 to the 1990 10-K, and hereby incorporated by reference. 10.10* Form of Plan Promissory Note, dated September 19, 1990, each executed by an Outside Director and each made payable to the order of North American Ventures, Inc. in the amount of $185,000, filed as Exhibit No. 10.37 to the 1990 10-K, and hereby incorporated by reference. 10.11* Form of Stock Purchase Agreement, dated November 4, 1988, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.38 to the 1990 10-K, and hereby incorporated by reference. 10.12* Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.39 to the 1990 10-K, and hereby incorporated by reference. 10.13* Form of Promissory Note, dated January 16, 1991, executed by each of the Outside Directors and each payable to the order of North American Ventures, Inc., in the amount of $63,000, filed as Exhibit 10.40 to the 1990 10-K, and hereby incorporated by reference. 10.14* Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.41 to the 1990 10-K, and hereby incorporated by reference. 10.15* Form of Promissory Note, dated January 16, 1991, executed by each of the Outside Directors and each made payable to the order of North American Ventures, Inc. in the amount of $54,000, filed as Exhibit No. 10.42 to the 1990 10-K, and hereby incorporated by reference. 10.16* Form of Promissory Note, dated January 16, 1991, executed by each of the Outside Directors and each payable to the order of North American Ventures, Inc., in the amount of $225,450, filed as Exhibit No. 10.43 to the 1990 10-K, and hereby incorporated by reference. 10.17* Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.44 to the 1990 10-K, and hereby incorporated by reference. 10.18* Form of Security Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.45 to the 1990 10-K, and hereby incorporated by reference. *Denotes compensatory plan, compensation arrangement, or management contract. E-2 Exhibit No. Description - ----------- ----------- 10.19* 1990 Employee Stock Purchase Plan of the Registrant, as amended, filed as Exhibit No. 10.46 to the 1990 10-K, and hereby incorporated by reference. 10.20* Employment Agreement, dated December 17, 1991, among North American Ventures, Inc., Butler Service Group, Inc., and Edward M. Kopko, filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the year ended December 29, 1991 (the "1991 10-K"), and hereby incorporated by reference. 10.21* Stock Purchase Agreement, dated December 17, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.34 to the 1991 10-K, and hereby incorporated by reference. 10.22* Plan Pledge Agreement, dated December 17, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.35 to the 1991 10-K and hereby incorporated by reference. 10.23* Plan Promissory Note, dated December 17, 1991, executed by Edward M. Kopko, and made payable to the order of North American Ventures, Inc. in the amount of $84,000, filed as Exhibit No. 10.36 to the 1991 10-K, and hereby incorporated by reference. 10.24* Form of Stock Purchase Agreement, dated December 17, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit 10.37 to the 1991 10-K, and hereby incorporated by reference. 10.25* Form of Plan Pledge Agreement, dated December 17, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit 10.38 to the 1991 10-K, and hereby incorporated by reference. 10.26* Form of Plan Promissory Note, dated December 17, 1991, each executed by an Outside Director, and each made payable to the order of North American Ventures, Inc., in the amount of $42,000, filed as Exhibit No. 10.39 to the 1991 10-K, and hereby incorporated by reference. 10.27* 1992 Stock Option Plan, filed as Exhibit 10.40 to the 1992 10-K, and hereby incorporated by reference. 10.28* 1992 Incentive Stock Option Plan, filed as Exhibit 10.41 to the 1992 10-K, and hereby incorporated by reference. 10.29* 1992 Stock Bonus Plan, filed as Exhibit No. 10.42 to the 1992 10-K, and hereby incorporated by reference. 10.30* 1992 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.43 to the 1992 10-K, and hereby incorporated by reference. 10.31* Butler Service Group, Inc. Employee Stock Ownership Plan and Trust Agreement, filed as Exhibit No. 19.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (the "1987 10-K"), and hereby incorporated by reference. *Denotes compensatory plan, compensation arrangement, or management contract. E-3 Exhibit No. Description - ----------- ----------- 10.32* Employment Agreement dated May 15, 1994 between Butler Fleet Services, a division of Butler Services, Inc., and James VonBampus, filed as Exhibit 10.44 to the 1994 10-K, and hereby incorporated by reference. 10.33* Employment Agreement dated April 18, 1995 between Butler International, Inc., and Harley R. Ferguson, filed as Exhibit 10.42 to the 1995 10-K, and hereby incorporated by reference. 10.34* Form of Promissory Note dated May 3, 1995 in the original principal amount of $142,500 executed by Frederick H. Kopko, Jr. and Hugh G. McBreen, and made payable to the order of Butler International, Inc., filed as Exhibit 10.43 to the 1995 10-K, and hereby incorporated by reference. 10.35* Form Pledge Agreement dated May 3, 1995 between Butler International, Inc. and each of Frederick H. Kopko, Jr. and Hugh G. McBreen, filed as Exhibit 10.44 to the 1995 10-K, and hereby incorporated by reference. 10.36 Amended and Restated Credit Agreement, dated November 7, 1997, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.38 to the 1997 10-K, and hereby incorporated by reference. 10.37(a) First Amendment Agreement, dated as of June 26, 1998 among Butler Service Group, Inc., Butler International, Inc. and General Electric Capital Corporation, filed herewith as Exhibit 10.37(a). 10.37(b) Second Amendment Agreement, dated as of August 31, 1998, among Butler Service Group, Inc., Butler International, Inc. and General Electric Capital Corporation, filed herewith as Exhibit 10.37(b). 10.38 Credit Agreement, dated November 12, 1997, between Butler of New Jersey Realty Corp. and Fleet Bank, National Association, filed as Exhibit 10.39 to the 1997 10-K, and hereby incorporated by reference. 10.39 Asset Purchase Agreement, dated August 11, 1997, between Butler Telecom, Inc. and Jack W. Shoemaker, filed as Exhibit 10.40 to the 1997 10-K, and hereby incorporated by reference. 10.40* Form of Promissory Note dated January 28, 1998 in the original amount of $168,278.74 executed by Hugh G. McBreen and made payable to the order of Butler International, Inc., filed herewith as Exhibit 10.40. 10.41* Form Pledge Agreement dated January 28, 1998 between Butler International, Inc. and Hugh G. McBreen, filed herewith as Exhibit 10.41. 10.42 Asset Purchase Agreement, dated February 28, 1998 by and between Butler Telecom, Inc., Argos Adriatic Corporation, Shashi Mahendru and Vinod Wadhawan, filed as Exhibit 10.41 to the 1997 10-K, and hereby incorporated by reference. 10.43 Asset Purchase Agreement, dated March 17, 1998, by and between Butler Telecom, Inc., Norwood Computer Services Inc., Vassilis Chaimanis and Henry Piscitelli, filed as Exhibit 10.42 to the 1997 10-K, and hereby incorporated by reference. *Denotes compensatory plan, compensation arrangement, or management contract. E-4 Exhibit No. Description - ----------- ----------- 10.44 Stock Purchase Agreement, dated May 29, 1998, by and among Butler Telecom, Inc., Tom Cannon, Ted Connolly, Marianne A. Adams, and Jacqueline Anne Hirst, filed as Exhibit 10.43 to Form 10-Q for the period ended June 30, 1998, and hereby incorporated by reference. 10.45 Acquisition Agreement, dated May 27, 1998, between Butler Telecom, Inc. and Automated Concepts, Inc. filed as Exhibit 10.44 to Form 10-Q for the period ended June 30, 1998, and hereby incorporated by reference. 10.46 Stock Purchase Agreement, dated June 30, 1998, by and among Butler Telecom, Inc., Prem Advani, Sharon K. Advani, and Prem Advani 1997 Charitable Remainder Trust filed as Exhibit 10.45 to Form 10-Q for the period ended June 30, 1998 and hereby incorporated by reference. 10.47 Asset Purchase Agreement, dated July 26, 1998, by and between Butler Telecom, Inc., ISL International, Inc. and Meryvn Haft, filed as Exhibit 10.46 to Form 10-Q for the period ended June 30, 1998, and hereby incorporated by reference. 10.48* Form of Promissory Note dated October 13, 1998 in the original amount of $181,000 executed by Frederick H. Kopko, Jr. and made payable to Butler International, Inc., filed herewith as Exhibit 10.48. 10.49* Form Pledge Agreement dated October 13, 1998 between Butler International, Inc. and Frederick H. Kopko, Jr., filed herewith as Exhibit 10.49. 13.1 1998 Annual Report to Stockholders, Financial Section (pages 14- 40), filed herewith as Exhibit 13.1. 22.1 List of Subsidiaries of the Registrant. 23.1 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule. *Denotes compensatory plan, compensation arrangement, or management contract. E-5 EX-10.37(A) 2 FIRST AMENDMENT AGREEMENT EXHIBIT 10.37 (a) FIRST AMENDMENT AGREEMENT ------------------------- AGREEMENT, dated as of June 26, 1998, among BUTLER SERVICE GROUP, INC., a New Jersey corporation, BUTLER INTERNATIONAL, INC., a Maryland corporation, the "Subsidiaries" signatory hereto, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation. Background ---------- A. Capitalized terms not otherwise defined shall have the meanings ascribed to them in the Amended and Restated Credit Agreement dated as of November 7, 1997, between Butler Service Group, Inc. and General Electric Capital Corporation (as amended, modified or supplemented from time to time, the "Credit Agreement"). ---------------- B. The Borrower has requested that the Lender increase, from $15,000,000 to $25,000,000, the Acquisition Loan Commitment. C. The Lender has agreed to the Borrower's request subject to the terms and conditions of this Agreement. Agreement --------- In consideration of the Background, which is incorporated by reference, the parties, intending to be legally bound, agree as follows: 1. Modifications. All the terms and provisions of the Credit ------------- Agreement and the other Loan Documents shall remain in full force and effect except as follows: (a) The figure "$15,000,000" contained in the "Background" section of the Credit Agreement is deleted and the figure "$25,000,000" is substituted therefor. (b) The third sentence of Section 2.1(b)(iv) of the Credit Agreement is deleted and the following is substituted therefor: The Borrower shall repay the principal amount of each Acquisition Loan Advance in equal quarterly installments in the amount of such Acquisition Loan Advance multiplied by a fraction, the numerator of which shall be one (1) and the denominator of which shall be twenty-eight (28), rounded upward to the nearest whole Dollar and such payments shall commence on the first Business Day of the first fiscal quarter after the date of such Acquisition Loan Advance and shall continue on the first Business Day of each succeeding Fiscal Quarter; notwithstanding the foregoing, all amounts outstanding under each --------------- --- --------- Acquisition Loan Advance shall be due and payable in full, without notice or demand on the sooner to occur of (x) the Acquisition Loan Commitment Termination Date and (y) the occurrence of an Event of Default. (c) Section 3.9(e) of the Credit Agreement is deleted and Section 3.9(f) of the Credit Agreement is renumbered accordingly. (d) Section 6.2(d)(vii) of the Credit Agreement is deleted and Sections 6.2(d)(ix), (x), (xi) and (xii) and renumbered accordingly. (e) The figure "$180,000" contained in Section 6.2(x) of the Credit Agreement is deleted and the figure "$250,000" is substituted therefor. (f) The provision contained in Section 8.7 of the Credit Agreement with respect to copies of notices to be sent to Cummings & Lockwood is deleted and the following is substituted therefor. Robinson & Cole LLP Financial Centre 695 East Main Street Stamford, CT 06904 Attention: Gregory E. Harmer, Esq. Telephone: 203.462.7524 Facsimile: 203.462.7599 (g) The definition of "Acquisition Loan Commitment" contained in Annex A to the Credit Agreement is deleted and the following is substituted therefor: "Acquisition Loan Commitment" means the commitment of the --------------------------- Lender to make Acquisition Loan Advances in an aggregate principal amount up to $25,000,000, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. (h) The amount "$15,000,000" contained in the definition of Acquisition Loan Note in Annex A to the Credit Agreement is deleted and the amount "$25,000,000" is substituted therefor. (i) The definition of "Drawdown Fee" contained in Annex A to the Credit Agreement is deleted. 2 (j) Subparagraph (ix) of the definition of "Eligible Accounts" contained in Annex A to the Credit Agreement is deleted and the following is substituted therefor: (ix) it is the obligation of an Account Debtor located in a foreign county; 2. Modification Fee. In consideration of the Lender's execution, ---------------- delivery and performance of this Agreement, including, without limitation, the increase of the Acquisition Loan Commitment, the Borrower is simultaneously paying to the Lender the amount of $100,000 in immediately available funds (the "Modification Fee"). ---------------- 3. Conditions Precedent. The Lender's obligations under this -------------------- Agreement are contingent upon the Lender's receipt of the following, all in form, scope and content acceptable to the Lender in its sole discretion: (a) Amendment Agreement. This Agreement duly executed by the ------------------- parties hereto; (b) Allonge. The First Allonge to Acquisition Loan Note, duly ------- drawn to the order of the Lender; (c) Modification Fee. The payment to the Lender of the ---------------- Modification fee; and (d) Other. Such other agreements and instruments as the Lender ----- shall require. 4. Reaffirmation By Borrower. The Borrower acknowledges and agrees, ------------------------- and reaffirms, that it is legally, validly and enforceably indebted to the Lender under the Notes without defense, counterclaim or offset, and that it is legally, validly and enforceably liable to the Lender for all costs and expenses of collection and attorneys' fees related to or in any way arising out of this Agreement, the Credit Agreement, the Notes and the other Loan Documents. The Borrower hereby restates and agrees to be bound by all covenants contained in the Credit Agreement and the other Loan Documents and hereby reaffirms that all of the representations and warranties contained in the Credit Agreement remain true and correct in all material respects. The Borrower represents that except as set forth in the Credit Agreement, there are not pending or to the Borrower's knowledge threatened, legal proceedings to which the Borrower or any of the Guarantors is a party, or which materially or adversely affect the transactions contemplated by this Agreement or the ability of the Borrower or any of the Guarantors to conduct its business. The Borrower acknowledges and represents that the resolutions of the Borrower dated on or about November 7, 1997, remain in full force and effect and have not been amended, modified, rescinded or otherwise abrogated. 3 5. Reaffirmation by Guarantors. Each of the Guarantors acknowledges --------------------------- that each is legally and validly indebted to the Lender under the Guaranty of each without defense, counterclaim or offset. Each of the Guarantors affirms that the Guaranty of each remains in full force and effect and acknowledges that the Guaranty of each encompasses, without limitation, the Obligations, as modified herein. 6. Reaffirmation of Collateral. The Borrower reaffirms the liens, --------------------------- security interests and pledges granted pursuant to the Loan Documents to secure the obligations of each thereunder. 7. Other Representations By Borrower and Guarantors. The Borrower ------------------------------------------------ and each Guarantor represents and confirms that (a) no Default or Event of Default has occurred and is continuing and the Lender has not given its consent to or waived any Default or Event of Default and (b) the Credit Agreement and the other Loan Documents are in full force and effect and enforceable against the Borrower and each Guarantor in accordance with the terms thereof. The Borrower and each Guarantor represents and confirms that as of the date hereof, each has no claim or defense (and the Borrower and each Guarantor hereby waives every claim and defense) against the Lender arising out of or relating to the Credit Agreement and the other Loan Documents or the making, administration or enforcement of the Loans and the remedies provided for under the Loan Documents. 8. No Waiver By Lender. The Borrower and each Guarantor ------------------- acknowledges that (a) by the execution by each of this Agreement, the Lender is not waiving any Default, whether now existing or hereafter occurring, disclosed or undisclosed, by the Borrower under the Loan Documents and (b) the Lender reserves all rights and remedies available to it under the Loan Documents and otherwise. 4 The parties have executed this Agreement as of the date first above written. Borrower: -------- BUTLER SERVICE GROUP, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Michael C. Hellriegel Title: SeniorVice President - Finance Parent: ------ BUTLER INTERNATIONAL, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Michael C. Hellriegel Title: Senior Vice President - Finance Subsidiaries: ------------ BUTLER TECHNOLOGY SOLUTIONS, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer BUTLER TELECOM, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer BUTLER SERVICES, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer 5 BUTLER UTILITY SERVICE, INC. By /s/ Michael C. Hellriegel ------------------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer Lender: ------ GENERAL ELECTRIC CAPITAL CORPORATION By /s/ Peggy Erlenkotter ------------------------------------------- Name: Peggy Erlenkotter Title: Duly Authorized Signatory 6 EX-10.37(B) 3 SECOND AMENDMENT AGREEMENT EXHIBIT 10.37(b) SECOND AMENDMENT AGREEMENT -------------------------- AGREEMENT, dated as of August 31, 1998, among BUTLER SERVICE GROUP, INC., a New Jersey corporation, BUTLER INTERNATIONAL, INC., a Maryland corporation, the "Subsidiaries" signatory hereto, and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation. Background ---------- A. Capitalized terms not otherwise defined shall have the meanings ascribed to them in the Amended and Restated Credit Agreement dated as of November 7, 1997, between Butler Service Group, Inc. and General Electric Capital Corporation (as amended, modified or supplemented from time to time, the "Credit Agreement"). ---------------- B. The Borrower has requested that the Lender, among other things, (i) increase, from $25,000,000 to $35,000,000, the Acquisition Loan Commitment and (ii) modify the interest rates payable under the Loans. C. The Lender has agreed to the Borrower's requests subject to the terms and conditions of this Agreement. Agreement --------- In consideration of the Background, which is incorporated by reference, the parties, intending to be legally bound, agree as follows: 1. Modifications. All the terms and provisions of the Credit ------------- Agreement and the other Loan Documents shall remain in full force and effect except as follows: (a) The figure "$25,000,000" contained in the "Background" section of the Credit Agreement is deleted and the figure "$35,000,000" is substituted therefor. (b) Section 2.1(b)(ii) of the Credit Agreement is deleted and the ------------------ following is substituted therefor: (ii) Ability to Borrow and Reborrow. Until the Acquisition ------------------------------ Loan Commitment Termination Date, as long as the Borrower is in compliance with all the terms and conditions of this Agreement, and no Default or Event of Default exists, the Borrower may borrow and repay Acquisition Loan funds. With respect to each Acquisition Loan, the Borrower may from time to time request that the Lender "restore" to the Acquisition Loan Commitment all amounts which the Borrower has repaid under the Acquisition Loans pursuant to subsection (iv) below and, upon such restoration, the Borrower --------------- shall have the right, subject to the first sentence of this subsection (ii), to request that the Lender make Acquisition --------------- Loans from such restored amounts without the imposition of any additional fee to the Borrower, provided that in no event shall aggregate outstanding Acquisition Loans exceed the Acquisition Loan Commitment. (c) The third sentence of Section 2.1(b)(iv) of the Credit Agreement ------------------ is deleted and the following is substituted therefor: The Borrower shall repay the principal amount of each Acquisition Loan Advance in equal quarterly installments in the amount of such Acquisition Loan Advance multiplied by a fraction, the numerator of which shall be one (1) and the denominator of which shall be twenty-eight (28), rounded upward to the nearest whole Dollar and such payments shall commence on the first Business Day of the first Fiscal Quarter after the date of such Acquisition Loan Advance and shall continue on the first Business Day of each succeeding Fiscal Quarter; notwithstanding the foregoing, all --------------- --- --------- amounts outstanding under each Acquisition Loan Advance shall be due and payable in full, without notice or demand on the sooner to occur of (x) the Acquisition Loan Maturity Date and (y) the occurrence of an Event of Default. (d) Section 3.1(b) of the Credit Agreement is deleted and the -------------- following is substituted therefor: (b) Interest Rate. The Borrower shall be obligated to pay ------------- interest to the Lender on the outstanding balance of the Revolving Loan at an annual floating rate equal to (i) with respect to the Working Capital Revolving Loan, the Index Rate plus the Applicable Margin, and (ii) with respect to the Acquisition Loan, two hundred fifty basis points (2.50%) above the Index Rate. (e) Section 3.2(c) of the Credit Agreement is deleted and the -------------- following is substituted therefor: (c) Termination. The Borrower may, at any time on 90 days ----------- prior written notice to the Lender, terminate the Commitments, provided that upon such termination, (i) the Borrower -------- simultaneously pays to the Lender the Early Termination Fee and (ii) all Loans and other Obligations shall be immediately due and payable in full. Notwithstanding the foregoing, the Borrower shall not be obligated to pay the Early Termination Fee if (x) the Borrower has presented 2 to the Lender in writing a detailed request for a modification of certain of the terms and conditions of the Loan Documents (the "Request"), (y) the Lender, within 30 days after receipt of the ------- Request, notifies the Borrower that it is unwilling to modify the Loan Documents in accordance with the Request, and (z) the Borrower, within 60 days after the Lender's notification, effects a refinance of the Obligations on substantially the terms and conditions contained in the Request. (f) The amount "one and one-half percent (1.5%)" contained in Section ------- 3.9 (c) of the Credit Agreement is deleted and the amount "one and one-quarter - ------- percent (1.25%)" is substituted therefor. (g) The definition of "Acquisition Loan Commitment" contained in Annex ----- A to the Credit Agreement is deleted and the following is substituted therefor: - - "Acquisition Loan Commitment" means the commitment of the --------------------------- Lender to make Acquisition Loan Advances in an aggregate principal amount up to $35,000,000, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. (h) The date "July 1, 2001" contained in the definition of "Acquisition Loan Commitment Termination Date" contained in Annex A to the ------- Credit Agreement is deleted and the date "November 1, 2001" is substituted therefor. (i) The following is added after the definition of "Acquisition Loan Commitment Termination Date" contained in Annex A to the Credit Agreement: ------- "Acquisition Loan Maturity Date" means July 1, 2002. ------------------------------ (j) The amount "$15,000,000" contained in the definition of "Acquisition Loan Note" in Annex A to the Credit Agreement is deleted and the ------- amount "$35,000,000" is substituted therefor. (k) The definition of "Applicable Margin" contained in Annex A to the ------- Credit Agreement is deleted and the following is substituted therefor: "Applicable Margin" means the rate per annum set forth under the ----------------- relevant column heading below corresponding to the Borrower's attainment of the following: 3
Fixed Charge Interest Charge Coverage Applicable Tangible Net Worth Coverage Ratio Ratio Margin - ------------------- -------------- ------------------------ ---------- (i) $24,000,000 or less Greater than or equal Greater than or equal to 1.50% to 1.3 to 1.0 1.5 to 1.0 (ii) Greater than Greater than or equal Greater than or equal to 1.35% $24,000,000 but to 1.3 to 1.0 1.5 to 1.0 less than or equal to $26,000,000 (iii) Greater than Greater than or equal Greater than or equal to 1.25% $26,000,000 but to 1.3 to 1.0 1.5 to 1.0 less than or equal to $32,000,000 (iv) Greater than Greater than or equal Greater than or equal to 1.15% $32,000,000 but to 1.3 to 1.0 1.5 to 1.0 less than or equal to $37,000,000 (v) Greater than Greater than or equal Greater than or equal to 1.00% $37,000,000 to 1.3 to 1.0 1.5 to 1.0
Notwithstanding the foregoing, if, as at a Determination Date, the Fixed Charge Coverage Ratio is less than 1.3 to 1.0 or the Interest Coverage Ratio is less than 1.5 to 1.0, the Applicable Margin shall be 2.00%. For purposes of the foregoing, any change in the Applicable Margin based on the Borrower's attainment of all of the financial tests listed across from (i), (ii), (iii), (iv) or (v) above shall be effective for all purposes on and after the first day of the first month after the Determination Date and such Applicable Margin may change based on the financial results of the Borrower as at each succeeding Determination Date. (For purposes of illustration only, if, as at a Determination Date, the Borrower attained Tangible Net Worth of $28,000,000, a Fixed Charge Coverage Ratio of 1.35 to 1.0 and an Interest Coverage Ratio of 1.75 to 1.0, the Applicable Margin would be 1.25%). (l) The date "July 1, 2001" contained in the definition of "Working Capital Loan Commitment Termination Date" in Annex A to the Credit Agreement is ------- deleted and the date "July 1, 2003" is substituted therefor. 2. Modification Fee. In consideration of the Lender's execution, ---------------- delivery and performance of this Agreement, including, without limitation, the increase of the Acquisition Loan Commitment, the Borrower is simultaneously paying to the Lender the amount of $100,000 in immediately available funds (the "Modification Fee"). ---------------- 4 3. Conditions Precedent. The Lender's obligations under this -------------------- Agreement are contingent upon the Lender's receipt of the following, all in form, scope and content acceptable to the Lender in its sole discretion: (a) Amendment Agreement. This Agreement duly executed by the ------------------- parties hereto; (b) Allonge. The Second Allonge to Acquisition Loan Note, duly ------- drawn to the order of the Lender; (c) Modification Fee. The payment to the Lender of the ---------------- Modification Fee; (d) Opinion of Counsel. The opinion of counsel to the Borrower ------------------ and its Affiliates; (e) Board Resolutions. A certificate of the Secretary or an Assistant ----------------- Secretary of the Borrower certifying the resolutions adopted by the Borrower's Board of Directors approving the increase in borrowing as more fully set forth in this Agreement; and (f) Other. Such other agreements and instruments as the Lender ----- shall require. 4. Reaffirmation By Borrower. The Borrower acknowledges and agrees, ------------------------- and reaffirms, that it is legally, validly and enforceably indebted to the Lender under the Notes without defense, counterclaim or offset, and that it is legally, validly and enforceably liable to the Lender for all costs and expenses of collection and attorneys' fees related to or in any way arising out of this Agreement, the Credit Agreement, the Notes and the other Loan Documents. The Borrower hereby restates and agrees to be bound by all covenants contained in the Credit Agreement and the other Loan Documents and hereby reaffirms that all of the representations and warranties contained in the Credit Agreement remain true and correct in all material respects. The Borrower represents that except as set forth in the Credit Agreement, there are not pending or to the Borrower's knowledge threatened, legal proceedings to which the Borrower or any of the Guarantors is a party, or which materially or adversely affect the transactions contemplated by this Agreement or the ability of the Borrower or any of the Guarantors to conduct its business. The Borrower acknowledges and represents that the resolutions of the Borrower dated on or about November 7, 1997, remain in full force and effect and have not been amended, modified, rescinded or otherwise abrogated. 5. Reaffirmation by Guarantors. Each of the Guarantors acknowledges --------------------------- that each is legally and validly indebted to the Lender under the Guaranty of each without defense, counterclaim or offset. Each of the Guarantors affirms that the Guaranty of each 5 remains in full force and effect and acknowledges that the Guaranty of each encompasses, without limitation, the Obligations, as modified herein. 6. Reaffirmation of Collateral. The Borrower and each of the --------------------------- Guarantors reaffirms the liens, security interests and pledges granted pursuant to the Loan Documents to secure the obligations of each thereunder. 7. Other Representations By Borrower and Guarantors. The Borrower ------------------------------------------------ and each Guarantor represents and confirms that (a) no Default or Event of Default has occurred and is continuing and the Lender has not given its consent to or waived any Default or Event of Default and (b) the Credit Agreement and the other Loan Documents are in full force and effect and enforceable against the Borrower and each Guarantor in accordance with the terms thereof. The Borrower and each Guarantor represents and confirms that as of the date hereof, each has no claim or defense (and the Borrower and each Guarantor hereby waives every claim and defense) against the Lender arising out of or relating to the Credit Agreement and the other Loan Documents or the making, administration or enforcement of the Loans and the remedies provided for under the Loan Documents. 8. No Waiver By Lender. The Borrower and each Guarantor ------------------- acknowledges that (a) by the execution by each of this Agreement, the Lender is not waiving any Default, whether now existing or hereafter occurring, disclosed or undisclosed, by the Borrower under the Loan Documents and (b) the Lender reserves all rights and remedies available to it under the Loan Documents and otherwise. 6 The parties have executed this Agreement as of the date first above written. Borrower: -------- BUTLER SERVICE GROUP, INC. By /s/ Michael C. Hellriegel --------------------------------- Michael C. Hellriegel Title: SeniorVice President - Finance Parent: ------ BUTLER INTERNATIONAL, INC. By /s/ Michael C. Hellriegel --------------------------------- Michael C. Hellriegel Title: Senior Vice President - Finance Subsidiaries: ------------ BUTLER TECHNOLOGY SOLUTIONS, INC. By /s/ Michael C. Hellriegel --------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer BUTLER TELECOM, INC. By /s/ Michael C. Hellriegel --------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer BUTLER SERVICES, INC. By /s/ Michael C. Hellriegel --------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer 7 BUTLER UTILITY SERVICE, INC. By /s/ Michael C. Hellriegel --------------------------------- Name: Michael C. Hellriegel Title: Senior Vice President and Chief Financial Officer Lender: ------ GENERAL ELECTRIC CAPITAL CORPORATION By /s/ Martin Greenberg --------------------------------- Name: Martin Greenberg Title: Duly Authorized Signatory 8 EX-10.40 4 SECURED NON-RECOURSE PROMISSORY NOTE EXHIBIT 10.40 SECURED NON-RECOURSE PROMISSORY NOTE January 28, 1998 $168,278.74 FOR VALUE RECEIVED, Hugh G. McBreen, an individual residing at 15 Kensington Dr., N. Barrington, IL 60010 ("Payor"), hereby promises to pay to Butler International, Inc., a Maryland corporation ("Payee" or the "Company"), or its assigns, the principal amount of one hundred sixty-eight thousand two hundred seventy-eight dollars and 74 cents ($168,278.74). Certain capitalized terms used in this Secured Non-Recourse Promissory Note (the "Note") are defined in Section 3 below. This Note is being made by Payor in order to finance the Payor's purchase of (i) 20,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock") from the Company pursuant to a warrant agreement made between the Payor and the Company on May 26, 1993; (ii) 10,000 shares of Common Stock from the Company pursuant to the 1992 Stock Option Plan for Non-employee Directors; and (iii) 8,333 shares of Common Stock from the Company pursuant to the 1990 Directors Stock Option Plan. This Note is secured by the Pledged Collateral under the terms of the Stock Pledge Agreement and is entitled to the benefits thereof. 1. Payment of Note. (a) Maturity Date. The entire unpaid principal balance of this Note (together with interest accrued thereon) shall become due and payable on the seventh anniversary of the date of this Note; (b) Interest. No interest shall accrue on this Note; and (c) Non-Recourse Obligations. Notwithstanding anything to the contrary stated herein, Payee agrees that for payment of this Note it will look solely to the Pledged Collateral or such other collateral, if any, it may now or hereafter be given to secure the payment of this Note, and no other assets of Payor shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Payee, or for any payment required to be made under this Note. 2. Events of Default. (a) Definition. For purposes of this Note, an Event of Default shall be deemed to have occurred if: (i) Payor fails to pay when due any amount (whether interest, principal or other amount) then due or payable on this Note for a period of thirty (30) days after the holder of this Note notifies Payor of such failure; (ii) Payor fails to perform or observe any other provision contained in this Note or the Stock Pledge Agreement and such failure continues unremedied for a period of thirty (30) days after the holder of this Note notifies Payor of such breach; or (iii) Payor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due; or an order, judgment or decree is entered adjudicating Payor bankrupt or insolvent; or any order for relief with respect to Payor is entered under the Bankruptcy Code; or Payor petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator, or commences any proceeding relating to himself under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against Payor and either (a) Payor in writing indicates his approval thereof, consents thereto or acquiesces therein or (b) such petition, application or proceeding is not dismissed within ninety (90) days. (b) Consequences of Events of Default. (i) If any Event of Default (other than the type described in paragraph 2(a)(iii) hereof) has occurred, the holder of this Note may demand (by written notice delivered to Payor) immediate payment of all or any portion of the outstanding principal amount of this Note, which amount shall become due and payable upon such demand. If an Event of Default of the type described in paragraph 3(a) (iii) has occurred, then all of the outstanding principal amount of this Note shall automatically be immediately due and payable without any action on the part of the holder of this Note. (ii) Each holder of this Note shall also have any other rights which such holder may have been afforded under this Note or the Stock Pledge Agreement at any time and any other rights which such holder may have pursuant to applicable law. 3. Certain Defined Terms. As used in this Note, the following terms shall have the following meanings: "Bankruptcy Code" means the Bankruptcy Code of 1978, as amended. "Pledged Collateral" means the Common Stock pledged by Payor under the Stock Pledge Agreement as security for Payor's performance of this obligations under this Note. "Stock Pledge Agreement" means the Stock Pledge Agreement dated the date hereof between Payor and the Company. 4. Amendment and Waiver. Except as otherwise expressly provided herein, the provisions of this Note may not be amended and Payor may not take any action prohibited herein, or omit to perform any act required to be performed by him herein, unless Payor has obtained the 2 prior written consent of the holder of this Note. 5. Cancellation. After all obligations for the payment of money arising under this Note have been paid in full, this Note will be surrendered to Payor for cancellation. 6. Notices; Place of Payment. Any notice hereunder shall be in writing and shall be delivered by recognized courier, facsimile or certified mail, return receipt requested, and shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered or facsimiled to such party at its address set forth below (or at such other address as such party shall specify in writing): If to Payor: Hugh G. McBreen 15 Kensington Dr. N. Barrington, IL 60010 If to Payee: Butler International, Inc. 110 Summit Avenue Montvale, New Jersey 07645 Attn: Chief Financial Officer All payments to be made under this Note are to be delivered to the holder at such address or to the attention of such person as the holder may designate by prior written notice to Payor. At the request of the holder of this Note, all payments shall be made by wire transfer of immediately available funds to an account which the holder may designate from time to time. 7. Waiver of Presentment, Demand, Dishonor. (a) Payor hereby waives presentment for payment, protest, demand, notice of protest, notice of nonpayment and diligence with respect to this Note, and waives and renounces all rights to the benefits of any statute of limitations or any moratorium, appraisement, exemption, or homestead now provided or that hereafter may be provided or allowed under the Bankruptcy Code, both as to himself and as to all of his property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof. (b) No failure on the part of any holder of this Note to exercise any right or remedy hereunder with respect to Payor, whether before or after the happening of an Event of Default, shall constitute waiver of any such Event of Default or of any other Event of Default by such holder or on behalf of any other holder. No failure to accelerate the debt of Payor evidenced hereby by reason of an Event of Default or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or shall be deemed to be a novation of this Note or a reinstatement of such debt evidenced hereby or a waiver of such right of 3 acceleration or any other right, or be construed so as to preclude the exercise of any right any holder of this Note may have, whether by the laws of the state governing this Note, by agreement or otherwise, and Payor hereby expressly waives the benefit of any statute or rule of law or equity that would produce a result contrary to or in conflict with the foregoing. 8. Governing Law. The validity, construction and interpretation of this Note shall be governed by and construed in accordance with the internal laws of the State of New Jersey. 9. Transfer; Assignment. This Note may not be negotiated, assigned or transferred by Payor at any time, except with Payee's prior written consent. This Note may not be negotiated, assigned or transferred by Payee except in connection with the sale of all or substantially all of Payee's assets. 10. Entire Agreement. This Secured Non-Recourse Promissory Note and the Stock Pledge Agreement contain the entire agreement of the parties and supersedes all other agreements, understandings and representations, oral or otherwise, between the parties with respect to the matters contained herein. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, administrators, fiduciaries, next of kin and executors. Section headings used herein are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, Payor has executed and delivered this Secured Non-Recourse Promissory Note on the date first written above. /s/ Hugh G. McBreen ------------------------------------ Hugh G. McBreen 4 EX-10.41 5 STOCK PLEDGE AGREEMENT EXHIBIT 10.41 STOCK PLEDGE AGREEMENT STOCK PLEDGE AGREEMENT, dated as of January 28, 1998, made by and between Hugh G. McBreen, an individual residing at 15 Kensington Dr., N. Barrington, Illinois 60010 (the "Pledgor"), to Butler International, Inc., a Maryland corporation, (the "Pledgee" or the "Company"). W I T N E S S E T H: WHEREAS, the Pledgor is the record and beneficial owner of (i) 20,000 shares of the issued and outstanding shares of common stock, $.001 par value, of the Company (the "Common Stock"), acquired in connection with the Pledgor's exercise of certain stock warrants granted pursuant to an agreement between the Company and the Pledgor dated May 26, 1993, (ii) 10,000 shares of Common Stock acquired in connection with the Pledgor's exercise of a certain stock option granted pursuant to the 1992 Stock Option Plan for Non-Employee Directors; and (iii) 8,333 shares of Common Stock acquired in connection with the Pledgor's exercise of a certain stock option granted pursuant to the 1990 Directors Stock Option Plan, and Pledgor is also the record and beneficial owner of 48,929 additional shares of Common Stock and 617,200 shares of Series B 7% Cumulative Convertible Preferred Stock (collectively, the "Pledged Shares"); WHEREAS, the Pledgor has agreed to secure, to the extent hereinafter set forth, the payment in full and the performance of the obligations of the Pledgor to the Pledgee under a non-recourse promissory note, dated as of the date hereof, in the amount of $168,278.74 (such promissory note as it may hereafter be amended or otherwise modified from time to time, the "Note"); and the capitalized terms used herein, and not otherwise defined herein, are used with the meanings ascribed to them in the Note); and WHEREAS, the Pledgor hereby pledges and grants a lien and security interest to Pledgee in the Pledged Shares to secure the Pledgor's obligations under the Note. NOW, THEREFORE, in consideration of the premises and in order to induce the Pledgee to make the loan under the Note, the Pledgor hereby agrees as follows: SECTION 1. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in the Pledged Shares and certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares, and all proceeds thereof, additions thereto and changes therein (the "Pledged Collateral"). SECTION 2. Security for Obligations; Non-Recourse Obligations. (a) This Agreement secures the payment of all liabilities, obligations and indebtedness of any and every kind and nature 1 heretofore, now or hereafter owing, arising, due or payable from the Pledgor to the Pledgee pursuant to the Note, however evidenced, created, incurred, acquired or owing, whether primary or secondary, direct or indirect, joint or several, contingent or fixed, or otherwise, including without limitation, obligations of performance, and whether arising under any other agreements, documents or instruments entered into in connection with the Note, now or hereafter given by the Pledgor to the Pledgee and whether arising by book entry, agreement or operation of law and whether or not evidenced by promissory notes or other evidences of indebtedness (all such obligations of the Pledgor being the "Obligations"). (b) It is expressly understood and agreed that it is the intention of the parties that the Obligations of the Pledgor under the Note are non-recourse obligations of the Pledgor and that the Pledgee's right to recover against the Pledgor hereunder in respect of such Obligations shall be limited solely to the Pledged Collateral. SECTION 3. Delivery and Release of Pledged Collateral. (a) All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Pledgee. The Pledgee shall hold the Pledged Collateral in the form in which it is delivered to the Pledgee unless and until the occurrence and continuation of an Event of Default under the Note (unless such Event of Default is waived by the Pledgee) or as otherwise provided in Section 3(b) below. Upon the occurrence and continuance of an Event of Default under the Note, the Pledgee shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Pledgee or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a) below. In addition, the Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. (b) On March 31, 1998, and on each March 31, June 30 and September 30 thereafter for the term of this Agreement (each such date a "Determination Date"), the Pledgee shall reasonably determine the aggregate fair market value of the Pledged Collateral (the "Market Value"). If on such Determination Date the Market Value exceeds two hundred percent (200%) of the aggregate principal amount of the Note on such Determination Date (the "Base Value"), Pledgee shall, unless otherwise requested by Pledgor, automatically release to the Pledgor such portion of the Pledged Collateral the aggregate fair market value of which equals the Market Value less 200% of the Base Value, free and clear of any and all encumbrances hereunder, and such portion shall no longer constitute Pledged Collateral. For purposes of this paragraph 3(b), "fair market value" of the Common Stock shall mean the closing price of the Common Stock as quoted on NASDAQ at the end of the last business day preceding the Determination Date as reported in the New York edition of The Wall Street Journal, and the "fair market value" of the Series B 7% Cumulative Convertible Preferred Stock shall be determined with reference to the fair market value of the Common Stock and the conversion ratio then in effect with respect to the Series B 7% 2 Cumulative Convertible Preferred Stock. SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, adverse claim, security interest, option or other charge or encumbrance, except for the security interest created by this Agreement. (b) The pledge of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations. (c) Neither the execution or delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with or performance of the terms and conditions of this Agreement by the Pledgor is prevented by, limited by, conflicts with or will result in the breach or violation of or a default under the terms, conditions or provisions of (i) any mortgage, security agreement, indenture, evidence of indebtedness, loan or financing agreement, trust agreement, stockholder agreement, or other agreement or instrument to which the Pledgor is a party or by which he is bound or (ii) any provision of law, any order of any court or administrative agency or any rule or regulation applicable to the Pledgor, subject to applicable state and federal securities laws. (d) This Agreement constitutes the legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms. (e) There are no actions, suits or proceedings (whether or not purportedly on behalf of the Pledgor) pending or, to the best knowledge of the Pledgor, threatened affecting the Pledgor that involve the Pledged Collateral. (f) All consents or approvals, if any, required as a condition precedent to or in connection with the due and valid execution, delivery and performance by the Pledgor of this Agreement have been obtained, subject to applicable state and federal securities laws. SECTION 5. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Pledgee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Pledgee to exercise and enforce its rights and remedies hereunder, subject to applicable state and federal securities laws, with respect to any Pledged Collateral. SECTION 6. Voting Rights; Dividends, Etc. (a) So long as no Event of Default under 3 the Note shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Note. (ii) The Pledgor shall be entitled to receive and retain any and all dividends and interest paid, in respect of the Pledged Collateral; provided, however, that any and all: (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral (whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the Company, or any merger, consolidation, acquisition or other exchange of assets or securities to which the Company may be a party, or any conversion, call or redemption, or otherwise); (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus; and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral, shall be, at the option and request of the Pledgee, forthwith delivered to the Pledgee to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Pledgee, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Pledgee as Pledged Collateral in the same form as so received (with any necessary endorsement). (iii) The Pledgee shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which he is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which he is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default under the Note, and at the election of Pledgee: (i) All rights of the Pledgor to exercise the voting and other consensual rights which he would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividends and interest payments which he would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease for the period subsequent to the Event of Default, and all such rights 4 shall thereupon become vested in the Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments. (ii) All dividends and interest payments which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Pledgee, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Pledgee and Pledged Collateral in the same form as so received (with any necessary endorsement). (c) In the event that during the term of this Agreement subscription warrants or other rights or options shall be issued in connection with the Pledged Collateral, all such stock warrants, rights and options shall forthwith be assigned by the Pledgor to the Pledgee and said stock warrants, rights and options shall be, and, to the extent exercised by Pledgor, all new stock issued pursuant thereto shall be pledged by Pledgor to Pledgee to be held as, and shall be deemed to be part of, the "Pledged Collateral" under the terms of this Agreement in the same manner as the shares of stock originally pledged hereunder. SECTION 7. Transfers and Other Liens; Additional Shares. The Pledgor agrees that he will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. SECTION 8. Litigation Respecting Pledged Shares. In the event any action, suit or other proceeding at law, in equity, in arbitration or before any other authority involving or affecting the Pledged Collateral becomes known to or is contemplated by the Pledgor, the Pledgor shall give the Pledgee immediate notice thereof and if the Pledgor is contemplating such action, suit or other proceeding, the Pledgor shall receive the written consent of the Pledgee prior to commencing any such action, suit or other proceeding. SECTION 9. Pledgee Appointed Attorney-in-Fact. (a) If an Event of Default shall occur and be continuing under the Note (unless such Event of Default is waived by the Pledgee), Pledgor hereby appoints the Pledgee (and any officer or agent of the Pledgee with full power of substitution and revocation) the Pledgor's true and lawful attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Pledgee's discretion to take any action and to execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, (i) to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; and (ii) to transfer the Pledged Collateral on the books of the Company, in whole or in part, to the name of the Pledgee or such other person or persons as the Pledgee may designate; take possession of and endorse any one or more checks, drafts, bills of exchange, money orders or any other documents received on account of the Pledged 5 Collateral; collect, sue for and give acquittances for moneys due on account of the foregoing; withdraw any claims, suits, or proceedings pertaining to or arising out of the foregoing; execute and record or file on behalf of the Pledgor any evidence of a security interest contemplated by this Agreement or any refiling, continuation or extension thereof; take any other action contemplated by this Agreement; and sign, execute, acknowledge, swear to, verify, deliver, file, record and publish any one or more of the foregoing. (b) The powers of attorney which shall be granted pursuant to Section 9(a) and all authority thereby conferred shall be granted and conferred solely to protect the Pledgee's interests in the Pledged Collateral and shall not impose any duty upon the attorney-in-fact to exercise such powers. Such powers of attorney shall be irrevocable prior to the performance in full of the Obligations and shall not be terminated prior thereto or affected by any act of the Pledgor or other person or by operation of law, including, but not limited to, the dissolution, death, disability or incompetency of any person, the termination of any trust, or the occurrence of any other event, and if the Pledgor or any other person should be dissolved or die or become disabled or incompetent or any other event should occur before the performance in full of the Obligations and termination of this Agreement, such attorney-in-fact shall nevertheless be fully authorized to act under such powers of attorney as if such dissolution, death, disability or incompetency or other event had not occurred and regardless of notice thereof. (c) Each person who shall be a transferee of the beneficial ownership of the Pledged Collateral, by the acceptance of such a transfer, shall be deemed to have irrevocably appointed the Pledgee, with full power of substitution and revocation, such person's true and lawful attorney-in-fact in such person's name and otherwise to do any and all acts permitted to, and to exercise any and all powers herein conferred upon, such attorney-in-fact. SECTION 10. Reasonable Care. The Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Pledgee accords its own property, it being understood that the Pledgee shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Pledgee has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 11. Remedies Upon Event of Default. (a) Subject to Section 2(b) hereof, if any Event of Default under the Note shall have occurred and be continuing (unless such Event of Default is waived by the Pledgee), for the period subsequent to the Event of Default: (i) The Pledgee may receive and retain all payments of any kind with respect to the Pledged Collateral and may notify the obligors or other parties, if any, interested in any items of Pledged Collateral of the interest of the Pledgee therein and of any action proposed to be taken with respect thereto, and inform any of those parties that all payments otherwise payable to the Pledgor 6 with respect thereto shall be made to the Pledgee until all amounts due under the Note have been paid in full; (ii) The Pledgee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of New Jersey at that time, and the Pledgee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Pledgee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Pledgee may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Pledgee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned; (iii) Any cash held by the Pledgee as Pledged Collateral and all cash proceeds received by the Pledgee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Pledgee, by held by the Pledgee as collateral for, and/or then or at any time thereafter applied in whole or in part by the Pledgee against, all or any part of the Obligations in such order as the Pledgee shall elect. Any surplus of such cash or cash proceeds held by the Pledgee and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus; and (iv) The Pledgee may otherwise use or deal from time to time with the Pledged Collateral, in whole or in part, in all respects as if the Pledgee were the outright owner thereof. (b) Except as set forth in Section 11(a)(iii), the Pledgee shall have the sole right to determine the order in which Obligations shall be deemed discharged by the application of the Pledged Collateral or any other property or money held hereunder or any amount realized thereon. Any requirement of reasonable notice imposed by law shall be deemed met if such notice is in writing and is mailed, telegraphed or hand delivered to the Pledgor at least three days prior to the sale, disposition or other event giving rise to such notice requirement. (c) The Pledgee shall collect the cash proceeds received from any sale or other disposition or from any other source contemplated by subsection (a) above and shall apply the full proceeds in accordance with the provisions of this Agreement. (d) Notwithstanding the foregoing, none of the provisions of this Section 11 shall confer on 7 the Pledgee any rights or privileges that are not permissible under applicable law. The Pledgee may effect the provisions of this Section 11 only in compliance with all applicable federal and state securities laws. (e) In connection with the provisions of this Agreement, the Pledgor from time to time shall promptly execute and deliver, or cause to be executed and delivered, to the Pledgee such documents and instruments, shall join in such notices and shall take, or cause to be taken, such other lawful actions as the Pledgee shall deem reasonably necessary or desirable to enable it to exercise any of the rights with respect to the Pledged Collateral granted to it pursuant to this Agreement. SECTION 12. Waivers and Amendments, Etc. The rights and remedies given hereby are in addition to all others however arising, but it is not intended that any right or remedy be exercised in any jurisdiction in which such exercise would be prohibited by law. No action, failure to act or knowledge of the Pledgee shall be deemed to constitute a waiver of any power, right or remedy hereunder, nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other power, right or remedy. Any waiver or consent respecting any covenant, representation, warranty or other term or provision of this Agreement shall be effective only in the specified instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Pledgee at any time or times to require performance of, or to exercise its rights with respect to, any representation, warranty, covenant or other term or provision of this Agreement in no manner shall affect its right at a later time to enforce any such provision. No notice to or demand on a party in any case shall entitle such party to any other or further notice or demand in the same, similar, or other circumstances. Any right or power of the Pledgee hereunder respecting the Pledged Collateral and any other property or money held hereunder may at the option of the Pledgee be exercised as to all or any part of the same and the term "Pledged Collateral" wherever used herein, unless the context clearly requires otherwise, shall be deemed to mean (and shall be read as) the "Pledged Collateral and any other property or money held hereunder or any part thereof". This Agreement shall not be amended nor shall any right hereunder be deemed waived except by a written agreement expressly setting forth the amendment or waiver and signed by the party against whom or which such amendment or waiver is sought to be charged. SECTION 13. Notices. All notices hereunder shall be given and deemed received as set forth in the Note. SECTION 14. Continuing Security Interest and Reinstatement. (a) This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) be binding upon the Pledgor, his heirs, successors and assigns, and (ii) inure to the benefit of the Pledgee and its successors, transferees and assigns. Upon the payment in full or performance of the Obligations, the Pledgor shall be entitled to the return, upon his request and at his expense, of such of the Pledged Collateral as shall not have been released, sold or otherwise applied pursuant to the terms 8 of the Agreement. (b) If at any time after payment in full by the Pledgor of all Obligations and termination of the pledge granted in this Agreement, any payments on Obligations theretofore made by the Pledgor must be disgorged by the Pledgee for any reason whatsoever, this Agreement and the pledge granted hereunder shall be reinstated as to all disgorged payments as though such payments had not been made, and the Pledgor shall sign and deliver to Pledgee all documents and things necessary to reperfect the terminated pledge. SECTION 15. Severability. In the event that any provision of this Agreement shall be determined to be superseded, invalid or otherwise unenforceable pursuant to applicable law, such determination shall not affect the validity of the remaining provisions of this Agreement, and the remaining provisions of this Agreement shall be enforced as if the invalid provision were deleted. SECTION 16. Survival of Representations, Etc. All representations, warranties, covenants and other agreements made herein shall survive the execution and delivery of this Agreement and shall continue in full force and effect until all amounts due under the Note have been paid in full. This Agreement shall remain and continue in full force and effect without regard to any modification, execution, renewal, amendment or waiver of any provision of the Note. SECTION 17. Termination and Return of Pledged Stock. This Agreement shall continue in full force and effect until all of the Obligations shall have been paid and satisfied or until the release, discharge or termination of the Note, whichever last occurs. Upon the termination of this Agreement, the Pledgee shall cause to be transferred to Pledgor all of the Pledged Collateral and any money, property and rights received by Pledgor pursuant thereto, to the extent Pledgee has not released, taken, sold or otherwise realized upon the same pursuant to its rights and obligations hereunder. SECTION 18. Transfer and Assignment. The Pledgee may transfer the Pledged Collateral and any other property or money held hereunder to any transferee of the obligations or any part thereof. The transferee shall thereupon succeed to all of the Pledgee's rights hereunder with respect to the Pledged Collateral so transferred. Thereafter, the Pledgee shall have no obligation to Pledgor with respect to the Pledged Collateral so transferred. The Pledgee shall, however, retain all of its rights and powers with respect to any part of the Pledged Collateral not transferred. Every agent or nominee of the Pledgee shall have the benefit of this agreement as if named herein and may exercise all of the rights and powers given to the Pledgee hereunder. SECTION 19. Entire Agreement. This Agreement and the Secured Non-Recourse Promissory Note contain the entire agreement of the parties and supersedes all other agreements, understandings and representations, oral or otherwise, between the parties with respect to the 9 matters contained herein. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, administrators, fiduciaries, next of kin and executors. Section headings used herein are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 20. Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New Jersey without giving effect to its conflict of laws provisions. Unless otherwise defined herein or in the Note, terms defined in Article 9 of the Uniform Commercial Code in the State of New Jersey are used herein as therein defined. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. /s/ Hugh G. McBreen -------------------------------------- Hugh G. McBreen BUTLER INTERNATIONAL, INC. By: /s/ Edward M. Kopko ----------------------------------- Edward M. Kopko Chairman and CEO 10 EX-10.48 6 SECURED NON-RECOURSE PROMISSORY NOTE EXHIBIT 10.48 SECURED NON-RECOURSE PROMISSORY NOTE October 13, 1998 $181,000.00 FOR VALUE RECEIVED, Frederick H. Kopko, Jr., an individual residing at 4901 S. Ellis Avenue, Chicago, Illinois 60615 ("Payor"), hereby promises to pay to Butler International, Inc., a Maryland corporation ("Payee" or the "Company"), or its assigns, the principal amount of one hundred eighty-one thousand dollars exactly ($181,000.00). Certain capitalized terms used in this Secured Non- Recourse Promissory Note (the "Note") are defined in Section 3 below. This Note is being made by Payor in order to finance the Payor's purchase of 50,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock") from the Company pursuant to a warrant agreement made between the Payor and the Company on May 26, 1993. This Note is secured by the Pledged Collateral under the terms of the Stock Pledge Agreement and is entitled to the benefits thereof. 1. Payment of Note. (a) Maturity Date. The entire unpaid principal balance of this Note (together with interest accrued thereon) shall become due and payable on the seventh anniversary of the date of this Note; (b) Interest. No interest shall accrue on this Note; and (c) Non-Recourse Obligations. Notwithstanding anything to the contrary stated herein, Payee agrees that for payment of this Note it will look solely to the Pledged Collateral or such other collateral, if any, it may now or hereafter be given to secure the payment of this Note, and no other assets of Payor shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Payee, or for any payment required to be made under this Note. 2. Events of Default. (a) Definition. For purposes of this Note, an Event of Default shall be deemed to have occurred if: (i) Payor fails to pay when due any amount (whether interest, principal or other amount) then due or payable on this Note for a period of thirty (30) days after the holder of this Note notifies Payor of such failure; (ii) Payor fails to perform or observe any other provision contained in this Note or the Stock Pledge Agreement and such failure continues unremedied for a period of thirty (30) days after the holder of this Note notifies Payor of such breach; or (iii) Payor makes an assignment for the benefit of creditors or admits in writing his inability to pay his debts generally as they become due; or an order, judgment or decree is entered adjudicating Payor bankrupt or insolvent; or any order for relief with respect to Payor is entered under the Bankruptcy Code; or Payor petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator, or commences any proceeding relating to himself under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against Payor and either (a) Payor in writing indicates his approval thereof, consents thereto or acquiesces therein or (b) such petition, application or proceeding is not dismissed within ninety (90) days. (b) Consequences of Events of Default. (i) If any Event of Default (other than the type described in paragraph 2(a)(iii) hereof) has occurred, the holder of this Note may demand (by written notice delivered to Payor) immediate payment of all or any portion of the outstanding principal amount of this Note, which amount shall become due and payable upon such demand. If an Event of Default of the type described in paragraph 3(a) (iii) has occurred, then all of the outstanding principal amount of this Note shall automatically be immediately due and payable without any action on the part of the holder of this Note. (ii) Each holder of this Note shall also have any other rights which such holder may have been afforded under this Note or the Stock Pledge Agreement at any time and any other rights which such holder may have pursuant to applicable law. 3. Certain Defined Terms. As used in this Note, the following terms shall have the following meanings: "Bankruptcy Code" means the Bankruptcy Code of 1978, as amended. "Pledged Collateral" means the Common Stock pledged by Payor under the Stock Pledge Agreement as security for Payor's performance of this obligations under this Note. "Stock Pledge Agreement" means the Stock Pledge Agreement dated the date hereof between Payor and the Company. 4. Amendment and Waiver. Except as otherwise expressly provided herein, the provisions of this Note may not be amended and Payor may not take any action prohibited herein, or omit to perform any act required to be performed by him herein, unless Payor has obtained the prior written consent of the holder of this Note. 5. Cancellation. After all obligations for the payment of money arising under this Note 2 have been paid in full, this Note will be surrendered to Payor for cancellation. 6. Notices; Place of Payment. Any notice hereunder shall be in writing and shall be delivered by recognized courier, facsimile or certified mail, return receipt requested, and shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered or facsimiled to such party at its address set forth below (or at such other address as such party shall specify in writing): If to Payor: Frederick H. Kopko, Jr. 4901 South Ellis Avenue Chicago, Illinois 60615 If to Payee: Butler International, Inc. 110 Summit Avenue Montvale, New Jersey 07645 Attn: Chief Financial Officer All payments to be made under this Note are to be delivered to the holder at such address or to the attention of such person as the holder may designate by prior written notice to Payor. At the request of the holder of this Note, all payments shall be made by wire transfer of immediately available funds to an account which the holder may designate from time to time. 7. Waiver of Presentment, Demand, Dishonor. (a) Payor hereby waives presentment for payment, protest, demand, notice of protest, notice of nonpayment and diligence with respect to this Note, and waives and renounces all rights to the benefits of any statute of limitations or any moratorium, appraisement, exemption, or homestead now provided or that hereafter may be provided or allowed under the Bankruptcy Code, both as to himself and as to all of his property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof. (b) No failure on the part of any holder of this Note to exercise any right or remedy hereunder with respect to Payor, whether before or after the happening of an Event of Default, shall constitute waiver of any such Event of Default or of any other Event of Default by such holder or on behalf of any other holder. No failure to accelerate the debt of Payor evidenced hereby by reason of an Event of Default or indulgence granted from time to time shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or shall be deemed to be a novation of this Note or a reinstatement of such debt evidenced hereby or a waiver of such right of acceleration or any other right, or be construed so as to preclude the exercise of any right any holder of this Note may have, whether by the laws of the state governing this Note, by agreement or otherwise, and Payor hereby expressly waives the benefit of any statute or rule of law or equity 3 that would produce a result contrary to or in conflict with the foregoing. 8. Governing Law. The validity, construction and interpretation of this Note shall be governed by and construed in accordance with the internal laws of the State of New Jersey. 9. Transfer; Assignment. This Note may not be negotiated, assigned or transferred by Payor at any time, except with Payee's prior written consent. This Note may not be negotiated, assigned or transferred by Payee except in connection with the sale of all or substantially all of Payee's assets. 10. Entire Agreement. This Secured Non-Recourse Promissory Note and the Stock Pledge Agreement contain the entire agreement of the parties and supersedes all other agreements, understandings and representations, oral or otherwise, between the parties with respect to the matters contained herein. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, administrators, fiduciaries, next of kin and executors. Section headings used herein are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, Payor has executed and delivered this Secured Non-Recourse Promissory Note on the date first written above. /s/ Frederick H. Kopko, Jr. ------------------------------------ Frederick H. Kopko, Jr. 4 EX-10.49 7 STOCK PLEDGE AGREEMENT EXHIBIT 10.49 STOCK PLEDGE AGREEMENT STOCK PLEDGE AGREEMENT, dated as of October 13, 1998, made by and between Frederick H. Kopko, Jr., an individual residing at 4901 South Ellis Avenue, Chicago, Illinois 60615 (the "Pledgor"), to Butler International, Inc., a Maryland corporation, (the "Pledgee" or the "Company"). W I T N E S S E T H: WHEREAS, the Pledgor is the record and beneficial owner of 50,000 shares of the issued and outstanding shares of common stock, $.001 par value, of the Company (the "Common Stock"), acquired in connection with the Pledgor's exercise of certain stock warrants granted pursuant to an agreement between the Company and the Pledgor dated May 26, 1993, along with 82,534 additional shares of Common Stock and 710,428 shares of Series B 7% Cumulative Convertible Preferred Stock (collectively, the "Pledged Shares"); WHEREAS, the Pledgor has agreed to secure, to the extent hereinafter set forth, the payment in full and the performance of the obligations of the Pledgor to the Pledgee under a non-recourse promissory note, dated as of the date hereof, in the amount of $181,000 (such promissory note as it may hereafter be amended or otherwise modified from time to time, the "Note"); and the capitalized terms used herein, and not otherwise defined herein, are used with the meanings ascribed to them in the Note); and WHEREAS, the Pledgor hereby pledges and grants a lien and security interest to Pledgee in the Pledged Shares to secure the Pledgor's obligations under the Note. NOW, THEREFORE, in consideration of the premises and in order to induce the Pledgee to make the loan under the Note, the Pledgor hereby agrees as follows: SECTION 1. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to the Pledgee a security interest in the Pledged Shares and certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares, and all proceeds thereof, additions thereto and changes therein (the "Pledged Collateral"). SECTION 2. Security for Obligations; Non-Recourse Obligations. (a) This Agreement secures the payment of all liabilities, obligations and indebtedness of any and every kind and nature heretofore, now or hereafter owing, arising, due or payable from the Pledgor to the Pledgee pursuant to the Note, however evidenced, created, incurred, acquired or owing, whether primary or secondary, direct or indirect, joint or several, contingent or fixed, or otherwise, including without limitation, obligations of performance, and whether arising under any other agreements, documents 1 or instruments entered into in connection with the Note, now or hereafter given by the Pledgor to the Pledgee and whether arising by book entry, agreement or operation of law and whether or not evidenced by promissory notes or other evidences of indebtedness (all such obligations of the Pledgor being the "Obligations"). (b) It is expressly understood and agreed that it is the intention of the parties that the Obligations of the Pledgor under the Note are non-recourse obligations of the Pledgor and that the Pledgee's right to recover against the Pledgor hereunder in respect of such Obligations shall be limited solely to the Pledged Collateral. SECTION 3. Delivery and Release of Pledged Collateral. (a) All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Pledgee. The Pledgee shall hold the Pledged Collateral in the form in which it is delivered to the Pledgee unless and until the occurrence and continuation of an Event of Default under the Note (unless such Event of Default is waived by the Pledgee) or as otherwise provided in Section 3(b) below. Upon the occurrence and continuance of an Event of Default under the Note, the Pledgee shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Pledgee or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a) below. In addition, the Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. (b) On December 31, 1998, and on each March 31, June 30 and September 30 thereafter for the term of this Agreement (each such date a "Determination Date"), the Pledgee shall reasonably determine the aggregate fair market value of the Pledged Collateral (the "Market Value"). If on such Determination Date the Market Value exceeds two hundred percent (200%) of the aggregate principal amount of the Note on such Determination Date (the "Base Value"), Pledgee shall, unless otherwise requested by Pledgor, automatically release to the Pledgor such portion of the Pledged Collateral the aggregate fair market value of which equals the Market Value less 200% of the Base Value, free and clear of any and all encumbrances hereunder, and such portion shall no longer constitute Pledged Collateral. For purposes of this paragraph 3(b), "fair market value" of the Common Stock shall mean the closing price of the Common Stock as quoted on NASDAQ at the end of the last business day preceding the Determination Date as reported in the New York edition of The Wall Street Journal, and the "fair market value" of the Series B 7% Cumulative Convertible Preferred Stock shall be determined with reference to the fair market value of the Common Stock and the conversion ratio then in effect with respect to the Series B 7% Cumulative Convertible Preferred Stock. SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows: 2 (a) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, adverse claim, security interest, option or other charge or encumbrance, except for the security interest created by this Agreement. (b) The pledge of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations. (c) Neither the execution or delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with or performance of the terms and conditions of this Agreement by the Pledgor is prevented by, limited by, conflicts with or will result in the breach or violation of or a default under the terms, conditions or provisions of (i) any mortgage, security agreement, indenture, evidence of indebtedness, loan or financing agreement, trust agreement, stockholder agreement, or other agreement or instrument to which the Pledgor is a party or by which he is bound or (ii) any provision of law, any order of any court or administrative agency or any rule or regulation applicable to the Pledgor, subject to applicable state and federal securities laws. (d) This Agreement constitutes the legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms. (e) There are no actions, suits or proceedings (whether or not purportedly on behalf of the Pledgor) pending or, to the best knowledge of the Pledgor, threatened affecting the Pledgor that involve the Pledged Collateral. (f) All consents or approvals, if any, required as a condition precedent to or in connection with the due and valid execution, delivery and performance by the Pledgor of this Agreement have been obtained, subject to applicable state and federal securities laws. SECTION 5. Further Assurances. The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Pledgee may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Pledgee to exercise and enforce its rights and remedies hereunder, subject to applicable state and federal securities laws, with respect to any Pledged Collateral. SECTION 6. Voting Rights; Dividends, Etc. (a) So long as no Event of Default under the Note shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with 3 the terms of this Agreement or the Note. (ii) The Pledgor shall be entitled to receive and retain any and all dividends and interest paid, in respect of the Pledged Collateral; provided, however, that any and all: (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral (whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of the Company, or any merger, consolidation, acquisition or other exchange of assets or securities to which the Company may be a party, or any conversion, call or redemption, or otherwise); (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus; and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral, shall be, at the option and request of the Pledgee, forthwith delivered to the Pledgee to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Pledgee, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Pledgee as Pledged Collateral in the same form as so received (with any necessary endorsement). (iii) The Pledgee shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which he is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which he is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default under the Note, and at the election of Pledgee: (i) All rights of the Pledgor to exercise the voting and other consensual rights which he would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividends and interest payments which he would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease for the period subsequent to the Event of Default, and all such rights shall thereupon become vested in the Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends and interest payments. (ii) All dividends and interest payments which are received by the Pledgor contrary 4 to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of the Pledgee, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Pledgee and Pledged Collateral in the same form as so received (with any necessary endorsement). (c) In the event that during the term of this Agreement subscription warrants or other rights or options shall be issued in connection with the Pledged Collateral, all such stock warrants, rights and options shall forthwith be assigned by the Pledgor to the Pledgee and said stock warrants, rights and options shall be, and, to the extent exercised by Pledgor, all new stock issued pursuant thereto shall be pledged by Pledgor to Pledgee to be held as, and shall be deemed to be part of, the "Pledged Collateral" under the terms of this Agreement in the same manner as the shares of stock originally pledged hereunder. SECTION 7. Transfers and Other Liens; Additional Shares. The Pledgor agrees that he will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. SECTION 8. Litigation Respecting Pledged Shares. In the event any action, suit or other proceeding at law, in equity, in arbitration or before any other authority involving or affecting the Pledged Collateral becomes known to or is contemplated by the Pledgor, the Pledgor shall give the Pledgee immediate notice thereof and if the Pledgor is contemplating such action, suit or other proceeding, the Pledgor shall receive the written consent of the Pledgee prior to commencing any such action, suit or other proceeding. SECTION 9. Pledgee Appointed Attorney-in-Fact. (a) If an Event of Default shall occur and be continuing under the Note (unless such Event of Default is waived by the Pledgee), Pledgor hereby appoints the Pledgee (and any officer or agent of the Pledgee with full power of substitution and revocation) the Pledgor's true and lawful attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Pledgee's discretion to take any action and to execute any instrument which the Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, (i) to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; and (ii) to transfer the Pledged Collateral on the books of the Company, in whole or in part, to the name of the Pledgee or such other person or persons as the Pledgee may designate; take possession of and endorse any one or more checks, drafts, bills of exchange, money orders or any other documents received on account of the Pledged Collateral; collect, sue for and give acquittances for moneys due on account of the foregoing; withdraw any claims, suits, or proceedings pertaining to or arising out of the foregoing; execute and record or file on behalf of the Pledgor any evidence of a security interest contemplated by this Agreement or any refiling, continuation or extension thereof; take any other action contemplated by this Agreement; and sign, execute, acknowledge, swear to, verify, deliver, file, record and publish 5 any one or more of the foregoing. (b) The powers of attorney which shall be granted pursuant to Section 9(a) and all authority thereby conferred shall be granted and conferred solely to protect the Pledgee's interests in the Pledged Collateral and shall not impose any duty upon the attorney-in-fact to exercise such powers. Such powers of attorney shall be irrevocable prior to the performance in full of the Obligations and shall not be terminated prior thereto or affected by any act of the Pledgor or other person or by operation of law, including, but not limited to, the dissolution, death, disability or incompetency of any person, the termination of any trust, or the occurrence of any other event, and if the Pledgor or any other person should be dissolved or die or become disabled or incompetent or any other event should occur before the performance in full of the Obligations and termination of this Agreement, such attorney-in-fact shall nevertheless be fully authorized to act under such powers of attorney as if such dissolution, death, disability or incompetency or other event had not occurred and regardless of notice thereof. (c) Each person who shall be a transferee of the beneficial ownership of the Pledged Collateral, by the acceptance of such a transfer, shall be deemed to have irrevocably appointed the Pledgee, with full power of substitution and revocation, such person's true and lawful attorney-in-fact in such person's name and otherwise to do any and all acts permitted to, and to exercise any and all powers herein conferred upon, such attorney-in-fact. SECTION 10. Reasonable Care. The Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Pledgee accords its own property, it being understood that the Pledgee shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Pledgee has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. SECTION 11. Remedies Upon Event of Default. (a) Subject to Section 2(b) hereof, if any Event of Default under the Note shall have occurred and be continuing (unless such Event of Default is waived by the Pledgee), for the period subsequent to the Event of Default: (i) The Pledgee may receive and retain all payments of any kind with respect to the Pledged Collateral and may notify the obligors or other parties, if any, interested in any items of Pledged Collateral of the interest of the Pledgee therein and of any action proposed to be taken with respect thereto, and inform any of those parties that all payments otherwise payable to the Pledgor with respect thereto shall be made to the Pledgee until all amounts due under the Note have been paid in full; (ii) The Pledgee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and 6 remedies of a secured party on default under the Uniform Commercial Code (the "Code") in effect in the State of New Jersey at that time, and the Pledgee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of the Pledgee's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Pledgee may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Pledgee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned; (iii) Any cash held by the Pledgee as Pledged Collateral and all cash proceeds received by the Pledgee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Pledgee, by held by the Pledgee as collateral for, and/or then or at any time thereafter applied in whole or in part by the Pledgee against, all or any part of the Obligations in such order as the Pledgee shall elect. Any surplus of such cash or cash proceeds held by the Pledgee and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus; and (iv) The Pledgee may otherwise use or deal from time to time with the Pledged Collateral, in whole or in part, in all respects as if the Pledgee were the outright owner thereof. (b) Except as set forth in Section 11(a)(iii), the Pledgee shall have the sole right to determine the order in which Obligations shall be deemed discharged by the application of the Pledged Collateral or any other property or money held hereunder or any amount realized thereon. Any requirement of reasonable notice imposed by law shall be deemed met if such notice is in writing and is mailed, telegraphed or hand delivered to the Pledgor at least three days prior to the sale, disposition or other event giving rise to such notice requirement. (c) The Pledgee shall collect the cash proceeds received from any sale or other disposition or from any other source contemplated by subsection (a) above and shall apply the full proceeds in accordance with the provisions of this Agreement. (d) Notwithstanding the foregoing, none of the provisions of this Section 11 shall confer on the Pledgee any rights or privileges that are not permissible under applicable law. The Pledgee may effect the provisions of this Section 11 only in compliance with all applicable federal and state securities laws. (e) In connection with the provisions of this Agreement, the Pledgor from time to time shall promptly execute and deliver, or cause to be executed and delivered, to the Pledgee such 7 documents and instruments, shall join in such notices and shall take, or cause to be taken, such other lawful actions as the Pledgee shall deem reasonably necessary or desirable to enable it to exercise any of the rights with respect to the Pledged Collateral granted to it pursuant to this Agreement. SECTION 12. Waivers and Amendments, Etc. The rights and remedies given hereby are in addition to all others however arising, but it is not intended that any right or remedy be exercised in any jurisdiction in which such exercise would be prohibited by law. No action, failure to act or knowledge of the Pledgee shall be deemed to constitute a waiver of any power, right or remedy hereunder, nor shall any single or partial exercise thereof preclude any further exercise thereof or the exercise of any other power, right or remedy. Any waiver or consent respecting any covenant, representation, warranty or other term or provision of this Agreement shall be effective only in the specified instance and for the specific purpose for which given and shall not be deemed, regardless of frequency given, to be a further or continuing waiver or consent. The failure or delay of the Pledgee at any time or times to require performance of, or to exercise its rights with respect to, any representation, warranty, covenant or other term or provision of this Agreement in no manner shall affect its right at a later time to enforce any such provision. No notice to or demand on a party in any case shall entitle such party to any other or further notice or demand in the same, similar, or other circumstances. Any right or power of the Pledgee hereunder respecting the Pledged Collateral and any other property or money held hereunder may at the option of the Pledgee be exercised as to all or any part of the same and the term "Pledged Collateral" wherever used herein, unless the context clearly requires otherwise, shall be deemed to mean (and shall be read as) the "Pledged Collateral and any other property or money held hereunder or any part thereof". This Agreement shall not be amended nor shall any right hereunder be deemed waived except by a written agreement expressly setting forth the amendment or waiver and signed by the party against whom or which such amendment or waiver is sought to be charged. SECTION 13. Notices. All notices hereunder shall be given and deemed received as set forth in the Note. SECTION 14. Continuing Security Interest and Reinstatement. (a) This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) be binding upon the Pledgor, his heirs, successors and assigns, and (ii) inure to the benefit of the Pledgee and its successors, transferees and assigns. Upon the payment in full or performance of the Obligations, the Pledgor shall be entitled to the return, upon his request and at his expense, of such of the Pledged Collateral as shall not have been released, sold or otherwise applied pursuant to the terms of the Agreement. (b) If at any time after payment in full by the Pledgor of all Obligations and termination of the pledge granted in this Agreement, any payments on Obligations theretofore made by the Pledgor must be disgorged by the Pledgee for any reason whatsoever, this Agreement and the pledge granted hereunder shall be reinstated as to all disgorged payments as though such payments had not been made, and the Pledgor shall sign and deliver to Pledgee all documents and things 8 necessary to reperfect the terminated pledge. SECTION 15. Severability. In the event that any provision of this Agreement shall be determined to be superseded, invalid or otherwise unenforceable pursuant to applicable law, such determination shall not affect the validity of the remaining provisions of this Agreement, and the remaining provisions of this Agreement shall be enforced as if the invalid provision were deleted. SECTION 16. Survival of Representations, Etc. All representations, warranties, covenants and other agreements made herein shall survive the execution and delivery of this Agreement and shall continue in full force and effect until all amounts due under the Note have been paid in full. This Agreement shall remain and continue in full force and effect without regard to any modification, execution, renewal, amendment or waiver of any provision of the Note. SECTION 17. Termination and Return of Pledged Stock. This Agreement shall continue in full force and effect until all of the Obligations shall have been paid and satisfied or until the release, discharge or termination of the Note, whichever last occurs. Upon the termination of this Agreement, the Pledgee shall cause to be transferred to Pledgor all of the Pledged Collateral and any money, property and rights received by Pledgor pursuant thereto, to the extent Pledgee has not released, taken, sold or otherwise realized upon the same pursuant to its rights and obligations hereunder. SECTION 18. Transfer and Assignment. The Pledgee may transfer the Pledged Collateral and any other property or money held hereunder to any transferee of the obligations or any part thereof. The transferee shall thereupon succeed to all of the Pledgee's rights hereunder with respect to the Pledged Collateral so transferred. Thereafter, the Pledgee shall have no obligation to Pledgor with respect to the Pledged Collateral so transferred. The Pledgee shall, however, retain all of its rights and powers with respect to any part of the Pledged Collateral not transferred. Every agent or nominee of the Pledgee shall have the benefit of this agreement as if named herein and may exercise all of the rights and powers given to the Pledgee hereunder. SECTION 19. Entire Agreement. This Agreement and the Secured Non-Recourse Promissory Note contain the entire agreement of the parties and supersedes all other agreements, understandings and representations, oral or otherwise, between the parties with respect to the matters contained herein. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs, administrators, fiduciaries, next of kin and executors. Section headings used herein are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. This Agreement may be executed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. 9 SECTION 20. Governing Law; Terms. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New Jersey without giving effect to its conflict of laws provisions. Unless otherwise defined herein or in the Note, terms defined in Article 9 of the Uniform Commercial Code in the State of New Jersey are used herein as therein defined. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. /s/ Frederick H. Kopko, Jr. ------------------------------------- Frederick H. Kopko, Jr. BUTLER INTERNATIONAL, INC. By: /s/ Edward M. Kopko -------------------------------- Edward M. Kopko Chairman and CEO 11 EX-13.1 8 FINANCIAL SECTION OF 1998 ANNUAL REPORT EXHIBIT 13.1 FINANCIAL SECTION OF 1998 ANNUAL REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The Company recorded earnings of $9.8 million for the year ended December 31, 1998, compared with $8.7 million for the year ended December 31, 1997, and $4.8 million for the year ended December 31, 1996. Pre-tax earnings for 1998 increased by 77%, to $14.0 million, compared to the $7.9 million recorded in 1997. The 1997 results include a tax benefit of $2.0 million as described below. Basic earnings per share were $1.49 in 1998, compared with $1.37 in 1997, and $.76 in 1996. On a diluted basis, earnings per share increased to $1.26 per share in 1998, from $1.16 achieved in 1997 and $.67 recorded in 1996. Improved business mix and increased volume in the Company's information technology ("IT") services operation, Butler Technology Solutions ("BTS"), lead the way to the increased earnings in 1998. These increases were generated by recent acquisitions, as well as strong internal growth. Also contributing strongly to the improved earnings was substantial growth in the Company's Telecommunications Services ("BTI") operation. As a result of the improved business mix, as well as an overall increase in billing rates, gross margins increased to 19.3% in 1998, versus 15.8% in 1997 and 14.6% in 1996. Net sales were $444.1 million for the year ended December 31, 1998, compared with $425.0 million recorded in 1997, and $409.4 million for the year ended December 31, 1996. In 1998, sales from the BTS unit increased by 134%, which was the result of volume provided by companies acquired in 1998, as well as strong internal growth. The Company's BTI operation grew by 16%, while the lower margin Technical Group ("BTG") business decreased as had been expected, with revenues declining by 12% from 1997. Revenues from the Fleet Services ("BFS") unit also declined as had been anticipated due to a restructuring of a major contract, which did not negatively impact profitability. The growth in 1997 as compared to 1996, was attributable to a 16% increase in the BTS operation and a 15% increase in the BTI unit, which more than offset an anticipated decrease of 1% in the Contract Technical Services portion of the BTG business. One client accounted for approximately 11.7% of the Company's net sales in 1998. This BTG client accounted for approximately 13% of net sales in 1997 and 6.4% of net sales in 1996. Sales from this client are expected to decrease considerably in 1999. However, this decrease is expected to be more than offset by increased net sales in the higher margin BTS and BTI units. Selling, general and administrative ("SG&A") expenses increased to $62.9 million for the year ended December 31, 1998, compared with $52.1 million and $46.0 million for the years ended December 31, 1997 and 1996, respectively. The 1998 increase is a direct result of acquisitions and the Company's efforts to grow its higher margin business units and further develop its internal systems. Management continues to closely monitor its overhead expenses. For the year ended December 31, 1998, interest expense was $4.7 million, compared with $4.2 million and $5.2 million for the years ended December 31, 1997 and December 31, 1996, respectively. The increase in 1998 was due to higher borrowings primarily to fund acquisitions, partially offset by lower interest rates. The $1.0 million interest reduction in 1997 was principally due to reduced borrowings. In 1998 and 1997, the Company recorded income tax benefits of $.7 million and $2.0 million, respectively, which resulted from the recording of deferred tax assets related to the expected future tax benefit of certain loss carryforwards and temporary differences in accordance with the provisions of Financial Accounting Standards Board ("FASB") SFAS 109. By December 31, 1998 the Company had substantially realized the benefits of its U.S. loss and credit carryforwards. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are generated from operations and borrowings under its revolving credit facility and acquisition line of credit. (See "Financing Activities"). Availability under the revolving credit facility is based upon the amount of eligible receivables. As of December 31, 1998, $27.3 million was outstanding under the revolving credit facility, and an additional $5.5 million was used to collateralize letters of credit. Proceeds from the revolving credit facility are used by the Company to finance its internal business growth, working capital and capital expenditures. The credit facility excludes the U.K. operation, which has its own (Pounds)1.5 million facility. As of December 31, 1998, (Pounds)955,647 was outstanding under the U.K. facility. The acquisition line of credit provides the Company with up to $35.0 million to finance its acquisition program. As of December 31, 1998, $25.4 million was outstanding under the acquisition facility. Cash and cash equivalents remained constant at $0.9 million as of December 31, 1998 as compared to December 31, 1997. The major components of cash inflows during 1998 were from increased borrowings of $32.4 million, primarily for the funding of acquisitions, net income before depreciation and amortization of $14.2 million, and an increase in accrued liabilities of $2.9 million. Cash outflows consisted of $35.2 million related to acquisitions, an increase in accounts receivable and other assets totaling $11.2 million, and capital expenditures of $3.4 million. During the year ended December 31, 1998, the Company realized $0.3 million of net proceeds from the exercise of outstanding common stock purchase warrants and options. As a result, 128,166 common shares were issued by the Company during the year. The Company has a seven year mortgage for its corporate office facility in Montvale, New Jersey. The mortgage consists of a $6.4 million loan that is repayable based on a 15 year amortization schedule and a $375,000 loan that is repayable based on a 4 year schedule. The variable interest rate on these loans is one month Libor plus 225 basis points. The outstanding balance of the loans at December 31, 1998 was $6.4 million. The Company entered into an interest rate swap arrangement with its mortgage holder on its $6.75 million mortgage notes. The Company makes monthly interest payments at the fixed rates of 8.6% and 8.42% on the $6.4 million loan and the $375,000 loan, respectively. The Company receives payments based upon Libor plus 225 basis points. The net loss from the exchange of interest rate payments was approximately $6,600 and was included in interest expense. The fair value of the Company's interest rate swap agreement as of December 31, 1998 would require a payment by the Company of approximately $331,000 if the agreement were terminated. The Company does not anticipate terminating the interest rate swap agreement prior to its current expiration date of November 1, 2004. Management believes that cash flows from operations and availability under the Credit Facility will be sufficient to meet the Company's foreseeable cash requirements. Financing Activities The Company has a credit agreement with General Electric Capital Corporation ("GECC"), which was amended in August, 1998, that provides a revolving credit facility for loans up to $50.0 million, including $9.0 million for letters of credit and an additional acquisition facility for up to $35.0 million. The sum of the aggregate amount of loans outstanding under the revolving credit facility plus the aggregate amount available for letters of credit may not exceed the lesser of (i) $50.0 million or (ii) an amount equal to 85% of eligible receivables plus 75% of eligible pending receivables (which percentages are subject to adjustment from time to time by GECC). The interest rate in effect at December 31, 1998, was 6.55%, or 125 basis points above the 30 day commercial paper rate. Interest reductions are available based upon the Company achieving certain financial results. The average interest rate during 1998 was 7.26%. The acquisition facility bears interest at 250 basis points above the 30 day commercial paper rate, the interest rate in effect at December 31, 1998 was 7.8% and the average rate in effect for 1998 was 8.25%. The Company has guaranteed all obligations incurred or created under the credit agreement. The Company is in compliance with the required affirmative and financial covenants. ACQUISITIONS On March 3, 1998, the Company acquired the operations of Argos Adriatic Corporation ("Argos"), a Silicon Valley information technology ("IT") company headquartered in Fremont, CA. The purchase price includes $5.1 million paid in cash ($4.1 million charged against the Company's acquisition line and $1.0 million against the revolving credit facility), plus a contingent payout to be paid over three years based on the future earnings of Argos in excess of certain annual thresholds. Argos provides a variety of IT support services to a wide range of clients in Northern California, and generates approximately $10 million in annual revenues with a staff of approximately 90 full-time employees. On April 1, 1998, the Company acquired the operations of Norwood Computer Services, Inc. ("Norwood") an IT services company headquartered in Hicksville, NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn down on the acquisition line and $1.7 charged to the revolving credit facility), plus a contingent payout of $1.3 million that was paid in March 1999. Norwood has been serving a wide range of mid-sized and Fortune 500 companies in the New York metropolitan area since 1978 and generates approximately $17 million in annual revenues through a staff of approximately 120 consultants. On June 2, 1998, the Company's Telecommunication Services operation acquired WCC Telephone Services, Inc. ("WCC") a California based telecommunications services company. WCC specializes in central office services for customers such as Pacific Bell and Northern Telecom. It generates annual sales of approximately $2 million. This business has been merged with the existing Butler Telecom business in Southern California. The purchase price includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition line and $0.4 million charged to the revolving credit facility), plus a contingent payout based on the earnings of WCC for the next year. Also, on June 2, 1998, the Company's Technology Solutions operation acquired certain assets of the Reston, VA branch operations of Automated Concepts, Inc. This business generates annual sales of approximately $3 million. Employees and consultants of this operation have been merged with the existing Butler office in McLean, VA. The purchase price was $550,000 of which $440,000 was drawn down on the acquisition line and $110,000 was charged to the revolving credit facility plus a contingent payout based on earnings for one year. On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a Chicago area IT services business. The purchase price was $10.3 million ($8.2 charged to the acquisition line and $2.1 charged against the revolving credit facility). DPI has provided a variety of IT support services to a wide range of customers in the Chicago marketplace for the past eleven years. Its offerings include contract programming, software consulting, IT staffing and Year 2000 project work. DPI currently generates approximately $10 million in annual revenues through its staff of 80 consultants. On August 5, 1998, the Company completed the acquisition of ISL International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ. The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn down on acquisition line and $1.5 charged to the revolving credit facility), plus a multi-year contingent payout based on the future earnings of ISL. ISL has provided services to a wide range of companies in the metropolitan New York area since 1978. It generates approximately $20 million in annual revenues through a staff of approximately 150 consultants. In connection with these 1998 acquisitions, the Company acquired substantially all of the operating assets and assumed certain liabilities of the acquired businesses. The transactions were recorded using the purchase method of accounting. Excess cost over net assets of businesses acquired has been recorded as goodwill and is being amortized over forty years. Sales included in the Company's financial statements from the businesses acquired for the year ended December 31, 1998 were $39.2 million. In 1999, the Company estimates payments of approximately $4.3 million in conjunction with contingent earn-out provisions of businesses acquired in 1997 and 1998. The Company continues to review potential acquisition candidates in the information technology and telecommunications service industries. There are no acquisition transactions currently pending. YEAR 2000 COMPLIANCE Description: At midnight on December 31, 1999, many computer systems may not be able to distinguish the Year 2000 from the Year 1900. This is because computer software has, until recently, been written utilizing two digits rather than four to express years. This programming flaw may debilitate computer systems worldwide, because date-sensitive applications may recognize the Year 2000 as 1900, or not at all. This may cause miscalculations or system failures. This situation has become known as the Y2K problem, or the Millennium Bug. Compliance: The Company has established a Y2K Oversight Committee to ensure compliance of all internal systems. Beginning in 1995, the Company began the strategic process of upgrading and replacing all of its financial systems. The new systems are all Y2K-compliant, server driven operating systems. With regard to computerized systems, the Company has nearly completed its Y2K compliance, and is currently testing its ability to correctly identify and process the Year 2000. This process is expected to be complete by the end of the second quarter of 1999. All desktop and laptop computers have been, or are in the process of being checked for Y2K readiness. Computers that are not compliant are being replaced. This process will be completed in the second quarter of 1999. All PC operating systems are being upgraded. All telecommunications and PBX systems have been evaluated and are expected to be compliant in early 1999. All building systems (e.g., elevators, HVAC) were also reviewed. The majority of these systems are day- dependent, not date-dependent, so they should not be impacted by Y2K. The Company has been contacting major clients and vendors to evaluate their Y2K compliance plans and readiness, to determine whether a Y2K event will have a significant impact on the Company. Costs: Due to the scheduled conversion of the Company's financial systems there are no specific Y2K costs related to those areas. The costs incurred to date to upgrade non-compliant PCs is approximately $137,000, of which $24,000 has been expensed and $113,000 has been recorded to property and equipment. The estimated cost to complete the PC upgrade is approximately $50,000. The cost to upgrade or replace non-compliant telecommunication systems to date has been approximately $28,000. Worst-Case Scenarios: The following worst-case scenarios could have an impact on the Company if they were to occur: The Company could be negatively impacted if several of its larger clients were affected by either their inability to retain contract employees supplied by the Company or by their inability to process payables promptly. This may become a benefit to the Company because it has the ability to provide Y2K solutions to the affected customers. The Company would incur additional financing costs during any extended receivable period. The Company could also be adversely affected if financial institutions were unable to wire payroll funds. Such an occurrence would require the Company to issue paper checks which may not be well received by its contract employees. Contingency Planning: The Company has developed a contingency plan that would enable it to print checks manually and mail them to all employees in the event of a bank problem. Appropriate contingency plans are being developed to deal with potential client or vendor Y2K events. Summary: Based on the activities reviewed above, the Company expects all internal systems to be Y2K compliant by June 30, 1999. The Company does not believe that the Y2K issues will have a material adverse effect on its financial condition or results of operations. It is anticipated that the Y2K issue is not substantial with respect to the Company's property and equipment, though the Company is continuing to assess and modify computer systems, facilities and business processes to provide for their continuing functionality. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This standard shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact, if any, of this standard on its financial reporting. Information contained in this Management's Discussion and Analysis of Results of Operations and Financial Condition, other than historical information, may be considered forward-looking in nature. As such, it is based upon certain assumptions and is subject to various risks and uncertainties, which may not be controllable by the Company. To the extent that these assumptions prove to be incorrect, or should any of these risks or uncertainties materialize, the actual results may vary materially from those which were anticipated. BUTLER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands except share data)
December 31, --------------------------------- 1998 1997 ------------- -------------- ASSETS Current assets: Cash $ 910 $ 914 Accounts receivable, net of allowance for uncollectible accounts of $3,309 and $1,465 65,349 54,827 Inventories 441 2,196 Other current assets 6,193 4,687 ------------- -------------- Total current assets 72,893 62,624 Property and equipment, net 16,527 15,613 Other assets 2,711 1,907 Excess cost over net assets of businesses acquired, net of accumulated amortization of $10,805 and $9,004 57,981 24,572 ------------- -------------- Total assets $ 150,112 $ 104,716 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 30,163 $ 28,153 Current portion of long-term debt 5,895 920 ------------- -------------- Total current liabilities 36,058 29,073 ------------- -------------- Revolving credit facility 27,251 20,985 Other long-term debt 27,684 6,517 Other long-term liabilities 3,920 3,052 Commitments and contingencies Stockholders' equity: Preferred stock: par value $.001 per share, authorized 5,000,000: Series B 7% Cumulative Convertible Preferred Shares, authorized 3,500,000; issued 3,014,564 in 1998 and 2,814,133 in 1997 (Aggregate liquidation preference $3,015 in 1998 and $2,814 in 1997) 3 3 Common stock: par value $.001 per share, authorized 83,333,333; issued 6,506,043 in 1998 and 6,380,023 in 1997 7 6 Additional paid-in capital 95,244 94,710 Accumulated deficit (39,922) (49,566) Cumulative foreign currency translation adjustment (133) (64) ------------- -------------- Total stockholders' equity 55,199 45,089 ------------- -------------- Total liabilities and stockholders' equity $ 150,112 $ 104,716 ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. BUTLER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data)
Year Ended December 31, -------------------------------------------------- 1998 1997 1996 ------------- ------------ ------------- Net sales $ 444,146 $ 424,964 $ 409,353 Cost of sales 358,254 357,852 349,762 ------------- ------------ ------------- Gross margin 85,892 67,112 59,591 Depreciation and amortization 4,278 2,881 3,001 Selling, general and administrative expenses 62,872 52,142 45,991 ------------- ------------ ------------- Operating income 18,742 12,089 10,599 Interest expense (4,717) (4,168) (5,215) ------------- ------------ ------------- Income before income taxes 14,025 7,921 5,384 Income tax expense (benefit) 4,181 (812) 593 ------------- ------------ ------------- Net income $ 9,844 $ 8,733 $ 4,791 ============= ============ ============= Net income per share: Basic $ 1.49 $ 1.37 $ 0.76 Diluted $ 1.26 $ 1.16 $ 0.67 Average number of common shares and dilutive common share equivalents outstanding Basic 6,454 6,253 6,087 Diluted 7,794 7,511 7,166
The accompanying notes are an integral part of these consolidated financial statements. BUTLER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, -------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,844 $ 8,733 $ 4,791 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and excess purchase price amortization 4,278 2,881 3,001 Amortization of deferred financing and employee stock purchase plan loans 106 82 681 Foreign currency translation (69) (73) 116 (Increase) decrease in assets, increase (decrease) in liabilities: Accounts receivable (10,522) 1,444 8,242 Inventories 1,755 96 (1,931) Other current assets (1,506) (3,524) 824 Other assets (910) (851) (1,166) Current liabilities 2,057 7,097 (8,420) Other long term liabilities 868 (296) (329) ------------ ------------ ------------ Net cash provided by operating activities 5,901 15,589 5,809 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,391) (2,989) (1,399) Cost of businesses acquired (35,210) (1,990) (512) Expenses paid in conjunction with discontinued operations (47) (89) (117) Proceeds from sale of certain UK operations - - 5,454 ------------ ------------ ------------ Net cash (used in) provided by investing activities (38,648) (5,068) 3,426 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) under financing agreements 32,408 (10,667) (10,650) Net proceeds from the exercise of common stock warrants and options 359 831 709 Repurchase common stock (24) - (162) ------------ ------------ ------------ Net cash provided by (used in) financing activities 32,743 (9,836) (10,103) ------------ ------------ ------------ Net (decrease) increase in cash (4) 685 (868) Cash at beginning of period 914 229 1,097 ------------ ------------ ------------ Cash at end of period $ 910 $ 914 $ 229 ============ ============ ============
The accompanying notes are an intregal part of these consolidated financial statements. BUTLER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands except share data)
CUMULATIVE SERIES B ADDITIONAL FOREIGN TOTAL PREFERRED STOCK COMMON STOCK PAID-IN EXCHANGE ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY Balance at December 31, 1995 2,451,898 $ 2 5,993,783 $ 6 $ 92,882 $ (107) $(62,727) $ 30,056 Comprehensive income: Net income - - - - - - 4,791 4,791 Current Year Foreign Currency Adjustments - - - - - 116 - 116 -------- Total comprehensive income 4,907 -------- Forgive employee loans - - - - 69 - - 69 Issuances of Common Stock - - 174,964 - 709 - - 709 Repurchase and retire shares - - (24,579) - (162) - - (162) Dividends Paid 175,127 1 - - 175 - (176) - ---------- ------ ------------ ------- ----------- ------------ ----------- ------------ Balance at December 31, 1996 2,627,025 3 6,144,168 6 93,673 9 (58,112) 35,579 Comprehensive income: Net income - - - - - - 8,733 8,733 Current Year Foreign Currency Adjustments - - - - - (73) - (73) -------- Total comprehensive income 8,660 -------- Forgive employee loans - - - - 19 - - 19 Loans issued for exercise of options - - - - (196) - - (196) Issuances of Common Stock - - 235,855 - 1,027 - - 1,027 Dividends Paid 187,108 - - - 187 - (187) - ---------- ------ ------------ ------- ----------- ------------ ----------- ------------ Balance at December 31, 1997 2,814,133 3 6,380,023 6 94,710 (64) (49,566) 45,089 Comprehensive income: Net income - - - - - - 9,844 9,844 Current Year Foreign Currency Adjustments - - - - - (69) - (69) -------- Total comprehensive income 9,775 -------- Repurchase and retire shares - - (2,146) - (24) - - (24) Loans issued for exercise of options - - - - (349) - - (349) Issuances of Common Stock - - 128,166 1 707 - - 708 Dividends Paid 200,431 - - - 200 - (200) - ---------- ------ ------------ ------- ----------- ------------ ----------- ------------ Balance at December 31, 1998 3,014,564 $ 3 6,506,043 $ 7 $ 95,244 $ (133) $(39,922) $ 55,199 ========== ====== ============ ======= =========== ============ =========== ============
The accompanying notes are an intregal part of these consolidated financial statements. BUTLER INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: Consolidation and Presentation The consolidated financial statements include the accounts of Butler International, Inc. ("the Company") and all its wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. Certain amounts from prior years' consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform with the current year presentation. Business The Company is a leading provider of strategic outsourcing, project management and staff augmentation services. These services are provided through four ISO 9002 certified business segments, Technology Solutions, Telecom Services, Fleet Services and the Technical Group. Technology Solutions provides a complete and broad range of information technology ("IT") expertise. Utilizing established resources, technology practice areas, quality systems and its award winning proprietary Butler Recruiting and Sales System (BRASS) database, it provides customers with the best possible solutions to meet and exceed their IT objectives. Telecom Services provides technical personnel and management services to communications companies worldwide. Services range from basic copper and voice networks to the latest optical fiber and broadband technologies. It also offers customers extensive central office, CATV, wireless and cellular services. Training, orientation and skills upgrading is provided to meet the individual needs of each customer. Additionally, Telecom Services specializes in CAD and manual record conversions, averaging over 350,000 drawings per year. Fleet Services provides customized fleet operations services to major ground fleet-holders nationwide. Services range from vehicle maintenance to total fleet management services. The Technical Group provides skilled technical and engineering personnel, project management as well as total outsourcing solutions. Serving a wide range of industries from aerospace to pharmaceuticals to energy and electronics, the Company offers client companies candidates in approximately 2,000 job classifications including engineers, designers and technical writers. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and Equipment Property and equipment are recorded at cost, which, for assets acquired through the Company's corporate acquisitions, represents the fair value at date of acquisition. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which generally range between one and ten years except for the Company's headquarters building which has a thirty year life. Excess Cost Over Net Assets of Businesses Acquired Excess cost over net assets of businesses acquired is being amortized using the straight-line method generally over forty years from the date of acquisition. Management routinely evaluates the recoverability of goodwill with reference to estimates of future profitability and operating cash flow. Such estimates, on an undiscounted basis, are compared to the unamortized balance of goodwill. Should the results of this analysis indicate that impairment is likely, the Company will recognize a charge to operations at that time. Fair Value of Financial Instruments The carrying amount of cash, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short term maturity of these instruments. The carrying amount of current and long-term debt approximates fair values based on the fact that the related interest rates fluctuate with market rates. Revenue Recognition The Company's net sales relate to net service revenues of its wholly-owned subsidiaries. Service revenues are recognized upon performance of such services at amounts expected to be ultimately realized. Inventory Inventory is valued at the lower of cost or market. Cost is determined by using an average cost per unit. Foreign Currency Translation For foreign operations, the assets and liabilities are translated at the current exchange rates, while income and expenses are translated at the average exchange rates for the period. Resulting translation gains and losses are reported as a component of comprehensive income. Earnings Per Common Share The following table represents the computation of basic and diluted earnings per common share as required by SFAS No. 128 (in thousands, except per share data). 1998 1997 1996 ------ ------ ------ Basic Earnings per Share: Income available to common shareholders $9,644 $8,546 $4,615 ------ ------ ------ Weighted average common shares outstanding 6,454 6,253 6,087 ------ ------ ------ Basic earnings per common share $ 1.49 $ 1.37 $ .76 ====== ====== ====== Diluted Earnings per Share: Income available to common shareholders assuming conversion $9,844 $8,733 $4,791 ------ ------ ------ Weighted average common shares outstanding 6,454 6,253 6,087 Common stock equivalents 524 456 330 Assumed conversion of preferred stock 816 802 749 ------ ------ ------ Total weighted average common shares 7,794 7,511 7,166 ------ ------ ------ Diluted earnings per common share $ 1.26 $ 1.16 $ 0.67 ====== ====== ====== NOTE 2 - PROPERTY AND EQUIPMENT: Property and equipment is summarized as follows (in thousands): 1998 1997 --------- --------- Land $ 5,662 $ 5,662 Buildings 4,168 4,168 Motor vehicles and equipment 7,750 7,123 Computer hardware and software 12,378 10,269 Leasehold improvements 2,011 1,716 -------- -------- 31,969 28,938 Less accumulated depreciation (15,442) (13,325) -------- -------- Property and equipment, net $ 16,527 $ 15,613 ======== ======== Depreciation expense for the years ended December 31, 1998, 1997, and 1996 was $2,477, $1,721, and $1,944, respectively. NOTE 3 - CURRENT LIABILITIES: Accounts payable and accrued liabilities are summarized as follows (in thousands): 1998 1997 ------- ------- Insurance-related payables $ 7,313 $ 5,029 Accounts payable 5,677 7,146 Accrued compensation 3,893 3,656 Taxes other than income taxes 3,610 2,967 Accrued pension and 401(k) contributions 3,075 2,378 Income taxes payable 1,021 948 Deferred compensation 416 546 Accrued acquisition payouts 455 600 Other 4,703 4,883 ------- ------- Accounts payable and accrued liabilities $30,163 $28,153 ======= ======= NOTE 4 - LONG-TERM DEBT: Long-term debt is summarized as follows (in thousands): 1998 1997 ------- ------- Credit Facility, due July, 2001 $27,251 $20,985 Acquisition Facility, due, July, 2002 25,436 0 UK Credit Facility 1,598 611 Notes payable related to headquarters facility 6,545 6,826 ------- ------- 60,830 28,422 Less current portion (5,895) (920) ------- ------- Long-term debt $54,935 $27,502 ======= ======= Credit Facility The Company has a credit agreement with General Electric Capital Corporation ("GECC") which provides a revolving credit facility for loans up to $50.0 million, including $9.0 million for letters of credit, and an acquisition facility for up to $35.0 million. The Company has guaranteed all obligations incurred or created under the credit agreement. The Company is in compliance with the required affirmative and financial covenants. As of December 31, 1998, $27.3 million was outstanding under the revolving credit facility and an additional $5.5 million was used to collateralize letters of credit. The interest rate in effect at December 31, 1998, was 6.55% or 125 basis points above the 30 day commercial paper rate. The average interest rate during 1998 was 7.26%. Interest reductions are available based upon the Company achieving certain financial results. At December 31, 1998, $25.4 million was outstanding under the acquisition facility with an effective interest rate of 7.8%, or 250 basis points above the 30 day commercial paper rate. The average interest rate in 1998 was 8.25%. U.K. Credit Facility The Company's U.K. operation has a credit facility with TSB Commercial Finance Ltd. which provides up to (Pounds)1.5 million in loans. The total amount of loans outstanding under this facility may not exceed 80% of eligible receivables. The interest rate chargeable to the Company is currently 8%. The balance outstanding as of December 31, 1998 was (Pounds)955,647 or approximately $1.6 million. Facility Mortgage The Company issued an unsecured promissory note in the amount of $510,000 payable to North American Investment Realty of New Jersey, Inc. with an interest rate of 9 7/8% per annum. Principal payments were made in 1994 through 1996 bringing the balance down to $127,000. In 1996, the Company exercised its options to extend the term of the note for a period not to exceed three years. The Company has a seven year mortgage for its corporate office facility. The mortgage consists of a $6.4 million loan, that is repayable based on a 15 year amortization schedule and a $375,000 loan that is repayable based on a 4 year schedule. The variable interest rate on these loans is one month Libor plus 225 basis points. The outstanding balance of the loans was $6.4 million at December 31, 1998. The Company entered into an interest rate swap arrangement with its mortgage holder on its $6.75 million mortgage notes. The Company makes monthly interest payments at the fixed rates of 8.6% and 8.42% on the $6.4 million loan and the $375,000 loan, respectively. The Company receives payments based upon Libor plus 225 basis points. In 1998, the net loss from the exchange of interest rate payments was approximately $6,600 and was included in interest expense. The fair value of the Company's interest rate swap agreement as of December 31, 1998, would require a payment by the Company of approximately $331,000 if the agreement were terminated. The Company does not anticipate terminating the interest rate swap agreement prior to its current expiration date of November 1, 2004. NOTE 5 - COMMON STOCK: In 1998, 1997 and 1996, the Company received proceeds of $298,400, $561,704 and $618,588, respectively, from the exercise of 80,000, 155,008 and 143,714 common stock purchase warrants. At December 31, 1998, the Company had 65,000 common stock purchase warrants outstanding with exercise prices ranging from $3.62 to $6.00 per share and expiration dates from April, 2000 to July, 2003. The Company received proceeds of $293,799, $465,598 and $123,750 in 1998, 1997 and 1996, respectively, from the exercise of 48,166, 80,847 and 37,500 options granted under various stock option plans. NOTE 6 - CUMULATIVE CONVERTIBLE PREFERRED STOCK: The Company's Series B Cumulative Convertible Preferred Stock ("Series B Preferred Shares") accrues dividends at the rate of 7% per annum, based upon a liquidation value of $1.00 per share, payable in cash or in-kind at the option of the holder. In 1998, 1997 and 1996, dividends in-kind amounting to $200,431, $187,108, and $175,127, respectively, were paid to the holders of Series B Preferred Shares. Series B Preferred Shares are convertible at a ratio of one Series B Preferred Share to .285 Common Shares. NOTE 7 - STOCK OPTIONS The Company has in effect a number of stock-based incentive and benefit programs designed to attract and retain qualified directors, executives and management personnel. To accomplish these objectives, the Company has adopted a 1985 Incentive Stock Option Plan (the "ISOP"), a 1985 non-qualified Stock Option Plan (the "Non-qualified Plan"), a 1989 Directors Stock Option Plan ("Directors Plan"), a 1992 Stock Option Plan ("1992 Non-qualified Plan"), a 1992 Incentive Stock Option Plan ("1992 ISOP"), a 1992 Stock Bonus Plan ("1992 Bonus Plan"), and a 1992 Stock Option Plan for Non-employee Directors ("1992 Directors Plan"). In addition, the Company has encouraged its directors to subscribe for shares of common stock from time to time at a price equal to the market price of the common stock at the time of their subscription. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and other related interpretations in accounting for its stock option plans. No compensation expense has been recognized for these plans. Had compensation cost been determined based upon the fair value at grant date consistent with the accounting methodology prescribed under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation", the Company's net income would have been reduced by approximately $512,000, $421,000 and $311,000 for 1998, 1997 and 1996, respectively. Basic earnings per share would have been reduced by approximately $.08, $.07, and $.05 for 1998, 1997 and 1996, respectively. Diluted earnings per share would have been reduced by $.07 for 1998, $.06 for 1997 and $.04 for 1996. The weighted average fair value of options granted during 1998, 1997 and 1996 are estimated to be $11.53, $5.13 and $3.71, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions for 1998, 1997 and 1996, respectively: volatility of 45%, 35%, and 43%; risk free interest rates of 5.33%, 6.43%, and 6.76%; assumed forfeiture rates of 14.8%, 15.8% and 13.2%; and, expected lives of 6.70, 6.72 and 6.76 years for 1998, 1997 and 1996, respectively. Changes in stock options outstanding are as follows: 1998 1997 1996 ------------- ------------- -------------- Avg. Avg. Avg. Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding balance at beginning of year 682,066 $6.79 694,913 $5.95 582,246 $5.09 Granted 70,500 25.02 88,000 12.50 195,000 7.74 Exercised (48,166) 6.10 (80,847) 5.76 (37,500) 3.30 Canceled (3,000) 9.63 (20,000) 7.00 (44,833) 4.85 ------- ------- ------- Outstanding at end of year 701,400 $8.66 682,066 $6.79 694,913 $5.95 ======= ======= ======= Options exercisable at end of year 584,484 $8.10 501,316 $6.20 483,000 $5.62 ======= ======= ======= The following table summarizes information about stock options at December 31, 1998: Options Outstanding Options Exercisable --------------------------------- ----------------------- Weighted Weighted Weighted Range of average average Number average Exercise Outstanding remaining exercise exercisable exercise Prices at 12/31/98 life Price at 12/31/98 Price - ------------- ----------- ---------- -------- ----------- -------- $3.13 - $7.00 342,000 4.3 years $4.78 328,250 $4.77 7.13 - 10.02 215,900 7.3 years $7.97 151,900 $8.08 11.00 - 26.50 143,500 9.1 years $18.91 104,334 $18.60 ----------- ----------- Total 701,400 6.2 years $8.66 584,484 $8.10 =========== =========== During 1998, the Company purchased 6,986 shares of its common stock on the open market and awarded such shares to certain employees in conjunction with their employment agreements. These awards have a vesting period of approximately two to four years. Compensation expense is being recorded over the vesting period. The expense recorded in 1998 was approximately $22,000. NOTE 8 - EMPLOYEE STOCK PURCHASE PLAN: The Butler International, Inc. 1990 Employee Stock Purchase Plan (the "Plan") made available $2.5 million for loans to officers, directors, and other key employees to purchase Company stock. Except for the loans to outside directors, the Company, subject to the Plan provisions, may reduce the amount due with respect to each loan by twenty-five percent of the original principal balance on successive anniversary dates of the loan, provided that the employee remains employed by the Company or one of its subsidiaries on such anniversary dates, or has not terminated his employment for other than a reason permitted by the Plan. The shares acquired by the outside directors pursuant to the Plan were subject to forfeiture ratably under certain conditions. During 1997 and 1996, plan loans totaling $18,734 and $68,726, respectively, previously granted to employees who have been terminated, were forgiven and charged to expense. No loans were forgiven during 1998. NOTE 9 - EMPLOYEE BENEFIT PLANS: Defined Benefit Plan The Company has a defined benefit pension plan ("DBP"). Benefits under the DBP are determined based on earnings and period of service. The Company funds the DBP in accordance with the minimum funding requirements of the Employees Retirement Income Security Act of 1974. Benefits payable under the plan are reduced by a participant's Employee Stock Option Plan ("ESOP") credits. Effective June 1997, retroactive to December 31, 1996, the Company froze future benefit accruals under the DBP and ESOP and approved a matching program under its 401(k) plan, in lieu of benefits which said participants would otherwise have accrued under the DBP. The effect of freezing the DBP resulted in a gain, which was not material. Change in pension benefit obligation (in thousands):
1998 1997 ------- ------- Benefit obligations at beginning of year $ 1,907 $ 2,924 Interest cost 128 212 Change in assumptions - (1,115) Benefits paid (13) (114) ------- ------- Benefit obligation at end of year 2,022 1,907 ------- ------- Change in plan assets (in thousands): Fair value of plan assets beginning of year 3,225 2,891 Return on plan assets 289 475 Plan expenses - (27) Benefits paid (13) (114) ------- ------- Fair value of plan assets at end of year 3,501 3,225 ------- ------- Funded status 1,479 1,318 Unrecognized net gain (1,263) (1,330) ------- ------- Prepaid (accrued) benefit cost $ 216 $ (12) ======= =======
Assumptions used in determining net pension expense were:
1998 1997 1996 ------- ------- ----- Discount rate 6.75% 7.25% 7.25% Rates of increase in compensation levels N/A N/A 4.00% Expected long-term rate of return on assets 9.00% 9.00% 9.00% Components of net periodic benefit cost (in thousands): 1998 1997 1996 ------- ------- ----- Service cost $ - $ - $ 432 Interest cost 128 212 250 Return on assets (290) (233) (194) Recognized net actuarial gain (67) - 99 ------- ------- ----- Net periodic benefit cost $ (229) $ (21) $ 587 ======= ======= =====
At December 31, 1998, approximately 38% of plan ass ets were held in fixed income investments and 62% in equity investments compared to 25% in fixed investments and 75% in equity investments at December 31, 1997. Postemployment and Postretirement Benefits The Company currently does not provide postemployment and postretirement benefits other than pensions. 401(K) Plan The Company provides a 401(k) savings plan. Effective December 31, 1996, the Company froze its DBP and ESOP and approved a matching program under the 401(k) plan. The Company made matching contributions of approximately $357,000 and $315,000 in 1998 and 1997, respectively. No contributions were made to the plan in 1996. NOTE 10 - INCOME TAXES: The components of income tax expense (benefit) were as follows (in thousands): 1998 1997 1996 ------ ------ ----- Current taxes: Federal $ 3,387 $ 234 $ 130 State 1,502 913 463 Foreign - - - ------- ------ ------- Total Current 4,889 1,147 593 Deferred tax benefit (708) (1,959) - ------- ------ ------- Total income tax expense (benefit) $ 4,181 $ (812) $ 593 ======= ====== ======= Significant components of the Company's deferred tax assets as of December 31, 1998 and 1997 are as follows (in thousands): Current Deferred Tax Assets: 1998 1997 ------- -------- Reserves for doubtful accounts $ 356 $ 461 Accruals not currently deductible 3,152 2,477 Net operating loss carryforwards 1,369 3,166 Tax credit carryforwards 0 968 Other 2,059 1,375 Valuation allowance (1,369) ( 4,588) ------- -------- Net current deferred tax asset (included in other current assets) $ 5,567 $ 3,859 ======= ======== As of December 31, 1997, the Company believed that it was more likely than not that a portion of the U.S. net operating loss and other carryforwards would be realized. Therefore, the estimated future tax benefit of carryforwards as reflected in the Company's December 31, 1997 deferred tax assets of $8.4 million was partially recognized. By December 31, 1998, the Company has had three consecutive years of financial profitability and has substantially realized the benefits of the U.S. operating loss and other carryforwards. As the Company now believes that it is more likely than not that most of the December 31, 1998 deferred assets will be realized, the valuation allowance has been further reduced and income tax benefits have been recorded for these changes. U.K. net operating loss carryforwards of approximately $4.5 million from 1996 and 1995 are available to reduce future U.K. taxable income. U.K. tax law provides an unlimited life for net operating loss carryforwards. However, the benefit of the U.K. net operating losses have not been recognized for financial reporting purposes because realization is not currently believed to be likely in the foreseeable future. A reconciliation between the income tax expense (benefit) computed by applying the federal statutory rate to income from operations before income taxes to the actual expense (benefit) is as follows (in thousands): 1998 1997 1996 ------- ------- ------- Income tax expense at statutory rate $ 4,909 $ 2,693 $ 1,831 Amortization of excess of cost over net assets of businesses acquired 294 227 214 Utilization of net operating loss and credit carryforwards (2,067) (2,960) (2,025) Net changes in deferred taxes, including reduction in valuation allowance (708) (1,959) - State income tax expense, net of federal tax benefit 1,472 895 454 Other, including foreign rate differential 281 292 119 ------- ------- ------- Provision (benefit) for income taxes $ 4,181 $ (812) $ 593 ======= ======= ======= NOTE 11 - COMMITMENTS AND CONTINGENCIES: The Company has operating leases for office space and various computer equipment. Estimated minimum future rental commitments under non-cancelable leases at December 31, 1998 are as follows (in thousands): 1999 $4,254 2000 1,887 2001 967 2002 466 2003 152 Thereafter 0 ------ Total $7,726 ====== Substantially all of the leases provide for increases based upon use of utilities and lessors' operating expenses. Net rent expense for the years ended December 31, 1998, 1997 and 1996 was approximately $4.5 million, $4.0 million and $3.9 million, respectively. In 1995, the Company filed a complaint against CIGNA Property and Casualty Insurance Company regarding CIGNA's and other defendants' acts and omissions in the processing, handling and investigation of claims against the Company under general liability and workmen's compensation insurance contracts. In 1997, the Company entered into an agreement with CIGNA which, in the absence of a settlement, would result in the respective parties undertaking binding arbitration in late 1998. In accordance with the terms of the agreement the Company paid $2.1 million to CIGNA. In August 1998, the Company exercised its option to settle the remaining disputed amounts with CIGNA for $1.5 million plus interest of $255,000. This settlement had no impact on current year operating results. The Company and its subsidiaries are parties to various legal proceedings and claims incidental to its normal business operations for which no material liability is expected beyond which is recorded. While the ultimate resolution of the above matters is not known, management does not expect that the resolution of such matters will have a material adverse effect on the Company's financial statements and results of operations. NOTE 12 - RELATED PARTY TRANSACTIONS: Under various approved stockholder option plans and other stock purchase agreements, certain directors have executed primarily non-interest bearing notes payable to the Company to purchase common stock. As of December 31, 1998, approximately $2.9 million was outstanding under such notes, which included notes totaling $349,279 executed by two non-employee directors in 1998 for the purchase 88,333 shares of the Company's common stock. During 1998, 1997 and 1996, the Company paid or accrued $732,000, $745,000 and $519,000, respectively, in fees and expenses to McBreen, McBreen & Kopko, its outside counsel. NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: During 1998, 1997 and 1996, the Company received approximately $11,000, $168,000 and $62,000, respectively, in federal, state and foreign income tax refunds. Cash paid for interest and federal, state and foreign income taxes for the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands): 1998 1997 1996 ------ ------ ------ Interest $3,868 $3,635 $4,767 Income taxes $4,757 $719 $144 NOTE 14 - SEGMENTS: Sales and operating profits by segment (in thousands): Sales: 1998 1997 1996 --------- --------- --------- Technology Solutions $ 85,029 $ 36,361 $ 31,293 Telecom Services 79,654 68,908 60,349 Fleet Services 61,735 73,072 60,054 Technical Group 217,728 246,623 257,657 -------- -------- -------- Consolidated total $444,146 $424,964 $409,353 ======== ======== ======== Operating Profits: 1998 1997 1996 -------- -------- -------- Technology Solutions $ 10,011 $ 4,253 $ 3,705 Telecom Services 12,917 10,221 7,529 Fleet Services 3,245 818 326 Technical Group 12,918 13,371 13,045 Unallocated amounts (20,349) (16,574) (14,006) -------- -------- -------- Consolidated total $ 18,742 $ 12,089 $ 10,599 ======== ======== ======== The Company primarily operates in the United States. The Technical Group operations does include the results of its United Kingdom ("UK") subsidiary. Net sales from the UK operation were $16.1 million, $11.9 million and $21.3 million in 1998, 1997 and 1996, respectively. Operating profits (loss) from the UK subsidiary were $506,000, $331,000 and ($793,000) in 1998, 1997 and 1996, respectively. The Company provides services to over 1,600 clients. In 1998 one client accounted for 11.7% of the Company's net sales. This client, which is included in the Technical Group segment, accounted for approximately 13.0% of net sales in 1997 and 6.4% of net sales in 1996. The Company's assets are reviewed by management on a consolidated basis because it is not meaningful to allocate assets to the various segments. Unallocated amounts of operating profits consist of corporate expenses, certain general and administrative expenses from field operations and goodwill amortization. NOTE 15 - ACQUISITIONS: On March 3, 1998, the Company acquired the operations of Argos Adriatic Corporation ("Argos"), a Silicon Valley information technology ("IT") company headquartered in Fremont, CA. The purchase price includes $5.1 million paid in cash ($4.1 million charged against the Company's acquisition line and $1.0 million against the revolving credit facility), plus a contingent payout to be paid over three years based on the future earnings of Argos in excess of certain annual thresholds. Argos provides a variety of IT support services to a wide range of clients in Northern California, and generates approximately $10 million in annual revenues with a staff of approximately 90 full-time employees. On April 1, 1998, the Company acquired the operations of Norwood Computer Services, Inc. ("Norwood") an IT services company headquartered in Hicksville, NY. The purchase price includes $8.4 million paid in cash ($6.7 million drawn down on the acquisition line and $1.7 charged to the revolving credit facility), plus a contingent payout of $1.3 million that was paid in March 1999. Norwood has been serving a wide range of mid-sized and Fortune 500 companies in the New York metropolitan area since 1978 and generates approximately $17 million in annual revenues through a staff of approximately 120 consultants. On June 2, 1998, the Company's Telecommunication Services operation acquired WCC Telephone Services, Inc. ("WCC") a California based telecommunications services company. WCC specializes in central office services for customers such as Pacific Bell and Northern Telecom. It generates annual sales of approximately $2 million. This business has been merged with the existing Butler Telecom business in Southern California. The purchase price includes $1.9 million paid in cash ($1.5 million drawn down on the acquisition line and $0.4 million charged to the revolving credit facility), plus a contingent payout based on the earnings of WCC for the next year. Also, on June 2, 1998, the Company's Technology Solutions operation acquired certain assets of the Reston, VA branch operations of Automated Concepts, Inc. This business generates annual sales of approximately $3 million. Employees and consultants of this operation have been merged with the existing Butler office in McLean, VA. The purchase price was $550,000 of which $440,000 was drawn down on the acquisition line and $110,000 was charged to the revolving credit facility plus a contingent payout based on earnings for one year. On July 1, 1998, the Company acquired Data Performance, Inc. ("DPI") a Chicago area IT services business. The purchase price was $10.3 million ($8.2 charged to the acquisition line and $2.1 charged against the revolving credit facility). DPI has provided a variety of IT support services to a wide range of customers in the Chicago marketplace for the past eleven years. Its offerings include contract programming, software consulting, IT staffing and Year 2000 project work. DPI currently generates approximately $10 million in annual revenues through its staff of 80 consultants. On August 5, 1998, the Company completed the acquisition of ISL International, Inc. ("ISL"), an IT services company headquartered in Iselin, NJ. The purchase price includes $7.4 million paid in cash ($5.9 charged was drawn down on acquisition line and $1.5 charged to the revolving credit facility), plus a multi-year contingent payout based on the future earnings of ISL. ISL has provided services to a wide range of companies in the metropolitan New York area since 1978. It generates approximately $20 million in annual revenues through a staff of approximately 150 consultants. In connection with these 1998 acquisitions, the Company acquired substantially all of the operating assets and assumed certain liabilities of the acquired businesses. The transactions were recorded using the purchase method of accounting. Excess cost over net assets of businesses acquired has been recorded as goodwill and is being amortized over forty years. Sales included in the Company's financial statements from the businesses acquired for the year ended December 31, 1998 were $39.2 million. The accompanying consolidated statements of income reflect the operating results of the acquisitions since the effective date of their respective acquisitions. Pro forma unaudited results of the Company and the acquisitions for the years ended December 31, 1998 and 1997, assuming the acquisitions had been made as of January 1, 1998 and 1997, are summarized below (in thousands except per share amounts): 1998 1997 -------- -------- Net sales $471,374 $476,172 Pre-tax income 14,938 8,073 Net income 10,485 8,862 Diluted earnings per share $1.35 $1.18 These pro forma results have been prepared for comparative purposes only and include certain adjustments such as goodwill amortization resulting from the acquisitions and increased interest expense on the acquisition related debt. They do not purport to be indicative of the results of operations which would have resulted had the combinations been in effect on January 1, 1998 and 1997 or of future results of operations of the consolidated entities. NOTE 16 - INTERIM FINANCIAL INFORMATION: (in thousands, except per share data) (unaudited) 1998 QUARTERS FIRST SECOND THIRD FOURTH Operations: Net Sales $106,723 $112,948 $112,755 $111,720 Gross Margin 18,208 20,962 22,644 24,078 Net income 1,229 2,709 2,909 2,997 ======== ======== ======== ======== Per share data: Basic earnings per share $ 0.18 $ 0.41 $ 0.44 $ 0.45 ======== ======== ======== ======== Diluted earnings per share $ 0.16 $ 0.35 $ 0.37 $ 0.38 ======== ======== ======== ======== 1997 QUARTERS FIRST SECOND THIRD FOURTH Operations: Net Sales $104,697 $108,419 $106,465 $105,383 Gross margin 15,584 16,557 17,178 17,793 Net income 841 1,803 2,098 3,991 (a) ======== ======== ======== ======== Per share data: Basic earnings per share $ 0.13 $ 0.29 $ 0.32 $ 0.62 ======== ======== ======== ======== Diluted earnings per share $ 0.11 $ 0.24 $ 0.28 $ 0.52 ======== ======== ======== ======== (a) Includes a tax benefit of $1,959. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Butler International, Inc.: We have audited the accompanying consolidated balance sheets of Butler International, Inc. as of December 31, 1998 and December 31, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Butler International, Inc. as of December 31, 1998 and December 31, 1997, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP - ------------------------ Parsippany, New Jersey February 26, 1999 SELECTED CONSOLIDATED FINANCIAL INFORMATION: (in thousands, except per share data) (unaudited)
1998 1997 1996 1995 1994 -------- -------- -------- ---------- -------- Operations Data: Net sales $444,146 $424,964 $409,353 $433,564 $393,250 Gross margin $ 85,892 $ 67,112 $ 59,591 $ 56,495 $ 53,617 Net income (loss) $ 9,844 $ 8,733a $ 4,791 $ (7,914)b $ 1,659 Per Share Data: Net income (loss) per share: Basic $ 1.49 $ 1.37 $ 0.76 $(1.36) $ 0.26 Diluted $ 1.26 $ 1.16 $ 0.67 N/A $ 0.25 Weighted average number of Shares outstanding: Basic 6,454 6,253 6,087 5,943 5,430 Diluted 7,794 7,511 7,166 N/A 6,639 Balance Sheet Data: Working capital $ 36,835 $ 33,551 $ 32,041 $ 34,103 $ 48,155 Total assets $150,112 $104,716 $ 99,180 $110,572 $107,810 Long-term debt $ 54,935 $ 27,502 $ 31,342 $ 40,480 $ 45,746 Total liabilities $ 94,913 $ 59,627 $ 63,601 $ 80,516 $ 70,412 Stockholders' Equity $ 55,199 $ 45,089 $ 35,579 $ 30,056 $ 37,398
(a) 1997 includes a tax benefit of $1,959. (b) 1995 includes $2,680 of non-recurring charges. MARKET INFORMATION ON BUTLER'S COMMON STOCK: The Common Stock is quoted under the symbol "BUTL" and is listed on the NASDAQ National Market System. As of March 5, 1999, there were approximately 1,800 holders of record of Common Stock. Not reflected in the number of record holders are persons who beneficially own shares of Common Stock held in nominee or street name. HIGH LOW 1997 First Quarter $13.75 $10.00 Second Quarter 14.13 9.38 Third Quarter 17.25 11.50 Fourth Quarter 19.38 16.00 1998 First Quarter $22.88 $16.38 Second Quarter 27.38 21.13 Third Quarter 26.50 17.25 Fourth Quarter 26.50 15.00 1999 First Quarter (Through March 5, 1999) $26.44 $19.13 No cash dividends were declared on the Company's Common Stock during the years ended December 31, 1998 and 1997. The Company has no present intention of paying cash dividends during the year ending December 31, 1999. EX-22.1 9 SUBSIDIARIES OF REGISTRANT EXHIBIT 22.1 SUBSIDIARIES OF REGISTRANT -------------------------- PERCENTAGE OF VOTING STATE OR SECURITIES JURISDICTION OF CORPORATION OWNED BY OWNED INCORPORATION - ----------- -------- ----- ------------- Butler Service Group, Inc. Registrant 100 New Jersey AAC Corp. Registrant 100 Delaware Sylvan Insurance Co. Ltd. Registrant 100 Bermuda Butler Airport Services, Corp. Registrant 100 Maryland Butler of New Jersey Realty Corp. Registrant 100 New Jersey BUTLER SERVICE GROUP, INC. ("BSG") SUBSIDIARIES ----------------------------------------------- Butler Service Group-UK, Ltd. BSG 100 United Kingdom Butler Airport Services, Ltd. BSG 100 United Kingdom Butler Services International, Inc. BSG 100 Delaware Butler Telecom, Inc. BSG 100 Delaware Butler Services, Inc. BSG 100 Delaware Butler Utility Services, Inc. BSG 100 Delaware Data Performance, Inc. BSG 100 Illinois Butler Airport Services, Inc. BSG 100 Cayman Islands EX-23.1 10 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333- 69799, No. 333-69801, No. 333-22263, No. 33-58481 and No. 33-87012 on Form S-8, Registration Statement No. 33-59427 on Form S-3 and Post-Effective Amendment No. 4 to Registration Statement No. 33-58278 on Form S-2 of our reports dated February 26, 1999, appearing in and incorporated by reference in this Annual Report on Form 10-K of Butler International, Inc., for the year ended December 31, 1998. /s/ Deloitte & Touche LLP - ------------------------- Parsippany, New Jersey March 24, 1999 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUTLER INTERNATIONAL, INC. FORM 10-K FOR PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 910 0 68,658 3,309 441 72,893 31,969 15,442 150,112 36,058 0 0 3 7 55,189 150,112 444,146 444,146 358,254 358,254 65,092 2,058 4,717 14,025 4,181 9,844 0 0 0 9,844 1.49 1.26
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