-----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, HzU0WRY1Bd6oTQktIzhddG8AXGZ/6uLP/oCYWKo3L8yt5LSm7LoZ54Dp7XXUnJex bcINRC0G6PRVtUQVSsbFKA== 0000904456-98-000157.txt : 19980518 0000904456-98-000157.hdr.sgml : 19980518 ACCESSION NUMBER: 0000904456-98-000157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZMAX CORP CENTRAL INDEX KEY: 0001034760 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 870434977 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23967 FILM NUMBER: 98625197 BUSINESS ADDRESS: STREET 1: 20251 CENTURY BOULEVARD STREET 2: SUITE 333 CITY: GERMANTOWN STATE: MD ZIP: 20874 BUSINESS PHONE: 3013539500 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1998 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number 000-23967 ZMAX CORPORATION ------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 52-2040275 ------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 20251 CENTURY BLVD. GERMANTOWN, MD 20874 ------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (301) 353-9500 -------------- ------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 13, 1998, 11,729,714 shares of common stock, $.001 par value per share. ZMAX CORPORATION INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997 1 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited) 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Exhibits and Reports on Form 8-K 13 SIGNATURES 16
PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ZMAX CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1998 1997 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,544,703 $ 6,405,084 Accounts receivable 1,407,311 1,067,258 Prepaid expenses and other assets 61,558 81,506 ------------- ------------- Total current assets 7,013,572 7,553,848 Property and equipment, net 301,900 277,981 Intangible assets, net 3,742,085 4,033,265 Other assets 4,983 4,983 ------------- ------------- Total assets $ 11,062,540 $ 11,870,077 ============= =============
The accompanying notes are an integral part of these balance sheets. 1 LIABILITIES & SHAREHOLDERS' EQUITY
March 31, December 31, 1998 1997 ------------- ------------- (Unaudited) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 983,936 $ 826,117 Customer deposits 907,549 926,039 Current portion of long-term debt 274,193 539,541 ------------- ------------- Total current liabilities 2,165,678 2,291,697 ------------- ------------- Total liabilities 2,165,678 2,291,697 ------------- ------------- Commitments and contingencies (Notes 4 and 5) Stockholders' equity: Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding - - Common stock, $0.001 par value, 50,000,000 shares authorized, 11,729,714 shares issued and outstanding as of March 31, 1998 and December 31, 1997, 479,801 shares subject to Cancellation Agreements as of March 31, 1998 and December 31, 1997 (Note 3) 11,729 11,729 Additional paid-in capital 35,280,105 35,280,105 Accumulated deficit (26,394,972) (25,713,454) ------------- ------------- Total stockholders' equity 8,896,861 9,578,380 ------------- ------------- Total liabilities and stockholders' equity $ 11,062,540 $ 11,870,077 ============= =============
The accompanying notes are an integral part of these balance sheets. 2 ZMAX CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Ended March 31, Ended March 31, 1998 1997 --------------- --------------- (Unaudited) (Unaudited) Revenues $ 1,524,324 $ - Operating expenses: Cost of revenues 466,808 - Research and development 127,687 - Sales and marketing 265,509 157,748 General and administrative 1,057,105 1,019,195 Amortization and depreciation 321,642 154,730 ------------- ------------- Loss from operations (714,427) (1,331,673) Other Income (expense): Interest income 55,431 49,478 Interest expense (6,855) (889,446) Other (15,880) 1,218 ------------- ------------- Net loss before income taxes (681,731) (2,170,423) (Provision) benefit for income taxes - 26,096 Net loss $ (681,731) $ (2,144,327) ------------- ------------- Basic and diluted net loss per share $ (0.08) $ (0.63) ------------- ------------- Basic and diluted weighted average shares outstanding 8,449,913 3,424,271 ============= =============
The accompanying notes are an integral part of these statements. 3 ZMAX CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Three Months Ended March 31, Ended March 31, 1998 1997 --------------- --------------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $ (681,731) $ (2,144,327) Adjustments to reconcile loss to net cash Depreciation and amortization expense 321,642 154,730 Amortization of deferred financing costs - 148,967 Amortization of discount on Notes and Debentures - 591,408 Stock compensation expense - 300,000 Changes in assets and liabilities Accounts receivable (340,052) - Prepaid expenses and other assets 19,947 17,649 Accounts payable and accrued expenses 158,032 148,650 Deferred income tax - (26,096) Customer deposits (18,490) - ------------- ------------- Net cash used in operating activities (540,652) (809,019) ------------- ------------- Net cash used in investing activities: Purchases of property (54,381) (172,158) ------------- ------------- Net cash used in investing activities (54,381) (172,158) ------------- ------------- Net cash used in financing activities: Payments on long-term obligations (265,348) (129,576) ------------- ------------- Net cash used in financing activities (265,348) (129,576) ------------- ------------- Net decrease in cash (860,381) (1,110,753) ------------- ------------- Cash, beginning of period 6,405,084 4,842,169 ------------- ------------- Cash, end of period $ 5,544,703 $ 3,731,416 ============= =============
The accompanying notes are an integral part of these statements. 4 ZMAX CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION, ORGANIZATION, AND NATURE OF OPERATIONS: BASIS OF PRESENTATION The unaudited financial statements as of March 31, 1998 and for the three months ended March 31, 1998 and 1997, presented herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the financial statements of ZMAX Corporation, as of December 31, 1997, and notes there to included in the Company's 1997 Annual Report on Form 10-K. The financial statements reflect all adjustments (consisting of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company as of March 31, 1998 and 1997. The results of operations for the three ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. On November 6, 1996, ZMAX Corporation ("ZMAX"), a shell company listed on the OTC Bulletin Board, acquired 100% of the outstanding common stock of Century Services, Inc. ("CSI"), a Maryland corporation. CSI was a privately held company formed on December 13, 1995 to perform computer re-engineering with a focus on providing a solution to the Year 2000 problem. NATURE OF OPERATIONS Prior to the CSI transaction, ZMAX's activities consisted of efforts to establish a new business and raise capital. The operations of CSI consisted of activities to obtain financing, to acquire and develop its proprietary Year 2000 software re-engineering tools and methodologies, and to market its services to potential customers. Since the acquisition of CSI, the Company has been focused on the computer software re-engineering market. The Company generated its first revenues during 1997. Substantial time may pass before significant revenues and profitability may be realized and, during this period, the Company may require additional funds that may not be available to it. The Company has limited experience in providing its Year 2000 or "millennium" services. The Company has completed a limited number of pilots and conversion projects. There can be no assurance that the Company will be successful in completing large-scale conversions, that the Company will not experience delays or failures in providing its millennium services, or that its millennium services will be effective. The failure of the Company's Year 2000 methodology to function properly or the existence of significant errors or bugs following completion of millennium conversions could necessitate significant expenditures by the Company to remedy the problem. 5 The consequences of failures, errors or bugs could materially and adversely affect the Company's business, operating results and financial condition. The Company's operations are subject to certain risks and uncertainties, including among others, rapidly changing technology, uncertain and undeveloped markets for millennium services, current and potential competitors with greater financial, technological, production and marketing resources, the need to develop additional products and services, limited protection of proprietary information, the risk of third party claims of infringement, potential contract liability related to the Company's access to key aspects of customer's computer systems, dependence upon strategic alliances, the need for additional technical personnel, dependence on key management personnel, management of growth, uncertainty of future profitability and possible fluctuations in financial results. In addition, there are risks associated with the market activity in ZMAX stock. 2. SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS Investments with original maturities of three months or less are considered cash equivalents for purpose of these financial statements. REVENUE RECOGNITION Revenues on time-and -materials contracts are recognized based upon hours incurred at contract rates plus direct costs. Revenues on fixed-price contracts are recognized on the percentage-of-completion method based on costs incurred in relation to total estimated costs. Anticipated losses are recognized as soon as they become known. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Unbilled accounts receivable on time and materials contracts represent costs incurred and gross profit recognized near the period end but not billed until the following period. Unbilled accounts receivable on fixed-price contracts consists of amounts incurred which are not yet invoicable under contract terms. At March 31, 1998, unbilled accounts receivable totaled $521,224. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. 6 NET LOSS PER SHARE The Company has adopted Statement of Financial Accounting Standard No. 128, "Earnings Per Share" which requires dual presentation of basic and diluted earnings per share on the face of the statement of operations for all periods presented. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the earnings of the Company. Options and warrants to purchase shares of Common Stock were not included in the computation of loss per share as the effect would be antidilutive. Outstanding shares subject to cancellation agreements and restricted shares are also not included. As a result, the basic and diluted earnings per share amounts are identical. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements become effective for the Company's 1998 financial statements. The adoption of these new pronouncements will not impact the Company's results of operations, financial position or cash flows. 3. COMMON STOCK AND PREFERRED STOCK: STOCK SUBJECT TO CANCELLATION In September 1995, ZMAX entered into stock cancellation agreements with certain stockholders that provided for the cancellation of 775,808 shares of ZMAX common stock. In March 1997, 296,007 of these shares were returned to the Company and canceled. An additional 479,801 shares are subject to cancellation but had not been returned to the Company for cancellation as of March 31, 1998. STOCK PURCHASE AGREEMENT On November 6, 1996, a Stock Purchase Agreement between CSI and ZMAX was executed and the transaction was consummated. In return for all of the outstanding stock of CSI, ZMAX issued 3,200,000 shares of common stock to the two stockholders of CSI. At the closing, the former stockholders of CSI retained 400,000 shares of such ZMAX common stock and deposited their remaining 2,800,000 shares of ZMAX common stock (the "Restricted Stock") into an escrow subject to quarterly release of such shares back to the former CSI stockholders based upon the cash flows (as defined) of CSI. Under the terms of the Stock Purchase Agreement, one share of Restricted Stock will to be released to such stockholders for every $1.25 of cash flow generated by CSI. The former CSI stockholders are entitled to vote the shares of the Restricted Stock as well as to receive their respective pro rata share of any distributions or dividends declared thereon. The Restricted Stock is subject to forfeiture under certain conditions. The transaction was accounted for as a recapitalization of CSI with CSI as the acquirer (a reverse acquisition). 7 In 1998, ZMAX and the former CSI stockholders reformed certain of the agreements relating to ZMAX's acquisition of CSI to reflect the original intent of the parties. As a result, the original escrow to hold the Restricted Stock was replaced by the former CSI stockholders holding their shares of Restricted Stock. The amended agreements, however, provide for the lapse of such restrictions on transferability on November 6, 2001 if such restrictions have not already been released as a result of the CSI cash flow. 4. COMMITMENTS AND CONTINGENCIES: LITIGATION On April 17, 1997, Alan L. Leaven and Canadian Petroleum Corporation filed suit in the Third Judicial district Court of Salt Lake County, Utah against the Company (f/k/a Mediterranean Oil Corp., f/k/a Pandora, Inc.) and John Does. The complaint alleges various common law claims arising from the alleged untimely failure to remove legends restricting the transferability of shares of the Company's common stock that had been issued by the Company in payment of legal fees incurred. The plaintiffs have computed damages in the approximate amount of $87,000. The Company believes the complaint is without legal merit and will vigorously defend itself. The Company accrued $40,000 for legal expenses related to this issue in 1997. As of March 31, 1998, $9,744 had been incurred for this matter. The Company is periodically a party to disputes arising from normal business activities. In the opinion of management, resolution of these matters will not have a material adverse effect upon the financial position or future operating results of the Company, and adequate provision for any potential losses has been made in the accompanying financial statements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations of the company should be read in conjunction with the financial statements and the notes thereto which appear elsewhere in this quarterly report and its Annual Report on Form 10-K for the year ended December 31, 1997. The information set forth below includes forward-looking statements relating to actual results that may differ from projected results. Some factors that could cause results to differ materially from those projected in the forward-looking statements are set forth below. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. OVERVIEW On November 6, 1996, ZMAX, a shell company listed on the NASD OTC Bulletin Board acquired all of the outstanding stock of CSI. Prior to this transaction, ZMAX had no operations and its activities consisted of efforts to establish or acquire a new business and to raise capital. CSI was a privately held company formed on December 13, 1995. For financial reporting purposes, the acquisition has been treated as a recapitalization of CSI with CSI as the acquirer (a reverse acquisition). The historical financial statements prior to November 6, 1996 are those of CSI. CSI markets millennium services to a variety of commercial and government organizations. In the next 12 months, the Company intends to make additional investments in the further development and marketing of CSI's millennium services and other software re-engineering services. In addition, the Company currently intends to pursue acquisitions in the information technology industry that will complement CSI. In view of the development costs relating to CSI's millennium services, the Company believes the period-to-period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Specifically, as CSI increases its workforce in order to meet the future demand for its millennium services, it will incur training, salary and other costs prior to the recognition of related revenues. In addition, most of CSI's revenues are expected to be derived from a relatively small number of large-scale, comprehensive millennium conversion projects. Consequently, CSI's revenues and operating results are expected to be subject to substantial variations in any given year and from quarter to quarter. The Company believes some demand for CSI's millennium services may continue to exist for some time after the year 2000, although this demand will diminish significantly over time and will eventually disappear. However, the Company's proprietary computer software tools may be used in conversion projects unrelated to Year 2000 compliance. The Company plans to pursue 9 businesses and business opportunities unrelated to the millennium problem in the information services market and to develop products and services to take advantage of these opportunities, such as migrating a client's software application from a mainframe to a client-server environment. However, there can be no assurance that the Company will be able to successfully expand its business beyond the millennium conversion market. The failure to diversify and develop additional products and services could materially and adversely affect the Company's business, operating results and financial condition. Most of the Company's current cost structure is fixed. Expenses consist primarily of the salaries and benefits paid to the Company's technical, marketing and administrative personnel and benefits, travel, promotions and trade show expenses, office expenses and other general overhead costs. The Amortization and depreciation expenses relate to property and equipment and intangible assets. As a result of its plan to expand its operations and to offer a wider range of information services, the Company expects these costs to increase. Margins for the Company's millennium services business will depend upon volume of service because a significant portion of the Company's cost structure is fixed. Most of the Company's millennium conversion projects are expected to be priced on a fixed fee basis. Therefore, the profitability of an individual project will depend upon completing the project within the estimated number of staff hours and within the agreed time frame. RESULTS OF OPERATIONS REVENUES. Net revenues for the quarter ended March 31, 1998, were approximately $1.5 million. During the quarter ended March 31, 1997, the Company had not yet commenced operations and therefore had not recognized any revenues. The increase in revenues in 1998 was a result of the commencement of operations during the second quarter of 1997 with several contracts commencing during the fourth quarter of 1997 and continuing into the first quarter of 1998. GROSS PROFIT. Gross profit for the quarter ended March 31, 1998, was approximately 69.4% of revenues. The Company continues to face competition and there can be no assurances that the current levels of gross margin can be maintained. RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter ended March 31, 1998 were approximately $128,000. During the first quarter of 1998, the company initiated efforts to refine its Year 2000 toolset and to prepare the toolset for potential licensing to end-users. SALES AND MARKETING. Sales and marketing expenses for the quarter ended March 31, 1998 were approximately $266,000 as compared to $158,000 during the quarter ended March 31, 1997. The increase related primarily to the increased size of the sales and marketing infrastructure including additional personnel, commissions and marketing expenses directly related to implemented the Company's sales strategy. GENERAL AND ADMINISTRATIVE. General and administrative expenses for the quarter ended March 31, 1998 were approximately $1.1 million as compared to $1.0 million during the quarter ended March 31, 1997. The 1997 expenses included $300,000 of stock compensation expense for services provided by a 10 consultant. The remaining increase in expenses during the 1998 period is a result of increased staffing levels and the development of infrastructure for finance, administration, and general management activities to support the growth of the business. OTHER INCOME (EXPENSE). Other income for the quarter ended March 31, 1998 was approximately $33,000 as compared to other expenses of $839,000 during the quarter ended March 31, 1997. The decrease in expense in 1998 relates primarily to the elimination of &875,000 in interest expense related to the amortization of the deferred financing costs and the amortization of a discount on the convertible notes. The convertible notes were converted into common stock in April 1997. NET LOSS The net loss for the quarter ended March 31, 1998 was approximately $682,000 as compared to $2,144,000 for the quarter ended March 31, 1997. This decrease is primarily a result of the revenues that generated gross profit of approximately $1,058,000 and the reduction of interest expense of $875,000. LIQUIDITY AND CAPITAL RESOURCES The Company, since inception has financed its operations and capital expenditures through the sale of stock, convertible notes, convertible exchangeable debentures and the proceeds from the exchange and exercise of the warrants related to the convertible exchangeable debentures. Cash used in operations during the quarters ended March 31, 1998 and 1997 was $541,000 and $809,000 respectively. The decrease in cash used in operations during 1998 was primarily a result of the generation of gross profit which was offset by an increase in accounts receivable. Capital expenditures were approximately $54,000 and $172,000 for the quarters ended March 31, 1998 and 1997, respectively, and related primarily to the computer equipment purchased to support the increased number of employees. As of March 31, 1998, the Company had working capital of $4.8 million. The Company's primary source of liquidity consists of $5.5 million in cash and cash equivalents. The market for the Company's products is growing rapidly and the Company's business environment is characterized by rapid technological changes. The Company requires substantial working capital to fund its business, particularly to finance accounts receivable, research and development, and capital expenditures. The Company currently has no commitments for capital expenditures. The Company's future capital requirements will depend on many factors including the rate of revenue growth, if any, the timing and extent of spending to support research and development, technological changes and market acceptance of the Company's services. The Company believes that its current cash position is sufficient to meet its capital expenditure and working capital requirements for the near term; however, the growth and technological change make it difficult for the Company to predict future liquidity requirements with certainty. Over the longer term, the Company must successfully execute its plans to generate significant positive cash flows if it is to sustain adequate liquidity without impairing growth or requiring the infusion of additional funds from external sources of cash. Additionally, a major expansion, such as would occur with the acquisition of a major new subsidiary, might also require external financing that could include additional debt or equity capital. There can be no 11 assurance that additional financing, if required, will be available on acceptable terms, if at all. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The foregoing discussion contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by those sections. The Company assumes no obligations to update the information contained in this press release. The Company's future results may be impacted by various important factors including, but not limited to, its ability to implement its provider deployment model, its lengthy sales cycle, dependence on its major customers, risks associated with rapid technological change and the emerging services market, potential fluctuations in quarterly results, its dependence on sole and limited source suppliers and fluctuations in component pricing and its dependence on key employees and other risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 12 PART II. OTHER INFORMATION ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NO. DESCRIPTION 2.1 Stock Purchase Agreement among ZMAX Corporation, Michael C. Higgins and Michael S. Cannon, dated November 6, 1996, for the acquisition of Century Services, Inc. (Incorporated herein by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 2.2 Agreement and Plan of Merger between ZMAX Corporation and New ZMAX Corporation, dated June 10, 1997. (Incorporated herein by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 3.1 Amended and Restated Certificate of Incorporation of ZMAX Corporation. (Incorporated herein by reference to Exhibit 3.5 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 3.2 Bylaws of ZMAX Corporation. (Incorporated herein by reference to Exhibit 3.6 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 4.1 Form of Warrant to Purchase Common Stock of ZMAX Corporation. (Incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.1 ZMAX Corporation 1997 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 (File No. 333- 29833).)* 10.2 Form of ZMAX Corporation 1997 Non-qualified Stock Option Award (form of grant and vesting schedule). (Incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.3 ZMAX Corporation 1997 Directors Formula Stock Option Plan. (Incorporated herein by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.4 Form of ZMAX Corporation Directors Formula Stock Option Award (form of grant and vesting schedule). (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 13 10.5 Employment Agreement between Century Services, Inc. and Michael C. Higgins, dated November 6, 1996. (Incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.6 First Amendment to the Employment Agreement between Century Services, Inc. and Michael C. Higgins, dated May 21, 1997. (Incorporated herein by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.7 Employment Agreement between Century Services, Inc. and Joseph Yeh, dated June 18, 1997. (Incorporated herein by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.8 Separation Agreement between Century Services, Inc. and Michael S. Cannon, dated April 22, 1997. (Incorporated herein by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.9 Consulting Agreement among ZMAX Corporation, MBY, Inc. and Michel Berty, dated April 1, 1997. (Incorporated herein by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.10 Consulting Agreement among ZMAX Corporation, Wareham Management Ltd. and G.W. Norman Wareham, dated May 30, 1997. (Incorporated herein by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.11 Consulting Agreement between ZMAX Corporation and Shafiq Nazerali, dated May 30, 1997. (Incorporated herein by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)* 10.12 Earn Out Stock Escrow Agreement among ZMAX Corporation, Michael C. Higgins, Michael S. Cannon and Powell, Goldstein, Frazer & Murphy, dated November 6, 1996. (Incorporated herein by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.13 ZMAX Corporation Stockholders Agreement among Michael C. Higgins, Michael S. Cannon and ZMAX Corporation, dated November 6, 1996. (Incorporated herein by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.14 Stock Pledge and Security Agreement from Michael C. Higgins in favor of ZMAX Corporation, dated November 6, 1996. (Incorporated herein by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.15 Letter Agreement among ZMAX Corporation, IMS International, Inc., Wan Hsien Information International Corporation, Ltd., Multi-Dimension International, and Institute for Information Industry Regarding the Purchase by ZMAX Corporation of the "COCACT" Software Program, dated 14 April 30, 1997. (Incorporated herein by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-4 (File No. 333- 29833).) 10.16 Letter Agreement between ZMAX Corporation and Institute for Information Industry Regarding the Purchase by ZMAX Corporation of the "COCACT" Software Program, dated April 30, 1997. (Incorporated herein by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.17 Letter Agreement between ZMAX Corporation and Wan Hsien Information International Corporation Ltd. Regarding the Purchase by ZMAX Corporation of the "COCACT" Software Program, dated April 30, 1997, as amended. (Incorporated herein by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-4 (File No. 333- 29833).) 10.18 Conversion Agreement between Fiserv Federal Systems, Inc. and ZMAX Corporation, dated April 28, 1997. (Incorporated herein by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.19 Agreement between ZMAX Corporation and Investor Communications Company, LLC, dated as of May 20, 1997. (Incorporated herein by reference to Exhibit 2.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.20 Investor Relations Consulting Agreement between ZMAX Corporation and Investor Communications Company, LLC, dated as of May 20, 1997. (Incorporated herein by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).) 10.21 Reformation Agreement between ZMAX Corporation and Michael C. Higgins and Michael S. Cannon, dated as of March 31, 1998. 11.1 Statement regarding computation of earnings per share 21 Subsidiaries of ZMAX Corporation 27 Financial Data Schedule (b) REPORTS ON FORM 8-K None 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZMAX Corporation Date: May 13, 1998 /s/MICHAEL C. HIGGINS --------------------- Michael C. Higgins President /s/G.W. NORMAN WAREHAM ---------------------- G.W. Norman Wareham Vice President - Principal Financial Officer /s/JAMES T. MCCUBBIN -------------------- James T. McCubbin Vice President - Principal Accounting Officer EX-10.21 2 EXHIBIT 10.21 AGREEMENT OF REFORMATION AND AMENDMENT THIS AGREEMENT OF REFORMATION AND AMENDMENT (the "Agreement") is made as of the 31st day of March, 1998 (the "Agreement Date"), by and among Michael C. Higgins and Michael S. Cannon (collectively, the "Stockholders" and, individually, a "Stockholder") and ZMAX Corporation, a Delaware corporation ("ZMAX"). RECITALS A. The Stockholders formerly owned all the outstanding shares of Century Services, Inc., a Maryland corporation ("CSI") having proprietary rights in and ownership of specialized computer software and a workforce with specialized skills relating to the correction of the Year 2000 problem. On November 6, 1996 (the "Original Effective Date"), the Stockholders entered into a Stock Purchase Agreement (the "Acquisition Agreement") with ZMAX, which at that time was a public company with no operations, whereby ZMAX acquired all of the issued and outstanding shares of CSI from the Stockholders in exchange for the issuance by ZMAX to the Stockholders of 3,200,000 shares of ZMAX common stock, par value $.001 per share ("ZMAX Stock"). On the Original Effective Date, all of the 3,200,000 shares of ZMAX Stock were recorded in the names of the Stockholders, with 1,600,000 shares of ZMAX Stock being recorded in the name of each Stockholder, and with the Stockholders having all voting rights and dividend and distribution rights (including the right to receive liquidating distributions) with respect to all 3,200,000 shares of ZMAX Stock. B. In order to incentivize the Stockholders, both of whom became senior members of the management of ZMAX after the Original Effective Date and one of whom became a member of the Board of Directors of ZMAX after the Original Effective Date, to increase the cash flow of ZMAX, the parties agreed that 2,800,000 shares (the "Restricted Stock") of ZMAX Stock issued to the Stockholders under the Acquisition Agreement would be subject to restrictions on transferability as contained in Section 1.5 of the Acquisition Agreement. Under the terms of the Acquisition Agreement, the shares of Restricted Stock were deposited into escrow with Powell, Goldstein, Frazer & Murphy (the "Escrow Agent"), pursuant to an Earn Out Stock Escrow Agreement dated the Original Effective Date (the "Escrow Agreement") among ZMAX, the Escrow Agent and the Stockholders. The Acquisition Agreement provides that one (1) share of Restricted Stock will be released from escrow and delivered to each Stockholder for every $1.25 of Cash Flow (as defined in Section 1.5 of the Acquisition Agreement) generated by CSI. The Acquisition Agreement and the Escrow Agreement contain additional restrictions on the release of the Restricted Shares from escrow; however, neither the Acquisition Agreement nor the Escrow Agreement provides a definite term for which the release provisions will apply to the Restricted Stock. Even after the Restricted Stock was placed into escrow, the Stockholders continue to have all voting rights and dividend and distribution rights (including the right to receive liquidating distributions) on the Restricted Stock. C. In connection with the execution of the Acquisition Agreement, the parties entered into the following additional agreements as of the Original Effective Date: (1) the Stockholders Agreement (the "Stockholders Agreement"), pursuant to which all 3,200,000 shares of the ZMAX Stock owned by the Stockholders (including the Restricted Stock) remain subject to various rights and restrictions (described in Recital D below); (2) a Compensation Escrow Agreement with the Bank of Alexandria, which is no longer in effect as of the date hereof; (3) an Employment Agreement between Michael Higgins and ZMAX, which remains in effect as of the date hereof (the "Higgins Employment Agreement"), and an Employment Agreement between Michael Cannon and ZMAX, which is no longer in effect as of the date hereof (the "Cannon Employment Agreement")(with the Higgins Employment Agreement and the Cannon Employment Agreement being collectively referred to as the "Employment Agreements"); and (4) Stock Pledge and Security Agreements, which are no longer in effect as of the date hereof. D. The Stockholders Agreement has a term of three years and provides that neither Stockholder may sell, pledge, encumber, give, bequeath or otherwise transfer or dispose of any shares of ZMAX Stock (including the Restricted Stock) during such three-year term without first complying with the terms and conditions of the Stockholders Agreement or receiving the advance written consent of ZMAX. On June 17, 1997, the Stockholders Agreement was amended by the parties to give ZMAX a right of repurchase (in lieu of a mandatory obligation to purchase) a Stockholder's shares of ZMAX Stock at the Current Value Price of such shares in the event of a Stockholder's death. The Stockholders Agreement, as amended, provides that in the event a Stockholder is terminated from employment (with or without cause), becomes permanently disabled, breaches the non-competition or non-disclosure provisions of his Employment Agreement or dies, ZMAX generally has the right (but not the obligation) to purchase all or a portion of the Stockholder's shares of ZMAX Stock at the Current Value Price (as defined in Section 8 of the Stockholders Agreement). The restrictions on the transferability of the Restricted Stock remain in effect after a Stockholder's termination from employment without cause, or in the event of disability or death. If a Stockholder is terminated with cause from employment with ZMAX, his rights in any remaining Restricted Stock are forfeited and such shares are to be returned to ZMAX. E. On April 22, 1997 (the "Separation Date"), Michael Cannon and ZMAX entered into a Separation Agreement (the "Separation Agreement"), pursuant to which Mr. Cannon was terminated from employment under his Employment Agreement without cause. In consideration for the early termination of his Employment Agreement, ZMAX agreed to pay severance payments to Mr. Cannon in the amount of $100,000 per annum through November 6, 1999, being the date on which his Employment Agreement was to expire. In addition, Mr. Cannon agreed to resign as an officer of ZMAX and to have the transfer restrictions relating to the Restricted Stock contained in the Acquisition Agreement and the Escrow Agreement continue to apply, even though Mr. Cannon was no longer an officer of ZMAX. Beginning on the Separation Date and continuing until November 6, 1999, Mr. Cannon was to serve as a consultant to ZMAX for no additional compensation, pursuant to a Consulting Agreement dated as of the Separation Date (the "Consulting Agreement"). Mr. Cannon also agreed to have the non-competition, non- solicitation and non-disclosure covenants of his Employment Agreement continue for the time periods set forth in the Employment Agreement. 2 F. In the acquisition by ZMAX of all the outstanding shares of CSI from the Stockholders, the original intent of the parties was that ZMAX issued 3,200,000 shares of ZMAX Stock (including the Restricted Stock) to the Stockholders in consideration for their shares of CSI stock. The parties further intended that the Stockholders were to have all rights of ownership in the 3,200,000 shares of ZMAX Stock (including the Restricted Stock), subject only to restrictions on transferability of the Restricted Stock that were to be tied to the cash flow performance requirements of ZMAX as contained in Section 1.5 of the Acquisition Agreement. After further review, the parties believe that the combination of such cash flow performance requirements and the transfer restrictions imposed under the Escrow Agreement have the mistaken and unintended effect of requiring the Stockholders to earn the Restricted Shares twice, once upon the original issuance of the shares by ZMAX in its acquisition of CSI from the Stockholders and a second time following the satisfaction of the cash flow requirements. To correct this mutual mistake of material fact, the parties now desire to cause the Escrow Agent to release the Restricted Stock from escrow, subject to the continuation of the same restrictions on transferability of the Restricted Stock which presently exist under the various agreements between the parties. The parties therefore now desire to reform the existing agreements between the parties in the manner hereinafter provided to correct such mutual mistake of material fact. NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the parties hereto intending to be legally bound and for good and adequate consideration, the sufficiency of which is acknowledged, agree to reform and amend the aforementioned agreements as follows: 1. INCORPORATION BY REFERENCE. The foregoing Recital paragraphs are hereby incorporated in their entirety into this Agreement. 2. REFERENCES TO EARN OUT STOCK. All references to "Earn Out Stock" contained in the Stockholders Agreement, the Acquisition Agreement and any other agreement executed as of the Original Effective Date shall be changed to "Restricted Stock," as that term is defined in the Recital paragraphs above. 3. REFORMATION AND AMENDMENT OF THE ACQUISITION AGREEMENT. The parties hereby agree that the Acquisition Agreement is hereby reformed and amended retroactive as of the Original Effective Date as provided below, so that the Restricted Stock is no longer held in escrow under the Escrow Agreement, but nevertheless the restrictions on transferability continue to be in effect, subject only to the cash flow performance requirements contained in Section 1.5 of the Acquisition Agreement. The parties further agree that the Stockholders Agreement is reformed and amended as provided below to include in the Stockholders Agreement the cash flow performance requirements presently contained in the Acquisition Agreement, with such cash flow performance requirements continuing to be a restriction on the transfer of the Restricted Stock, as set forth below in Section 4 of this Agreement. Therefore, the parties hereby reform and amend the Acquisition Agreement as follows: 3 (A) Section 1.3 of the Acquisition Agreement is hereby reformed and amended to require the release of the Restricted Stock from the escrow, immediately following the execution of this Agreement. The parties agree to terminate the escrow as set forth in Section 5 of this Agreement. (B) Sections 1.5, 1.6, 1.7, 1.8 and 1.9 of the Acquisition Agreement are hereby deleted in their entirety, and substantially similar sections thereto are inserted into Section 1 of the Stockholders Agreement, as set forth below in Section 4 of this Agreement. 4. REFORMATION AND AMENDMENT OF THE STOCKHOLDERS AGREEMENT. The parties hereby agree that the Restricted Stock shall be subject to the terms and conditions of the Stockholders Agreement retroactive to the Original Effective Date, subject to the following restrictions, terms and conditions: (A) Section 1 of the Stockholders Agreement is hereby reformed and amended to reflect that the Restricted Stock is subject to cash flow performance requirements and certain other provisions formerly contained in the Acquisition Agreement. Accordingly, the first full paragraph of Section 1 of the Stockholders Agreement is renumbered as subparagraph (a) of Section 1 thereof, the last sentence of Section 1 of the Stockholders Agreement is deleted in its entirety and, in lieu thereof, the following language is hereby inserted as new subparagraph (b) of Section 1 of the Stockholders Agreement: "(b) RESTRICTED STOCK. (1) Two Million Eight Hundred Thousand (2,800,000) shares of the ZMAX Stock issued to the Stockholders (the "Restricted Stock") shall not be subject to sale, pledge, encumbrance, gift, bequest, or other transfer or disposal under any circumstance whatsoever, unless and until such shares are released from such restrictions under this Section 1(b). The Restricted Stock will be released quarterly to the Stockholders on a pro rata basis to each Stockholder. One share of Restricted Stock will be released for each $1.25 of Cash Flow (as defined below) generated by CSI. For purposes of this Section 1(b), the term "Cash Flow" means, with respect to each CSI fiscal year quarter or other period, all operating revenues from sales and services and licensing and franchising income (but excluding proceeds from loans or capital infusions and proceeds from sales, exchanges and other dispositions of property or rights not in the ordinary course of business), LESS direct operating expenses including software licensing fees and a provision for CSI's income taxes calculated based on the then-applicable statutory rates (but excluding capital expenses, depreciation, amortization, debt service, dividends and intercompany charges other than charges that would be direct operating expenses if paid by CSI). Cash Flow will be determined by Arthur Andersen (or such other independent accounting firm then serving CSI) for the relevant period on a cash basis. Upon the completion of the review and filing of the required SEC financial reports for the applicable quarter, and in no case later than ninety (90) days following the close of such financial quarter, ZMAX will cause Arthur Andersen to prepare a statement of Cash Flow ("Cash Flow Statement") for each fiscal 4 year quarter which will set forth an itemized calculation of Cash Flow and calculate the number of shares of Restricted Stock (to the nearest whole number of shares) based on the Cash Flow for the relevant period and to deliver the Cash Flow Statement to ZMAX. Upon receipt of the Cash Flow Statement, ZMAX will fax the Cash Flow Statement to each Stockholder. Upon approval of the Cash Flow Statement as evidenced by the signing of the Cash Flow Statement by both ZMAX and each Stockholder, such shares will no longer be deemed Restricted Stock for purposes of this Agreement and shall be subject to the remaining provisions of this Agreement. (2) If ZMAX and the Stockholders cannot agree on the Cash Flow Statement prepared by the independent accounting firm for any quarter, the ZMAX Board of Directors will prepare and sign a Cash Flow Statement and fax it to the Stockholders. If the ZMAX Board of Directors' Cash Flow Statement is approved by the Stockholders, as evidenced by the signatures of the Stockholders, such shares will no longer be deemed Restricted Stock for purposes of this Agreement and shall be subject to the remaining provisions of this Agreement. If the Stockholders are not satisfied with the Cash Flow Statement prepared by the ZMAX Board of Directors (the "Dispute"), the Stockholders may submit the Dispute to binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, except where those rules are supplemented or modified by the express terms of this section. The parties agree that binding arbitration is the exclusive remedy for resolving any Dispute. The Stockholders may initiate arbitration by sending notice of its intention to arbitrate the Dispute to ZMAX, which notice must be accompanied by a brief setting forth the nature of the Dispute and the remedy sought, which brief may not exceed 25 typed pages (the "Arbitration Notice"). The Stockholders must also file at the regional office of the AAA three copies of the Arbitration Notice and Brief and the arbitration provision of this Agreement together with the required filing fee. ZMAX must file a responsive brief within 15 business days of receipt of the Stockholders' Arbitration Notice and Brief, which responsive brief may not exceed 25 typed pages. Any arbitration proceedings will be in Washington, D.C. If the parties are able to agree on one arbitrator within 15 days of the date the Arbitration Notice is filed with the AAA, the Dispute will be heard by that arbitrator. If the parties are unable to agree on one arbitrator, then an arbitrator will be selected from an impartial roster of arbitrators provided by the AAA in accordance with the AAA rules. There will be no discovery permitted by the parties in the arbitration proceedings provided that each party will be permitted to take one oral deposition of the other party or unless otherwise mutually agreed to by the parties. ZMAX agrees to be bound by Rule 30(b)(6) of the Federal Rules of Civil Procedures "Deposition of an Organization," as amended from time to time or any successor rule. The arbitrator will issue a decision within 30 days of his 5 or her appointment. The decision of the arbitrator must set forth in reasonable detail the reasoning supporting the decision of the arbitrator. The decision rendered by the arbitrator will be final and binding on the parties and judgment on the decision rendered by the arbitrator may be entered in any court having jurisdiction. Each party will pay its own costs and expenses related to the arbitration procedures. This agreement to arbitrate is specifically enforceable under the prevailing arbitration law and survives the termination of this Agreement. (3) If any Stockholder is terminated by CSI for cause (as defined in the Stockholder's employment agreement with CSI) or violates the non-competition, non-solicitation or proprietary information restrictions in his employment agreement with CSI, the Restricted Stock issued in the name of the Stockholder shall be delivered to the Transfer Agent of ZMAX for reissuance in the name of ZMAX. (4) The Stockholders will be entitled to vote the Restricted Stock even though it is subject to the restrictions in Section 1(b)(1) hereof. If an annual or special meeting of the ZMAX stockholders is called, the Stockholders will be entitled to receive notice of such meeting and to attend such meeting and vote all of the shares of Restricted Stock issued in their names, in person or by proxy. (5) The Stockholders are entitled to receive dividends or other distributions made by ZMAX (including distributions in liquidation) on the Restricted Stock." (B) The restrictive legend set forth in Section 11 of the Stockholders Agreement is hereby amended to delete the second paragraph of the legend and the following language is hereby inserted in lieu thereof: "Notice is hereby given that the sale, assignment, pledge, hypothecation, transfer or other disposition of the shares of Stock represented by this certificate is restricted under the terms of a Stockholders Agreement dated as of November 6, 1996, as amended (the "Stockholders Agreement"), a copy of which is on file at the office of the Corporation, and all of the provisions of the amended Stockholders Agreement are incorporated by reference in this certificate." (C) The notice provisions of Section 14 of the Stockholders Agreement are hereby amended, by substituting the following names and addresses in lieu of those shown in the original Stockholders Agreement: 6 "If to the Corporation: ZMAX Corporation 20251 Century Boulevard, Suite 400 Germantown, Maryland 20874 Attention: James T. McCubbin Telephone: 301-353-9500 Fax: 301-353-9501 If to the Stockholders: Michael C. Higgins 12408 Rivers Edge Drive Potomac, Maryland 20854 Telephone: 301-926-6771 And/or (as applicable): Michael S. Cannon 142 Brightmoor Court Henderson, Nevada 89014 Telephone: 702-270-4503" (D) The termination provisions of Section 15 of the Stockholders Agreement are hereby amended to reflect an extension of the term of the Stockholders Agreement with respect to the Restricted Stock, as follows: "15. TERMINATION OF AGREEMENT. With the exception of Section 1(b) of this Agreement, this Agreement will be effective for a period of three (3) years from the date of this Agreement [November 6, 1996]. The restrictions contained in Section 1(b) of this Agreement shall be effective for a period of five (5) years from the date of this Agreement." 5. REFORMATION AND AMENDMENT OF THE SEPARATION AGREEMENT. Section 5 of the Separation Agreement is hereby reformed and amended to reflect the changes made by this Agreement, as follows: "5. RESTRICTED STOCK. The holder hereof acknowledges that 1,400,000 shares of ZMAX Corporation ("ZMAX") common stock (the "Restricted Stock") is subject to transfer restrictions imposed under the Stockholders Agreement, dated as of November 6, 1996, as amended from time to time (the "Stockholders Agreement"), among ZMAX, Michael S. Cannon and Michael C. Higgins. The holder hereby acknowledges and agrees that his Restricted Stock will be released from the restrictions only if the cash flow performance requirements of that section are met, and until released, shall not be subject to sale, pledge, hypothecation, transfer or disposal in any manner whatsoever." 6. TERMINATION OF THE ESCROW AGREEMENT. The parties agree that the Escrow Agreement shall terminate immediately following execution of this Agreement. To that end, the parties agree to notify the Escrow Agent in writing of such termination of the Escrow Agreement, with such written notice from the parties hereto to the Escrow Agent to be in the form of Exhibit A 7 attached hereto and made part hereof. ZMAX shall use its best efforts to cause the Escrow Agent to deliver to ZMAX the Escrow Shares (as defined in the Escrow Agreement) in a timely manner. Upon receipt by ZMAX of such Escrow Shares, ZMAX shall deliver the certificates evidencing such Escrow Shares to its Transfer Agent with instructions for the Transfer Agent to reissue replacement certificates therefor which contain the new restrictive legend set forth above in Section 4(b) of this Agreement. 7. MISCELLANEOUS. (a) NO OTHER AMENDMENTS. Except as reformed and modified by this Agreement, the Stockholders Agreement, the Acquisition Agreement, the Separation Agreement, and the Higgins Employment Agreement remain unchanged and in full force and effect. The Escrow Agreement shall be deemed to be terminated retroactive as of the Original Effective Date. (b) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. (c) GOVERNING LAW; SEVERABILITY. This Agreement will be governed by and construed in accordance with the laws of the State of Maryland, excluding that body of law pertaining to conflict of laws. If any provision of this Agreement is for any reason found to be unenforceable, the remainder of this Agreement will continue in full force and effect. (d) DUE AUTHORIZATION. The Agreement is has been duly authorized by the parties, and duly executed on behalf of each party, including the duly authorized officers of ZMAX in the manner required by all laws and regulations applicable to ZMAX. (e) ASSIGNMENT. This Agreement may be assigned only with the advance written consent of the non-assigning party. 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Agreement Date. Attest/Witness: ZMAX Corporation, Inc., a Delaware corporation By: /s/JAMES T. MCCUBBIN By: /s/MICHAEL C. HIGGINS -------------------- --------------------- Name: James T. McCubbin Name: Michael C. Higgins Its: Assistant Secretary Its: President /s/JAMES T. MCCUBBIN /s/MICHAEL C. HIGGINS -------------------- --------------------- James T. McCubbin Michael C. Higgins President /s/JAMES T. MCCUBBIN /s/MICHAEL S. CANNON -------------------- -------------------- James T. McCubbin Michael S. Cannon EX-11.1 3 Exhibit 11.1 ZMAX CORPORATION AND SUBSIDIARY CALCULATION OF BASIC AND DILUTED NET LOSS PER SHARE (UNAUDITED)
For the three months ended March 31, ------------------------------------ 1998 1997 ------------------------------------ Net loss $ (681,731) $ (2,144,327) ============= ============= Weighted average share calculations Basic and diluted weighted average shares outstanding: Average number of shares of common stock outstanding during the quarter 11,729,714 6,704,072 Less: Average number of restricted shares of common stock outstanding during the quarter 2,800,000 2,800,000 Less: Average number of cancellable shares of common stock outstanding during the quarter 479,801 479,801 ------------- ------------- Basic and diluted weighted average shares outstanding: 8,449,913 3,424,271 ============= ============= Basic and diluted net loss per share $ (0.08) $ (0.63) ============= =============
EX-21 4 EXHIBIT 21 Subsidiaries of ZMAX Corporation Century Services, Inc. EX-27 5
5 1 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 5,544,703 0 1,407,311 0 0 7,013,572 401,163 99,263 11,062,540 2,165,678 0 0 0 11,729 8,885,132 11,062,540 1,524,324 1,524,324 466,808 466,808 1,771,943 0 6,855 (681,731) 0 (681,731) 0 0 0 (681,731) (0.08) (0.08)
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