SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 30, 1998
National Technical Systems, Inc.
(Exact name of registrant as specified in charter)
California 0-16438 95-4134955
(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification
24007 Ventura Boulevard, Suite 200, Calabasas, California 91302
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (818) 591-0776
(Former name or former address, if changed since last report)
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective October 30, 1998, National Technical Systems, Inc. ("NTS"
or the "Registrant") consummated the acquisitions of (i) XXCAL, Inc. through an
Agreement and Plan of Merger, dated as of August 21, 1998, whereby a wholly
owned subsidiary of NTS combined with XXCAL, Inc., a California corporation, in
a merger transaction in which XXCAL, Inc. became a wholly owned subsidiary of
NTS and (ii) a Share Purchase Agreement, dated as of August 21, 1998, whereby
NTS acquired all of the outstanding Ordinary Shares of XXCAL Limited, a United
Kingdom corporation and an affiliate of XXCAL, Inc. In connection with the
acquisitions of XXCAL, Inc. and XXCAL Limited, together hereinafter referred to
together as "XXCAL" (the "Acquisitions"), NTS issued to the shareholders of
XXCAL shares in the aggregate 1,297,878 shares of NTS Common Stock constituting
15.6% of the outstanding Common Stock of NTS after giving effect to the
Acquisitions. Also pursuant to the terms of the Agreement and Plan of Merger,
each unexpired and unexercised outstanding option to purchase XXCAL, Inc.
Common Stock has been automatically converted into an option to purchase
that number of shares of NTS Common Stock equal to the number of shares of
XXCAL, Inc. Common Stock that could have been purchased under the XXCAL, Inc.
option multiplied by the merger exchange ratio of 1.2126 shares of NTS Common
Stock for each share of XXCAL, Inc. Common Stock (the "Exchange Ratio"), at a
price per share of NTS Common Stock equal to the option exercise price
determined pursuant to the XXCAL, Inc. option divided by the Exchange Ratio.
Cash will be paid in lieu of fractional shares in connection with the
Acquisitions. The Acquisitions have been accounted for as a pooling of
interests.
XXCAL, Inc. and XXCAL Limited are principally engaged in outsourcing
people for a wide variety of temporary technical and professional positions into
the information technology and information systems industries. The XXCAL
companies together have approximately 250 employees and XXCAL has offices in
Los Angeles, San Francisco, San Jose, Austin, Houston, London, England and
Yokohama, Japan.
1 of 193
Exhibit Index on Page 38
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired Page
Financial Statements of XXCAL, Inc:
Independent Auditors' Report 3
Balance Sheets at December 31, 1997, 1996, and 1995 4
Statements of Income for the years ended December 31, 1997, 1996,
and 1995 5
Statements of Stockholders' Equity for the years ended December 31,
1997, 1996 and 1995 6
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995 7
Notes to Financial Statements 9
Financial Statements of XXCAL, Limited (in Pound Sterling):
Report of the auditors to the shareholders of XXCAL Limited 21
Profit and Loss Account for the three years ended December 31, 1997 22
Combined Statement of Movement on Reserves and Reconciliation
Of Movements on Reserves 22
Balance Sheets at December 31, 1997, 1996 and 1995 23
Notes to the accounts for the three years ended December 31, 1997 24
(b) Combined unaudited pro forma financial information
National Technical Systems, Inc., XXCAL, Inc. and XXCAL Limited:
Basis of Presentation 30
Pro Forma Balance Sheet as of July 31, 1998 31
Pro Forma Balance Sheet as of January 31, 1998 32
Pro Forma Statement of Income for the six months ended
July 31, 1998 33
Pro Forma Statement of Income for the year ended January 31, 1998 34
Pro Forma Statement of Income for the year ended January 31, 1997 35
Pro Forma Statement of Income for the year ended January 31, 1996 36
(c) Exhibits:
2.1 Agreement and Plan of Merger dated as of August 21, 1998, by
and among National Technical Systems, Inc. and XXCAL, Inc.,
a California Corporation 39
2.2 Amendment No. 1 to Agreement and Plan of Merger dated
as of October 19, 1998 101
2.3 Share Purchase Agreement, dated as of August 21, 1998, by
and among National Technical Systems, Inc. to acquire all of
the outstanding Ordinary Shares of XXCAL Limited, a United
Kingdom corporation 106
2.4 Amendment No. 1 to Share Purchase Agreement dated as of
October 19, 1998 184
23.1 Consent of Duitch, Franklin & Co., LLP 190
23.2 Consent of Richardson Whitby Smith Chartered Accountants 191
99.1 Press Release, dated November 2, 1998, relating to the
closing of the Acquisitions 192
Page 2 of 193
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INDEPENDENT AUDITORS' REPORT
Board of Directors
XXCAL, INC.
We have audited the accompanying balance sheets of XXCAL, INC. as of December
31, 1997, 1996 and 1995 and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of XXCAL, INC. as of December 31,
1997, 1996 and 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Duitch, Franklin & Co. LLP
- ------------------------------
Duitch, Franklin & Co. LLP
Los Angeles, California
June 19, 1998
Page 3 of 193
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XXCAL, INC.
BALANCE SHEETS
DECEMBER 31, 1997, 1996 AND 1995
ASSETS
1997 1996 1995
---- ---- ----
CURRENT ASSETS
Cash $ 256,053 $ 136,854 $ 600
Accounts receivable, less allowance for
doubtful accounts of $75,423 (1997) and
$47,500 (1996 and 1995) (Note 4) 3,413,211 3,425,486 4,080,614
Prepaid expenses and other current assets
(Note 12) 156,521 118,323 97,718
---------- ---------- ----------
Total current assets 3,825,785 3,680,663 4,178,932
PROPERTY AND EQUIPMENT
(Notes 3, 4 and 7) 392,193 531,105 697,930
OTHER ASSETS (Note 3) 917,523 718,643 566,007
---------- ---------- ----------
$5,135,504 $4,930,411 $5,442,869
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996 1995
---- ---- ----
CURRENT LIABILITIES
Excess of checks outstanding over
balance in bank $ - $ - $ 147,149
Note payable to bank (Note 4) 500,000 500,000 750,000
Current maturities of long-term debt
(Notes 6 and 7) 16,423 26,000 111,929
Accounts payable 319,842 386,826 411,066
Accrued expenses and other current
liabilities (Note 3) 1,170,105 1,019,563 876,553
Unearned revenue 242,739 262,728 336,218
---------- ---------- ----------
Total current liabilities 2,249,109 2,195,117 2,632,915
LONG-TERM DEBT (Note 6) 215,200 115,590 243,035
LONG-TERM CAPITAL LEASE
OBLIGATION (Note 7) -- 16,412 41,201
ACCRUED RENT -- 2,447 3,692
DEFERRED COMPENSATION
(Note 8) 494,793 619,775 595,925
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Common stock, $.0375 par value; authorized
4,000,000 shares; issued and outstanding
887,780 shares (1997) and 889,780 shares
(1996 and 1995) (Note 10) 33,292 33,367 33,367
Additional paid-in capital 164,768 50,818 50,818
Retained earnings 1,978,342 1,896,885 1,841,916
---------- ---------- ----------
2,176,402 1,981,070 1,926,101
---------- ---------- ----------
$5,135,504 $4,930,411 $5,442,869
========== ========== ==========
Page 4 of 193
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XXCAL, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
REVENUE $ 24,814,282 $ 27,090,744 $ 25,846,501
COST OF REVENUE 16,701,072 18,566,621 18,073,873
------------ ------------ ------------
GROSS PROFIT 8,113,210 8,524,123 7,772,628
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,697,945 7,644,827 7,034,271
------------ ------------ ------------
INCOME FROM OPERATIONS 415,265 879,296 738,357
OTHER INCOME (EXPENSE)
Life insurance (Note 8) -- -- 721,474
Forfeited customer deposits 88,324 7,600 --
Other income 31,197 86,334 44,895
Interest income 556 180 9,168
Interest expense (108,674) (137,812) (166,277)
Loss on disposition of property
and equipment (2,835) (6,728) --
Other expense -- (175,143) (16,081)
------------ ------------ ------------
8,568 (225,569) 593,179
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 423,833 653,727 1,331,536
INCOME TAXES (Note 12) 19,756 15,072 19,780
------------ ------------ ------------
NET INCOME $ 404,077 $ 638,655 $ 1,311,756
============ ============ ============
Page 5 of 193
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XXCAL, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Common Stock
Number Additional
of Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
BALANCE,
December 31, 1994 889,780 $33,367 $ 50,818 $ 927,766 $ 1,011,951
Prior period adjustment
(Note 13) -- -- -- (131,057) (131,057)
Net income for the year
ended December 31, 1995 -- -- -- 1,311,756 1,311,756
Distributions -- -- -- (266,549) (266,549)
------- ------- -------- ----------- -----------
BALANCE,
December 31, 1995 889,780 33,367 50,818 1,841,916 1,926,101
Net income for the year
ended December 31, 1996 -- -- -- 638,655 638,655
Distributions -- -- -- (583,686) (583,686)
------- ------- -------- ----------- -----------
BALANCE,
December 31, 1996 889,780 33,367 50,818 1,896,885 1,981,070
Repurchase of common
stock (2,000) (75) (4,925) -- (5,000)
Extension of stock options
(Note 10) -- -- 118,875 -- 118,875
Net income for the year
ended December 31, 1997 -- -- -- 404,077 404,077
Distributions -- -- -- (322,620) (322,620)
------- ------- -------- ----------- -----------
BALANCE
December 31, 1997 887,780 $33,292 $164,768 $1,978,342 $2,176,402
======= ======= ======== ========== ==========
Page 6 of 193
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XXCAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Cash received from customers $24,716,567 $27,672,382 $ 24,536,783
Cash paid to suppliers, employees and
consultants (24,107,864) (26,128,449) (24,308,116)
Interest paid (106,216) (123,200) (140,434)
Interest received 556 180 9,168
Contributions paid (20,345) (22,831) (60,586)
Refundable deposits (paid) received (6,864) 11,141 (11,683)
Miscellaneous income received 119,521 93,934 44,896
Net income taxes (paid) received (14,294) 27,232 (6,092)
----------- ----------- ------------
Net cash provided by operating
activities 581,061 1,530,389 63,936
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures (20,817) (17,642) (145,203)
Proceeds from sale of property and
equipment 18,050 -- --
Investment in life insurance (192,016) (142,958) (112,765)
Net cash paid on employee loans
and notes receivable (13,080) (14,537) (465)
Proceeds from life insurance -- -- 824,669
----------- ----------- ------------
Net cash provided by (used for)
investing activities (207,863) (175,137) 566,236
CASH FLOWS FROM FINANCING
ACTIVITIES
Net repayments under line of credit agreement -- (250,000) (350,000)
Net cash (paid) received on stockholder
notes 99,610 (127,445) 16,239
Principal payments on capital leases (25,989) (72,218) (34,904)
Principal payments on long-term debt -- (38,500) (58,500)
Other cash (repayments) borrowings -- (147,149) 56,132
Repurchase of common stock (5,000) -- --
Distributions paid (322,620) (583,686) (266,549)
----------- ----------- ------------
Net cash used for financing activities (253,999) (1,218,998) (637,582)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH 119,199 136,254 (7,410)
CASH - beginning of year 136,854 600 8,010
----------- ----------- ------------
CASH - end of year $ 256,053 $ 136,854 600
=========== =========== ============
Page 7 of 193
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XXCAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
NET INCOME $404,077 $ 638,655 $ 1,311,756
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES
Depreciation and amortization 138,841 177,739 211,702
Life insurance -- -- (721,474)
Loss on disposition of property and
equipment 2,835 6,728 --
Non-cash compensation - stock options 118,875 -- --
(Increase) decrease in accounts 12,275 655,128 (1,579,391)
receivable
(Increase) decrease in prepaid expenses
and other current assets (25,118) (6,068) 6,790
Increase in other assets (6,864) (9,678) (10,871)
Increase (decrease) in accounts payable (66,984) (24,240) 211,068
Increase (decrease) in accrued expenses
and other current liabilities (74,127) 143,010 273,547
Decrease in due to affiliate -- -- (22,000)
Increase (decrease) in unearned revenue (19,989) (73,490) 269,673
Decrease in accrued rent (2,447) (1,245) (51,225)
Increase in deferred compensation 99,687 23,850 164,361
-------- ---------- ----------
Total adjustments 176,984 891,734 (1,247,820)
-------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $581,061 $1,530,389 $ 63,936
======== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1995, the Company borrowed $149,535 to finance the purchase of equipment.
Page 8 of 193
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XXCAL, Inc.
Notes to Financial Statements
December 31, 1997
1 - DESCRIPTION OF BUSINESS
The Company is primarily engaged in software consulting, product testing,
and employment recruiting within the computer, electronics and aerospace
industries. The Company's clients are located mainly throughout the
western United States and Texas.
For the years 1997, 1996, and 1995, software consulting and product
testing services represented approximately 44%, 46% and 53%, respectively,
of the Company's revenue. Approximately 73% of the Company's 1997 revenue
is derived from clients located in California.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized when services are rendered. Revenue is recognized on
incomplete testing jobs using the percentage of completion method. Losses
on testing jobs are recognized in their entirety when identified. Unearned
revenue represents billings on incomplete testing jobs in excess of costs
incurred and revenue recognized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable and uninsured cash balances. The Company had no
uncollateralized receivables with major customers for the years ended
December 31, 1997 and 1996. At December 31, 1995, the Company had
uncollateralized receivables with one customer which comprised
approximately 21% of the Company's accounts receivable. During the year
ended December 31, 1995, revenue generated from this customer was
approximately 17% of the Company's total revenue. The Company requires no
collateral from its customers and performs ongoing credit evaluations of
its customers' financial condition.
The Company places its cash deposits with high-credit quality financial
institutions. At times, balances in the Company's cash accounts may exceed
the Federal Deposit Insurance Corporation (FDIC) limit of $100,000. The
uninsured balances at December 31, 1997, 1996 and 1995 were approximately
$383,000, $222,000 and $139,000, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on
straight-line and accelerated methods over the estimated useful lives of
the assets. The estimated useful lives of the assets are as follows:
Page 9 of 193
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XXCAL, Inc.
Notes to Financial Statements
Furniture and computers 5 - 7 years
Vehicles 5 years
Computer equipment held under
capital leases 5 years
Leasehold improvements are amortized on the straight-line method over the
term of the lease or estimated useful life, whichever is shorter.
Expenditures for maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.
Capital Lease Obligations
The Company capitalizes certain equipment under lease obligations, which
by their terms, are equivalent to installment purchases.
Advertising Costs
Effective January 1, 1995, the Company adopted Statement of Position 93-7,
Reporting on Advertising Costs. The Company expenses advertising costs as
incurred. There was no effect on income for the years ended December 31,
1997, 1996 and 1995, as a result of the adoption of this statement.
Income Taxes
The Company has elected to be taxed as an S Corporation, whereby the
entire federal and California taxable income or loss of the Company is
reportable by the stockholders. The Company will not be responsible for
federal income tax or California franchise tax in excess of the minimum
tax, but will incur a 1.5% California surtax. The Company also pays
corporate franchise tax to the state of Texas.
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes.
Deferred income taxes are provided for temporary differences with respect
to balance sheet items that result from different reporting practices for
financial statement and income tax purposes. Deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes are also
recognized for operating losses that are available to offset future
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
The principal sources of temporary differences are the recognition of
vacation and deferred compensation accruals and differing methods used for
depreciation of property and equipment and accounts receivable writeoffs.
Deferred taxes are classified as current or noncurrent, depending on the
classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset
or liability are classified as current or noncurrent depending on the
periods in which the temporary differences are expected to reverse.
Page 10 of 193
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XXCAL, Inc.
Notes to Financial Statements
3 - COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
1997 1996 1995
---- ---- ----
Property and Equipment
Furniture and computers $ 941,287 $ 954,498 $1,098,851
Vehicles 410,992 501,887 501,887
Computer equipment held
under capital leases 149,535 149,535 149,535
Leasehold improvements 82,257 82,257 87,357
------------- ----------- ----------
1,584,071 1,688,177 1,837,630
Accumulated depreciation and
amortization, including $89,721
(1997), $59,814 (1996) and $29,907
(1995) for computer equipment
held under capital leases (1,191,875) (1,157,072) (1,139,700)
------------- ----------- ----------
$ 392,193 $ 531,105 $ 697,930
============= =========== ===========
Depreciation and amortization expense charged to operations was $138,841,
$177,739 and $211,702 for the years ended December 31, 1997, 1996 and 1995,
respectively. The depreciation and amortization expense for 1997, 1996 and 1995
includes $29,907 for equipment held under capital leases for each year.
Other Assets
Cash surrender value of officers'
life insurance $ 859,662 $ 667,646 $ 524,688
Deposits 57,861 50,997 41,319
------------- ----------- ----------
$ 917,523 $ 718,643 $ 566,007
============= =========== ===========
Accrued Expenses and Other Current
Liabilities
Accrued payroll $ 418,919 $ 495,997 $ 512,976
Deferred compensation payable 253,224 28,555 26,294
Customer advances 150,045 71,598 24,629
Accrued vacation 96,863 90,123 90,370
Accrued commissions 70,230 66,610 55,005
Accrued trade payables 65,991 147,005 30,399
Accrued payroll taxes 50,218 55,310 61,685
Accrued profit sharing 48,473 55,399 56,038
Income taxes payable 12,268 6,833 18,672
Other accrued expenses 3,874 2,133 485
------------- ----------- ----------
$ 1,170,105 $ 1,019,563 $ 876,553
============= =========== ===========
Page 11 of 193
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XXCAL, Inc.
Notes to Financial Statements
4 - NOTE PAYABLE TO BANK
Under a revolving line of credit agreement expiring in July 1998, the
Company may borrow up to $3,250,000, limited to a maximum of 80% of its
eligible accounts receivable. The Company may designate specified amounts
as fixed rate advances for certain time periods. Fixed rate advances bear
interest at 2.25% per annum in excess of the bank's cost of funds.
Advances that are not so designated are considered variable rate advances
and bear interest at .25% per annum in excess of the prime interest rate.
At December 31, 1997, the Company had $500,000 advanced at the fixed rate
of 8.22%. At December 31, 1996, the Company had $500,000 advanced at the
fixed rate of 7.75%. At December 31, 1995, the Company had $750,000
advanced, $500,000 under the fixed rate of 8.6% and the balance at the
variable rate of 9%.
The agreement contains various financial covenants and is collateralized
by security interests in substantially all of the assets of the Company
and the personal guarantees of two officer/stockholders of the Company and
a related trust.
5 - ADVERTISING COSTS
Advertising costs charged to operations were $99,274, $115,163 and
$109,334 for the years ended December 31, 1997, 1996 and 1995,
respectively.
6 - LONG-TERM DEBT
1997 1996 1995
---- ---- ----
Note payable to bank, due in monthly
installments of $4,500, plus interest
at .75% per annum above the prime rate,
through August 1996. The interest rate
at December 31, 1995 was 9.25%.
The note was subject to the terms
and conditions described in Note 4
to the financial statements. $ -- $ -- $ 38,500
Unsecured demand notes payable to
stockholders; interest payable monthly
from 8% to 9% per annum. The stockholders
have indicated that demand will not be
made within the next twelve months. 215,200 115,590 243,035
------------- ----------- ----------
215,200 115,590 281,535
Current maturities -- -- 38,500
------------- ----------- ----------
$ 215,200 $ 115,590 $ 243,035
============= =========== ===========
Page 12 of 193
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XXCAL, Inc.
Notes to Financial Statements
The following is a schedule of aggregate annual maturities of long-term
debt:
Year Ending
December 31,
- ---------------
1999 $ 215,200
7 - LONG-TERM CAPITAL LEASE OBLIGATIONS
These obligations are due in monthly installments ranging from $15 to
$1,157, including interest at rates ranging from 12.6% to 19.9% per annum,
through August 1998. The current portion of these obligations was $16,423,
$26,000 and $73,429 at December 31, 1997, 1996 and 1995, respectively.
8 - DEFERRED COMPENSATION
The Company provides nonqualified discretionary deferred compensation
benefits to certain officer/stockholders. Except for the Company's
president, the benefits are payable over a period of 10 years in the event
of death, disability, or retirement at ages between 62 and 65 and range
between $7,800 and $60,000 annually. The benefits are funded by life
insurance contracts purchased by the Company. There is a provision in the
deferred compensation agreements for these officer/stockholders to receive
the current cash surrender value of the life insurance policies on their
lives in the event the Company is sold before benefits begin to be paid.
At December 31, 1997 the excess of the aggregate cash surrender value over
the accrued deferred compensation liability for these officer/stockholders
totalled $204,888.
Per the terms of his deferred compensation agreement, the president of the
Company has elected to receive the cash surrender value of life insurance
owned by the Company on his life, in lieu of lifetime periodic deferred
compensation payments. The present value of the liability and the related
cash surrender value was $222,213 at December 31, 1997. The cash surrender
value is included in other assets and the deferred compensation liability
is included in current liabilities, as the president is eligible to retire
within the next 12 months.
The deferred compensation benefits are accrued and recognized over each
employee's expected term of employment. The Company's total deferred
compensation expenses were $118,846, $45,659 and $164,812 for the years
ended December 31, 1997, 1996 and 1995, respectively.
During 1995, the Company became obligated to pay deferred compensation
arising from the death of an officer/stockholder. The Company received
life insurance proceeds of $824,669 and recognized $721,474 as other
income, net of $103,195 cash surrender value.
9 - COMMITMENTS
The Company leases various facilities and property and equipment under
non-cancelable operating leases expiring in various years through 2001 and
is committed to minimum rental payments (exclusive of real estate taxes,
maintenance, etc.) as follows:
Page 13 of 193
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XXCAL, Inc.
Notes to Financial Statements
Operating Leases
Years Ending ---------------- Capital
December 31, Facilities Equipment Automobiles Leases
------------ ---------- --------- ----------- ------
1998 $ 528,369 $ 134,738 $ 52,668 $ 16,859
1999 514,726 80,840 30,032 --
2000 95,026 65,108 13,037 --
2001 95,026 -- -- --
---------- ---------- ---------- ----------
Total minimum
lease payments $1,233,147 $ 280,686 $ 95,737 $ 16,859
========== ========== ==========
Less amount representing interest 436
----------
Present value of minimum lease payments $ 16,423
==========
Certain leases require payment of additional expenses including property
taxes, insurance, maintenance and other operating expenses. The Company
also leases an additional facility on a month-to-month basis.
Rent expense and property and equipment lease expense charged to
operations was $740,190, $628,613 and $464,558 for the years ended
December 31, 1997, 1996 and 1995, respectively.
10 - STOCK OPTION PLAN
The Company has a noncompensatory stock option plan for designated
employees and advisory board members. The stock options were granted in
March, July and October 1993, December 1995, and September and December
1997, and will expire five years after their respective grant dates.
Options granted as of December 31, 1997 will expire through December,
2002. The exercise price for options granted through December 31, 1997
ranged between $.775 and $2.80 per share, which represents the fair market
value of the Company's stock at the date of grant.
In 1997, 99,500 options originally expiring in 1998 were extended until
December 31, 1999. Because the option price was less than the fair market
value of the Company's stock at the extension date, compensation expense
of $118,875 has been recognized for the difference.
The calculation of the fair market value of each option granted is
estimated at the date of grant using the minimum value method, under the
following assumptions for the years 1997 through 2002: the average risk
free rate of interest is 6%; no dividends or volatility on stock; and the
expected exercise date of all options is assumed to be immediately prior
to expiration.
Page 14 of 193
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XXCAL, Inc.
Notes to Financial Statements
A summary of the plan's status is as follows:
1997 1996 1995
---- ---- ----
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding -
beginning of
year 182,500 $ 1.18 182,500 $ 1.18 99,500 $ .95
Granted 89,000 2.09 -- -- 83,000 1.45
Forfeited (15,000) 1.45 -- -- -- --
------- ------- ------
Outstanding and
exercisable -
end of year 256,500 1.48 182,500 1.18 182,500 1.18
======= ======= =======
Weighted average
remaining life 40 months 37 months 19 months
The Company applies APB Opinion 25 in accounting for its stock option plan. No
compensation cost has been recognized during the years ended December 31, 1997,
1996 and 1995 as a result of stock option grants. Had compensation cost been
determined on the basis of fair value pursuant to FASB Statement No. 123, which
was effective only for options granted after 1994, net income would have been
reduced by $139,000 (1997), $62,000 (1996) and $0 (1995) as follows:
1997 1996 1995
---- ---- ----
Net income as reported $ 404,077 $ 638,655 $1,311,756
Pro forma net income 265,077 576,655 1,311,756
11 - PROFIT SHARING PLAN
The Company has a qualified 401(k) profit sharing plan covering full-time
employees who are 21 years of age, have been employed by the Company for
three months and are not covered under a collective bargaining agreement.
The Plan provides for annual contributions at the discretion of the
Company. Profit sharing expense charged to operations was $15,845, $55,399
and $56,813 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Page 15 of 193
<PAGE>
XXCAL, Inc.
Notes to Financial Statements
12 - INCOME TAXES
The components of income tax expense consist of the following:
1997 1996 1995
---- ---- ----
Current taxes $ 19,729 $ 16,421 $ 22,000
Deferred taxes 27 (321) (3,237)
Other -- (1,028) 1,017
----------- ----------- ----------
$ 19,756 $ 15,072 $ 19,780
=========== =========== ==========
Deferred tax assets recognized for deductible temporary differences were
$9,910, $9,905 and $9,844 and deferred tax liabilities recognized for
taxable temporary differences were $464, $432, and $692 for the years
ended December 31, 1997, 1996 and 1995, respectively. Net deferred tax
assets are included in prepaid expenses and other current assets.
13 - PRIOR PERIOD ADJUSTMENT
Retained earnings at January 1, 1995 has been restated by $131,057 to
record prior years' service cost relating to deferred compensation expense
for an officer/stockholder of the Company. Additional service cost of
$20,753, $21,623 and $48,780 has also been recognized for the years ended
December 31, 1995, 1996 and 1997, respectively. There was no income tax
effect associated with this restatement.
14 - SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company entered into a joint venture
arrangement with a Japanese company to establish a testing lab in Japan.
The Company has a 52% ownership interest in the joint venture.
In addition, XXCAL, Inc. has signed an agreement in principle under which
it is anticipated that XXCAL, Inc. and the buyer will merge and that the
buyer will acquire XXCAL, Inc. and a related company for stock. The
transaction is expected to be consummated prior to October 31, 1998.
Page 16 of 193
<PAGE>
XXCAL, Inc.
Notes to Financial Statements
15 - YEAR 2000 (UNAUDITED)
The Company has commenced an assessment of its Year 2000 business risks.
Based on a preliminary study, management has concluded that certain of its
information systems are not Year 2000 compliant, as of December 31, 1997,
and has elected to replace such software and hardware with Year 2000
compliant applications and equipment. All systems have been reviewed, and
other systems requiring action to become compliant have been identified.
All system modifications to achieve Year 2000 compliance will be completed
prior to the end of 1999. The year 2000 issue is the inability of a
computerized system to process dates accurately in the Year 2000 and
thereafter. Because many computerized systems use only two digits to
record the year in date fields (for example, the year 1998 is recorded as
98), such systems may not be able to process dates accurately in the Year
2000 and after. The Company has expensed all costs associated with the
system changes, funded through operating cash flows.
The Company will initiate communications with all of its significant
suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues. However, there can be no
guarantee that the systems of other companies on which the Company relies
will be timely converted and would not have an adverse effect. The Company
has determined it has no exposure to contingencies related to the Year
2000 issue for the services it has sold.
Page 17 of 193
<PAGE>
Registered Number 02818960
STATUTORY ACCOUNTS
XXCal Limited
For the three years ended 31 December 1997
Page 18 of 193
<PAGE>
BASIS OF PRESENTATION OF XXCAL, LIMITED
- ---------------------------------------
The financial statements of XXCAL Limited were audited by Richardson Whitby
Smith Chartered Accountants. The audit was conducted in accordance with Auditing
Standards issued by the Auditing Practices Board. In the opinion of the auditors
the accounts of XXCAL Limited were properly prepared in accordance with the
Companies Act 1985 applicable to small companies. The audited financial
statements covered the years ended December 31, 1997,1996 and 1995. Although
XXCAL Limited financial statements are not material to the combined unaudited
pro forma financial statements they have been included in the original format as
prepared by their accountants.
DIRECTORS' REPORT
The directors present their report and audited financial accounts for the three
years ended 31 December 1997.
RESULTS AND DIVIDEND
The results for the financial periods are set out on page 4, and are transferred
to reserves. The directors do not recommend the payment of a dividend.
PRINCIPAL ACTIVITIES, AND REVIEW OF DEVELOPMENTS
The principal activities of the company is the testing of computer equipment and
related services,
DIRECTORS AND THEIR INTERESTS
The directors throughout the years, and their interests (including those of
their immediate family) in the (pound) 0.01p Ordinary Shares of the company at
the beginning and end of the financial years were as follows:
M Hoffman, 660,400 shares
W Schoneman, 82,350 shares
C W Smith, 50,000 shares
J Remington 0 shares, (appointed 18 November 1996)
20,000 share options granted 17 April 1996, and exercised on 22
June 1998
EXEMPTIONS
The directors' report is prepared in accordance with special provisions of Part
VII of the Companies Act 1985 relating to small companies.
AUDITORS
Richardson Whitby Smith were appointed as auditors by the directors following
the request for an audit of the accounts for the three years ended 31 December
1997, by shareholders representing more than 10% of the issued share capital.
Page 19 of 193
<PAGE>
STATEMENT OF DIRECTORS RESPONSIBILITIES
Company Law requires the Directors to prepare accounts for each year which give
a true and fair view of the state of affairs of the company and of the profit or
loss of the company for that period. In preparing those accounts, the directors
are required to:
-select suitable accounting policies and then apply them consistently;
-make judgements and estimates that are prudent and reasonable;
-prepare the accounts on the going concern basis unless it is inappropriate to
presume that the company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the comically
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Approved by the Board of Directors
and signed on behalf of the Board
F J Smith Company Secretary July 1998
Page 20 of 193
<PAGE>
REPORT OF THE AUDITORS
TO THE SHAREHOLDERS OF XXCAL LIMITED
We have audited the accounts on pages 4 to 8 which have been prepared under the
historical cost convention and the accounting policies set out on page 6.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 2, the company's directors are responsible for the
preparation of the accounts. It is our responsibility to form an independent
opinion, based on our audit, on those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of the
company's affairs as at 31 December 1995, 1996. and 1997 and of its profit for
the three year then ended and have been properly prepared in accordance with the
Companies Act 1985 applicable to small companies.
/s/ Richardson Whitby Smith
- ---------------------------
Richardson Whitby Smith
Chartered Accountants
Registered Auditors
53 High Street
Keynsham
Bristol
BS31 1DS
15 July 1998
Page 21 of 193
<PAGE>
PROFIT AND LOSS ACCOUNT
For the three years ended 31 December 1997
1997 1996 1995
Note (pound) (pound) (pound)
TURNOVER 2 223,512 149,118 138,500
Cost of sales (12,584) (15,568) (1,960)
-------- -------- -------
GROSS PROFIT 210,928 133,550 136,540
Administrative expenses (132,652) (104,299) (85,756)
OPERATING PROFIT 3 78,276 29,251 50,784
-------- -------- -------
Interest and similar charges:
Loan interest payable 7 (721) (1,700) (2,159)
Interest receivable 1,190 -- --
Exchange gain 205 281 (940)
PROFIT ON ORDINARY ACTIVITIES 78,950 27,832 47,685
BEFORE TAXATION
Taxation 4 (16,029) (7,099) (5,492)
-------- -------- -------
PROFIT FOR THE FINANCIAL YEAR 62,921 20,733 42,193
======== ======== =======
All activities are considered to be continuing.
STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
All recognized gains and losses are reflected in the Profit and Loss
Account above.
COMBINED STATEMENT OF MOVEMENTS ON RESERVES
AND RECONCILIATION OF MOVEMENTS ON RESERVES
Share Profit and
capital loss a/c Total
(pound) (pound) (pound)
At 1 January 1995 9,946 (29,371) (19,425)
Result for the year -- 42,193 42,193
----- ------- -------
At 1 January 1996 9,946 12,822 22,768
Result for the year -- 20,733 20,733
----- ------- -------
At 1 January 1997 9,946 33,555 43,501
Result for the year -- 62,921 62,921
----- ------- -------
At 31 December 1997 9,946 96,476 106,422
===== ====== =======
Page 22 of 193
<PAGE>
BALANCE SHEET
At 31 December
1997 1996 1995
Note (pound) (pound) (pound)
FIXED ASSETS
Tangible assets 5 9,101 11,257 14,633
CURRENT ASSETS
Trade debtors 52,966 23,150 11,112
Other debtors -- 2 2
Prepayments and accrued income 1,083 1,688 400
Bank Reserve account 12,260 -- --
Bank High Interest account 20,692 -- --
Cash at bank and in hand 60,100 52,992 39,726
------- ------- -------
147,101 77,832 51,240
CREDITORS: amounts falling due within one year
Creditors 6 (49,780) (29,919) (15,155)
------- ------- -------
NET CURRENT ASSETS 97,321 47,913 36,085
------- ------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 106,422 59,170 50,718
CREDITORS: due in more than one year 7 -- (15,669) (27,950)
TOTAL ASSETS LESS LIABILITIES 106,422 43,501 22,768
======= ======= =======
CAPITAL AND RESERVES
Called up share capital 9 9,946 9,946 9,946
Profit and loss account 96,476 33,555 12,822
------- ------- -------
TOTAL SHAREHOLDERS' FUNDS 106,422 43,501 22,768
======= ======= =======
The accounts were approved by the Board of Directors on 15 July 1998
A notice has been deposited under section 249B(2) of the Act in relation to the
accounts for the financial period, requiring them to be audited. For the period
in question, the company was otherwise entitled to exemption from audit under
249A(2) of the Companies Act 1985. The directors acknowledge their
responsibilities for: (a) ensuring that the company keeps accounting records
which comply with section 221 of the Companies Act I985; and
(b) preparing which give a true and fair view of the state of the company's
affairs as at the end of the financial year and of its profit or loss for the
year in accordance with the requirements of s226, and which otherwise comply
with the requirements of the Companies Act 1985 relating to accounts, so far as
applicable to the company.
The accounts are prepared in accordance with:
(a) the special provisions of Part VII of the Companies Act 1985 relating to
small companies; and
(b) the Financial Reporting Standard for Smaller Entities.
/s/ C W Smith
- -------------
C W Smith Director
Page 23 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
1 ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention in accordance
with the following policies.
Depreciation
Depreciation is provided on a reducing balance basis on all fixed assets at
rates calculated to write off their cost over their expected useful lives as
follows:
Fixtures and fittings 25% per annum, on the reducing balance.
Plant and machinery 25% per annum, on the reducing balance.
Stock and work-in-progress
These are stated at the lower of cost and net realizable value, calculated as
follows: direct costs plus attributable overloads (based on a normal level of
activity), less provisions and payments received on account.
Foreign currency translation
Transactions denominated in foreign currencies are translated at the rates
ruling at the time of the transaction. Year end balances denominated in foreign
currencies are translated at the rates ruling at the balance sheet date. All
differences are taken to the profit and loss account.
Deferred taxation
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the future
without being replaced.
2 TURNOVER
Turnover represents work done (excluding VAT) providing services falling within
the company's ordinary activities.
1997 1996 1995
Note (pound) (pound) (pound)
3 OPERATING PROFIT
Stated after charging operating
costs which include:
Director's remuneration 54,852 40,519 1,052
Director's pension contributions -- -- --
Other wages and salaries 20,391 1,667 39,399
Social security costs 7,842 4,154 4,107
Auditor's remuneration 1,100 -- --
Operating lease payments 22,440 23,163 19,778
Depreciation of fixed assets 5 3,033 3,752 1,136
Depreciation of leased assets 5 -- -- 3,740
====== ====== =====
Stated after crediting:
Exceptional item 11 -- -- 4,103
====== ====== =====
Page 24 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
The average number of persons employed during the year was 2 (1996, 1 1995, 1)
1997 1996 1995
Note (pound) (pound) (pound)
4 TAXATION
Based on the profit for the year:
Corporation tax 16,029 7,099 5,492
====== ====== =====
UK Corporation Tax, at.... 21.75% 24.25% 25.00%
Page 25 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
5 FIXED ASSETS Fixtures Plant & Total
& fittings equipment
Cost: (pound) (pound) (pound)
At 1 January 1997 1,009 30,964 31,973
Additions 877 -- 877
Write off scrapped plant -- (15,964) (15,964)
------ ------- -------
At 31 December 1997 1,886 15,000 16,886
------ ------- -------
Depreciation:
At I January 1997 618 20,098 20,716
Charge for the year 317 2,716 3,033
Write off scrapped plant -- (15,964) (15,964)
------ ------- -------
At 31 December 1997 935 6,850 7,785
------ ------- -------
Net book amount:
At 1 January 1997 391 10,866 11,257
====== ======= =======
At 31 December 1997 951 8,150 9,101
====== ======= =======
Fixtures Plant & Total
& fittings equipment
Cost: (pound) (pound) (pound)
At 1 January 1996 1,009 30,588 31,597
Additions -- 376 376
------ ------- -------
As at 31 December 1996 l,009 30,964 31,973
------- -------
Depreciation:
At 1 January 1996 488 16,476 16,964
Charge for the year 130 3,622 3,752
------ ------- -------
As at 31 December 1996 618 20,098 20,716
------ ------- -------
Net book amount:
At 1 January 1996 521 14,112 14,663
====== ======= =======
As at 31 December 1996 391 10,866 11,257
====== ======= =======
Page 26 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
Plant Plant & Plant & Total
& Fittings Equipment Equipment
(leased)
Cost: (pound) (pound) (pound) (pound)
At 1 January 1995 1,009 3,490 34,200 38,699
Additions -- 1,448 -- 1,448
Adjustment (note 11) -- 25,560 (34,200) (8,550)
----- ----- ------ ------
As at 31 December 1995 1,009 30,588 -- 31,597
----- ----- ------ ------
Depreciation:
At 1 January 1995 315 1,086 10,687 12,088
Charge for the year 173 963 3,740 4,876
Adjustment (note 11) -- 14,427 (14,427) --
----- ----- ------ ------
As at 31 December, 1995 488 16,476 -- 16,964
----- ----- ------ ------
Net book amount,
At 1 January 1995 694 2,404 23,513 26,611
===== ===== ====== ======
As at 31 December 1995 521 14,112 -- 14,633
===== ===== ====== ======
Page 27 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
6 CREDITORS: amounts falling due within one year
1997 1996 1995
(pound) (pound) (pound)
Corporation tax 4 16,296 7,040 5,492
Other taxes and social security costs 15,480 6,773 4,264
Accruals 18,004 16,106 5,399
------- ------- -------
49,780 29,919 15,155
======= ======= ======
7 CREDITORS: amounts falling due after one year
1997 1996 1995
(pound) (pound) (pound)
HP and lease obligations -- -- --
Unsecured, 8% interest bearing loan 15,669 27,950
------- ------- ------
-- 15,669 27,950
======= ======= ======
8 DEFERRED TAXATION 1997 1996 1995
(pound) (pound) (pound)
Potential -other timing differences -- 5,533 3,833
======= ======= ======
Actual provision -- -- --
======= ======= ======
9 CALLED UP SHARE CAPITAL 1997 1996 1995
(pound) (pound) (pound)
Ordinary Share of (pound) 0.01 each:
Authorized 10,144 10,144 10,000
======= ======= ======
Called up, allotted, and fully paid 9,946 9,946 9,946
======= ======= ======
Page 28 of 193
<PAGE>
NOTES TO THE ACCOUNTS
For the three years ended 31 December 1997
The authorized and issued share capital has changed since the balance sheet
date: On 11 May 1998 the authorized share capital was increased by 13,900
shares to (pound) 10,283. On 12 May 1998 20,000 ordinary shares were issued
at par, making a total of (pound) 10,146 issued. On 26 June 1998 12,400
ordinary shares were issued at par, making a total of (pound) l0,270 issued.
10 RELATED PARTY TRANSACTIONS
M Hoffman is the ultimate controlling party, by virtue of his holding 650,000
of the 994,550 issued shares During the period, the company repaid the loan
due to him (see note 7), and all of the interest payable thereon (pound) 721
(1996 (pound) l,700) (1995, (pound) 2,159). C W Smith and F J Smith are
related parties by being officers. The company made payments for consultancy
services of (pound) 7,201(1996 (pound) 5,036) to a business in which they are
partners. Of this, (pound) 2,100 remained unpaid at the year end. The company
also made an accrual for (pound) 2,000 for consultancy services for the year
to a business in which M Hoffman and W Schoneman (directors) have an
interest.
11 EXCEPTIONAL ITEM
In 1995 the profit before tax for the year benefitted from a net (pound)
4,103 credit to administrative expenses following the renegotiation of lease
commitments relating to leased fixed assets. As a result the leased assets
became owned assets, and (pound) 8,550 was written off cost (note 5).
12 CAPITAL AND FINANCIAL COMMITMENTS
The company has occupied premises for which rental is payable of(pound)22,440
per annum, under a lease from 17 October 1996 to 19 January 1998.
Page 29 of 193
<PAGE>
COMBINED UNAUDITED PRO FORMA FINANCIAL INFORMATION
Basis of Presentation.
The combined unaudited pro forma financial statements assume the issuance of
National Technical Systems, Inc. Common Stock in exchange for all outstanding
XXCal, Inc and XXCal Ltd. Common Stock. Such financial statements also assume
that the merger will be accounted for using the "pooling of interests" method of
accounting pursuant to Opinion No. 16 of the Accounting Principles Board. The
pooling of interests method of accounting assumes that the combining companies
have been merged from their inception, and the historical financial statements
for periods prior to consummation of the merger are restated.
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the combined unaudited pro forma statements of income exclude the results of
operations associated with discontinued businesses, extraordinary items and
cumulative effects of accounting changes. In addition, the combined unaudited
pro forma financial statements do not include any adjustments for estimated
nonrecurring costs directly related to the merger. Such costs are currently
estimated to be approximately $800,000 in total which will be included in the
results of operations for the year ending January 31, 1999. Actual merger costs
may vary from such estimate. The pro forma statement of income for the six
months ended July 31, 1998 includes merger costs of $312,000.
Certain reclassifications have been made to the historical financial statements
of National Technical Systems, Inc., XXcal, Inc. and XXcal Ltd. to conform to
the pro forma presentation. Such reclassifications are not material to the
combined unaudited pro forma financial statements.
The pro forma information relative to XXCAL includes the financial statement
information for both XXCAL, Inc. and XXCAL, Ltd. The financial information for
XXCAL, Ltd. from the financial statements included in this 8-K are not presented
separately in the pro forma information due to their immateriality. The tax
provision for XXCAL is less than the expected statutory rate as XXCAL had
elected to be taxed as an S corporation.
Pro Forma Adjustments:
Pro forma net income per share available to common stockholders is based upon
the combined weighted average number of shares outstanding after giving effect
to the issuance of 1,202,000 shares of National Technical Systems, Inc. Common
Stock and an additional 311,000 shares of its common stock for issuance upon
exercise of XXCAL stock options to be assumed by National Technical Systems,
Inc.
Page 30 of 193
<PAGE>
The following combined unaudited pro forma balance sheet represents the combined
financial position of National Technical Systems, Inc. ("NTS"), XXCal, Inc. and
XXCal, Ltd. (collectively referred to as "XXCAL"). Such combined unaudited pro
forma information is based on the historical consolidated balance sheets of NTS
as of July 31, 1998 and XXCAL as of June 30,1998,after giving effect to the
merger using the "pooling of interests" method of accounting.
NTS XXCAL Pro Forma
Combined
July 31, 1998 June 30, July 31,
1998 1998
(unaudited) (unaudited) (unaudited)
------------ ----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 2,606,000 $ 234,000 $ 2,840,000
Receivables, less allowance for
doubtful accounts 14,404,000 3,894,000 18,298,000
Income taxes receivable 104,000 26,000 130,000
Inventories 1,985,000 0 1,985,000
Deferred tax assets 523,000 0 523,000
Prepaid expenses 1,048,000 221,000 1,269,000
----------- ----------- -----------
Total current assets 20,670,000 4,375,000 25,045,000
Property, plant and equipment, at cost 50,426,000 1,517,000 51,943,000
Less: accumulated depreciation 30,799,000 1,104,000 31,903,000
----------- ----------- -----------
Net property, plant and equipment 19,627,000 413,000 20,040,000
Property held for sale 544,000 0 544,000
Intangible assets, net 585,000 0 585,000
Other assets 604,000 1,105,000 1,709,000
----------- ----------- -----------
TOTAL ASSETS $42,030,000 $ 5,893,000 $47,923,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable bank $ 0 $ 950,000 $ 950,000
Accounts payable 2,053,000 259,000 2,312,000
Accrued expenses 2,530,000 1,366,000 3,896,000
Income taxes payable 483,000 0 483,000
Current installments of long-term debt 1,646,000 0 1,646,000
----------- ----------- -----------
Total current liabilities 6,712,000 2,575,000 9,287,000
Long-term debt, excluding current
installments 11,715,000 220,000 11,935,000
Deferred tax liabilities 2,319,000 495,000 2,814,000
Minority interest 36,000 0 36,000
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common Stock 11,098,000 49,000 11,147,000
Paid-in-capital 0 165,000 165,000
Retained earnings 10,150,000 2,389,000 12,539,000
----------- ----------- -----------
Total stockholders' equity 21,248,000 2,603,000 23,851,000
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $42,030,000 $5,893,000 $47,923,000
=========== =========== ===========
Page 31 of 193
<PAGE>
The following combined unaudited pro forma balance sheet represents the combined
financial position of National Technical Systems, Inc. ("NTS"), XXCal, Inc. and
XXCal, Ltd. (collectively referred to as "XXCAL"). Such combined unaudited pro
forma information is based on the historical consolidated balance sheets of NTS
as of January 31, 1998 and XXCAL as of December 31, 1997, after giving effect to
the merger using the "pooling of interests" method of accounting.
NTS XXCAL Pro Forma
Combined
January 31, December 31, January 31,
1998 1997 1998
------------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 2,101,000 $ 409,000 $ 2,510,000
Receivables, less allowance for
doubtful accounts 14,880,000 3,502,000 18,382,000
Income taxes receivable 104,000 0 104,000
Inventories 1,860,000 0 1,860,000
Deferred tax assets 523,000 0 523,000
Prepaid expenses 762,000 157,000 919,000
----------- ----------- -----------
Total current assets 20,230,000 4,068,000 24,298,000
Property, plant and equipment, at cost 48,509,000 1,612,000 50,121,000
Less: accumulated depreciation 29,527,000 1,205,000 30,732,000
----------- ----------- -----------
Net property, plant and equipment 18,982,000 407,000 19,389,000
Property held for sale 544,000 0 544,000
Intangible assets, net 637,000 0 637,000
Other assets 326,000 918,000 1,244,000
----------- ----------- -----------
TOTAL ASSETS $40,719,000 $ 5,393,000 $46,112,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable bank $ 0 $ 500,000 $ 500,000
Accounts payable 2,974,000 402,000 3,376,000
Accrued expenses 1,976,000 1,414,000 3,390,000
Income taxes payable 69,000 0 69,000
Current installments of long-term debt 1,535,000 16,000 1,551,000
----------- ----------- -----------
Total current liabilities 6,554,000 2,332,000 8,886,000
Long-term debt, excluding current
installments 12,144,000 215,000 12,359,000
Deferred tax liabilities 2,303,000 495,000 2,798,000
Minority interest 27,000 0 27,000
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common Stock 11,069,000 50,000 11,119,000
Paid-in-capital 0 165,000 165,000
Retained earnings 8,622,000 2,136,000 10,758,000
----------- ----------- -----------
Total stockholders' equity 19,691,000 2,351,000 22,042,000
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $40,719,000 $ 5,393,000 $46,112,000
=========== =========== ===========
Page 32 of 193
<PAGE>
The following conformed combined unaudited pro forma statement of income
represents the consolidated statement of income of National Technical Systems,
Inc. ("NTS"), XXCal, Inc. and XXCal, Ltd.(collectively referred to as "XXCAL").
Such conformed combined unaudited pro forma information is based upon the
historical consolidated income statement of NTS for the six months ended July
31, 1998 and XXCAL for the six months ended June 30, 1998, after giving effect
to the merger using the "pooling of interests" method of accounting and after
giving effect to the pro forma adjustments as described in the notes to combined
unaudited pro forma financial statements.
NTS XXCAL PRO FORMA
6 Months 6 Months 6 Months
Ended Ended Ended
July 31, June 30, July 31,
1998 1998 1998
(unaudited) (unaudited) (unaudited)
-------------- ------------ -----------
Net revenues $ 30,346,000 $ 13,956,000 $ 44,302,000
Cost of sales 22,042,000 9,345,000 31,387,000
------------ ------------ ------------
Gross profit 8,304,000 4,611,000 12,915,000
Selling, general and administrative
expense 4,955,000 3,910,000 8,865,000
------------ ------------ ------------
Operating income 3,349,000 701,000 4,050,000
Other income (expense):
Interest expense (561,000) (71,000) (632,000)
Merger costs (225,000) (87,000) (312,000)
Other (1,000) 10,000 9,000
------------ ------------ ------------
(787,000) (148,000) (935,000)
Income from operations before income
taxes and minority interest 2,562,000 553,000 3,115,000
Income taxes 1,025,000 19,000 1,044,000
------------ ------------ ------------
Income from operations before minority
interest 1,537,000 534,000 2,071,000
Minority interest (9,000) 0 (9,000)
------------ ------------ ------------
Net Income $ 1,528,000 $ 534,000 $ 2,062,000
============ ============ ============
Basic earnings per common share: $ 0.22 $ 0.44 $ 0.25
============ ============ ============
Diluted earnings per common share: $ 0.21 $ 0.35 $ 0.24
============ ============ ============
Weighted average common shares
outstanding 6,975,000 1,202,000 8,177,000
Dilutive effect of stock options 277,000 311,000 588,000
------------ ------------ ------------
Weighted average common shares
outstanding, assuming dilution 7,252,000 1,513,000 8,765,000
============ ============ ============
Page 33 of 193
<PAGE>
The following combined unaudited pro forma statement of income represents the
consolidated statement of income of National Technical Systems, Inc. ("NTS"),
XXCal, Inc. and XXCal, Ltd.(collectively referred to as "XXCAL"). Such combined
unaudited pro forma information is based upon the historical consolidated income
statement of NTS for the year ended January 31, 1998 and the historical
statement of income for XXCAL for the twelve months ended December 31, 1997,
after giving effect to the merger using the "pooling of interests" method of
accounting and after giving effect to the pro forma adjustments as described in
the notes to combined unaudited pro forma financial statements.
NTS XXCAL PRO FORMA
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 31, December 31, January 31,
1998 1997 1998
------------ ------------ ------------
Net revenues $ 56,114,000 $ 25,183,000 $ 81,297,000
Cost of sales 40,863,000 16,722,000 57,585,000
------------ ------------ ------------
Gross profit 15,251,000 8,461,000 23,712,000
Selling, general and administrative
expense 9,173,000 7,917,000 17,090,000
------------ ------------ ------------
Operating income 6,078,000 544,000 6,622,000
Other income (expense):
Interest expense (1,135,000) (110,000) (1,245,000)
Other (2,000) 120,000 118,000
------------ ------------ ------------
(1,137,000) 10,000 (1,127,000)
Income from operations before income
taxes and minority interest 4,941,000 554,000 5,495,000
Income taxes 1,968,000 46,000 2,014,000
------------ ------------ ------------
Income from operations before minority
interest 2,973,000 508,000 3,481,000
Minority interest (26,000) 0 (26,000)
------------ ------------ ------------
Net Income $ 2,947,000 $ 508,000 $ 3,455,000
============ ============ ============
Basic earnings per common share: $ 0.43 $ 0.42 $ 0.43
============ ============ ============
Diluted earnings per common share $ 0.42 $ 0.34 $ 0.41
============ ============ ============
Weighted average common shares 6,863,000 1,198,000 8,061,000
outstanding
Dilutive effect of stock options 131,000 315,000 446,000
------------ ------------ ------------
Weighted average common shares
outstanding, assuming dilution 6,994,000 1,513,000 8,507,000
============ ============ ============
Page 34 of 193
<PAGE>
The following combined unaudited pro forma statement of income represents the
consolidated statement of income of National Technical Systems, Inc. ("NTS"),
XXCal, Inc. and XXCal, Ltd.(collectively referred to as "XXCAL"). Such combined
unaudited pro forma information is based upon the historical consolidated income
statement of NTS for the year ended January 31, 1997 and the historical
statement of income for XXCAL for the twelve months ended December 31, 1996,
after giving effect to the merger using the "pooling of interests" method of
accounting and after giving effect to the pro forma adjustments as described in
the notes to combined unaudited pro forma financial statements.
NTS XXCAL PRO FORMA
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 31, December 31, January 31,
1997 1996 1997
------------ ------------ ------------
Net revenues $ 47,069,000 $ 27,344,000 $ 74,413,000
Cost of sales 34,925,000 18,594,000 53,519,000
------------ ------------ ------------
Gross profit 12,144,000 8,750,000 20,894,000
Selling, general and administrative
expense 7,576,000 7,822,000 15,398,000
------------ ------------ ------------
Operating income 4,568,000 928,000 5,496,000
Other income (expense):
Interest expense (1,021,000) (140,000) (1,161,000)
Other 43,000 (87,000) (44,000)
------------ ------------ ------------
(978,000) (227,000) (1,205,000)
Income from operations before income
taxes and minority interest 3,590,000 701,000 4,291,000
------------ ------------ ------------
Income taxes 1,561,000 27,000 1,588,000
Income from operations before minority
interest 2,029,000 674,000 2,703,000
Minority interest 10,000 0 10,000
------------ ------------ ------------
Net Income $ 2,039,000 $ 674,000 $ 2,713,000
============ ============ ============
Basic earnings per common share: $ 0.30 $ 0.56 $ 0.34
============ ============ ============
Diluted earnings per common share $ 0.30 $ 0.47 $ 0.33
============ ============ ============
Weighted average common shares
outstanding 6,702,000 1,200,000 7,902,000
Dilutive effect of stock options 39,000 225,000 264,000
------------ ------------ ------------
Weighted average common shares
outstanding, assuming dilution 6,741,000 1,425,000 8,166,000
============ ============ ============
Page 35 of 193
<PAGE>
The following combined unaudited pro forma statement of income represents the
consolidated statement of income of National Technical Systems, Inc. ("NTS"),
XXCal, Inc. and XXCal, Ltd.(collectively referred to as "XXCAL"). Such combined
unaudited pro forma information is based upon the historical consolidated income
statement of NTS for the year ended January 31, 1996 and the historical
statement of income for XXCAL for the twelve months ended December 31, 1995,
after giving effect to the merger using the "pooling of interests" method of
accounting and after giving effect to the pro forma adjustments as described in
the notes to combined unaudited pro forma financial statements.
NTS XXCAL PRO FORMA
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
January 31, December 31, January 31,
1996 1995 1996
------------ ------------ ------------
Net revenues $ 41,457,000 $ 26,061,000 $ 67,518,000
Cost of sales 31,807,000 18,077,000 49,884,000
------------ ------------ ------------
Gross profit 9,650,000 7,984,000 17,634,000
Selling, general and administrative
expense 6,331,000 7,167,000 13,498,000
------------ ------------ ------------
Operating income 3,319,000 817,000 4,136,000
Other income (expense):
Interest expense (1,157,000) (169,000) (1,326,000)
Other 30,000 757,000 787,000
------------ ------------ ------------
(1,127,000) 588,000 (539,000)
Income from operations before income
taxes and minority interest 2,192,000 1,405,000 3,597,000
Income taxes 972,000 28,000 1,000,000
------------ ------------ ------------
Income from operations before minority
interest 1,220,000 1,377,000 2,597,000
Minority interest (55,000) 0 (55,000)
------------ ------------ ------------
Net Income $ 1,165,000 $ 1,377,000 $ 2,542,000
============ ============ ============
Basic earnings per common share: $ 0.17 $ 1.15 $ 0.32
============ ============ ============
Diluted earnings per common share $ 0.17 $ 0.97 $ 0.31
============ ============ ============
Weighted average common shares
outstanding 6,660,000 1,200,000 7,860,000
Dilutive effect of stock options 0 221,000 221,000
------------ ------------ ------------
Weighted average common shares
outstanding, assuming dilution 6,660,000 1,421,000 8,081,000
============ ============ ============
Page 36 of 193
<PAGE>
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.
November 2, 1998 NATIONAL TECHNICAL SYSTEMS, INC.
By /s/ Lloyd Blonder
-------------------------------
Lloyd Blonder
Senior Vice President / CFO
Page 37 of 193
<PAGE>
EXHIBIT INDEX
Exhibits Description Page
- --------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of August 21,
1998, by and among National Technical Systems, Inc.,
NTS Acquisition Corp. and XXCAL, Inc. 39
2.2 Amendment No. 1 to Agreement and Plan of Merger dated
as of October 19, 1998 101
2.3 Share Purchase Agreement, dated as of August 21, 1998,
by and among National Technical Systems, Inc. to acquire
all of the outstanding Ordinary Shares of XXCAL Limited,
a United Kingdom corporation 106
2.4 Amendment No. 1 to Share Purchase Agreement dated as of
October 19, 1998 184
23.1 Consent of Duitch, Franklin & Co., LLP 190
23.2 Consent of Richardson Whitby Smith Chartered Accountants 191
99.1 Press Release, dated November 2, 1998, relating to the closing
of the Acquisitions 192
Page 38 of 193
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NATIONAL TECHNICAL SYSTEMS, INC.,
NTS ACQUISITION CORP.
AND
XXCAL, INC.
Dated as of August 21, 1998
-1-
Page 39 of 193
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER......................................................1
Section 1.1 Merger and Surviving Corporation.........................1
Section 1.2 Effective Time of the Merger.............................2
ARTICLE II THE SURVIVING AND PARENT CORPORATIONS...........................2
Section 2.1 Articles of Incorporation................................2
Section 2.2 By-laws..................................................2
Section 2.3 Directors................................................2
Section 2.4 Officers.................................................3
ARTICLE III CONVERSION OF SHARES............................................3
Section 3.1 Conversion of Company Shares.............................3
Section 3.2 Conversion of Subsidiary Shares..........................4
Section 3.3 Exchange of Certificates.................................4
Section 3.4 No Fractional Securities.................................6
Section 3.5 Closing..................................................7
Section 3.6 Closing of the Company's Transfer Books..................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUBSIDIARY...............................................7
Section 4.1 Organization and Qualification...........................7
Section 4.2 Capitalization...........................................8
Section 4.3 Subsidiaries.............................................9
Section 4.4 Authority; Non-Contravention; Approvals ................10
Section 4.5 Reports and Financial Statements........................12
Section 4.6 Absence of Undisclosed Liabilities......................13
Section 4.7 Absence of Certain Changes or Events....................13
Section 4.8 Litigation..............................................13
Section 4.9 Registration Statement and Proxy
Statement ..............................................14
Section 4.10 No Violation of Law.....................................14
Section 4.11 Compliance with Agreements..............................15
Section 4.12 Taxes ..................................................16
Section 4.13 Employee Benefit Plans; ERISA ..........................17
Section 4.14 Labor Controversies ...................................19
Section 4.15 Environmental Matters ..................................19
Section 4.16 Non-competition Agreements ............................22
Section 4.17 Title to Assets ........................................22
Section 4.18 Pooling of Interests ..................................23
Section 4.19 Parent Shareholders' Approval ..........................23
Section 4.20 Brokers and Finders ....................................23
-i-
Page 40 of 193
<PAGE>
Section 4.21 Opinion of Financial Advisor ...........................24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............24
Section 5.1 Organization and Qualification .........................24
Section 5.2 Capitalization .........................................24
Section 5.3 Subsidiaries ...........................................25
Section 5.4 Authority; Non-Contravention; Approvals.................26
Section 5.5 Financial Statements ...................................28
Section 5.6 Absence of Undisclosed Liabilities ....................28
Section 5.7 Absence of Certain Changes or Events ...................29
Section 5.8 Litigation .............................................29
Section 5.9 Registration Statement and Proxy Statement .............29
Section 5.10 No Violation of Law ....................................30
Section 5.11 Compliance with Agreements .............................30
Section 5.12 Taxes...................................................31
Section 5.13 Employee Benefit Plans; ERISA ..........................32
Section 5.14 Labor Controversies.....................................34
Section 5.15 Environmental Matters. .................................34
Section 5.16 Non-competition Agreements .............................35
Section 5.17 Title to Assets.........................................36
Section 5.18 Corporation Status. ....................................36
Section 5.19 Pooling of Interests ...................................37
Section 5.20 Company Shareholders' Approval .........................37
Section 5.21 Brokers and Finders ....................................37
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER.........................37
Section 6.1 Conduct of Business by the Company Pending
the Merger..............................................37
Section 6.2 Conduct of Business by Parent and
Subsidiary Pending the Merger ..........................39
Section 6.3 Control of the Company's Operations ...................41
Section 6.4 Control of Parent's Operations .........................41
Section 6.5 Acquisition Transactions. ..............................41
ARTICLE VII ADDITIONAL AGREEMENTS..........................................42
Section 7.1 Access to Information...................................42
Section 7.2 Registration Statement and Proxy
Statement...............................................44
Section 7.3 Shareholders' Approvals.................................44
Section 7.4 Compliance with the Securities Act......................45
Section 7.5 Listing of Shares.......................................45
Section 7.6 Expenses and Fees.......................................46
Section 7.7 Agreement to Cooperate..................................46
Section 7.8 Public Statements.......................................47
-ii-
Page 41 of 193
<PAGE>
Section 7.9 Option Plans. ..........................................47
Section 7.10 Directors' and Officers' Indemnification................48
Section 7.11 Corrections to the Proxy
Statement/Prospectus and Registration
Statement...............................................49
Section 7.12 Effect on Accounting Treatment. .......................49
ARTICLE VIIICONDITIONS.....................................................49
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger. .....................................49
Section 8.2 Conditions to Obligation of the Company to
Effect the Merger. .....................................51
Section 8.3 Conditions to Obligations of Parent and
Merger Subsidiary to Effect the Merger. ................52
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER..............................53
Section 9.1 Termination. ...........................................53
Section 9.2 Effect of Termination. ........... .....................54
Section 9.3 Amendment. .............................................55
Section 9.4 Waiver. ................................................55
ARTICLE X GENERAL PROVISIONS ............................................55
Section 10.1 Non-Survival of Representations and
Warranties. ............................................55
Section 10.2 Notices. ...............................................55
Section 10.3 Interpretation. ........................................56
Section 10.4 Severability. ..........................................57
Section 10.5 Miscellaneous. .........................................57
Section 10.6 Counterparts. ..........................................57
Section 10.7 Parties In Interest. ...................................58
-iii-
Page 42 of 193
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated
as of August 21, 1998, by and among National Technical Systems,
Inc., a California corporation ("Parent"), NTS Acquisition
Corp., a California corporation and a wholly owned subsidiary
of Parent ("Merger Subsidiary") and XXCAL, INC., a California
corporation (the "Company").
WITNESSETH
WHEREAS, the Board of Directors of Parent, Merger
Subsidiary and the Company have approved the merger of Merger
Subsidiary with and into the Company on the terms set forth in
this Agreement (the "Merger");
WHEREAS, in connection with the Merger and as an
inducement to Parent to enter into this Agreement, Parent, the
Company and a principal shareholder of the Company have
executed as of the date hereof a voting agreement in favor of
Parent with respect to, among other things, the voting of
shares of capital stock of the Company held or to be held by
such shareholder in favor of the Merger; and
WHEREAS, for federal income tax purposes, it is
intended that the Merger shall qualify as a tax free
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
NOW THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants,
agreements and conditions hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 Merger and Surviving Corporation.
Upon the terms and subject to the conditions of this Agreement,
1
Page 43 of 193
<PAGE>
at the Effective Time (as defined in Section 1.2) in accordance
with the California Corporations Code (the "CCC"), Merger
Subsidiary shall be merged with and into the Company and the
separate existence of Merger Subsidiary shall thereupon cease.
The Company shall be the surviving corporation in the Merger
and is hereinafter sometimes referred to as the "Surviving
Corporation."
Section 1.2 Effective Time of the Merger. The
Merger shall become effective at such time (the "Effective
Time") as shall be stated in a certified copy of the Agreement,
in a form mutually acceptable to Parent and the Company, to be
filed with the Secretary of State of the State of California in
accordance with the CCC (the "Merger Filing"). The Merger
Filing shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated
by this Agreement in accordance with Section 3.5. The parties
acknowledge that it is their mutual desire and intent to
consummate the Merger as soon as practicable after the date
hereof. Accordingly, the parties shall use all reasonable
efforts to consummate, as soon as practicable, the transactions
contemplated by this Agreement in accordance with Section 3.5.
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
Section 2.1 Articles of Incorporation. The
Articles of Incorporation of Merger Subsidiary as in effect
immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation after the
Effective Time, and thereafter may be amended in accordance
with its terms and as provided in the CCC.
Section 2.2 By-laws. The By-laws of Merger
Subsidiary as in effect immediately prior to the Effective Time
shall be the By-laws of the Surviving Corporation after the
Effective Time, and thereafter may be amended in accordance
with their terms and as provided by the Articles of
Incorporation of the Surviving Corporation and the CCC.
Section 2.3 Directors. The Board of Directors of
Parent shall take such corporate action as may be necessary to
cause Parent's Board of Directors immediately following the
2
Page 44 of 193
<PAGE>
Effective Time to be expanded to include one (1) member
designated by the Board of Directors of the Company. The
directors of the Surviving Corporation shall be as designated
in Schedule 2.3, and such directors shall serve in accordance
with the By-laws of the Surviving Corporation until their
respective successors are duly elected or appointed and
qualified.
Section 2.4 Officers. The officers of the
Surviving Corporation shall be as designated in Schedule 2.4,
and such officers shall serve in accordance with the By-laws of
the Surviving Corporation until their respective successors are
duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Company Shares. At the
Effective Time, by virtue of the Merger and without any action
on the part of any holder of any capital stock of the Company:
(a) each share of the Company's Common
Stock, no par value (the "Company Common Stock"),
shall, subject to Sections 3.3 and 3.4, be converted
into the right to receive, without interest, 1.2126
(the "Exchange Ratio") shares of the common stock, no
par value, of Parent ("Parent Common Stock");
(b) each share of capital stock of the
Company, if any, owned by Parent or any subsidiary of
Parent or held in treasury by the Company or any
subsidiary of the Company immediately prior to the
Effective Time shall be canceled and shall cease to
exist from and after the Effective Time; and
(c) subject to and as more fully provided
in Section 7.9, each option, which has not by its
terms expired, to purchase Company Capital Stock that
is outstanding at the Effective Time, as reflected on
the Company Disclosure Schedule, whether or not
exercisable, shall automatically and without any
action on the part of the holder thereof be converted
into an option to purchase a number of shares of
3
Page 45 of 193
<PAGE>
Parent Common Stock equal to the number of shares of
Company Capital Stock that could be purchased under
such option multiplied by the Exchange Ratio, at a
price per share of Parent Common Stock equal to the
per share exercise price of such option divided by
the Exchange Ratio.
Section 3.2 Conversion of Subsidiary Shares. At the
Effective Time, by virtue of the Merger and without any action
on the part of Parent or of NTS Technical Systems, as the sole
stockholder of Subsidiary, each issued and outstanding share of
common stock, no par value of Subsidiary ("Subsidiary Common
Stock") shall be converted into one share of common stock, no
par value, of the Surviving Corporation.
Section 3.3 Exchange of Certificates. (a) From and
after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time
represented shares of Company Common Stock shall be entitled to
receive in exchange therefor, upon surrender thereof to an
exchange agent reasonably satisfactory to Parent and the
Company (the "Exchange Agent"), a certificate or certificates
representing the number of whole shares of Parent Common Stock
to which such holder is entitled pursuant to Section 3.1.
Notwithstanding any other provision of this Agreement,
(i) until holders or transferees of certificates theretofore
representing shares of Company Common Stock have surrendered
them for exchange as provided herein, no dividends shall be
paid with respect to any shares represented by such
certificates and no payment for fractional shares shall be made
and (ii) without regard to when such certificates representing
shares of Company Common Stock are surrendered for exchange as
provided herein, no interest shall be paid on any dividends or
any payment for fractional shares. Upon surrender of a
certificate which immediately prior to the Effective Time
represented shares of Company Common Stock, there shall be paid
to the holder of such certificate the amount of any dividends
which theretofore became payable, but which were not paid by
reason of the foregoing, with respect to the number of whole
shares of Parent Common Stock represented by the certificate or
certificates issued upon such surrender.
(b) If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the
certificate for shares of Company Common Stock surrendered in
4
Page 46 of 193
<PAGE>
exchange therefor is registered, it shall be a condition of
such exchange that the person requesting such exchange shall
pay any applicable transfer or other taxes required by reason
of such issuance.
(c) Promptly after the Effective Time, Parent shall
make available to the Exchange Agent the certificates
representing shares of Parent Common Stock required to effect
the exchanges referred to in paragraph (a) above and cash for
payment of any fractional shares referred to in Section 3.4.
(d) Promptly after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the
"Company Certificates") (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss
and title to the Company Certificates shall pass, only upon
actual delivery of the Company Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender
of the Company Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of
Company Certificates for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall reasonably require,
the holder of such Company Certificates shall be entitled to
receive in exchange therefor a certificate representing that
number of whole shares of Parent Common Stock into which the
shares of Company Common Stock theretofore represented by the
Company Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.3(a), and the Company
Certificates so surrendered shall be canceled. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of Company Common Stock
for any shares of Parent Common Stock or dividends or
distributions thereon delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(e) Promptly following the date which is nine months
after the Effective Date, the Exchange Agent shall deliver to
Parent all cash, certificates (including any Parent Common
Stock) and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange
Agent's duties shall terminate. Thereafter, each holder of a
Company Certificate may surrender such Company Certificate to
5
Page 47 of 193
<PAGE>
the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange
therefor the Parent Common Stock, without any interest thereon.
Notwithstanding the foregoing, none of the Exchange Agent,
Parent, Subsidiary, the Company or the Surviving Corporation
shall be liable to a holder of Company Common Stock for any
Parent Common Stock delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
(f) In the event any Company Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Company Certificate to
be lost, stolen or destroyed, the Surviving Corporation shall
cause to be issued in exchange for such lost, stolen or
destroyed Company Certificate the Parent Common Stock
deliverable in respect thereof determined in accordance with
this Section 3.3. When authorizing such payment in exchange
therefor, the Board of Directors of the Surviving Corporation
may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or
destroyed Company Certificate to give the Surviving Corporation
such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving
Corporation with respect to the Company Certificate alleged to
have been lost, stolen or destroyed.
Section 3.4 No Fractional Securities.
Notwithstanding any other provision of this Agreement, no
certificates or scrip for fractional shares of Parent Common
Stock shall be issued in the Merger and no Parent Common Stock
dividend, stock split or interest shall relate to any
fractional security, and such fractional interests shall not
entitle the owner thereof to vote or to any other rights of a
security holder. In lieu of any such fractional shares, each
holder of Company Common Stock who would otherwise have been
entitled to receive a fraction of a share of Parent Common
Stock upon surrender of Company Certificates for exchange
pursuant to this Section 3.4 shall be entitled to receive from
the Exchange Agent a cash payment equal to such fraction
multiplied by the average closing price per share of Parent
Common Stock as requested by the Nasdaq National Market, as
reported by the Wall Street Journal, during the 10 trading days
immediately preceding the Effective Time.
6
Page 48 of 193
<PAGE>
Section 3.5 Closing. The closing (the "Closing")
of the transactions contemplated by this Agreement shall take
place at a location mutually agreeable to Parent and the
Company on the fifth business day immediately following the
date on which the last of the conditions set forth in Article
VIII is fulfilled or waived, or at such other time and place as
Parent and the Company shall agree (the date on which the
Closing occurs is referred to in this Agreement as the "Closing
Date").
Section 3.6 Closing of the Company's Transfer
Books. At and after the Effective Time, holders of Company
Certificates shall cease to have any rights as shareholders of
the Company, except for the right to receive shares of Parent
Common Stock pursuant to Section 3.1 and the right to receive
cash for payment of fractional shares pursuant to Section 3.4.
At the Effective Time, the stock transfer books of the Company
shall be closed and no transfer of shares of Company Common
Stock which were outstanding immediately prior to the Effective
Time shall thereafter be made. If, after the Effective Time,
subject to the terms and conditions of this Agreement, Company
Certificates formerly representing Company Common Stock are
presented to the Surviving Corporation, they shall be canceled
and exchanged for Parent Common Stock in accordance with
Section 3.3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary each represent and warrant to
the Company that, except as set forth in the Disclosure
Schedule dated as of the date hereof and signed by an
authorized officer of Parent (the "P&MS Disclosure Schedule"),
each of which exceptions shall specifically identify the
relevant Section hereof to which it relates:
Section 4.1 Organization and Qualification. Each
of Parent and Merger Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws
of the state of its incorporation and has the requisite power
and authority to own, lease and operate its assets and
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properties and to carry on its business as it is now being
conducted. Each of Parent and Merger Subsidiary is qualified
to do business and is in good standing in each jurisdiction in
which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all other such
failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of Parent and its subsidiaries, taken
as a whole. True, accurate and complete copies of each of
Parent's and Merger Subsidiary's Articles of Incorporation and
By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been
delivered to the Company.
Section 4.2 Capitalization. (a) The authorized
capital stock of Parent consists of 20,000,000 shares of Parent
Common Stock, of which 6,987,128 shares were outstanding as of
August 21, 1998. All of the issued and outstanding shares of
Parent Common Stock are validly issued and are fully paid,
nonassessable and free of preemptive rights.
(b) The authorized capital stock of Merger Subsidiary
consists of 1,000 shares of Merger Subsidiary Common Stock, of
which 100 shares are issued and outstanding, all of which
shares are owned beneficially and of record by Parent.
(c) Except as disclosed in the Parent SEC Reports (as
defined in Section 4.5), as of the date hereof, there are no
outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights
or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement
and also including any rights plan or other anti-takeover
agreement, obligating Parent or any Merger Subsidiary of Parent
to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of Parent or
obligating Parent or any Merger Subsidiary of Parent to grant,
extend or enter into any such agreement or commitment. There
are no voting trusts, proxies or other agreements or
understandings to which Parent or any subsidiary of Parent is a
party or is bound with respect to the voting of any shares of
capital stock of Parent other than any voting agreements
executed in connection with this Agreement. The shares of
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Parent Common Stock issued to shareholders of the Company in
the Merger will be at the Effective Time duly authorized,
validly issued, fully paid and nonassessable and free of
preemptive rights.
Section 4.3 Subsidiaries. Each direct and
indirect corporate subsidiary of Parent is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted.
Each subsidiary of Parent is qualified to do business, and is
in good standing, in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing would
not, when taken together with all such other failures, have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Parent and its subsidiaries, taken as a whole.
All of the outstanding shares of capital stock of each
corporate subsidiary of Parent are validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned
directly or indirectly by Parent, free and clear of any liens,
claims or encumbrances except that such shares are pledged to
secure Parent's credit facilities, provided, however, that
Parent owns 50% of the outstanding shares of the capital stock
of NQA USA, a Massachusetts corporation. There are no
subscriptions, options, warrants, rights, calls, contracts,
voting trusts, proxies or other commitments, understandings,
restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of Parent,
including any right of conversion or exchange under any
outstanding security, instrument or agreement. As used in this
Agreement, the term "subsidiary" shall mean, when used with
reference to any person or entity, any corporation,
partnership, joint venture or other entity of which such person
or entity (either acting alone or together, with its other
subsidiaries) owns, directly or indirectly, 50% or more of the
stock or other voting interests, the holders of which are
entitled to vote for the election of a majority of the board of
directors or any similar governing body of such corporation,
partnership, joint venture or other entity.
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Section 4.4 Authority; Non-Contravention;
Approvals. (a) Parent and Merger Subsidiary each have full
corporate power and authority to enter into this Agreement and,
subject to the Parent Shareholders' Approval (as defined in
Section 7.3 (b)) to consummate the transactions contemplated
hereby. This Agreement has been approved by the Boards of
Directors of Parent and Merger Subsidiary, and no other
corporate proceedings on the part of Parent or Merger
Subsidiary are necessary to authorize the execution and
delivery of this Agreement or, except for the Parent
Shareholders' Approval, the consummation by Parent and Merger
Subsidiary of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of
Parent and Merger Subsidiary, and, assuming the due
authorization, execution and delivery hereof by the Company,
constitutes a valid and legally binding agreement of each of
Parent and Merger Subsidiary enforceable against each of them
in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general
equitable principles. Without limitation of the foregoing,
each of the covenants and obligations of Parent set forth in
Sections 6.2, 6.5, 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, 7.10 and 7.12
is valid, legally binding and enforceable notwithstanding the
absence of the Parent Shareholders' Approval.
(b) The execution and delivery of this Agreement by
each of Parent and Merger Subsidiary do not violate, conflict
with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of Parent
or any of its subsidiaries under any of the terms, conditions
or provisions of (i) the respective charters or by-laws of
Parent or any of its subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or
governmental authority applicable to Parent or any of its
subsidiaries or any of their respective properties or assets or
(iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or
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other instrument, obligation or agreement of any kind to which
Parent or any of its subsidiaries is now a party or by which
Parent or any of its subsidiaries or any of their respective
properties or assets may be bound or affected. The
consummation by Parent and Merger Subsidiary of the
transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to
obtaining (prior to the Effective Time) the Parent
Shareholder's Approval and (y) in the case of the terms,
conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties. Excluded
from the foregoing sentences of this paragraph (b), insofar as
they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph
(b), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the
aggregate, have, a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
results of operations or prospects of Parent and its
subsidiaries, taken as a whole.
(c) Except for (i) the filing of the Proxy Statement/
Prospectus (as defined in Section 4.9) with the Securities
and Exchange Commission (the "SEC" pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"), and
the declaration of the effectiveness thereof by the SEC and
filings with various state blue sky authorities, (ii) the
making of the Merger Filing with the Secretary of State of the
State of California in connection with the Merger, and
(iii) any required filings with or approvals from applicable
state authorities or commissions (the filings and approvals
referred to in clauses (i) through (iii) are collectively
referred to as the "Parent Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and
delivery of this Agreement by Parent or Merger Subsidiary or
the consummation by Parent or Merger Subsidiary of the
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transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be,
would not, in the aggregate, have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of Parent and its
subsidiaries, taken as a whole.
Section 4.5 Reports and Financial Statements.
Since January 1, 1996, Parent has filed on a timely basis with
the SEC all forms, statements, reports and documents (including
all exhibits, amendments and supplements thereto) required to
be filed by it under each of the Securities Act, the Exchange
Act and the respective rules and regulations thereunder, all of
which, as amended if applicable, complied in all material
respects with all applicable requirements of the appropriate
act and the rules and regulations thereunder. Parent has
previously delivered to the Company copies of its (a) Annual
Reports on Form 10-K for the fiscal year ended January 31, 1998
and for each of the two immediately preceding fiscal years, as
filed with the SEC, (b) proxy and information statements
relating to (i) all meetings of its shareholders and (ii)
actions by written consent in lieu of a shareholders' meeting
from January 1, 1996, until the date hereof, and (c) all other
reports, including quarterly reports, or registration
statements filed by Parent with the SEC since January 1, 1996
(other than Registration Statements filed on Form S-8)
(collectively, the "Parent SEC Reports"). As of their
respective dates, the Parent SEC Reports did not contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim
consolidated financial statements of Parent included in such
reports (collectively, the "Parent Financial Statements") have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present
the financial position of Parent and its subsidiaries as of the
dates thereof and the results of their operations and changes
in financial position for the periods then ended, subject, in
the case of the unaudited interim financial statements, to
normal year-end and audit adjustments and any other adjustments
described therein.
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Section 4.6 Absence of Undisclosed Liabilities.
Except as disclosed in the Parent SEC Reports or with respect
to acquisitions or potential transactions or commitments
heretofore disclosed to the Company in writing, neither Parent
nor any of its subsidiaries had at [April 30, 1998], or has
incurred since that date, any liabilities, guarantees, or other
obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations
or contingencies (i) which are accrued or reserved against in
the Parent Financial Statements or reflected in the notes
thereto or (ii) which were incurred after [April 30, 1998], and
were incurred in the ordinary course of business and consistent
with past practices; (b) liabilities, obligations or
contingencies which (i) would not, in the aggregate, have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Parent and its subsidiaries, taken as a whole,
or (ii) have been discharged or paid in full prior to the date
hereof, and (c) liabilities and obligations which are of a
nature not required to be reflected in the consolidated
financial statements of Parent and its subsidiaries prepared in
accordance with generally accepted accounting principles
consistently applied and which were incurred in the ordinary
course of business.
Section 4.7 Absence of Certain Changes or Events.
Since the date of the most recent Parent SEC Report, there has
not been any material adverse change in the business,
operations, properties, assets, liabilities, condition
(financial or other) or results of operations of Parent and its
subsidiaries, taken as a whole.
Section 4.8 Litigation. Except as disclosed in
the Parent SEC Reports, there are no claims, suits, actions or
proceedings pending or, to the knowledge of Parent, threatened
against, relating to or affecting Parent or any of its
subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any
arbitrator that seeks to restrain or enjoin the consummation of
the Merger or which could reasonably be expected, either alone
or in the aggregate with all such claims, actions or
proceedings, to materially and adversely affect the business,
operations, properties, assets, condition (financial or other)
or results of operations of Parent and its subsidiaries, taken
as a whole. Except as set forth in the Parent SEC Reports,
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neither Parent nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the
consummation of the transactions contemplated hereby or would
have any material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Parent and its subsidiaries, taken as a whole.
Section 4.9 Registration Statement and Proxy
Statement. Neither (a) the Registration Statement on Form S-4
to be filed under the Securities Act with the SEC by Parent in
connection with the Merger for the purpose of registering the
shares of Parent Common Stock to be issued in the Merger (the
"Registration Statement") nor (b) the proxy statement to be
distributed in connection with the meeting of Parent's
shareholders to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy Statement" and, together with
the prospectus included in the Registration Statement, the
"Proxy Statement/Prospectus" will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at
the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the
meetings of shareholders of Parent to be held in connection
with the transactions contemplated by this Agreement, or, in
the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time
of such meeting of the shareholders of Parent, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The
Proxy Statement/Prospectus will, as of its mailing date, comply
as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder,
except that no representation is made by Parent or Merger
Subsidiary with respect to information supplied by the Company
for inclusion therein.
Section 4.10 No Violation of Law. Except as
disclosed in the Parent SEC Reports, neither Parent nor any of
its subsidiaries is in violation of, or has been given notice
or been charged with any violation of, any law, statute, order,
rule, regulation, ordinance, or judgment (including, without
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limitation, any applicable environmental law, ordinance or
regulation) of any governmental or regulatory body or
authority, except for violations which, in the aggregate, could
not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition
(financial or other) or results of operations of Parent and its
subsidiaries, taken as a whole. Except as disclosed in the
Parent SEC Reports, as of the date of this Agreement, to the
knowledge of Parent, no investigation or review by any
governmental or regulatory body or authority is pending or
threatened, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same, other
than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a material adverse
effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Parent and its subsidiaries, taken as a whole. Parent and its
subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as
presently conducted (collectively, the "Parent Permits"),
except for permits, licenses, franchises, variances,
exemptions, orders, authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Parent and its subsidiaries, taken as a
whole. Parent and its subsidiaries are not in violation of the
terms of any Parent Permit, except for delays in filing reports
or violations which, alone or in the aggregate, would not have
a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Parent and its subsidiaries, taken as a
whole.
Section 4.11 Compliance with Agreements. Except as
disclosed in the Parent SEC Reports, neither Parent nor any of
its subsidiaries is in breach or violation of or in default in
the performance or observance of any term or provision of, and
no event has occurred which, with lapse of time or action by a
third party, could result in a default under (a) the respective
charters, by-laws or other similar organizational instruments
of Parent or any of its subsidiaries or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to
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which Parent or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is
subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 4.11, would have, in the
aggregate, a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of Parent and its subsidiaries, taken
as a whole.
Section 4.12 Taxes. (a) Parent and its subsidiaries
have (i) duly filed with the appropriate governmental
authorities all Tax Returns (as defined in Section 4.12(c))
required to be filed by them for all periods ending on or prior
to the Effective Time, other than those Tax Returns the failure
of which to file would not have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of Parent and its
subsidiaries, taken as a whole, and such Tax Returns are true,
correct and complete in all material respects and (ii) duly
paid in full or made adequate provision for the payment of all
Taxes (as defined in Section 4.12(b)) for all periods ending at
or prior to the Effective Time. The liabilities and reserves
for Taxes reflected in the Parent balance sheet included in the
latest Parent SEC Report are adequate to cover all Taxes for
all periods ending at or prior to the Effective Time and there
are no material liens for Taxes upon any property or assets of
Parent or any subsidiary thereof, except for liens for Taxes
not yet due. There are no unresolved issues of law or fact
arising out of a notice of deficiency, proposed deficiency or
assessment from the Internal Revenue Service (the "IRS") or any
other governmental taxing authority with respect to Taxes of
the Parent or any of its subsidiaries which, if decided
adversely, singly or in the aggregate, would have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole. Neither Parent
nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any
entity that is not, directly or indirectly, a wholly-owned
corporate subsidiary of Parent other than agreements the
consequences of which are fully and adequately reserved for in
the Parent Financial Statements. Neither Parent nor any of its
corporate subsidiaries has, with regard to any assets or
property held, acquired or to be acquired by any of them, filed
a consent to the application of Section 341 (f) of the Code.
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(b) For purposes of this Agreement, the term
"Taxes" shall mean all taxes, including, without limitation,
income, gross receipts, excise, property, sales, withholding,
social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees
and charges, windfall profits, severance, customs, import,
export, employment or similar taxes, charges, fees, levies or
other assessments imposed by the United States, or any state,
local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined
or any other basis, and such term shall include any interest,
fines, penalties or additional amounts and any interest in
respect of any additions, fines or penalties attributable or
imposed or with respect to any such taxes, charges, fees,
levies or other assessments.
(c) For purposes of this Agreement, the term
"Tax Return" shall mean any return, report or other document or
information required to be supplied to a taxing authority in
connection with Taxes.
Section 4.13 Employee Benefit Plans; ERISA. (a)
Except as set forth in the Parent SEC Reports, at the date
hereof, Parent and its subsidiaries do not maintain or
contribute to any material employee benefit plans, programs,
arrangements or practices (such plans, programs, arrangements
or practices of Parent and its subsidiaries being referred to
as the "Parent Plans", including employee benefit plans within
the meaning set forth in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
or other similar material arrangements for the provision of
benefits (excluding any "Multi-employer Plan" within the
meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the meaning of Section 413(c) of the Code). The Parent
Disclosure Schedule lists all Multi-employer Plans and Multiple
Employer Plans which any of Parent or its subsidiaries
maintains or to which any of them makes contributions. Neither
Parent nor its subsidiaries has any obligation to create any
additional such plan or to amend any such plan so as to
increase benefits thereunder, except as required under the
terms of the Parent Plans, under existing collective bargaining
agreements or to comply with applicable law.
(b) Except as disclosed in the Parent SEC Reports, (i) to
the knowledge of Parent and its subsidiaries, there have been
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no prohibited transactions within the meaning of Section 406 or
407 of ERISA or Section 4975 of the Code with respect to any of
the Parent Plans that could result in penalties, taxes or
liabilities which, singly or in the aggregate, could have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Parent and its subsidiaries, taken as a whole,
(ii) except for premiums due, there is no outstanding material
liability, whether measured alone or in the aggregate, under
Title IV of ERISA with respect to any of the Parent Plans,
(iii) to the knowledge of Parent and its subsidiaries, neither
the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of
the Parent Plans subject to Title IV of ERISA other than in a
"standard termination " described in Section 4041 (b) of ERISA,
(iv) none of the Parent Plans has incurred any "accumulated
funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last
day of the most recent fiscal year of each of the Parent Plans
ended prior to the date of this Agreement, (v) the current
present value of all projected benefit obligations under each
of the Parent Plans which is subject to Title IV of ERISA did
not, as of its latest valuation date, exceed the then current
value of the assets of such plan allocable to such benefit
liabilities by more than the amount, if any, disclosed in the
Parent SEC Reports as of [April 30, 1998], based upon
reasonable actuarial assumptions currently utilized for such
Parent Plan, (vi) to the knowledge of Parent and its
subsidiaries, each of the Parent Plans has been operated and
administered in all material respects in accordance with
applicable, laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Parent
Plans which is intended to be "qualified" within the meaning of
Section 401 (a) of the Code has been determined by the Internal
Revenue Service to be so qualified, in form, and such
determination has not been modified, revoked or limited by
failure to satisfy any condition thereof or by a subsequent
amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to
maintain the "qualified" status of such Parent Plans, and the
period for making any such necessary retroactive amendments has
not expired, (viii) with respect to Multi-employer Plans,
neither Parent nor any of its subsidiaries has made or suffered
a "complete withdrawal" or a "partial withdrawal," as such
terms are respectively defined in Sections 4203, 4204 and 4205
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of ERISA and, to the knowledge of Parent and its subsidiaries,
no event has occurred or is expected to occur which presents a
material risk of a complete or partial withdrawal under said
Sections 4203, 4204 and 4205, (ix) to the knowledge of Parent
and its subsidiaries, there are no material pending, threatened
or anticipated claims involving any of the Parent Plans other
than claims for benefits in the ordinary course, and (x) Parent
and its subsidiaries have no current material liability for
plan termination or withdrawal (complete or partial) under
Title IV of ERISA based on any plan to which any entity that
would be deemed one employer with Parent and its subsidiaries
under Section 4001 of ERISA or Section 414 of the Code
contributed during the period of time covered by the applicable
statute of limitations (a "Parent Controlled Group Plan"), and
Parent and its subsidiaries do not reasonably anticipate that
any such liability will be asserted against Parent or any of
its subsidiaries. None of the Parent Controlled Group Plans
has an "accumulated funding deficiency" (as defined in Section
302 of ERISA and Section 412 of the Code).
(c) The Parent SEC Reports contain a true and complete
summary or list of or otherwise describe all material
employment contracts and other employee benefit arrangements
with "change of control" or similar provisions and all
severance agreements with executive officers.
Section 4.14 Labor Controversies. Except as set
forth in the Parent SEC Reports, (a) there are no significant
controversies pending or, to the knowledge of Parent,
threatened between Parent or its subsidiaries and any
representatives of any of their employees, (b) to the knowledge
of Parent, there are no material organizational efforts
presently being made involving any of the presently unorganized
employees of Parent and its subsidiaries except for such
controversies and organizational efforts which singly or in the
aggregate, could not reasonably be expected to materially and
adversely affect the business, operations, properties, assets,
condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole and (c) none of
the employees of Parent and its subsidiaries is represented by
a labor union.
Section 4.15 Environmental Matters. (a) Except as
set forth in the Parent SEC Reports, or the PM&S Disclosure
Schedule, (i) Parent and its subsidiaries have conducted their
respective businesses in compliance with all applicable
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Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as
presently conducted, (ii) none of the properties owned by
Parent or any of its subsidiaries contain any Hazardous
Substance as a result of any activity of Parent or any of its
subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither Parent nor any of
its subsidiaries has received any notices, demand letters or
requests for information from any federal, state, local or
foreign governmental entity or third party indicating that
Parent or any of its subsidiaries may be in violation of, or
liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no
civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or
threatened, against Parent or any of its subsidiaries relating
to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be
filed, by Parent or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual
violation of any Environmental Law, (vi) no Hazardous Substance
has been disposed of, released or transported in violation of
any applicable Environmental Law from any properties owned by
Parent or any of its subsidiaries as a result of any activity
of Parent or any of its subsidiaries during the time such
properties were owned, leased or operated by Parent or any of
its subsidiaries, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other
analyses regarding compliance or noncompliance with any
applicable Environmental Law conducted by or which are in the
possession of Parent or its subsidiaries relating to the
activities of Parent or its subsidiaries which have not been
delivered to Parent prior to the date hereof, (viii) there are
no underground storage tanks on, in or under any properties
owned by Parent or any of its subsidiaries and no underground
storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased
or operated by Parent or any of its subsidiaries, (ix) there is
no asbestos or asbestos containing material present in any of
the properties owned by Parent and its subsidiaries, and no
asbestos has been removed from any of such properties during
the time such properties were owned, leased or operated by
Parent or any of its subsidiaries, and (x) neither Parent, its
subsidiaries nor any of their respective properties are subject
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to any material liabilities or expenditures (fixed or
contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim
asserted or arising under any Environmental Law, except for
violations of the foregoing clauses (i) through (x) that,
singly or in the aggregate, would not reasonably be expected to
have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Parent and its subsidiaries considered as one
enterprise.
(b) As used herein, "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule,
regulation, code, license. permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating
to (x) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the
exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The
term "Environmental Law" includes, without limitation, (i) the
federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the federal Water Pollution Control Act of
1972, the federal Clean Air Act, the federal Clean Water Act,
the federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto),
the federal Solid Waste Disposal Act and the federal Toxic
Substances Control Act, the federal Insecticide, Fungicide and
Rodenticide Act, and the federal Occupational Safety and Health
Act of 1970, each as amended and as in effect on the Closing
Date, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that
may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of
or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any
substance presently or hereafter listed, defined, designated or
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classified as hazardous, toxic, radioactive, or dangerous, or
otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated
by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
Section 4.16 Non-competition Agreements. Neither
Parent nor any subsidiary of Parent is a party to any agreement
which purports to restrict or prohibit in any material respect
any of them from, directly or indirectly, engaging in any
business involving any other material business currently
engaged in by the Parent or the Company, or any corporations
affiliated with either of them. None of Parent's officers,
directors or key employees is a party to any agreement which,
by virtue of such person's relationship with Parent, restricts
in any material respect Parent or any subsidiary of Parent
from, directly or indirectly, engaging in any material
businesses currently engaged in by the Parent or the Company or
any corporations affiliated with either of them.
Section 4.17 Title to Assets. Parent and each of
its subsidiaries has good and marketable title in fee simple to
all its real property and good title to all its leasehold
interests and other properties as reflected in the most recent
balance sheet included in the Parent Financial Statements,
except for such properties and assets that have been disposed
of in the ordinary course of business since the date of such
balance sheet, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except (i)
the lien for current taxes, payments of which are not yet
delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character,
amount or extent and do not materially detract from the value
or interfere with the present use of the property subject
thereto or affected thereby, or otherwise materially impair the
Parent's business operations (in the manner presently carried
on by the Parent), or (iii) as disclosed in the Parent SEC
Reports, and except for such matters which, singly or in the
aggregate, could not reasonably be expected to materially and
adversely affect the business, operations, properties, assets,
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condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole. All leases
under which Parent or any of its subsidiaries leases any real
or personal property are in good standing, valid and effective
in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event which
with notice or lapse of time or both would become a default
other than defaults under such leases which in the aggregate
will not materially and adversely affect the Parent and its
subsidiaries, taken as a whole.
Section 4.18 Pooling of Interests. None of the
Parent, Merger Subsidiary or, to their knowledge, any of their
affiliates has taken or agreed to take any action that would
prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of Section 368 (a) of the Code
or (b) being treated for financial accounting purposes as a
"pooling of interests" in accordance with generally accepted
accounting principals and the rules, regulations and
interpretations of the SEC (a "Pooling Transaction").
Section 4.19 Parent Shareholders' Approval. The
affirmative vote of shareholders of Parent required for
approval and adoption of this Agreement and the Merger is a
majority of the shares of Parent Common Stock present in person
or by proxy at a meeting of such shareholders and entitled to
vote thereat.
Section 4.20 Brokers and Finders. Except for the
fees and expenses payable by Buyer to Oxford Mergers and
Acquisitions, Inc. ("Oxford"), which fees are reflected in its
agreement with Parent (a copy of which has been delivered to
the Company), Parent has not entered into any contract,
arrangement or understanding with any person or firm which may
result in the obligation of Parent to pay any finders fees,
brokerage or agent commissions or other like payments in
connection with the transactions contemplated hereby. Except
for the fees and expenses paid or payable to Oxford, there is
no claim for payment by Parent of payments in any investment
banking fees, finder's fees, brokerage or agent commissions or
other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions
contemplated hereby.
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Section 4.21 Opinion of Financial Advisor. The
financial advisor of Parent, Crowell, Weedon & Co., has
rendered a written opinion to Parent to the effect that the
Exchange Ratio is fair from a financial point of view to the
Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent and
Subsidiary that, except as set forth in the disclosure schedule
dated as of the date hereof and signed by an authorized officer
of the Company (the "Company Disclosure Schedule"), each of
which exceptions shall specifically identify the relevant
Section hereof to which it relates:
Section 5.1 Organization and Qualification. The
Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and
has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its
business as it is now being conducted. The Company is
qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so
qualified and in good standing will not, when taken together
with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole. True, accurate and
complete copies of the Company's Articles of Incorporation and
By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been
delivered to Parent.
Section 5.2 Capitalization. (a) The authorized
capital stock of the Company consists of 3,000,000 shares of
Company Common Stock and 1,000,000 shares of preferred stock.
As of August 21, 1998, 887,780 shares of Company Common Stock
and no shares of preferred stock are issued and outstanding.
All of such issued and outstanding shares are validly issued
and are fully paid, nonassessable and free of preemptive
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rights. No subsidiary of the Company holds any shares of the
capital stock of the Company.
(b) Except as set forth in the Company's Disclosure
Schedule, as of the date hereof there were no outstanding
subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also
including any rights plan or other anti-takeover agreement
obligating the Company or any subsidiary of the Company to
issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or
obligating the Company or any subsidiary of the Company to
grant, extend or enter into any such agreement or commitment.
There are no voting trusts, proxies or other agreements or
understandings to which the Company or any subsidiary of the
Company is a party or is bound with respect to the voting of
any shares of capital stock of the Company other than any
voting agreements executed in connection with this Agreement.
Section 5.3 Subsidiaries. Each direct and
indirect corporate subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted.
Each subsidiary of the Company is qualified to do business, and
is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good
standing will not, when taken together with all such other
failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries,
taken as a whole. All of the outstanding shares of capital
stock of each corporate subsidiary of the Company are validly
issued, fully paid, nonassessable and free of preemptive rights
and are owned directly or indirectly by the Company free and
clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever. There
are no subscriptions, options, warrants, rights, calls,
contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights
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with respect to any shares of capital stock of any corporate
subsidiary of the Company, including any right of conversion or
exchange under any outstanding security, instrument or
agreement.
Section 5.4 Authority; Non-Contravention;
Approvals. (a) The Company has full corporate power and
authority to enter into this Agreement and, subject to the
Company Shareholders' Approval (as defined in Section 7.3(a))
and the Company Required Statutory Approvals (as defined in
Section 5.4(c)), to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of
Directors of the Company, and no other corporate proceedings on
the part of the Company are necessary to authorize the
execution and delivery of this Agreement or, except for the
Company Shareholders' Approval, the consummation by the Company
of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company, and, assuming
the due authorization, execution and delivery hereof by Parent
and Subsidiary, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except that such enforcement may be
subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws afflicting or relating to
enforcement of creditors' rights generally and (b) general
equitable principles. Without limitation of the foregoing,
each of the covenants and obligations of the Company set forth
in Sections 6.1, 6.5, 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, and 7.12 is
valid, legally binding and enforceable notwithstanding the
absence of the Company Shareholders' Approval.
(b) The execution and delivery of this Agreement by the
Company do not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of
termination or acceleration under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company or any of its
subsidiaries under any of the terms, conditions or provisions
of (i) the respective charters or by-laws of the Company or any
of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to
the Company or any of its subsidiaries or any of their
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respective properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or
agreement of any kind to which the Company or any of its
subsidiaries is now a party or by which the Company or any of
its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by the
Company of the transactions contemplated hereby will not result
in any violation, conflict, breach, termination, acceleration
or creation of liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to
obtaining (prior to the Effective Time) the Company Required
Statutory Approvals and the Company Shareholder's Approval and
(y) in the case of the terms, conditions or provisions
described in clause (iii) above, to obtaining (prior to the
Effective Time) consents required from commercial lenders,
lessors or other third parties. Excluded from the foregoing
sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and
(iii) of the first sentence of this paragraph (b), are such
violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, have
a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Company and its subsidiaries, taken as a
whole.
(c) Except for (i) the making of the Merger Filing with
the Secretary of State of the State of California in connection
with the Merger and (ii) any required filings with or approvals
from applicable state environmental authorities, public service
commissions and public utility commissions (the filings and
approvals referred to in clauses (i) and (ii) are collectively
referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and
delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have
a material adverse effect on the business, operations,
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properties, assets, condition (financial or other) or results
of operations of the Company and its subsidiaries, taken as a
whole.
Section 5.5 Financial Statements. The Company has
previously delivered to Parent true and complete copies of the
financial statements of the Company (the "Company Financial
Statements") consisting of (i) audited balance sheets of the
Company as of December 31, 1995, 1996 and 1997 and the
unaudited balance sheet at May 31, 1998 (the "Recent Balance
Sheet") and (ii) audited statements of income for the fiscal
years ended December 31, 1995, 1996 and 1997 and the unaudited
three months ended May 31, 1998 (including the notes and
schedules contained therein or annexed thereto). All of such
financial statements (including all notes and schedules
contained therein or annexed thereto) are true, complete and
accurate and have been prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP")
and with the books and records of the Company, and fairly
present the assets, liabilities and financial position, the
results of operations and cash flows of the Company as of the
dates and for the years and periods indicated. There are no
liabilities or obligations of any nature, whether absolute,
contingent or otherwise, and whether due or to become due, that
are not reflected or reserved against in the Company Financial
Statements, except (i) any reserves set forth in the Company
Disclosure Schedule (ii) those incurred in the normal cause of
business since May 31, 1998 or (iii) those that are not
required by GAAP to be so reflected or reserved against.
Section 5.6 Absence of Undisclosed Liabilities.
Neither the Company nor any of its subsidiaries had at May 31,
1998, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except (a) liabilities, obligations or
contingencies (i) which are accrued or reserved against in the
Company Financial statements or reflected in the notes thereto
or (ii) which were incurred after May 31, 1998, and were
incurred in the ordinary course of business and consistent with
past practices, (b) liabilities, obligations or contingencies
which (i) would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company and its subsidiaries, taken as a whole, or (ii) have
been discharged or paid in full prior to the date hereof, and
(c) liabilities and obligations which are of a nature not
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required to be reflected in the consolidated financial
statements of the Company and its subsidiaries prepared in
accordance with generally accepted accounting principles
consistently applied and which were incurred in the ordinary
course of business.
Section 5.7 Absence of Certain Changes or Events.
Since May 31, 1998, there not been any material adverse change
in the business, operations, properties, assets, liabilities,
condition (financial or other) or results of operations of the
Company and its subsidiaries, taken as a whole.
Section 5.8 Litigation. There are no claims,
suits, actions or proceedings pending or, to the knowledge of
the Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the
consummation of the Merger or which could reasonably be
expected, either alone or in the aggregate with all such
claims, actions or proceedings, to materially and adversely
affect the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole. Neither the Company
nor any of its subsidiaries is subject to any judgment, decree,
injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority,
or any arbitrator which prohibits or restricts the consummation
of the transactions contemplated hereby or would have any
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Company and its subsidiaries, taken as a
whole.
Section 5.9 Registration Statement and Proxy
Statement. None of the information to be supplied by the
Company or its subsidiaries for inclusion in (a) the
Registration Statement or (b) the Proxy Statement will, in the
case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the
time of the meeting of shareholders of Parent to be held in
connection with the transactions contemplated by this Agreement
or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time
of the meeting of the shareholders of Parent, contain any
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untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 5.10 No Violation of Law. Neither the
Company nor any of its subsidiaries is in violation of or has
been given notice or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment
(including, without limitations any applicable environmental
law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the
aggregate, could not reasonably be expected to have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company and its subsidiaries, taken as a whole. Except as set
forth in the Company Disclosure Statement, as of the date of
this Agreement, no investigation or review by any governmental
regulatory body or authority is pending or to the knowledge of
the Company threatened, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a material adverse
effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company and its subsidiaries taken as a whole. The Company and
its subsidiaries have all permits, licenses, franchises,
variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct
their businesses as presently conducted (collectively, the
"Company Permits'), except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and
approvals, the absence of which, alone or in the aggregate,
would not have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries,
taken as a whole. The Company and its subsidiaries are not in
violation of the terms of any Company Permit, except for delays
in filing reports or violations which, alone or in the
aggregate, would not have a material adverse effect on the
business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the Company
and its subsidiaries, taken as a whole.
Section 5.11 Compliance with Agreements. The
Company and each of its subsidiaries are not in breach or
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violation of or in default in the performance or observance of
any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a
default under, (a) the respective charters, by-laws or similar
organizational instruments of the Company or any of its
subsidiaries or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which the Company or
any of its subsidiaries is a party or by which any of them is
bound or to which any of their property is subject, which
breaches, violations and defaults, in the case of clause (b) of
this Section 5.11, would have, in the aggregate, a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company and its subsidiaries, taken as a whole.
Section 5.12 Taxes. The Company and its
subsidiaries have (i) duly filed with the appropriate
governmental authorities all Tax Returns required to be filed
by them for all periods ending on or prior to the Effective
Time, other than those Tax Returns the failure of which to file
would not have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries,
taken as a whole, and such Tax Returns are true, correct and
complete in all material respects, and (ii) duly paid in full
or made adequate provision for the payment of all Taxes for all
periods ending at or prior to the Effective Time. The
liabilities and reserves for Taxes reflected in the Recent
Balance Sheet are adequate to cover all Taxes for all periods
ending at or prior to the Effective Time and there are no
material liens for Taxes upon any property or asset of the
Company or any subsidiary thereof, except for liens for Taxes
not yet due. There are no unresolved issues of law or fact
arising out of a notice of deficiency, proposed deficiency or
assessment from the IRS or any other governmental taxing
authority with respect to Taxes of the Company or any of its
subsidiaries which, if decided adversely, singly or in the
aggregate, would have a material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of the Company and its
subsidiaries, taken as a whole. Neither the Company nor any of
its subsidiaries is a party to any agreement providing for the
allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of
Company. Neither the Company nor any of its corporate
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subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to
the application of Section 341 (f) of the Code.
Section 5.13 Employee Benefit Plans; ERISA. (a)
Except as set forth in the Company Disclosure Schedule, at the
date hereof, the Company and its subsidiaries do not maintain
or contribute to any material employee benefit plans, programs,
arrangements and practices (such plans, programs, arrangements
and practices of the Company and its subsidiaries being
referred to as the "Company Plans"), including employee benefit
plans within the meaning set forth in Section 3(3) of ERISA, or
other similar material arrangements for the provision of
benefits (excluding any "Multi-employer Plan" within the
meaning of Section 3 (37) of ERISA or a "Multiple Employer Plan
" within the meaning of Section 413 (c) of the Code). The
Company Disclosure Schedule lists all Multi-employer Plans and
Multiple Employer Plans which any of the Company or its
subsidiaries maintains or to which any of them makes
contributions. Neither the Company nor its subsidiaries has
any obligation to create any additional such plan or to amend
any such plan so as to increase benefits thereunder, except as
required under the terms of the Company Plans, under existing
collective bargaining agreements or to comply with applicable
law.
(b) Except as set forth in the Company Disclosure
Schedule, (i) there have been no prohibited transactions within
the meaning of Section 406 or 407 of ERISA or Section 4975 of
the Code with respect to any of the Company Plans that could
result in penalties, taxes or liabilities which, singly or in
the aggregate, could have a material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of the Company and its
subsidiaries, taken as a whole, (ii) except for premiums due,
there is no outstanding material liability, whether measured
alone or in the aggregate, under Title IV of ERISA with respect
to any of the Company Plans, (iii) neither the Pension Benefit
Guaranty Corporation nor any plan administrator has instituted
proceedings to terminate any of the Company Plans subject to
Title IV of ERISA other than in a "standard termination "
described in Section 4041 (b) of ERISA, (iv) none of the
Company Plans has incurred any "accumulated funding deficiency"
(as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the most
recent fiscal year of each of the Company Plans ended prior to
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the date of this Agreement, (v) the current present value of
all projected benefit obligations under each of the Company
Plans which is subject to Title IV of ERISA did not, as of its
latest valuation date, exceed the then current value of the
assets of such plan allocable to such benefit liabilities by
more than the amount, if any, disclosed in the Company
Financial Statements as of [April 30, 1998], based upon
reasonable actuarial assumptions currently utilized for such
Company Plan, (vi) each of the Company Plans has been operated
and administered in all respects in accordance with applicable
laws during the period of time covered by the applicable
statute of limitations, (vii) each of the Company Plans which
is intended to be "qualified" within the meaning of Section 401
(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and such determination has not been
modified, revoked or limited by failure to satisfy any
condition thereof or by a subsequent amendment thereto or a
failure to amend, except that it may be necessary to make
additional amendments retroactively to maintain the "qualified"
status of such Company Plans, and the period for making any
such necessary retroactive amendments has not expired, (viii)
with respect to Multi-employer Plans, neither the Company nor
any of its subsidiaries has, made or suffered a "complete
withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA
and, to the best knowledge of the Company and its subsidiaries,
no event has occurred or is expected to occur which presents a
material risk of a complete or partial withdrawal under said
Sections 4203, 4204 and 4205, (ix) there are no material
pending, or to the best knowledge of the Company and its
subsidiaries, threatened or anticipated claims involving any of
the Company Plans other than claims for benefits in the
ordinary course, and (x) the Company and its subsidiaries have
no current liability, whether measured alone or in the
aggregate, for plan termination or withdrawal (complete or
partial) under Title IV of ERISA based on any plan to which any
entity that would be deemed one employer with the Company and
its subsidiaries under Section 4001 of ERISA or Section 414 of
the Code contributed during the period of time covered by the
applicable statute of limitations (the "Company Controlled
Group Plans"), and the Company and its subsidiaries do not
reasonably anticipate that any such liability will be asserted
against the Company or any of its subsidiaries. None of the
Company Controlled Group Plans has an "accumulated funding
deficiency" (as defined in Section 302 of ERISA and 412 of the
Code).
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(c) The Company Disclosure Schedule contains a true and
complete summary or list of or otherwise describes all material
employment contracts and other employee benefit arrangements
with "change of control" or similar provisions and all
severance agreements with executive officers.
(d) There are no agreements which will or may provide
payments to any officer, employee, shareholder, or highly
compensated individual which will be "parachute payments" under
Code Section 280 that are nondeductible to the Company or
subject to tax under Code Section 4999 for which the Company or
any ERISA Affiliate would have withholding liability.
Section 5.14 Labor Controversies. Except as set
forth in the Company Disclosure Schedule, (a) there are no
significant controversies pending or, to the knowledge of the
Company, threatened between the Company or its subsidiaries and
any representatives of any of their employees, (b) to the
knowledge of the Company, there are no material organizational
efforts presently being made involving any of the presently
unorganized employees of the Company or its subsidiaries,
except for such controversies and organizational efforts,
which, singly or in the aggregate, could not reasonably be
expected to materially and adversely affect the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries,
taken as a whole and (c) none of the employees of the Company
and its subsidiaries is represented by a labor union.
Section 5.15 Environmental Matters. Except as set
forth in the Company Disclosure Schedule, (i) the Company and
its subsidiaries have conducted their respective businesses in
compliance with all applicable Environmental Laws, including,
without limitation, having all permits, licenses and other
approvals and authorizations necessary for the operation of
their respective businesses as presently conducted, (ii) none
of the properties owned by the Company or any of its
subsidiaries contain any Hazardous Substance as a result of any
activity of the Company or any of its subsidiaries in amounts
exceeding the levels permitted by applicable Environmental
Laws, (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for
information from any federal, state, local or foreign
governmental entity or third party indicating that the Company
or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership
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or operation of their businesses, (iv) there are no civil,
criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings pending or threatened,
against the Company or any of its subsidiaries relating to any
violation, or alleged violation, of any Environmental Law, (v)
no reports have been filed, or are required to be filed, by the
Company or any of its subsidiaries concerning the release of
any Hazardous Substance or the threatened or actual violation
of any Environmental Law, (vi) no Hazardous Substance has been
disposed of, released or transported in violation of any
applicable Environmental Law from any properties owned by the
Company or any of its subsidiaries as a result of any activity
of the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any
of its subsidiaries, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other
analyses regarding compliance or noncompliance with any
applicable Environmental Law conducted by or which are in the
possession of the Company or its subsidiaries relating to the
activities of the Company or its subsidiaries which have not
been delivered to Parent prior to the date hereof, (viii) there
are no underground storage tanks on, in or under any properties
owned by the Company or any of its subsidiaries and no
underground storage tanks have been closed or removed from any
of such properties during the time such properties were owned,
leased or operated by the Company or any of its subsidiaries,
(ix) there is no asbestos or asbestos containing material
present in any of the properties owned by the Company and its
subsidiaries, and no asbestos has been removed from any of such
properties during the time such properties were owned, leased
or operated by the Company or any of its subsidiaries, and (x)
neither the Company, its subsidiaries nor any of their
respective properties are subject to any material liabilities
or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any
Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would
not reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company
and its subsidiaries considered as one enterprise.
Section 5.16 Non-competition Agreements. Neither
the Company nor any subsidiary of the Company is a party to any
agreement which purports to restrict or prohibit in any
material respect any of them from, directly or indirectly,
engaging in any business currently engaged in by the Parent or
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the Company, or any corporations affiliated with either of
them. None of the Company's officers, directors or key
employees is a party to any agreement which, by virtue of such
person's relationship with the Company, restricts in any
material respect the Company or any subsidiary of the Company
from, directly or indirectly, engaging in any of the businesses
described above.
Section 5.17 Title to Assets. The Company and each
of its subsidiaries has good and marketable title in fee simple
to all its real property and good title to all its leasehold
interests and other properties, as reflected in the most recent
balance sheet included in the Company Financial Statements,
except for properties and assets that have been disposed of in
the ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any nature whatsoever, except (i) the lien
of current taxes, payments of which are not yet delinquent,
(ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character,
amount or extent and do not materially detract from the value,
or interfere with the present use of the property subject
thereto or affected thereby, or otherwise materially impair the
Company's business operations (in the manner presently carried
on by the Company) or (iii) as disclosed in the Company
Disclosure Schedule, and except for such matters which, singly
or in the aggregate, could not reasonably be expected to
materially and adversely affect the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Company and its subsidiaries, taken as a
whole. All leases under which the Company leases any
substantial amount of real or personal property have been
delivered to Parent and are in good standing, valid and
effective in accordance with their respective terms, and there
is not, under any of such leases, any existing default or event
which with notice or lapse of time or both would become a
default other than defaults under such leases which in the
aggregate will not materially and adversely affect the
condition of the Company.
Section 5.18 Corporation Status. XXCAL has at all
times since the later of (i) its incorporation or (ii) December
31, 1987 validly and continuously existed as an S corporation
for federal and California income tax purposes, and XXCAL has
not for such purposes been the successor to any other
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corporation which has not validly and continuously so existed
as an S corporation.
Section 5.19 Pooling of Interests. Neither the
Company nor, to the knowledge of the Company, any of its
affiliates has taken or agreed to take any action that would
prevent the Merger from (a) constituting a reorganization
qualifying under the provisions of Section 368 (a) of the Code
or (b) being treated for financial accounting purposes as a
Pooling Transaction.
Section 5.20 Company Shareholders' Approval. The
affirmative vote of shareholders of the Company required for
approval and adoption of this Agreement and the Merger is a
majority of the shares of Company Common Stock present in
person or by proxy at a meeting of such shareholders and
entitled to vote thereat.
Section 5.21 Brokers and Finders. The Company has
not entered into any contract, arrangement or understanding
with any person or firm which may result in the obligation of
the Company to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the
transactions contemplated hereby. There is no claim for
payment by the Company of any investment banking fees, finder's
fees, brokerage or agent commissions or other like payments in
connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by the Company
Pending the Merger. Except as otherwise contemplated by this
Agreement or disclosed in the Company Disclosure Schedule,
after the date hereof and prior to the Closing Date or earlier,
termination of this Agreement, unless Parent shall otherwise
agree in writing, the Company shall, and shall cause its
subsidiaries, to:
(a) conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice;
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(b) not (i) amend or propose to amend their respective
charters or by-laws, (ii) split, combine or reclassify their
outstanding capital stock or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of dividends or
distributions by a wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, any additional shares of, or
any options, warrants or rights of any kind to acquire any
shares of their capital stock of any class or any debt or
equity securities convertible into or exchangeable for such
capital stock, except that Company may issue shares upon
exercise of options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business or (B) borrowings
to refinance existing indebtedness on terms which are
reasonably acceptable to Parent, (ii) redeem, purchase, acquire
or offer to purchase or acquire any shares of its capital stock
or any options, warrants or rights to acquire any of its
capital stock or any security convertible into or exchangeable
for its capital stock, (iii) take any action which would
jeopardize the treatment of the Merger as a Pooling Transaction
(iv) take or fail to take any action which action or failure to
take action would cause the Company or its shareholders (except
to the extent that any shareholders receive cash in lieu of
fractional shares) to recognize gain or loss for federal income
tax purposes as a result of the consummation of the Merger, (v)
make any acquisition of any assets or businesses other than
expenditures for fixed or capital assets in the ordinary course
of business and consistent with the Company's capital budget
disclosed in of the Company Disclosure Schedule, (vi) sell,
pledge, dispose of or encumber any assets or businesses other
than sales in the ordinary course of business, or (vii) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available
the services of their respective present officers and key
employees, and preserve the goodwill and business relationships
with customers and others having business relationships with
them;
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(f) subject to restrictions imposed by applicable law,
confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment, severance,
special pay arrangement with respect to termination of
employment or other similar arrangements or agreements with any
directors, officers or key employees, except in the ordinary
course and consistent with past practice; provided, however,
that the Company and its subsidiaries shall in no event enter
into any written employment agreement;
(h) not adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree, except
as required to comply with changes in applicable law; and
(i) use commercially reasonable efforts to maintain with
financially responsible insurance companies insurance on its
tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
Section 6.2 Conduct of Business by Parent and
Subsidiary Pending the Merger. Except as otherwise
contemplated by this Agreement, after the date hereof and prior
to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent
shall, and shall cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective
charters or by-laws, (ii) split, combine or reclassify (whether
by stock dividend or otherwise) their outstanding capital
stock, or (iii) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise,
except for the payment of (x) a cash dividend declarable
consistent with past practices, at the discretion of the Board
of Directors of Parent and (y) dividends or distributions by a
wholly-owned subsidiary of Parent;
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(c) not issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of, any additional shares of, or
any options, warrants or rights of any kind to acquire any
shares of their capital stock of any class or any debt or
equity securities convertible into or exchangeable for such
capital stock, except that (i) Parent may issue shares upon
conversion of convertible securities and exercise of options
outstanding on the date hereof, and (ii) Parent may issue
options (and shares upon exercise of such options) pursuant to
its employee stock option plans in effect on the date hereof in
the ordinary course of business and consistent with past
practices;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business, or (B)
borrowings to refinance existing indebtedness on terms which
are reasonably acceptable to the Company, or (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of
its capital stock or any options, warrants or rights to acquire
any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) not (A) take any
action which would jeopardize the treatment of the Merger as a
Pooling Transaction, or (B) take or fail to take any action
which action or failure to take action would cause Parent or
its shareholders (except to the extent that any shareholders
receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) make any acquisition of any
assets or businesses, except in the ordinary course of business
(v) sell, pledge, dispose of or encumber any assets or
businesses other than sales in the ordinary course of business
or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their
respective business organizations and goodwill, keep available
the services of their respective present officers and key
employees, and preserve the goodwill and business relationships
with customers and others having business relationships with
them;
(f) subject to restrictions imposed by applicable law,
confer on a regular and frequent basis with one or more
representatives of the Company to report operational matters of
materiality and the general status of ongoing operations; and
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(g) use commercially reasonable efforts to maintain
financially responsible insurance companies insurance on its
tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
Section 6.3 Control of the Company's Operations.
Nothing contained in this Agreement shall give to Parent,
directly or indirectly, rights to control or direct the
Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the
terms and conditions of this Agreement, complete control and
supervision of its operations.
Section 6.4 Control of Parent's Operations.
Nothing contained in this Agreement shall give to the Company,
directly or indirectly, rights to control or direct Parent's
operations prior to the Effective Time. Prior to the Effective
Time, Parent shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision
of its operations.
Section 6.5 Acquisition Transactions. (a) After
the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall
not permit any of its subsidiaries to, initiate, solicit,
negotiate, or provide confidential information to facilitate,
and the Company shall, and shall cause each of its subsidiaries
to, cause any officer, director or employee of, or any
attorney, accountant, investment banker, financial advisor or
other agent retained by it, not to initiate, solicit,
negotiate, or provide nonpublic or confidential information to
facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company
or any capital stock of the Company, whether by merger,
purchase of assets, tender offer or otherwise, whether for
cash, securities or any other consideration or combination
thereof (any such transactions being referred to herein as
"Acquisition Transactions").
(b) Notwithstanding the provisions of paragraph (a)
above, the Company may, in response to an Unsolicited written
proposal with respect to an Acquisition Transaction
("Acquisition Proposal"), furnish (subject to the execution of
a confidentiality agreement and standstill agreement containing
provisions substantially similar to the confidentiality and
standstill provisions of the Confidentiality Agreement, as
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hereinafter defined) confidential or non-public information
concerning its business, properties or assets to a financially
capable corporation, partnership, person or other entity or
group (a "Potential Acquirer") and negotiate with such
Potential Acquirer if (i) the Board of Directors of the Company
after consulting with one or more of its independent financial
advisors, concludes that such Acquisition Proposal (if
consummated pursuant to its terms) would result in a
transaction more favorable to the Company's shareholders than
the Merger and (ii) based upon advice of its outside legal
counsel, its board of directors determines in good faith that
the failure to provide such confidential or non-public
information to such Potential Acquirer would constitute a
breach of its fiduciary duty to its shareholders (any such
Acquisition Proposal meeting the conditions of clauses (i) and
(ii) being referred to as a "Superior Proposal.")
(c) The Company shall immediately notify Parent after
receipt of any Acquisition Proposal or any request for
nonpublic information relating to the Company or its
subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or
any subsidiary by any person or entity that informs the Board
of Directors of the Company or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such
notice to Parent shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and
the terms and conditions of such proposal, inquiry or contact.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. (a) The Company
and its subsidiaries shall afford to Parent and Merger
Subsidiary and their respective accountants, counsel,
financial advisors and other representatives (the "Parent
Representatives") and Parent and its subsidiaries shall afford
to the Company and its accountants, counsel, financial advisors
and other representatives (the "Company Representatives") full
access during normal business hours throughout the period prior
to the Effective Time to all of their respective properties,
books, contracts, commitments and records (including, but not
limited to, Tax Returns) and, during such period, shall furnish
promptly to one another (i) a copy of each report, schedule and
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other document filed or received by any of them pursuant to the
requirements of federal or state securities laws or filed by
any of them with the SEC in connection with the transactions
contemplated by this Agreement or which may have a material
effect on their respective businesses, properties or personnel
and (ii) such other information concerning their respective
businesses, properties and personnel as Parent or Merger
Subsidiary or the Company, as the case may be, shall
reasonably request; provided that no investigation pursuant to
this Section 7.1 shall amend or modify any representations or
warranties made herein or the conditions to the obligations of
the respective parties to consummate the Merger. Parent and
its subsidiaries shall hold and shall use their reasonable best
efforts to cause the Parent Representatives to hold, and the
Company and its subsidiaries shall hold and shall use their
reasonable best efforts to cause the Company Representatives to
hold, in strict confidence all non-public documents and
information furnished to Parent and Merger Subsidiary or to
the Company, as the case may be, in connection with the
transactions contemplated by this Agreement, except that (i)
Parent, Merger Subsidiary and the Company may disclose such
information as may be necessary in connection with seeking the
Parent Required Statutory Approvals and Parent Shareholders'
Approval, the Company Required Statutory Approvals and the
Company Shareholders' Approval and (ii) each of Parent, Merger
Subsidiary and the Company may disclose any information that it
is required by law or judicial or administrative order to
disclose.
(b) In the event that this Agreement is terminated in
accordance with its terms, each party shall promptly redeliver
to the other all non-public written material provided pursuant
to this Section 7.1 and shall not retain any copies, extracts
or other reproductions in whole or in part of such written
material. In such event, all documents, memoranda, notes and
other writings prepared by Parent or the Company to the extent
based on the information in such material shall be deleted or
destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and
representatives to the same extent delete or destroy their
documents, memoranda and notes), and such destruction (and
reasonable best efforts) shall be certified in writing by an
authorized officer supervising such destruction.
(c) The Company shall promptly advise Parent and Parent
shall promptly advise the Company in writing of any change or
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the occurrence of any event after the date of this Agreement
having, or which, insofar as can reasonably be foreseen, in the
future may have, any material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries or
Parent and its subsidiaries, as the case may be, taken as a
whole.
Section 7.2 Registration Statement and Proxy
Statement. Parent shall file with the SEC as soon as is
reasonably practicable after the date hereof the Proxy
Statement/Prospectus and shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC
as promptly as practicable. Parent shall also take any action
required to be taken under applicable state blue sky or
securities laws in connection with the issuance of Parent
Common Stock pursuant hereto. Parent and the Company shall
promptly furnish to each other all information, and take such
other actions, as may reasonably be requested in connection
with any action by any of them in connection with the preceding
sentence. The information provided and to be provided by
Parent and the Company, respectively, for use in the Proxy
Statement/Prospectus shall be true and correct in all material
respects without omission of any material fact which is
required to make such information not false or misleading as of
the date thereof and in light of the circumstances under which
given or made.
Section 7.3 Shareholders' Approvals. (a) The
Company shall, as promptly as practicable, submit this
Agreement and the transactions contemplated hereby for the
approval of its shareholders at a meeting of shareholders and,
subject to the fiduciary duties of the Board of Directors of
the Company under applicable law, shall use its reasonable best
efforts to obtain shareholder approval and adoption (the
"Company Shareholders' Approval") of this Agreement and the
transactions contemplated hereby. Such meeting of shareholders
shall be held as soon as practicable following the date upon
which the Registration Statement becomes effective. Subject to
the fiduciary duties of the Board of Directors of the Company
under applicable law, the Company shall, through its Board of
Directors, recommend to its shareholders approval of the
transactions contemplated by this Agreement.
(b) Parent shall, as promptly as practicable, submit this
Agreement and the transactions contemplated hereby for the
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approval of its shareholders at a meeting of shareholders and,
subject to the fiduciary duties of the Board of Directors of
Parent under applicable law, shall use its reasonable best
efforts to obtain shareholder approval and adoption (the
"Parent Shareholders' Approval") of this Agreement and the
transactions contemplated hereby. Such meeting of shareholders
shall be held as soon as practicable following the date on
which the Registration Statement becomes effective. Parent
shall, through its Board of Directors, but subject to the
fiduciary duties of the members thereof, (i) recommend to its
shareholders approval of the transactions contemplated by this
Agreement and (ii) authorize and cause an officer of Parent to
vote Parent's shares of Merger Subsidiary Common Stock for
adoption and approval of this Agreement and the transactions
contemplated hereby and shall take all additional actions as
the sole shareholder of Merger Subsidiary necessary to adopt
and approve this Agreement and the transactions contemplated
hereby.
Section 7.4 Compliance with the Securities Act.
Parent and the Company shall each cause each principal
executive officer, each director and each other person who is
an "affiliate, " as that term is used in paragraphs (c) and (d)
of Rule 145 under the Securities Act, of Parent or the Company,
as the case may be, to deliver to Parent and the Company on or
prior to the Effective Time a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to
sell, sell or otherwise dispose of any shares of Parent Common
Stock issued in the Merger, except, in each case, pursuant to
an effective registration statement or in compliance with Rule
145, as amended from time to time, or in a transaction which,
in the opinion of legal counsel satisfactory to Parent, is
exempt from the registration requirements of the Securities Act
and, in any case, until after the results covering 30 days of
post-Merger combined operations of Parent and the Company have
been filed with the SEC, sent to shareholders of Parent or
otherwise publicly issued.
Section 7.5 Listing of Shares. Parent shall use
its reasonable best efforts to effect, at or before the
Effective Time, authorization for listing on the Nasdaq
National Market ("Nasdaq"), upon official notice of issuance,
of the shares of Parent Common Stock to be issued pursuant to
the Merger.
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Section 7.6 Expenses and Fees. (a) All costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such expenses. Expenses incurred in connection with
printing and filing the Proxy Statement/Prospectus shall be
paid by Parent.
(b) The Company agrees to pay to an amount equal to
Parent's direct out-of-pocket expenses, including, without
limitation, attorneys and accountants fees and costs, incurred
in connection with the Merger; (i) if the Company terminates
this Agreement pursuant to clause (iii) of Section 9.1 (a); or
(ii) if Parent terminates this Agreement pursuant to clause
(iv) of Section 9.1 (b).
(c) Parent agrees to pay to the Company an amount equal
to the Company's direct out-of-pocket expenses, including,
without limitation, attorneys fees and accountants fees and
costs, incurred in connection with the Merger if the Company
terminates this Agreement pursuant to clause (iv) of Section
9.1 (a).
Section 7.7 Agreement to Cooperate. (a) Subject to
the terms and conditions herein provided, each of the parties
hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary or appropriate waivers,
consents or approvals of third parties required in order to
preserve material contractual relationships of the Company and
its subsidiaries, all necessary or appropriate waivers,
consents and approvals and SEC "no-action" letters to effect
all necessary registrations, filings and submissions and to
lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as
possible), subject, however, to the requisite votes of the
shareholders and boards of directors of the Company and Parent.
(b) Each of the Company, Parent and Merger Subsidiary
agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly
remedy, (i) the occurrence or failure to occur or the impending
or threatened occurrence or failure to occur, of any event
which occurrence or failure to occur would be likely to cause
any of its representations or warranties in this Agreement to
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be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time and (ii) any
material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 7.7 shall not limit or
otherwise affect the remedies available hereunder to the party
receiving such notice.
(c) In the event any litigation is commenced by any
person or entity relating to the transactions contemplated by
this Agreement, including any Acquisition Transaction, each
party shall have the right, at its own expense, to participate
therein, and neither party will settle any such litigation
without the consent of the other party, which consent will not
be unreasonably withheld, provided, however, if the Merger has
not been effected prior to December 31, 1998, this paragraph
shall be of no further force or effect.
Section 7.8 Public Statements. The parties shall
consult with each other prior to issuing any press release or
any written public statement with respect to this Agreement or
the transactions contemplated hereby and shall not issue any
such press release or written public statement prior to such
consultation.
Section 7.9 Option Plans. Prior to the Effective
Time, the Company and Parent shall take such action as may be
necessary to cause each unexpired and unexercised option (each
a "Company Option") to be automatically converted at the
Effective Time into an option (each a "Parent Option") to
purchase a number of shares of Parent Common Stock equal to the
number of shares of Company Common Stock that could have been
purchased under the Company Option multiplied by the Exchange
Ratio, at a price per share of Parent Common Stock equal to the
option exercise price determined pursuant to the Company Option
divided by the Exchange Ratio. At the Effective Time, all
references in the stock option agreements to the Company shall
be deemed to refer to Parent. Parent shall assume all of the
Company's obligations with respect to Company Options as set
forth in the Disclosure Schedule, as so amended and shall from
and after the Effective Time, make available for issuance upon
exercise of the Company Options all shares of Parent Common
Stock covered thereby and amend its Registration Statement on
Form S-8 to cover the additional shares of Parent Common Stock
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subject to Parent Options granted in replacement of Company
Options.
Section 7.10 Directors' and Officers'
Indemnification. (a) The indemnification provisions of the
Articles of Incorporation of the Surviving Corporation as in
effect at the Effective Time shall not be amended, repealed or
otherwise modified for a period of two years from the Effective
Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were
directors, officers, employees or agents of the Company, unless
such modification is required by law.
(b) After the Effective Time, each of Parent and the
Surviving Corporation shall, to the fullest extent permitted
under applicable law, indemnify and hold harmless, each present
and former director, officer, employee and agent of the Company
or any of its subsidiaries (each, together with such persons,
heirs, executors or administrators, an "indemnified Party" and
collectively, the "indemnified Parties") against any costs or
expenses (including attorneys fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of, relating to or in connection
with any action or omission occurring prior to the Effective
Time (including, without limitation, acts or omissions in
connection with such persons serving as an officer, director or
other fiduciary in any entity if such service was at the
request or for the benefit of the Company) or arising out of or
pertaining to the transactions contemplated by this Agreement.
In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective
Time), (i) the Company or Parent and the Surviving Corporation,
as the case may be, shall pay the reasonable fees and expenses
of counsel selected by the indemnified Parties, which counsel
shall be reasonably satisfactory to the Parent and the
Surviving Corporation, promptly after statements therefor are
received, (ii) the Parent and the Surviving Corporation will
cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an
indemnified Party's conduct complies with the standards set
forth under the CCC and the Parent's or the Surviving
Corporation's respective charters or By-Laws shall be made by
independent legal counsel acceptable to the Parent or the
Surviving Corporation, as the case may be, and the indemnified
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Party, provided, however, that neither Parent nor the Surviving
Corporation shall be liable for any settlement effected without
its written consent (which consent shall not be unreasonably
withheld).
(c) In the event the Surviving Corporation or Parent or
any of their successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties
and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of
the Surviving Corporation or Parent shall assume the
obligations set forth in this Section 7.10.
Section 7.11 Corrections to the Proxy
Statement/Prospectus and Registration Statement. Prior to the
date of approval of the Merger by their respective
shareholders, each of the Company, Parent and Subsidiary shall
correct promptly any information provided by it to be used
specifically in the Proxy Statement/Prospectus and Registration
Statement that shall have become false or misleading in any
material respect and shall take all steps necessary to file
with the SEC and have declared effective or cleared by the SEC
any amendment or supplement to the Proxy Statement/Prospectus
or the Registration Statement so as to correct the same and to
cause the Proxy Statement/Prospectus as so corrected to be
disseminated to the shareholders of Parent, to the extent
required by applicable law.
Section 7.12 Effect on Accounting Treatment. Each
of the parties hereto agrees that, notwithstanding anything to
the contrary contained in the Agreement, nothing contained in
or contemplated by this Agreement shall require any of the
parties hereto to take any action which would jeopardize the
treatment of the Merger as a pooling of interests under APB No.
16.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation
to Effect the Merger. The respective obligations of each party
to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
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<PAGE>
(a) this Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite
vote of the shareholders of the Parent under applicable law and
in accordance with the rules of the Nasdaq National Market;
(b) the shares of Parent Common Stock issuable in the
Merger shall have been authorized for listing on the Nasdaq
National Market upon official notice of issuance;
(c) the Registration Statement shall have become
effective in accordance with the provisions of the Securities
Act, and no stop order suspending such effectiveness shall have
been issued and remain in effect and no proceeding for that
purpose shall have been instituted by the SEC or any state
regulatory authorities;
(d) no preliminary or permanent injunction or other order
or decree by any federal or state court which prevents the
consummation of the Merger shall have been issued and remain in
effect (each party agreeing to use its reasonable efforts to
have any such injunction, order or decree lifted);
(e) no action shall have been taken, and no statute, rule
or regulation shall have been enacted, by any state or federal
government or governmental agency in the United States which
would prevent the consummation of the Merger or make the
consummation of the Merger illegal;
(f) all governmental waivers, consents, orders and
approvals legally required for the consummation of the Merger
and the transactions contemplated hereby, and all consents from
lenders and other parties required to consummate the Merger,
shall have been obtained and be in effect at the Effective
Time;
(g) Ernst & Young, LLP, certified public accountants for
Parent, shall have delivered a letter, dated the Closing Date,
addressed to Parent, in form and substance reasonably
satisfactory to Parent, to the effect that the Merger will
qualify for a pooling of interests accounting treatment if
consummated in accordance with this Agreement; and
(h) Duitch, Franklin & Co LLP, certified public
accountants for the Company, shall have delivered a letter
dated the Closing Date, addressed to the Company, in form and
substance reasonably satisfactory to the Company, stating that
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<PAGE>
the Merger will qualify for a pooling of interests accounting
treatment if consummated in accordance with this Agreement.
(i) NTS and the holders, in the aggregate, of not less
than 95% of the outstanding shares of the Capital Stock of the
Company shall have executed an Indemnity Agreement in form and
substance reasonably satisfactory to Parent and the Company
providing for cross indemnities regarding warranties and
representations, covenants and agreements contained in this
Agreement and in the certificates to be delivered at Closing.
Section 8.2 Conditions to Obligation of the
Company to Effect the Merger. Unless waived by the Company,
the obligation of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) Parent and Merger Subsidiary shall have performed in
all material respects their agreements contained in this
Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of Parent and
Merger Subsidiary contained in this Agreement shall be true and
correct in all material respects on and as of the date made and
on and as of the Closing Date as if made at and as of such
date, and the Company shall have received a certificate of the
President and Chief Executive Officer or a Vice President of
Parent and of the President and Chief Executive Officer or a
Vice President of Merger Subsidiary to that effect;
(b) the Company shall have received an opinion of Foley,
Lardner, Weissberg & Aronson in form and substance reasonably
satisfactory to the Company, dated the Closing Date, to the
effect that the Company and holders of Company Common Stock
(except to the extent any shareholders receive cash in lieu of
fractional shares) will recognize no gain or loss for federal
income tax purposes as a result of consummation of the Merger;
(c) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have
occurred which have resulted in or constitute, a material
adverse change in the business, operations, properties, assets,
condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole; and
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(d) all governmental waivers, consents, orders, and
approvals legally required for the consummation of the Merger
and the transactions contemplated hereby shall have been
obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such
promulgations, would materially impair the value to Parent of
the Merger.
Section 8.3 Conditions to Obligations of Parent
and Merger Subsidiary to Effect the Merger. Unless waived by
Parent and Merger Subsidiary, the obligations of Parent and
Merger Subsidiary to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) the Company shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date and the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on
and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Parent shall have received a
Certificate of the President and Chief Executive Officer or of
a Vice President of the Company to that effect;
(b) Parent shall have received an opinion of Sheppard,
Mullin, Richter & Hampton LLP, in form and substance reasonably
satisfactory to Parent, dated the Closing Date, to the effect
that Parent and Merger Subsidiary will recognize no gain or
loss for federal income tax purposes as a result of
consummation of the Merger;
(c) the Affiliate Agreements required to be delivered to
Parent pursuant to Section 7.4 shall have been furnished as
required by Section 7.4;
(d) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have
occurred which have resulted in or constitute, a material
adverse change in the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company and its subsidiaries, taken as a whole; and
(e) all governmental waivers, consents, orders and
approvals legally required for the consummation of the Merger
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and the transactions contemplated hereby shall have been
obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such
negotiations, would materially impair the value to Parent of
the Merger.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date, whether
before or after approval by the shareholders of the Company or
Parent, as follows:
(a) The Company shall have the right to terminate this
Agreement:
(i) if the Merger is not completed by December 31, 1998
(provided that the right to terminate this Agreement under this
Section 9.1 (a) (i) shall not be available to the Company if
the Company is in material breach of any warranty or
representation or fails to perform in any material respect any
of its covenants in this Agreement and such breach or failure
has been the cause of or resulted in the failure of the Merger
to occur on or before such date);
(ii) if the Merger is enjoined by a final, unappealable
court order;
(iii) if (A) the Company receives an offer from any
third party (excluding any affiliate of the Company or any
group of which any affiliate of the Company is a member) with
respect to a merger, sale of substantial assets or other
business combination involving the Company, and (B) the
Company's Board of Directors determines, in good faith and
after consultation with an independent financial advisor, that
such offer constitutes a Superior Proposal and resolves to
accept such a Superior Proposal and (C) the Company shall have
given Parent five (5) days' prior written notice of its
intention to terminate pursuant to this provision, provided
that such termination shall not be effective until such time as
the payment required by Section 7.6(b) shall have been received
by Parent;
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(iv) if Parent (A) is in material breach of any warranty
or representation or fails to perform in any material respect
any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within 30 days
after notice of such default is given to Parent by the Company;
or
(v) if there shall be any statute, rule or regulation
enacted that would prevent the consummation of the merger or
make the consummation of the merger illegal.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1998
(provided that the right to terminate this Agreement under this
Section 9.1 (a) (i) shall not be available to the Parent if the
Parent is in material breach of any warranty or representation
or fails to perform in any material respect any of its
covenants in this Agreement and such breach or failure has been
the cause of or resulted in the failure of the Merger to occur
on or before such date);
(ii) if the Merger is enjoined by a final, unappealable
court order;
(iii) if the Board of Directors of the Company shall
have resolved to accept a Superior Proposal;
(iv) if the Company (A) is in material breach of any
warranty or representation or fails to perform in any material
respect any of its material covenants in this Agreement and (B)
does not cure such default in all material respects within 30
days after notice of such default is given to the Company by
Parent; or
(v) if there shall be any statute, rule or regulation
enacted that would prevent the consummation of the merger or
make the consummation of the merger illegal.
(c) As used in this Section 9.1, (i) "affiliate" has the
meaning assigned to it in Section 7.4 and (ii) "group" has the
meaning set forth in Section 13(d) of the Exchange Act and the
rules and regulations thereunder.
Section 9.2 Effect of Termination. In the event
of termination of this Agreement by either Parent or the
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Company pursuant to the provisions of Section 9.1, this
Agreement shall forthwith become void and there shall be no
further obligation on the part of the Company, Parent, Merger
Subsidiary or their respective officers or directors or
shareholders (except as set forth in this Section 9.2 and in
Sections 7.1 and 7.6, all of which shall survive the
termination). Nothing in this Section 9.2 shall relieve any
party from liability for any willful or intentional breach of
this Agreement.
Section 9.3 Amendment. This Agreement may not be
amended except by action taken by the parties' respective
Boards of Directors or duly authorized committees thereof and
then only by an instrument in writing signed on behalf of each
of the parties hereto and in compliance with applicable law.
Section 9.4 Waiver. At any time prior to the
Effective Time, the parties hereto may (a) extend the time for
the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension
or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations and
Warranties. All representations and warranties in this
Agreement shall not survive the Merger, and after effectiveness
of the Merger neither the Company, Parent, Merger Subsidiary or
their respective officers or directors shall have any further
obligation with respect thereto, except to the extent they may
otherwise expressly agree pursuant to a written agreement duly
executed by any of them.
Section 10.2 Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed given if delivered personally, mailed by registered or
certified mail (return receipt requested) or sent via facsimile
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to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Parent or Merger Subsidiary to:
National Technical Systems, Inc.
24007 Ventura Boulevard
Calabasas, California 91302
Attention: Chief Executive Officer
Telecopy: (818) 591-0899
with a copy to:
James J. Slaby, Esq.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
Los Angeles, California 90071-1780
Telecopy: (213) 620-1398
(b) If to the Company, to:
XXCAL, Inc.
11500 West Olympic Boulevard, Suite 325
Los Angeles, California 90064
Attention: Chief Executive Officer
Telecopy: (310) 478-6226
with copies to:
Gregory L. Larson, Esq.
500 North Parkway Calabasas, Suite 220
Calabasas, California 91302-1494
Telecopy: (818) 222-2690
Section 10.3 Interpretation. The headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of
this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means
such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto
solely because such party or its legal representative drafted
such provision.
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Section 10.4 Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision in invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good
faith to modify this agreement so as to effect the original
intent of the parties as closely as possible in a mutually
acceptable manner to the fullest extent permitted by applicable
law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
Section 10.5 Miscellaneous. This Agreement
(including the documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject
matter hereof (provided, however, that the provisions of
agreement(s) between the Company and Parent concerning
confidentiality shall remain in effect to and including the
Closing Date), (b) is not intended to confer upon any other
person any rights or remedies hereunder, except for rights of
indemnified Parties under Section 7.10 and (c) shall not be
assigned by operation of law or otherwise, except that
Subsidiary may assign this Agreement to any other wholly-owned
subsidiary of Parent. THIS AGREEMENT SHALL BE GOVERNED BY ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE
LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
Section 10.6 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one
and the same agreement.
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Section 10.7 Parties In Interest. This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and except as set forth in Section 7.9, nothing
in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, Parent, Merger Subsidiary and the
Company have caused this Agreement to be signed by their
respective officers and attested to as of the date flat written
above.
NATIONAL TECHNICAL SYSTEMS, INC.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ---------------------- -----------------------------
Secretary Name: Jack Lin
Title: President and Chief
Executive Officer
NTS ACQUISITION CORP.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ---------------------- -----------------------------
Secretary Name: Jack Lin
Title: Chief Executive Officer
XXCAL, INC.
Attest:
/s/ Eugene Gold By: /s/ Marvin Hoffman
- ---------------------- -----------------------------
Secretary Name: Marvin Hoffman
Title: Chairman and Chief
Executive Officer
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<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER
dated as of the 19th day of October 1998, by and among National Technical
Systems, Inc., a California corporation ("Parent"), NTS Acquisition Corp., a
California corporation and a wholly owned subsidiary of Parent ("Merger
Subsidiary") and XXCAL, Inc., a California corporation (the "Company").
WITNESSETH
WHEREAS, Parent, Merger Subsidiary and the Company entered into that
certain Agreement and Plan of Merger (the "Agreement") dated as of the 21st day
of August 1998; and
WHEREAS, Parent, Merger Subsidiary and the Company desire to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained hereinbelow, it is mutually agreed as follows:
1. Section 4.4(c) of said Agreement is hereby deleted and the following
substituted therefor:
"(c) Except for (i) filings with various state blue sky authorities,
(ii) the making of the Merger Filing with the Secretary of State of the
State of California in connection with the Merger, and (iii) any required
filings with or approvals from applicable state authorities or commissions
(the filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "Parent Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority
is necessary for the execution and delivery of this Agreement by Parent or
Merger Subsidiary or the consummation by Parent or Merger Subsidiary of
the transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals
which, if not made or obtained, as the case may be, would not, in the
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aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of
operations of Parent and its subsidiaries, taken as a whole."
2. Section 4.9 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 4.9 Registration Statement and Proxy Statement. Neither (a)
the Registration Statement on Form S-3 to be filed under the Securities
Act with the SEC by Parent in accordance with that certain Registration
Rights Agreement dated as of October 20, 1998 between Parent and the
Company for the purpose of registering the resale of the shares of Parent
Common Stock received by the Company shareholders in connection with the
Merger (the "Registration Statement") nor (b) the proxy statement to be
distributed in connection with the meeting of Company's shareholders to
vote upon this Agreement and the transactions contemplated hereby (the
"Proxy Statement") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of
the Proxy Statement and any amendments or supplements thereto, and at the
time of the meeting of shareholders of the Company to be held in
connection with the transactions contemplated by this Agreement, or, in
the case of the Registration Statement, as amended or supplemented, at the
time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy
Statement and the Prospectus will, as of their mailing date and effective
date, respectively, comply as to form in all material respects with all
applicable laws, including the applicable provisions of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder,
except that no representation is made by Parent or Merger Subsidiary with
respect to information supplied by the Company for inclusion therein."
3. Section 5.9 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 5.9 Registration Statement and Proxy Statement.
None of the information to be supplied by the Company or its
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<PAGE>
subsidiaries for inclusion in (a) the Registration Statement or (b) the
Proxy Statement will, in the case of the Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of
the meeting of shareholders of the Company to be held in connection with
the transactions contemplated by this Agreement or, in the case of the
Registration Statement, as amended or supplemented, at the time it becomes
effective and at the time of the meeting of the shareholders of the
Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading.
4. Section 7.2 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 7.2 Investment Representation Letters and Registration
Rights Agreement. The issuance of Parent Common Stock in the Merger will
be a private offering exempt from registration provisions of the
Securities Act of 1933 (the "Securities Act") pursuant to Section 4(2) of
the Securities Act and Section 5 of the Securities Act pursuant to Rule
506 of Regulation D promulgated thereunder ("Regulation D"). The Company
will use its best efforts to (a) assist in qualifying the Merger as exempt
from the registration provisions of Section 4(2) of the Securities Act and
Section 5 of the Securities Act pursuant to Rule 506 of Regulation D and
(b) cause each shareholder of the Company to complete an investment
representation letter in a form to be provided by Parent. The Parent
Common Stock received by Company shareholders in the Merger will not be
eligible for sale in the public market until after Parent files with the
SEC a Registration Statement on Form S-3 covering such stock in accordance
with that certain Registration Rights Agreement dated as of October 19,
1998 between Parent and the Company (which must be filed with the SEC
within ten (10) days following the Effective Time) and that registration
statement thereafter becomes effective. Parent Common Stock issued
pursuant to the exercise of Company Options also will not be eligible for
sale in the public market until after Parent files with the SEC a
Registration Statement or Form S-8 (which must be done within
approximately 30 days following the Effective Time). Thereafter, certain
Company shareholders will be subject to certain volume and other resale
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limitations as affiliates of Parent pursuant to SEC rules and the Parent's
policies."
5. The second sentence of Section 7.3(a) of said Agreement is hereby
deleted and the following substituted therefor:
"Such meeting of shareholders shall be held no later than October
30, 1998."
6. The second sentence of Section 7.3(b) of said Agreement is hereby
deleted.
7. The second sentence of Section 7.6(a) is hereby deleted and the
following substituted therefor:
"All costs and expenses incurred in connection with the preparation
of the Proxy Statement shall be paid by the party incurring such costs and
expenses."
8. Section 7.11 of said Agreement is hereby deleted.
9. Section 8.1(c) of said Agreement is hereby deleted.
10. Any and all other terms and conditions contained in the Agreement
shall remain in full force and effect and are hereby reaffirmed.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Subsidiary and the Company have
executed or caused their duly authorized representatives to execute this
Amendment to Agreement and Plan of Merger as of the date first written above.
NATIONAL TECHNICAL SYSTEMS, INC.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ----------------------- ---------------------------
Secretary Name: Jack Lin
Title: President and Chief Executive Officer
NTS ACQUISITION CORP.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ----------------------- ---------------------------
Secretary Name: Jack Lin
Title: Chief Executive Officer
XXCAL, INC.
Attest:
/s/ Eugene Gold By: /s/ Marvin Hoffman
- ----------------------- ----------------------------
Secretary Name: Marvin Hoffman
Title: Chairman and Chief Executive Officer
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<PAGE>
EXHIBIT 2.3
SHARE PURCHASE AGREEMENT
BY AND AMONG
NATIONAL TECHNICAL SYSTEMS, INC.,
XXCAL, LIMITED
AND
XXCAL SHAREHOLDERS
Dated as of August 21, 1998
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TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF XXCAL SHARES.........................1
Section 1.1 Purchase and Sale of Shares........................1
Section 1.2 Purchase Price.....................................2
Section 1.3 Payment of Purchase Price..........................2
Section 1.4 No Fractional Securities...........................2
Section 1.5 Closing............................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF BUYER...................3
Section 2.1 Organization and Qualification.....................3
Section 2.2 Capitalization.....................................4
Section 2.3 Subsidiaries.......................................4
Section 2.4 Authority; Non-Contravention; Approvals............5
Section 2.5 Reports and Financial Statements...................7
Section 2.6 Absence of Undisclosed Liabilities ................8
Section 2.7 Absence of Certain Changes or Events ..............8
Section 2.8 Litigation.........................................9
Section 2.9 Registration Statement and Proxy Statement.........9
Section 2.10 No Violation of Law...............................10
Section 2.11 Compliance with Agreements........................11
Section 2.12 Taxes.............................................11
Section 2.13 Employee Benefit Plans; ERISA.....................12
Section 2.14 Labor Controversies...............................14
Section 2.15 Environmental Matters.............................15
Section 2.16 Non-competition Agreements........................17
Section 2.17 Title to Assets...................................17
Section 2.18 Pooling of Interests..............................18
Section 2.19 Buyer Shareholders' Approval......................18
Section 2.20 Brokers and Finders...............................19
Section 2.21 Opinion of Financial Advisor......................19
Section 2.22 Investment Intent.................................19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS.........................................19
Section 3.1 Organization and Qualification....................20
Section 3.2 Share Capital.....................................20
Section 3.3 Subsidiaries......................................20
Section 3.4 Authority; Non-Contravention; Approvals...........20
Section 3.5 Insolvency of the Company.........................22
Section 3.6 Statutory Books and Documents Filed ..............23
Section 3.7 Financial Statements..............................23
Section 3.8 Financial Records.................................25
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Section 3.9 Absence of Undisclosed Liabilities ...............25
Section 3.10 Accounts Receivable...............................26
Section 3.11 Absence of Certain Changes or Events..............26
Section 3.12 Borrowings........................................26
Section 3.13 Insurance.........................................27
Section 3.14 Contracts and Commitments.........................27
Section 3.15 Terms of Trade....................................28
Section 3.16 Licenses and Consents.............................28
Section 3.17 Trading Partners..................................28
Section 3.18 Competition and Trade Regulation Law..............29
Section 3.19 Litigation........................................29
Section 3.20 Registration Statement and Proxy Statement........30
Section 3.21 No Violation of Law...............................30
Section 3.22 Directors and Employees...........................31
Section 3.23 Industrial Relations..............................32
Section 3.24 Pensions..........................................33
Section 3.25 Title to Properties...............................34
Section 3.26 Leasehold Properties..............................34
Section 3.27 Tenancies.........................................35
Section 3.28 Contamination.....................................35
Section 3.29 Environmental Matters.............................35
Section 3.30 Intangible Property and Computer Software.........36
Section 3.31 Title to Assets...................................36
Section 3.32 Liability.........................................37
Section 3.33 Records and Compliance............................37
Section 3.34 VAT...............................................38
Section 3.35 Close Company.....................................39
Section 3.36 Group Transactions................................39
Section 3.37 Capital Gains.....................................39
Section 3.38 Dividends and Distributions.......................39
Section 3.39 Inheritance Tax and Gifts.........................40
Section 3.40 Anti-Avoidance....................................40
Section 3.41 Overseas Matters..................................40
Section 3.42 Breach of Covenant................................40
Section 3.43 Pooling of Interests..............................40
Section 3.44 Brokers and Finders...............................41
Section 3.45 Investment Matters................................41
ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING..................41
Section 4.1 Conduct of Business by the Company Prior to
Effective Time....................................41
Section 4.2 Conduct of Business by Buyer and Subsidiary
Pending the Merger................................43
Section 4.3 Control of the Company's Operations ..............45
Section 4.4 Control of Buyer's Operations.....................45
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Section 4.5 Acquisition Transactions..........................45
ARTICLE V ADDITIONAL AGREEMENTS AND COVENANTS......................46
Section 5.1 Access to Information.............................46
Section 5.2 Registration Statement and Proxy Statement........47
Section 5.3 Buyer Shareholders' Approval......................48
Section 5.4 Compliance with the Securities Act ...............48
Section 5.5 Listing of NTS Shares.............................49
Section 5.6 Expenses and Fees.................................49
Section 5.7 Agreement to Cooperate............................49
Section 5.8 Public Statements.................................50
Section 5.9 Option Plans......................................50
Section 5.10 Directors' and Officers' Indemnification..........50
Section 5.11 Corrections to the Proxy
Statement/Prospectus and Registration
Statement ........................................52
Section 5.12 Effect on Accounting Treatment....................52
Section 5.13 Covenant Not to Compete...........................52
Section 5.14 Nonsolicitation. ................................54
Section 5.15 Nondisparagement; Referrals.......................54
Section 5.16 Confidentiality...................................55
Section 5.17 Obligation to Indemnify...........................55
Section 5.18 Covenant for Taxation.............................59
ARTICLE VI CONDITIONS...............................................62
Section 6.1 Conditions to Each Party's Obligations............62
Section 6.2 Conditions to Obligations of the Company
and Shareholders..................................64
Section 6.3 Conditions to Obligations of Buyer ...............65
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................66
Section 7.1 Termination.......................................66
Section 7.2 Effect of Termination.............................68
Section 7.3 Amendment.........................................68
Section 7.4 Waiver............................................68
ARTICLE VIII GENERAL PROVISIONS......................................68
Section 8.1 Survival of Representations and Warranties........68
Section 8.2 Notices...........................................69
Section 8.3 Interpretation....................................70
Section 8.4 Severability......................................70
Section 8.5 Miscellaneous.....................................70
Section 8.6 Counterparts......................................71
Section 8.7 No Third Party Beneficiaries......................71
Section 8.8 Parties In Interest...............................71
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<PAGE>
EXHIBITS
Page
Section 1.3 Exhibit A - Distribution of NTS Shares to
XXCAL Shareholders.......................................2
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SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT (the "Agreement") dated as
of August 21, 1998 by and among National Technical Systems,
Inc. a California corporation ("Buyer"), XXCAL, LIMITED, a
United Kingdom corporation (the "Company"), and Marvin Hoffman,
Eugene Gold, Bill Schoneman, Marilyn Gold, Darryl Hoffman,
Loren Hoffman, Susan Bohle, Al Lay, Steve Oettinger, Bill
Avery, Andrea Gold, John Knoeppel, Dave Trebas, Rose Marie
Antonio, Christopher Smith, Felicity Smith and John Remington
(collectively, the "Shareholders").
RECITALS
A. WHEREAS, the Shareholders are the beneficial owners
of 1,026,950 ordinary shares of 1p each (one pence of the
currency of the United Kingdom) of the Company (the "Sale
Shares"), which represent all of the issued share capital of
the Company, and which are collectively referred to herein as
the "XXCAL Shares".
B. WHEREAS, the Shareholders wish to sell and Buyer
wishes to purchase, the XXCAL Shares in accordance with the
terms and conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants,
agreements and conditions hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF XXCAL SHARES
Section 1.1 Purchase and Sale of Shares. Subject to the
terms and conditions hereinafter set forth, at the Closing, the
Shareholders shall sell, and Buyer shall purchase, the XXCAL
Shares from the Shareholders.
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Section 1.2 Purchase Price. As full payment for the
XXCAL Shares and for the Shareholders's agreements and
indemnities contained herein, Buyer shall pay to the
Shareholders the purchase price ("Purchase Price"). The Pur-
chase Price shall be payable by Buyer by the issuance to the
Shareholders of 125,000 shares of the Common Stock, no par
value of Buyer (the "NTS Shares"), representing an exchange
ratio of 0.1217 share of Buyer's common stock ("NTS Common
Stock") for each issued and outstanding XXCAL Share (the
"Exchange Ratio").
Section 1.3 Payment of Purchase Price. At the Closing,
Buyer shall deliver to the Shareholders certificates
representing the NTS Shares in the amounts and to the
respective Shareholders reflected on Exhibit A hereto. At the
Closing, The Shareholders shall deliver to Buyer certificates
evidencing the XXCAL Shares (the "XXCAL Certificates"),
together with stock assignments separate from certificate duly
endorsed in blank. In addition, at the Closing, all other
actions shall be taken, and all other documents shall be duly
executed and delivered, which are necessary to consummate all
other transactions contemplated by this Agreement, other than
such actions and documents as are to be taken, executed or
delivered at another date as specifically provided in this
Agreement.
Section 1.4 No Fractional Securities. Notwithstanding
any other provision of this Agreement, no certificates or scrip
for fractional shares of NTS Common Stock shall be issued to
the Shareholders and no NTS Common Stock dividend, stock split
or interest shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to
vote or to any other rights of a security holder. In lieu of
any such fractional shares, each holder of XXCAL Shares who
would otherwise have been entitled to receive a fraction of a
share of NTS Common Stock upon surrender of the XXCAL
Certificates for exchange pursuant to Section 1.3 shall be
entitled to receive from NTS a cash payment equal to such
fraction multiplied by the average closing price per share of
NTS Common Stock as requested by the Nasdaq National Market, as
reported by the Wall Street Journal, during the 10 trading days
immediately preceding the Closing Date.
Section 1.5 Closing. The Closing shall occur on the
fifth business day immediately following the date on which the
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last of the conditions as set forth in Article VI is fulfilled
or waived or such earlier or later date as may be mutually
agreed to in writing by Buyer and the Shareholders (such date
being referred to herein as the "Closing Date" or the
"Closing"). The parties shall use their best efforts to cause
the Closing to occur within 60 days after the date of this
Agreement, but in no event later than December 31, 1998, unless
mutually extended by the parties hereto. The Closing shall
take place at the offices of Sheppard, Mullin, Richter &
Hampton LLP, located at 333 South Hope Street, 48th Floor,
Los Angeles, California. Buyer and the Shareholders agree to
use their respective best efforts to satisfy the conditions set
forth in this Agreement, and to cause the Closing to occur
within the specified time period.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to the Company and the
Shareholders that, except as set forth in the Disclosure
Schedule dated as of the date hereof and signed by an
authorized officer of Buyer (the "Buyer Disclosure Schedule"),
each of which exceptions shall specifically identify the
relevant Section hereof to which it relates:
Section 2.1 Organization and Qualification. Buyer is a
corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and
has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as it is
now being conducted. Buyer is qualified to do business and is
in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing will
not, when taken together with all other such failures, have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Buyer and its subsidiaries, taken as a whole.
True, accurate and complete copies of each of Buyer's Articles
of Incorporation and By-laws, in each case as in effect on the
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<PAGE>
date hereof, including all amendments thereto, have heretofore
been delivered to the Company.
Section 2.2 Capitalization. (a) The authorized capital
stock of Buyer consists of 20,000,000 shares of Common Stock,
no par value ("Buyer Common Stock") of which 6,987,128 shares
were outstanding as of August 21, 1998. All of the issued and
outstanding shares of Buyer Common Stock are validly issued and
are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth in the Buyer Disclosure
Schedule or in the Buyer SEC reports (as defined in Section
2.5) as of the date hereof, there are no outstanding
subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also
including any rights plan or other anti-takeover agreement,
obligating Buyer to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital
stock of Buyer or obligating Buyer to grant, extend or enter
into any such agreement or commitment. There are no voting
trusts, proxies or other agreements or understandings to which
Buyer or any subsidiary of Buyer is a party or is bound with
respect to the voting of any shares of capital stock of Buyer.
The NTS Shares to be issued to the Shareholders at the Closing
will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights.
Section 2.3 Subsidiaries. Each direct and indirect
corporate subsidiary of Buyer is duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted.
Each subsidiary of Buyer is qualified to do business, and is in
good standing, in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except
where the failure to be so qualified and in good standing would
not, when taken together with all such other failures, have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Buyer and its subsidiaries, taken as a whole.
All of the outstanding shares of capital stock of each
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<PAGE>
corporate subsidiary of Buyer are validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned
directly or indirectly by Buyer, free and clear of any liens,
claims or encumbrances except that such shares are pledged to
secure Buyer's credit facilities, provided, however, that Buyer
owns 50% of the outstanding shares of the capital stock of NQA
USA, a Massachusetts corporation. There are no subscriptions,
options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of capital
stock of any corporate subsidiary of Buyer, including any right
of conversion or exchange under any outstanding security,
instrument or agreement. As used in this Agreement, the term
"subsidiary" shall mean, when used with reference to any person
or entity, any corporation, partnership, joint venture or other
entity of which such person or entity (either acting alone or
together, with its other subsidiaries) owns, directly or
indirectly, 50% or more of the stock or other voting interests,
the holders of which are entitled to vote for the election of a
majority of the board of directors or any similar governing
body of such corporation, partnership, joint venture or other
entity.
Section 2.4 Authority; Non-Contravention; Approvals.
(a) Buyer has full corporate power and authority to enter into
this Agreement and, subject to the Buyer Shareholders' Approval
(as defined in Section 2.19) to consummate the transactions
contemplated hereby. This Agreement has been approved by the
Board of Directors of Buyer and no other corporate proceedings
on the part of Buyer are necessary to authorize the execution
and delivery of this Agreement or, except for Buyer
Shareholders' Approval, the consummation by Buyer of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by Buyer and, assuming the due
authorization, execution and delivery hereof by the Company and
the Shareholders, constitutes a valid and legally binding
agreement of Buyer enforceable against Buyer in accordance with
its terms, except that such enforcement may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
Without limitation of the foregoing, each of the covenants and
obligations of Buyer set forth in this Agreement is valid,
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<PAGE>
legally binding and enforceable notwithstanding the absence of
the Buyer Shareholders' Approval.
(b) The execution and delivery of this Agreement by
Buyer does not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of
termination or acceleration under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of
the properties or assets of Buyer or any of its subsidiaries
under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of Buyer or any of its
subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to
Buyer or any of its subsidiaries or any of their respective
properties or assets or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or
agreement of any kind to which Buyer or any of its subsidiaries
is now a party or by which Buyer or any of its subsidiaries or
any of their respective properties or assets may be bound or
affected. The consummation by Buyer of the transactions
contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under
any of the terms, conditions or provisions described in clauses
(i) through (iii) of the preceding sentence, subject (x) in the
case of the terms, conditions or provisions described in clause
(ii) above, to obtaining (prior to the Effective Time) Buyer
Shareholder's Approval and (y) in the case of the terms,
conditions or provisions described in clause (iii) above, to
obtaining (prior to the Closing) consents required from
commercial lenders, lessors or other third parties. Excluded
from the foregoing sentences of this paragraph (b), insofar as
they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph
(b), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the
aggregate, have, a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
results of operations or prospects of Buyer and its
subsidiaries, taken as a whole.
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<PAGE>
(c) Except for (i) the filing of the Proxy State-
ment/Prospectus (as defined in Section 2.10) with the United
States Securities and Exchange Commission (the "SEC") pursuant
to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Securities Act of 1933, as amended
(the "Securities Act") and the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky
authorities, and (ii) any required filings with or approvals
from applicable state authorities or commissions (the filings
and approvals referred to in clauses (i) and (ii) are
collectively referred to as the "Buyer Required Statutory
Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for
the execution and delivery of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have
a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Buyer and its subsidiaries, taken as a whole.
Section 2.5 Reports and Financial Statements. Since
January 1, 1996, Buyer has filed on a timely basis with the SEC
all forms, statements, reports and documents (including all
exhibits, amendments and supplements thereto) required to be
filed by it under each of the Securities Act of 1934, as
amended (the "Securities Act") and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the respective
rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all
applicable requirements of the appropriate act and the rules
and regulations thereunder. Buyer has previously delivered to
the Company copies of its (a) Annual Reports on Form 10-K for
the fiscal year ended January 31, 1998 and for each of the two
immediately preceding fiscal years, as filed with the SEC, (b)
proxy and information statements relating to (i) all meetings
of its shareholders and (ii) actions by written consent in lieu
of a shareholders' meeting from January 1, 1996, until the date
hereof, and (c) all other reports, including quarterly reports,
or registration statements filed by Buyer with the SEC since
January 1, 1996 (other than Registration Statements filed on
Form S-8) (collectively, the "Buyer SEC Reports"). As of their
respective dates, the Buyer SEC Reports did not contain any
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<PAGE>
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The audited consolidated
financial statements and unaudited interim consolidated
financial statements of Buyer included in such reports
(collectively, the "Buyer Financial Statements") have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present
the financial position of Buyer and its subsidiaries as of the
dates thereof and the results of their operations and changes
in financial position for the periods then ended, subject, in
the case of the unaudited interim financial statements, to
normal year-end and audit adjustments and any other adjustments
described therein.
Section 2.6 Absence of Undisclosed Liabilities. Except
as disclosed in the Buyer SEC Reports or with respect to
acquisitions or potential transactions or commitments
heretofore disclosed to the Company in writing, neither Buyer
nor any of its subsidiaries had at April 30, 1998, or has
incurred since that date, any liabilities, guarantees or other
obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations
or contingencies (i) which are accrued or reserved against in
the Buyer Financial Statements or reflected in the notes
thereto or (ii) which were incurred after April 30, 1998, and
were incurred in the ordinary course of business and consistent
with past practices; (b) liabilities, obligations or
contingencies which (i) would not, in the aggregate, have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Buyer and its subsidiaries, taken as a whole,
or (ii) have been discharged or paid in full prior to the date
hereof, and (c) liabilities and obligations which are of a
nature not required to be reflected in the consolidated
financial statements of Buyer and its subsidiaries prepared in
accordance with generally accepted accounting principles
consistently applied and which were incurred in the ordinary
course of business.
Section 2.7 Absence of Certain Changes or Events. Since
the date of the most recent Buyer SEC Report, there has not
been any material adverse change in the business, operations,
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properties, assets, liabilities, condition (financial or other)
or results of operations of Buyer and its subsidiaries, taken
as a whole.
Section 2.8 Litigation. Except as disclosed in the Buyer
SEC Reports, there are no claims, suits, actions or proceedings
pending or, to the knowledge of Buyer, threatened against,
relating to or affecting Buyer or any of its subsidiaries,
before any court, governmental department commission, agency,
instrumentality or authority, or any arbitrator that seeks to
restrain or enjoin the consummation of the transactions
contemplated herein or which could reasonably be expected,
either alone or in the aggregate with all such claims, actions
or proceedings, to materially and adversely affect the
business, operations, properties, assets, condition (financial
or other) or results of operations of Buyer and its
subsidiaries, taken as a whole. Except as set forth in the
Buyer SEC Reports, neither Buyer nor any of its subsidiaries is
subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator which prohibits
or restricts the consummation of the transactions contemplated
hereby or would have any material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of Buyer and its
subsidiaries, taken as a whole.
Section 2.9 Registration Statement and Proxy Statement.
Neither (a) the Registration Statement on Form S-4 to be filed
under the Securities Act with the SEC by Buyer in connection
with the transactions contemplated herein for the purpose of
registering the NTS Shares to be issued to the Shareholders
(the "Registration Statement") or (b) the proxy statement to be
distributed in connection with the meeting of Buyer's
shareholders to obtain Buyer Shareholders' Approval (the "Proxy
Statement" and, together with the prospectus included in the
Registration Statement, the "Proxy Statement/Prospectus" will,
in the case of the Proxy Statement or any amendments thereof or
supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the
time of the meetings of shareholders of Buyer to be held in
connection with the transactions contemplated by this
Agreement, or, in the case of the Registration Statement, as
amended or supplemented, at the time it becomes effective and
at the time of such meeting of the shareholders of Buyer,
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contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
The Proxy Statement/Prospectus will, as of its mailing date,
comply as to form in all material respects with all applicable
laws, including the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by Buyer with
respect to information supplied by the Company or the
shareholders for inclusion therein.
Section 2.10 No Violation of Law. Except as disclosed in
the Buyer SEC Reports, neither Buyer nor any of its
subsidiaries is in violation of, or has been given notice or
been charged with any violation of, any law, statute, order,
rule, regulation, ordinance, or judgment (including, without
limitation, any applicable environmental law, ordinance or
regulation) of any governmental or regulatory body or
authority, except for violations which, in the aggregate, could
not reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of Buyer and its
subsidiaries, taken as a whole. Except as disclosed in the
Buyer SEC Reports, as of the date of this Agreement, to the
knowledge of Buyer, no investigation or review by any
governmental or regulatory body or authority is pending or
threatened, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same, other
than, in each case, those the outcome of which, as far as
reasonably can be foreseen, will not have a material adverse
effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Buyer and its subsidiaries, taken as a whole. Buyer and its
subsidiaries have all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as
presently conducted (collectively, the "Buyer Permits"), except
for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of
which, alone or in the aggregate, would not have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Buyer and its subsidiaries, taken as a whole. Buyer and its
subsidiaries are not in violation of the terms of any Buyer
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<PAGE>
Permit, except for delays in filing reports or violations
which, alone or in the aggregate, would not have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Buyer and its subsidiaries, taken as a whole.
Section 2.11 Compliance with Agreements. Except as
disclosed in the Buyer SEC Reports, neither Buyer nor any of
its subsidiaries is in breach or violation of or in default in
the performance or observance of any term or provision of, and
no event has occurred which, with lapse of time or action by a
third party, could result in a default under (a) the respective
charters, by-laws or other similar organizational instruments
of Buyer or any of its subsidiaries or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement,
note, lease, bond, license, approval or other instrument to
which Buyer or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is
subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 2.12, would have, in the
aggregate, a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of Buyer and its subsidiaries, taken
as a whole.
Section 2.12 Taxes. (a) Buyer and its subsidiaries have
(i) duly filed with the appropriate governmental authorities
all Tax Returns (as defined in Section 2.13(c)) required to be
filed by them for all periods ending on or prior to the Closing
Date other than those Tax Returns the failure of which to file
would not have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of Buyer and its subsidiaries, taken
as a whole, and such Tax Returns are true, correct and complete
in all material respects and (ii) duly paid in full or made
adequate provision for the payment of all Taxes (as defined in
Section 2.13(b)) for all periods ending at or prior to the
Closing. The liabilities and reserves for Taxes reflected in
the Buyer balance sheet included in the latest Buyer SEC Report
are adequate to cover all Taxes for all periods ending at or
prior to the Closing and there are no material liens for Taxes
upon any property or assets of Buyer or any subsidiary thereof,
except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of
deficiency, proposed deficiency or assessment from the Internal
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Revenue Service (the "IRS") or any other governmental taxing
authority with respect to Taxes of the Buyer or any of its
subsidiaries which, if decided adversely, singly or in the
aggregate, would have a material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of Buyer and its
subsidiaries, taken as a whole. Neither Buyer nor any of its
subsidiaries is a party to any agreement providing for the
allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of
Buyer other than agreements the consequences of which are fully
and adequately reserved for in the Buyer Financial Statements.
Neither Buyer nor any of its corporate subsidiaries has, with
regard to any assets or property held, acquired or to be
acquired by any of them, filed a consent to the application of
Section 341 (f) of the Code.
(b) For purposes of this Agreement, the term "Taxes"
shall mean all taxes, including, without limitation, income,
gross receipts, excise, property, sales, withholding, social
security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and
charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other
assessments imposed by the United States, or any state, local
or foreign government or subdivision or agency thereof
(including, but not limited to the United Kingdom), whether
computed on a separate, consolidated, unitary, combined or any
other basis, and such term shall include any interest, fines,
penalties or additional amounts and any interest in respect of
any additions, fines or penalties attributable or imposed or
with respect to any such taxes, charges, fees, levies or other
assessments.
(c) For purposes of this Agreement, the term "Tax
Return" shall mean any return, report or other document or
information required to be supplied to a taxing authority in
connection with Taxes.
Section 2.13 Employee Benefit Plans; ERISA. (a) Except
as set forth in the Buyer SEC Reports, at the date hereof,
Buyer and its subsidiaries do not maintain or contribute to any
material employee benefit plans, programs, arrangements or
practices (such plans, programs, arrangements or practices of
Buyer and its subsidiaries being referred to as the "Buyer
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Plans", including employee benefit plans within the meaning set
forth in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other similar
material arrangements for the provision of benefits (excluding
any "Multi-employer Plan" within the meaning of Section 3(37)
of ERISA or a "Multiple Employer Plan" within the meaning of
Section 413(c) of the Code). The Buyer Disclosure Schedule
lists all Multi-employer Plans and Multiple Employer Plans
which any of Buyer or its subsidiaries maintains or to which
any of them makes contributions. Neither Buyer nor its
subsidiaries has any obligation to create any additional such
plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms of the Buyer
Plans, under existing collective bargaining agreements or to
comply with applicable law.
(b) Except as disclosed in the Buyer SEC Reports,
(i) to the knowledge of Buyer there have been no prohibited
transactions within the meaning of Section 406 or 407 of ERISA
or Section 4975 of the Code with respect to any of the Buyer
Plans that could result in penalties, taxes or liabilities
which, singly or in the aggregate, could have a material
adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of
Buyer and its subsidiaries, taken as a whole, (ii) except for
premiums due, there is no outstanding material liability,
whether measured alone or in the aggregate, under Title IV of
ERISA with respect to any of the Buyer Plans, (iii) to the
knowledge of Buyer neither the Pension Benefit Guaranty
Corporation nor any plan administrator has instituted
proceedings to terminate any of the Buyer Plans subject to
Title IV of ERISA other than in a "standard termination "
described in Section 4041 (b) of ERISA, (iv) none of the Buyer
Plans has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent
fiscal year of each of the Buyer Plans ended prior to the date
of this Agreement, (v) the current present value of all
projected benefit obligations under each of the Buyer Plans
which is subject to Title IV of ERISA did not, as of its latest
valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than
the amount, if any, disclosed in the Buyer SEC Reports as of
[April 30, 1998], based upon reasonable actuarial assumptions
currently utilized for such Buyer Plan, (vi) to the knowledge
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of Buyer each of the Buyer Plans has been operated and
administered in all material respects in accordance with
applicable, laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Buyer
Plans which is intended to be "qualified" within the meaning of
Section 401 (a) of the Code has been determined by the IRS to
be so qualified, in form, and such determination has not been
modified, revoked or limited by failure to satisfy any
condition thereof or by a subsequent amendment thereto or a
failure to amend, except that it may be necessary to make
additional amendments retroactively to maintain the "qualified"
status of such Buyer Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with
respect to Multi-employer Plans, neither Buyer nor any of its
subsidiaries has made or suffered a "complete withdrawal" or a
"partial withdrawal," as such terms are respectively defined in
Sections 4203, 4204 and 4205 of ERISA and, to the knowledge of
Buyer and its subsidiaries, no event has occurred or is
expected to occur which presents a material risk of a complete
or partial withdrawal under said Sections 4203, 4204 and 4205,
(ix) to the knowledge of Buyer and its subsidiaries, there are
no material pending, threatened or anticipated claims involving
any of the Buyer Plans other than claims for benefits in the
ordinary course, and (x) Buyer and its subsidiaries have no
current material liability for plan termination or withdrawal
(complete or partial) under Title IV of ERISA based on any plan
to which any entity that would be deemed one employer with
Buyer and its subsidiaries under Section 4001 of ERISA or
Section 414 of the Code contributed during the period of time
covered by the applicable statute of limitations (a "Buyer
Controlled Group Plan"), and Buyer and its subsidiaries do not
reasonably anticipate that any such liability will be asserted
against Buyer or any of its subsidiaries. None of the Buyer
Controlled Group Plans has an "accumulated funding deficiency"
(as defined in Section 302 of ERISA and Section 412 of the
Code).
(c) The Buyer SEC Reports contain a true and
complete summary or list of or otherwise describe all material
employment contracts and other employee benefit arrangements
with "change of control" or similar provisions and all
severance agreements with executive officers.
Section 2.14 Labor Controversies. Except as set forth in
the Buyer SEC Reports, (a) there are no significant
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controversies pending or, to the knowledge of Buyer, threatened
between Buyer or its subsidiaries and any representatives of
any of their employees, (b) to the knowledge of Buyer, there
are no material organizational efforts presently being made
involving any of the presently unorganized employees of Buyer
and its subsidiaries except for such controversies and
organizational efforts which singly or in the aggregate, could
not reasonably be expected to materially and adversely affect
the business, operations, properties, assets, condition
(financial or other) or results of operations of Buyer and its
subsidiaries, taken as a whole and (c) none of the employees of
Buyer and its subsidiaries is represented by a labor union.
Section 2.15 Environmental Matters. (a) Except as set
forth in the Buyer SEC Reports or in Buyer's Disclosure
Schedule, (i) Buyer and its subsidiaries have conducted their
respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as
presently conducted, (ii) none of the properties owned by Buyer
or any of its subsidiaries contain any Hazardous Substance as a
result of any activity of Buyer or any of its subsidiaries in
amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) neither Buyer nor any of its
subsidiaries has received any notices, demand letters or
requests for information from any federal, state, local or
foreign governmental entity or third party indicating that
Buyer or any of its subsidiaries may be in violation of, or
liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no
civil, criminal or administrative actions, suits, demands,
claims, hearings, investigations or proceedings pending or
threatened, against Buyer or any of its subsidiaries relating
to any violation, or alleged violation, of any Environmental
Law, (v) no reports have been filed, or are required to be
filed, by Buyer or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual
violation of any Environmental Law, (vi) no Hazardous Substance
has been disposed of, released or transported in violation of
any applicable Environmental Law from any properties owned by
Buyer or any of its subsidiaries as a result of any activity of
Buyer or any of its subsidiaries during the time such
properties were owned, leased or operated by Buyer or any of
its subsidiaries, (vii) there have been no environmental
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investigations, studies, audits, tests, reviews or other
analyses regarding compliance or noncompliance with any
applicable Environmental Law conducted by or which are in the
possession of Buyer or its subsidiaries relating to the
activities of Buyer or its subsidiaries which have not been
delivered to Buyer prior to the date hereof, (viii) there are
no underground storage tanks on, in or under any properties
owned by Buyer or any of its subsidiaries and no underground
storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased
or operated by Buyer or any of its subsidiaries, (ix) there is
no asbestos or asbestos containing material present in any of
the properties owned by Buyer and its subsidiaries, and no
asbestos has been removed from any of such properties during
the time such properties were owned, leased or operated by
Buyer or any of its subsidiaries, and (x) neither Buyer, its
subsidiaries nor any of their respective properties are subject
to any material liabilities or expenditures (fixed or
contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim
asserted or arising under any Environmental Law, except for
violations of the foregoing clauses (i) through (x) that,
singly or in the aggregate, would not reasonably be expected to
have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
of operations of Buyer and its subsidiaries considered as one
enterprise.
(b) As used herein, "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, rule,
regulation, code, license. permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating
to (x) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the
exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The
term "Environmental Law" includes, without limitation, (i) the
federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, the Superfund Amendments and
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Reauthorization Act, the federal Water Pollution Control Act of
1972, the federal Clean Air Act, the federal Clean Water Act,
the federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto),
the federal Solid Waste Disposal Act and the federal Toxic
Substances Control Act, the federal Insecticide, Fungicide and
Rodenticide Act, and the federal Occupational Safety and Health
Act of 1970, each as amended and as in effect on the Closing
Date, (ii) the United Kingdom Environmental Protection Act of
1990 and (iii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that
may impose liability or obligations for injuries or damages due
to, or threatened as a result of, the presence of, effects of
or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any
substance presently or hereafter listed, defined, designated or
classified as hazardous, toxic, radioactive, or dangerous, or
otherwise regulated, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated
by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, or
asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
Section 2.16 Non-competition Agreements. Neither Buyer
nor any subsidiary of Buyer is a party to any agreement which
purports to restrict or prohibit in any material respect any of
them from, directly or indirectly, engaging in any business
involving any other material business currently engaged in by
the Buyer or the Company, or any corporations affiliated with
either of them. None of Buyer's officers, directors or key
employees is a party to any agreement which, by virtue of such
person's relationship with Buyer, restricts in any material
respect Buyer or any subsidiary of Buyer from, directly or
indirectly, engaging in any material businesses currently
engaged in by the Buyer or the Company or any corporations
affiliated with either of them.
Section 2.17 Title to Assets. Buyer and each of its
subsidiaries has good and marketable title in fee simple to all
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its real property and good title to all its leasehold interests
and other properties as reflected in the most recent balance
sheet included in the Buyer Financial Statements, except for
such properties and assets that have been disposed of in the
ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any nature whatsoever, except (i) the lien
for current taxes, payments of which are not yet delinquent,
(ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character,
amount or extent and do not materially detract from the value
or interfere with the present use of the property subject
thereto or affected thereby, or otherwise materially impair the
Buyer's business operations (in the manner presently carried on
by the Buyer), or (iii) as disclosed in the Buyer SEC Reports,
and except for such matters which, singly or in the aggregate,
could not reasonably be expected to materially and adversely
affect the business, operations, properties, assets, condition
(financial or other) or results of operations of Buyer and its
subsidiaries, taken as a whole. All leases under which Buyer
or any of its subsidiaries leases any real or personal property
are in good standing, valid and effective in accordance with
their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or
lapse of time or both would become a default other than
defaults under such leases which in the aggregate will not
materially and adversely affect the Buyer and its subsidiaries,
taken as a whole.
Section 2.18 Pooling of Interests. Neither Buyer nor, to
its knowledge, any of their its affiliates has taken or agreed
to take any action that would prevent the transactions
contemplated herein from (a) constituting a reorganization
qualifying under the provisions of Section 368 (a) of the Code
or (b) being treated for financial accounting purposes as a
"pooling of interests" in accordance with generally accepted
accounting principals and the rules, regulations and
interpretations of the SEC (a "Pooling Transaction").
Section 2.19 Buyer Shareholders' Approval. The
affirmative vote of shareholders of Buyer will be required for
approval and adoption of this Agreement and the transactions
contemplated herein is a majority of the shares of Buyer Common
Stock present in person or by proxy at a meeting of such
shareholders and entitled to vote thereat.
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Section 2.20 Brokers and Finders. Except for the fees
and expenses payable by Buyer to Oxford Mergers and
Acquisitions, Inc. ("Oxford"), which fees are reflected in its
agreement with Buyer (a copy of which has been delivered to the
Company), Buyer has not entered into any contract, arrangement
or understanding with any person or firm which may result in
the obligation of Buyer to pay any finders fees, brokerage or
agent commissions or other like payments in connection with the
transactions contemplated hereby. Except for the fees and
expenses paid or payable to Oxford, there is no claim for
payment by Buyer of payments in any investment banking fees,
finder's fees, brokerage or agent commissions or other like
payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated
hereby.
Section 2.21 Opinion of Financial Advisor. The financial
advisor of Buyer, Crowell, Weedon & Co., has rendered a written
opinion to Buyer to the effect that the Exchange Ratio is fair
from a financial point of view to the Buyer.
Section 2.22 Investment Intent. Buyer is purchasing the
XXCAL Shares for its own account for investment and with no
present intention of distributing or reselling the XXCAL Shares
or any part thereof, subject, nevertheless, to any requirement
of the law that the disposition thereof by Buyer shall at all
times be within Buyer's control. Buyer is fully informed as to
the applicable limitations upon any distribution or resale of
the XXCAL Shares which have not been registered pursuant to the
Securities Act of 1933 (the "Securities Act"). Buyer agrees
not to distribute or resell any of the XXCAL Shares if such
distribution or resale would constitute a violation of the
Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and Marvin Hoffman, Eugene Gold, Bill
Schoneman, Felicity Smith, Christopher Smith and John Remington
(the "Management Shareholders") represent and warrant to Buyer
that, except as set forth in the disclosure schedule dated as
of the date hereof and signed by an authorized officer of the
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Company (the "Company Disclosure Schedule"), each of which
exceptions shall specifically identify the relevant Section
hereof to which it relates:
Section 3.1 Organization and Qualification. The Company
is a corporation duly organized, validly existing and in good
standing under the laws of the United Kingdom, including, but
not limited to the Companies Acts of 1985 and 1989, and has the
requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business
as it is now being conducted.
Section 3.2 Share Capital. The XXCAL Shares constitute
the entire issued and allotted share capital of the Company and
are fully paid or credited as fully paid. Apart from this
Agreement, there is no agreement, arrangement or commitment
outstanding which calls for the allotment, issue or transfer
of, or accords to any person the right to call for the
allotment, issue or transfer of, any share or loan capital of
the Company. None of the XXCAL Shares was, or represents
assets which were, the subject of a transfer at an undervalue,
within the meaning for Sections 238 or 339, Insolvency Act
1986, within the past five years. The Company has not at any
time: (i) reduced its share capital; (ii) redeemed any share
capital; (iii) purchased any of its shares; or (iv) forfeited
any of its shares. The XXCAL Shares are free from all charges
and encumbrances (whether monetary or not) and all other rights
exercisable by third parties, including any rights of pre-
exemption and including those which the Shareholders do not,
and, could not reasonably be expected to, know about; and will
be transferred with all rights attaching to or accruing to them
on the Closing Date, including all dividends and distributions
declared, paid or made on or after that date.
Section 3.3 Subsidiaries. The Company does not have, nor
has it agreed to acquire, any interest in any undertaking or in
the share capital of any body corporate. The Company does not
hold nor is it liable on any share or relevant security which
is not fully paid up or which carries any liability. The
Company does not have any branch, agency, place of business or
establishment outside the United Kingdom.
Section 3.4 Authority; Non-Contravention; Approvals.
(a) The Company and the Shareholders each have full power and
authority to enter into this Agreement and to consummate the
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transactions contemplated hereby. No Shareholder is the
subject of a bankruptcy or liquidation proceeding, has proposed
a voluntary arrangement or has made or proposed any arrangement
with his or her creditors or any class of creditors. This
Agreement has been approved by the Board of Directors of the
Company, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution and delivery
of this Agreement or the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and by each of the
Shareholders, and constitutes a valid and legally binding
agreement of the Company and the Shareholders, enforceable
against the Company and the Shareholders in accordance with its
terms, except that such enforcement may be subject to (a)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws afflicting or relating to enforcement of
creditors' rights generally and (b) general equitable
principles. Without limitation of the foregoing, each of the
covenants and obligations of the Company and the Shareholders
set forth in this Agreement is valid, legally binding and
enforceable.
(b) The execution and delivery of this Agreement by
the Company and the Shareholders do not violate, conflict with
or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the
Company or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the charter or by-laws of the
Company, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of
any court or governmental authority applicable to the Company
or any of its properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or
agreement of any kind to which the Company is now a party or by
which the Company or any of its respective properties or assets
may be bound or affected. The consummation by the Company of
the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or
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provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to
obtaining (prior to the Effective Time) the Company Required
Statutory Approvals and (y) in the case of the terms,
conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties. Excluded
from the foregoing sentences of this paragraph (b), insofar as
they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph
(b), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the
aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company.
(c) Except for any required filings with or
approvals from applicable environmental authorities, or
commissions (such filings and approvals are collectively
referred to as the "Company Required Statutory Approvals,") no
declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and
delivery of this Agreement by the Company and the Shareholders
or the consummation by the Company and the Shareholders of the
transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be,
would not, in the aggregate, have a material adverse effect on
the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole.
Section 3.5 Insolvency of the Company. No order has been
made, no resolution has been passed, no petition presented, no
meeting convened for the winding up of the Company or for a
provisional liquidator to be appointed in respect of the
Company and the Company has not been a party to any transaction
which could be avoided in a winding up. No administration
order has been made and no petition for one has been presented
in respect of the Company. No receiver or administrative
receiver has been appointed in respect of the Company or any of
its assets. The Company is not insolvent, has not failed or is
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not unable to pay, or has not reasonable prospect of being
unable to pay, any of its debts as they fall due, as those
expressions are defined in Section 268, Insolvency Act 1986.
No voluntary arrangement has been proposed under Section 1,
Insolvency Act 1986 in respect of the Company and the Company
has not made or proposed any arrangement or composition with
its creditors or any class of them. No distress, execution or
other process has been levied on the Company's assets or action
taken to repossess goods in the possession of the Company. No
unsatisfied judgment is outstanding against the Company and no
demand has been served on the Company under Section 123(1)(a),
Insolvency Act 1986. No event analogous to any referred to
hereinabove has occurred anywhere in the world.
Section 3.6 Statutory Books and Documents Filed. The
statutory books, including all registers and minute books, of
the Company have been properly kept and contain an accurate and
complete record of the matters with which those books should
deal. All documents which should have been delivered by the
Company to the Registrar of Companies are complete and accurate
and have been properly so delivered. The copy of the
memorandum and articles of association of the Company contained
in the Disclosure Schedule has embodied in it or annexed to it
a copy of each resolution as referred to in Section 380,
Companies Act 1985, and is accurate and complete in all
respects. Since May 31, 1998 the shareholders of the Company
in general meeting, or of any class of them, have not passed
any resolution other than resolutions relating to the ordinary
business of annual general meetings.
Section 3.7 Financial Statements. (a) The Company has
previously delivered to Buyer true and complete copies of the
financial statements of the Company (the "Company Financial
Statements") consisting of (i) audited balance sheets of the
Company as of December 31, 1995, 1996 and 1997 and the
unaudited balance sheet at June 30, 1998 (the "Recent Balance
Sheet") and (ii) audited statements of income for the fiscal
years ended December 31, 1995, 1996 and 1997 and the unaudited
six months ended June 30, 1998 (including the notes and
schedules contained therein or annexed thereto). All of such
financial statements (including all notes and schedules
contained therein or annexed thereto) are true, complete and
accurate and have been prepared in accordance with the
requirements of all relevant statutes and generally accepted
United Kingdom accounting practices including, without
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limitation, all applicable Financial Reporting Standards issued
by the Accounting Standards Board, Statements of Standard
Accounting Practice issued by the Institute of Chartered
Accountants of England and Wales and Statements from the Urgent
Issues Task Force current at June 30, 1998 and, where the
accounting practice used to prepare the Company Financial
Statements differs from those applicable in previous financial
periods, the effect of any such difference is disclosed in the
Disclosure Schedule.
(b) Without limitation of the generality of the
foregoing, the Company Financial Statements: (i) give a true
and fair view of the state of affairs of the Company at June
30, 1998 and the profits or losses of the Company for the
financial period ending on that date; (ii) contain full
provision or reserve for all liabilities and for all capital
and revenue commitments of the Company as at June 30, 1998;
(iii) disclose all the assets of the Company as at June 30,
1998 and none of the values placed in the Company Financial
Statements on any of those assets was in excess of its market
value at June 30, 1998; (iv) make full provision for bad and
doubtful debts; (v) do not include any figure which is
referable to the value of an intangible asset; and (vi) make
full provision for depreciation of the fixed assets of the
Company having regard to their original cost and life; (vii) in
valuing work-in-progress no value was attributed in respect of
eventual profits and adequate provision was made for such
losses as were at the time of signature of the Company
Financial Statements by directors of the Company reasonably
foreseeable as arising or likely to arise; and (viii) slow-
moving stock was written down appropriately, redundant,
obsolete, obsolescent or defective stock was wholly written off
and the value attributed to any other stock did not exceed the
lower of cost (on a first-in first-out basis) and net
realizable value (or replacement value) at June 30, 1998.
(c) The profits and losses of the Company shown in
the Company Financial Statements were not, save as disclosed in
the Company Financial Statements or in any note accompanying
them, to any material extent affected by any extraordinary,
exceptional, unusual or non-recurring income, capital gain
expenditure or by any other factor known to the Shareholders
rendering any such profit or loss for such period exceptionally
high or low. The audited profit and loss accounts and audited
balance sheets of the Company contained in the Company
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Financial Statements were prepared on a consistent basis with
each other.
Section 3.8 Financial Records. The financial records of
the Company comply with the requirements of Sections 221 and
222, Companies Act 1985, do not contain or reflect any material
inaccuracy or discrepancy and present and reflect in accordance
with generally accepted accounting principles and standards the
financial position of and all transactions entered into by the
Company or to which it has been a party. All relevant
financial books and records of the Company are in its
possession or otherwise under its direct control. Where any of
the records of the Company are kept on electronic media, the
Company: (i) is the owner of all hardware and all software
necessary to enable it to use the records as they have been
used in its business to the date of this Agreement and to the
Closing Date; (ii) does not share any hardware or software
relating to the records with any person; and (iii) maintains
adequate back up records and support in the event of any fault
or failure of computer hardware and software. The products,
systems and services of the Company which are dependant in any
way on automatic instructions or any computer hardware or
software meet Year 2000 conformity and the products, systems
and services of the Company will not be affected, in terms of
performance or functionality, by the use of dates before,
during and after the Year 2000.
Section 3.9 Absence of Undisclosed Liabilities. Except
as set forth in the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries had at June 30, 1998, or
has incurred since that date, any liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any
nature, except (a) liabilities, obligations or contingencies (i)
which are accrued or reserved against in the Company Financial
statements or reflected in the notes thereto or (ii) which were
incurred after June 30, 1998, and were incurred in the ordinary
course of business and consistent with past practices,
(b) liabilities, obligations or contingencies which (i) would
not, in the aggregate, have a material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of the Company, taken as a
whole, or (ii) have been discharged or paid in full prior to
the date hereof, and (c) liabilities and obligations which are
of a nature not required to be reflected in the consolidated
financial statements of the Company prepared in accordance with
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generally accepted accounting principles consistently applied
and which were incurred in the ordinary course of business.
Section 3.10 Accounts Receivable. All accounts
receivable of the Company reflected on the Recent Balance
Sheet, and as incurred in the ordinary course of business since
the date thereof, represent arm's length sales actually made in
the ordinary course of business; are collectible (net of the
provision shown on the Recent Balance Sheet for bad or doubtful
accounts) in the ordinary course of business without the
necessity of commencing legal proceedings; are subject to no
counterclaim or set off; and there are not any valid grounds
for their dispute other than as provided for in the provision
for doubtful accounts on the Recent Balance Sheet. The Company
Disclosure Schedule contains a schedule of aged accounts
receivable included in the Recent Balance Sheet.
Section 3.11 Absence of Certain Changes or Events. Since
June 30, 1998, there not been any material adverse change in
the business, operations, properties, assets, liabilities,
condition (financial or other) or results of operations of the
Company taken as a whole.
Section 3.12 Borrowings. Complete and accurate details
of all overdraft, loan and other financial facilities available
to the Company and the amounts outstanding under them at the
close of business on the day preceding the date of this
Agreement are set out in the Disclosure Schedule. None of the
Shareholders nor the Company has done anything, or omitted to
do anything, as a result of which the continuance of any of
those facilities might be affected or prejudiced. The Company
is not a party to, nor has it agreed to enter into, any
lending, or purported lending, agreement or arrangement (other
than agreements to give credit in the ordinary course of its
business). The Company is not exceeding any borrowing limit
imposed upon it by its bankers, other lenders, its articles of
association or otherwise nor has the Company entered into any
commitment or arrangement which might lead it so to do. No
overdraft or other financial facilities available to the
Company are dependent upon the guarantee of or security
provided by any other person. No event has occurred or been
alleged which is or, with the passing of any time or the giving
of any notice, certificate, declaration or demand, would become
an event of default under, or breach of, any of the terms of
any loan capital, borrowing, debenture or financial facility of
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the Company or which would entitle any person to call for
repayment prior to normal maturity. The Company is not, nor
has it agreed to become, bound by any guarantee, indemnity,
surety or similar commitment. The Company does not have any
credit cards in issue in its own name or that of any officer or
employee of the Company or any person connected with any
officer or employee. The Company has not received any grants,
allowances, loans or financial aid of any kind from any
government departmental or other board, body, agency or
authority which may become liable to be refunded or repaid in
whole or in part.
Section 3.13 Insurance. The Company maintains, and at
all material times has maintained, adequate insurance coverage
against all risks normally insured against by companies
carrying on similar business, for the full replacement or
reinstatement value of its business and assets, and in
particular has maintained professional indemnity insurance, and
all other insurance required by statue. All insurance policies
in relation to which the Company has any interest ("the
Policies" and "Policy" means any of them) are valid and
enforceable and all premiums due have been paid. There are no
outstanding claims or circumstances likely to give rise to a
claim under the Policies or which would be required to be
notified to the insurers and nothing has been done or omitted
to be done which has made or could make any Policy void or
voidable or as a result of which the renewal of any Policy
might be refused or the premiums due in respect of them may be
liable to be increased. There are no claims outstanding or
threatened, or so far as the Shareholders are aware, pending,
against the Company which are not fully covered by insurance.
Section 3.14 Contracts and Commitments. The Company is
not a party to any agreement, arrangement or commitment which
(i) has or is expected to have material consequences in terms
of expenditure or revenue; (ii) relates to matters outside its
ordinary business or was not entered into on arms' length
terms; (iii) constitutes a commercial transaction or
arrangement which deviates from the usual pattern for it;
(iv) can be terminated in the event of any change in the
underlying ownership or control of it or would be materially
affected by such change; (v) cannot readily be fulfilled or
performed by it on time; or (vi) cannot be terminated, without
giving rise to any liabilities on it, by it giving three
months' notice or less. The Company has no outstanding bid,
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tender, sale or service proposal which is material in relation
to its business or which, if accepted, would be likely to
result in a loss or granted any power of attorney or other such
authority (whether express or implied) which is still
outstanding. Neither the Company nor any Shareholder is aware
of any actual, potential or alleged breach, invalidity, grounds
for termination, grounds for rescission, grounds for avoidance
or grounds for repudiation of, any contract to which the
Company is a party.
Section 3.15 Terms of Trade. The Company has not given
any guarantee or warranty (other than any implied by law) or
made any representation in respect of any product or services
sold or supplied by it nor has it accepted any liability to
service, maintain, repair or otherwise do or refrain from doing
anything in relation to such goods or services after they have
been sold or supplied by it except for those contained in its
standard conditions of trading.
Section 3.16 Licenses and Consents. Complete and
accurate details of all licenses, consents, permissions,
authorizations and approvals required by the Company for the
carrying on of its business are contained in the Disclosure
Schedule and all of them have been obtained by it and are in
full force and effect. All reports, returns and information
required by law or as a condition of any license, consent,
permission, authorization or approval to be made or given to
any person or authority in connection with the business of the
Company have been made or given to the appropriate person or
authority and there are no circumstances which indicate that
any license, consent, permission, authorization or approval
might not be renewed in whole or in part or is likely to be
revoked, suspended or cancelled or which may confer a right of
revocation, suspension or cancellation.
Section 3.17 Trading Partners. The Company does not act
or carry on business in partnership with any other person and
is not a member of any corporate or unincorporated body,
undertaking or association. The Company is not a party to any
joint venture agreement or arrangement or any agreement or
arrangement under which it is to participate with any other
person in any business. The Company is not a party to any
agency, distributorship, license or management agreement or is
a party to any contract or arrangement which restricts its
freedom to carry on its business in such manner as it may think
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fit in any part of the world. The Company does not have any
branch, agency, place of business or establishment outside the
United Kingdom.
Section 3.18 Competition and Trade Regulation Law. The
Company is not nor has it been a party to, or is or has been
connected in any agreement or arrangement, or is conducting or
has conducted itself, whether by omission or otherwise, in a
manner which contravenes, is invalidated in whole or in part by
or has been, or should have been, registered under the
Restrictive Trade Practices Acts 1976 and 1977; contravenes the
provisions of the Resale Prices Act 1976, the Trade Description
Acts 1968 and 1972, the Fair Trading Act 1973 or any secondary
legislation made under either of those Acts; infringes Article
85 or 86 of the Treaty of Rome or any regulation or directive
made under it or any other antitrust or similar legislation in
any jurisdiction in which the Company has assets or carries on
or intends to carry on business or where its activities may
have any effect. The Company has not given an undertaking to,
or is subject to, any order of or investigation by, or has
received any request for information from; received, nor so far
as the Shareholders are aware, is it likely to receive any
process, notice or communication, formal or informal by or on
behalf of; been or is a party to, or is or has been concerned
in, any agreement or arrangement in respect of which an
application for negative clearance and/or exemption has been
made to the Office of Fair Trading, the Monopolies and Mergers
Commission, the Secretary of State, the European Commission or
any other governmental or other authority, department, board,
body or agency of any country having jurisdiction in antitrust
or similar matters in relation to any business of the Company.
Section 3.19 Litigation. There are no claims, suits,
actions or proceedings pending or, to the knowledge of the
Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the
consummation of the transactions contemplated by this Agreement
or which could reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to
materially and adversely affect the business, operations,
properties, assets, condition (financial or other) or results
of operations of the Company taken as a whole. Except as set
forth in the Company Disclosure Schedule, the Company is not
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subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits
or restricts the consummation of the transactions contemplated
hereby or would have any material adverse effect on the
business, operations, properties, assets, condition (financial
or other) or results of operations of the Company, taken as a
whole.
Section 3.20 Registration Statement and Proxy Statement.
None of the information to be supplied by the Company or the
Shareholders for inclusion in (a) the Registration Statement or
(b) the Proxy Statement will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at
the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the
meeting of shareholders of Buyer to be held in connection with
the transactions contemplated by this Agreement or, in the case
of the Registration Statement, as amended or supplemented, at
the time it becomes effective and at the time of the meeting
of the shareholders of Buyer, contain any untrue statement of
a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading.
Section 3.21 No Violation of Law. The Company is not in
violation of nor has it been given notice or been charged with
any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitations any
applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for
violations which, in the aggregate, could not reasonably be
expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company, taken as a whole.
Except as set forth in the Company Disclosure Schedule, as of
the date of this Agreement, no investigation or review by any
governmental regulatory body or authority is pending or to the
knowledge of the Company threatened, nor has any governmental
or regulatory body or authority indicated an intention to
conduct the same, other than, in each case, those the outcome
of which, as far as reasonably can be foreseen, will not have a
material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results
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of operations of the Company taken as a whole. The Company has
all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and
approvals necessary to conduct their businesses as presently
conducted (collectively, the "Company Permits'), except for
permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals, the absence of which,
alone or in the aggregate, would not have a material adverse
effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company taken as a whole. The Company is not in violation of
the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would
not have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of
operations or prospects of the Company, taken as a whole.
Section 3.22 Directors and Employees. (a) Complete and
accurate details of the terms and conditions of employment of
all employees of the Company, including the date of
commencement of their continuous period of employment and any
arrangements or assurances (whether or not legally binding) in
relation to their employment are contained in the Disclosure
Schedule. The Company has maintained up-to-date, adequate and
suitable records regarding the service and terms and conditions
of employment of each of its employees. The Company is not a
party to any consultancy agreement, any agreement for
management services or any contract of services.
(b) Since May 31, 1998 there has been no material
alteration in the terms of employment or any material change in
the number of employees employed by the Company; or any
material increase in any fees, remuneration or benefits paid or
payable to any officer or employee of the Company, nor are any
negotiations for any such increase current or likely to take
place in the next six months. No officer or employee of the
Company is remunerated on a profit-sharing, bonus or commission
basis. No amount is owing to any present or former officer or
employee of the Company. There is no share option or share
incentive scheme in operation by or in relation to the Company
for any of its officers or employees nor is the introduction of
such a scheme proposed.
(c) The Company has at all relevant times complied
with all its obligations under statute and otherwise concerning
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the health and safety at work of its employees and there are no
claims pending or threatened by any employee or third party in
respect of any accident or injury which are not fully covered
by insurance. Except as provided for or taken into account in
the Company Financial Statements no claim or liability to make
any payment of any kind to any person who is or has been an
officer or employee has been received or incurred by the
Company whether under the Employment Rights Act 1996, Sex
Discrimination Act 1975, the Race Relations Act 1976 and the
Disability Discrimination Act 1995 or otherwise; and no
gratuitous payment of a material amount has been made or
promised by the Company in connection with the actual or
proposed termination or suspension of employment or variation
of any contract of employment of any present or former officer
or employee.
(d) No officer or employee of the Company has given
notice or is under notice of dismissal nor are there any
service contracts between the Company and its officers or
employees which cannot be terminated by the Company by 12
weeks' notice or less without giving rise to a claim for
damages or compensation (other than a statutory redundancy
payment). The Company has not, in contravention of the
Companies Act 1985 entered into any arrangement involving the
acquisition of non-cash assets from or disposal to; granted any
loan or quasi-loan to or entered into any guarantee or credit
transaction with; or provided any security in connection with
any loan, quasi-loan or credit transaction to or with any
director or person connected with a director within the meaning
of the Companies Act 1985.
Section 3.23 Industrial Relations. The Company is not a
party to any contract, agreement or arrangement with any trade
union or other body or organization representing any of its
employees. The Company has in relation to its employees and
former employees complied with all conditions of service,
customs and practices and, where relevant, all collective
agreements and recognition agreements for the time being.
Within the last 12 months, the Company has not given notice of
any redundancies to the Secretary of State, started
consultations with any appropriate representatives or failed to
comply with any obligation under the provisions of Chapter II
Trade Union and Labour Relations (Consolidation) Act 1992, been
a party to any relevant transfer as defined in the Transfer of
Undertakings (Protection of Employment) Regulations 1981 or has
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failed to comply with any duty to inform and consult any
appropriate representatives under the Regulations. No dispute
has arisen between the Company and a material number or
category of its employees nor are there any present
circumstances known to the Shareholders which are likely to
give rise to any such dispute. No training schemes,
arrangements or proposals exist nor have there been any such
schemes, arrangements or proposals in the past in respect of
which a levy may become payable by the Company under the
Industrial Training Act of 1982.
Section 3.24 Pensions. (a) The Company has no plans,
schemes or arrangements in relation to death, disability or
retirement of any of its employees, other than set forth in the
Disclosure Schedule. In relation to each such plan, scheme or
arrangement disclosed in the Disclosure Schedule complete and
accurate details of it (including, where appropriate, copies of
all trust deeds and rules together with copies of all amending
deeds and resolutions and the latest actuarial reports); and of
the basis on which the Company makes, or is liable to make,
contributions to it are contained in the Disclosure Schedule.
(b) All contributions which are payable by the
Company in respect of each plan, scheme or arrangement
disclosed in the Disclosure Schedule and all contributions due
from the employees of the Company as members of it have been
duly made and the Company has fulfilled all its obligations
under it; it has been administered in accordance with the
preservation requirements within the meaning of Section 69,
Pension Schemes Act 1993, the equal access requirements of
Section 118, Pension Schemes Act 1993, the contracting-out
requirements of Part III, Pension Schemes Act 1993 and in
accordance with the trusts, powers and provisions of such
plans, schemes or arrangements; no undertakings or assurances
have been given to any employee of the Company as to the
continuance, introduction, increase or improvement of any
pension rights or entitlements which the Company and/or the
Purchaser would be required to implement in accordance with any
legal obligation so to do; no power to augment benefits has
been exercised; no discretion has been exercised to admit to
membership a present or former director or employee who would
not otherwise be eligible for admission to membership; no
discretion has been exercised to provide in respect of a member
a benefit which would not otherwise be provided; all benefits
(other than a refund of contributions with interest where
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appropriate) payable on the death of a member while in service,
or during a period of sickness or disability of a member, are
fully insured under a policy effected with an insurance company
to which the Insurance Companies Act 1982 applies and the
Shareholders are not aware of any circumstances in which such
insurance would be invalidated; all liabilities or benefits
accrued in respect of service completed at completion of
employment are secured on an ongoing basis taking account of
future increases in salary to normal retirement date and
increases in pensions on the basis of realistic actuarial and
financial assumptions and the obligations imposed on it as a
result of Barber v. Guardian Royal Exchange; and it is an
exempt approved scheme and/or retirement annuity approved, or
capable of being approved, under the Taxes Act and the
Shareholders are not aware of any reasons why any such approval
could be withdrawn. No death, disability or retirement
gratuity is currently being paid or has been promised nor will
pending completion of employment be paid or promised by the
Company to or in respect of any officer or employee of the
Company.
Section 3.25 Title to Properties. The Company does not
hold title to any freehold property.
Section 3.26 Leasehold Properties. (a) Each lease,
underleases of freehold property, (a "Lease"), is valid and in
full force and there are no circumstances which would entitle
any landlord or other person to exercise any power of entry or
take possession of the freehold property underlying the Lease
(the "Property"). The Company has paid the rent and observed
and performed the covenants on the part of the tenant and the
conditions contained in any Lease to which it is a party, and
the last demands (or receipts of for rent if issued) were
unqualified. All licenses, consents and approvals required
from the landlords and any superior landlords for the grant of
the Leases and during the continuance of the Leases have been
obtained any covenants on the part of the tenant contained in
those licenses, consents and approvals have been duly performed
and observed. There are no rent reviews outstanding or in
progress under any Lease. Any alteration or improvement
carried out on any Property is to be disregarded for rent
review purposes.
(b) There is no obligation to reinstate any Property
by removing or dismantling any alteration made to it by the
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Company or any of its predecessors in title and the Company has
not incurred any liability for dilapidation. In the case of a
lease granted for more than 21 years, the lease is registered
at HM Land Registry with absolute title. The Company has not
in the past been the tenant of or guarantor of any leasehold
premises in respect of which any obligations or liabilities
could still accrue to the Company. The sale of the Shares will
not constitute an assignment or other dealing in respect of any
Property under the terms of the Leases.
Section 3.27 Tenancies. The Properties are not held
subject to, and with the benefit of, any tenancies.
Section 3.28 Contamination. No Property is likely to be
entered in any register introduced under the Environment Act
1995 or otherwise as land which may be contaminated or which
may have been put to a contaminative use. To the knowledge of
the Shareholders, there is not on, in or under any of the
Properties or any adjoining property any substance which could
give rise to harm to human health or safety or damage to the
environment. To the knowledge of the Shareholders, each
property formerly owned or occupied by the Company was free of
such substances at the time it ceased to be owned or occupied
by the Company.
Section 3.29 Environmental Matters. In relation to its
business, the Company holds and has since its incorporation
always held all Environmental Consents. Complete and accurate
details of all Environmental Consents held by the Company are
contained in the Disclosure Schedule and are valid and
subsisting. The Company has not received any notification that
any Environmental Consent it holds is or is likely to be
modified, restricted or withdrawn and no works or other
upgrading or investment are or will be necessary to secure
compliance with or to maintain any such Environmental Consent.
The Company has not breached the terms, conditions or
provisions of any Environmental Consent. The Company has not
received any notification or informal indication that further
Environmental Consents will be required under Environmental Law
in order for it to continue its present business. The Company
(and each of its officers, employees and agents in the course
of its business) has complied with all applicable Environmental
Laws and has never received any notification under
Environmental Law requiring it to take or omit to take any
action. The Company has not been threatened with any
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investigation or inquiry by any organization, or received any
complaint, in connection with environmental matters.
Section 3.30 Intangible Property and Computer Software.
(a) The Company owns, licenses or otherwise has the right to
use its corporate name and any and all trademarks, service
marks, trade names, brand marks, brand names, patents (other
than patents that have expired), patent applications and
employee invention disclosures and copyrights used by the
Company (collectively, the "Intangible Assets") and custom
computer software as may be necessary for the conduct of the
business of the Company as now being conducted. To the extent
any Intangible Asset is the subject of a licensing agreement,
such licensing agreement and the parties thereto are described
in the Company Disclosure Schedule. Except as described in the
Company Disclosure Schedule, the Company has not received
notice that it is infringing upon any patent, trademark,
service mark, trade name, copyright, or other similar right
held by others relating to intangibles and the Company knows of
no basis for any such claim of infringement.
(b) Any Intangible Asset which is capable of
registration has been registered or is the subject of an
application for registration, and is or will when duly
registered be valid, binding and enforceable and (i) in the
case of registrations, all renewal fees have been paid by their
due date and all such action necessary to preserve the
registration has been taken; and (ii) in the case of pending
applications, the Shareholders are not aware of any reason why
any such applications should not proceed to grant. No
licenses, registered under or other rights have been granted or
agreed to be granted by the Company to any person in respect of
any Intangible Assets. Except in the ordinary course of
business and on a confidential basis, no disclosure has been
made of any of the confidential information, know how,
technical processes, financial or trade secrets or customer or
supplier lists of the Company. Any names used by the Company
other than its corporate name are contained in the Disclosure
Schedule and do not infringe the rights of any person.
Section 3.31 Title to Assets. The Company owns both
legally and beneficially all of its properties and assets, as
reflected in the most recent balance sheet included in the
Company Financial Statements, except for properties and assets
that have been disposed of in the ordinary course of business
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since the date of such balance sheet, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever, except (i) such imperfections in title and
easements and encumbrances, if any, as are not substantial in
character, amount or extent and do not materially detract from
the value, or interfere with the present use of the property
subject thereto or affected thereby, or otherwise materially
impair the Company's business operations (in the manner
presently carried on by the Company) or (ii) as disclosed in
the Company Disclosure Schedule, and except for such matters
which, singly or in the aggregate, could not reasonably be
expected to materially and adversely affect the business,
operations, properties, assets, condition (financial or other)
or results of operations of the Company taken as a whole. No
floating charge created by the company has crystallized and
there are no circumstances likely to cause such a floating
charge to crystallize. Each item of plant and machinery,
vehicle and office equipment used by the Company is in good
repair and condition and has been regularly maintained. The
Company has not acquired, or agreed to acquire, any asset on
terms that title to that asset does not pass until full payment
is made or all indebtedness incurred in connection with the
acquisition is discharged.
Section 3.32 Liability. Other than Taxation (as defined
in Section 5.15(e) below) provided for in the Company Financial
Statements on Profits (as defined in Section 5.15(e) below)
attributable to transactions in the ordinary course of trading
since June 30, 1998, the Company is not accountable or liable
for any form of Taxation. All documents which are required to
be stamped or on which any form of Taxation is due and which
are in the possession of the Company, or by virtue of which the
Company has any right, have been duly and sufficiently stamped
or the Taxation on such documents has been paid.
Section 3.33 Records and Compliance. The Company has
fully complied with all requirements imposed on it by any
statute, law, regulation or similar provision, providing for,
imposing or relating to Taxation and in particular the Company
has punctually paid all Taxation for which it is liable and
made all withholdings and deductions in respect, or on account,
of any Taxation from any payments made by it which it is
obliged or entitled to make and has accounted punctually and in
full to the appropriate Tax Authority for all amounts so
withheld or deducted; the Company has properly prepared and
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punctually submitted all notices and returns required for Tax
purposes and provided complete and accurate information to any
Tax Authority and all such returns and information remain
complete and accurate; the Company has kept and maintains
complete and accurate accounting records, invoices and other
documents appropriate or requisite for Tax purposes and has
sufficient records relating to past events to calculate its
liability to Taxation or the relief from Taxation which would
arise on any disposal or on the realization of any assets owned
at Closing; there are no disputes, unsettled or outstanding
assessments or appeals in respect of Taxation and the Company
has not within the last six years been subject to any back duty
inquiry or other dispute with any Tax Authority (as defined in
Section 5.15(e) below) and there are no circumstances which may
give rise to such an inquiry or dispute; the Company has not
within the last six years been liable or will become liable to
pay any interest, penalty, fine or sum of a similar nature in
respect of Taxation nor, in relation to value added tax, has
received any penalty liability notice, surcharge liability
notice or other written notice or warning under the VATA (as
defined in Section 5.15(e) below); and the Company has duly
submitted all claims and disclaimers which have been assumed to
have been made for the purposes of the Company Financial
Statements. The Company has not within the last six years
received any audit, visit or inspection from any Tax Authority
and no such audit, visit or inspection is imminent or has been
requested. The amount of Tax chargeable on the Company or
subject to withholding or deduction by it during any accounting
period ending on or within the last six years has not to any
material extent depended on any concession, agreement,
dispensation or other formal or informal arrangement with any
Tax Authority. The Company is not liable to be assessed to Tax
as agent for, or on account of, or otherwise on behalf of, any
other person. The Company has not made any claim or
application to pay any Tax by installments or to defer the
payment of any Tax.
Section 3.34 VAT The Company is registered for the
purpose of, and has complied in all respects with, the VATA and
is not subject to any conditions imposed or agreed with HM
Customs & Excise; and is not, and has not within the last six
years been a member of a group for value added tax purposes
under Section 43, VATA. The Company is not subject to The
Value Added Tax (Payments on Account) Order 1992. The Company
is not, nor has it within the last six years been, an agent or
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representative for, or otherwise liable to account for, value
added tax for or on account of any other person pursuant to
Sections 47 or 48, VATA. All supplies made by the Company are
taxable supplies, and all input tax for which the Company has
claimed credit has been paid by it, in respect of supplies made
to it relating to goods or services used or to be used for the
purpose of its business. The Company has not been required to
give security under paragraph 4, Schedule 11, VATA. The
Company has not made, nor will it prior to completion make, any
election to waive exemption under paragraph 2, Schedule 10,
VATA. The Company has not acquired any assets to which the
provisions of Part XV, Value Added Tax Regulations 1995 (the
Capital Goods Scheme) may apply.
Section 3.35 Close Company. The Company is not, nor has
it at any time within the last six years been either a close
company within the meaning of Section 414, ICTA or a close
investment holding company for the purposes of Section 13A,
ICTA. The Company has not at any time made any loan or advance
or payment or given any consideration or effected any
transaction falling within Sections 419 to 422 (inclusive),
ICTA; made a transfer of value which is or may be liable to
Taxation under the provisions of Section 94, Inheritance Tax
Act 1984, or made transfer falling within the provisions of
Section 125, TCGA.
Section 3.36 Group Transactions. Within the last six
years the Company has not been a member of a group of
companies.
Section 3.37 Capital Gains. The Company has not at any
time made any claim under Sections 152 to 158 (inclusive), TCGA
(as defined in Section 5.15(e) below); or acquired or disposed
of any asset, or entered into any transaction whatsoever
otherwise than by way of bargain at arms length.
Section 3.38 Dividends and Distributions. The Company
has not at any time made any distribution within the meaning of
Sections 209 to 211 (inclusive) and Section 418, ICTA except in
respect of any dividends disclosed in its audited accounts.
Except as provided in the Company Financial Statements, the
Company is not liable to make any payment of advance
corporation tax or an amount equivalent to advance corporation
tax. The Company has never purchased, repaid or redeemed or
agreed to purchase, repay or redeem its share capital, or
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capitalized or agreed to capitalize in the form of redeemable
shares or debentures any profits or reserves, or otherwise
issued any share capital or other security as paid up otherwise
than by the receipt of new consideration within the meaning of
Section 254, ICTA. The Company has not at any time been a
party to or otherwise involved in any transaction to which
Sections 213 to 218 (inclusive), ICTA applied.
Section 3.39 Inheritance Tax and Gifts No circumstances
exist under which any power within Section 212, Inheritance Tax
Act 1984 could be exercised in relation to, and there is no
Inland Revenue charge (within the meaning of Section 237,
Inheritance Tax 1984) attaching to, any shares or securities in
or over any assets of the Company. The Company is not liable
and there are no circumstances in existence as a result of
which it may become liable to be assessed to Tax as donor or
donee of any gift or transferee of value.
Section 3.40 Anti-Avoidance. The Company has not entered
into, nor has it been party to, any scheme or arrangement
designed partly or wholly for the purpose of avoiding or
deferring Taxation, such that a Liability to Taxation, (as
defined in Section 5.15(e) below) may arise after Closing as a
result of or in consequence of such a scheme or arrangement.
Section 3.41 Overseas Matters. The Company has at all
times been resident for Taxation purposes in the United
Kingdom, which is the only country whose Tax Authorities seek
to charge tax on the worldwide income, profits or gains of the
Company and the Company has during the past six years paid
Taxation and is not liable to pay Taxation on its income,
profits or gains to any Tax Authority in any other country.
The Company has not at any time carried out any transaction
which is or was unlawful under Section 765, ICTA.
Section 3.42 Breach of Covenant. There is no Liability
to Taxation in respect of which a claim could be made under the
Covenant for Taxation and there are no circumstances likely to
give rise to any such Liability.
Section 3.43 Pooling of Interests. Neither the Company
nor, to the knowledge of the Company or the Shareholders, any
of its affiliates has taken or agreed to take any action that
would prevent the transactions contemplated hereby from (a)
constituting a reorganization qualifying under the provisions
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of Section 368 (a) of the Code or (b) being treated for
financial accounting purposes as a Pooling Transaction.
Section 3.44 Brokers and Finders. The Company has not
entered into any contract, arrangement or understanding with
any person or firm which may result in the obligation of the
Company to pay any finder's fees, brokerage or agent
commissions or other like payments in connection with the
transactions contemplated hereby. There is no claim for
payment by the Company of any investment banking fees, finder's
fees, brokerage or agent commissions or other like payments in
connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.
Section 3.45 Investment Matters. The Shareholders have
received and examined Buyer's SEC Reports. Shareholders have
had the opportunity to ask questions and receive answers from
Buyer concerning Buyer, and have been furnished with all other
information about Buyer which they have requested. Each of the
Shareholders has been fully apprised of all facts and
circumstances and has obtained all legal and financial advice
necessary to permit him or her to make an informed decision
about acquiring the NTS Shares, that he or she has sufficient
knowledge and experience in business and financial matters,
that he or she is capable of evaluating the merits and risks of
an investment in the NTS Shares and that he or she has the
capacity or protect his or her own interests in connection
with the transactions contemplated by this Agreement.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
Section 4.1 Conduct of Business by the Company Prior to
Effective Time. Except as otherwise contemplated by this
Agreement or disclosed in the Company Disclosure Schedule,
after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Buyer shall otherwise
agree in writing, the Company shall:
(a) conduct its business in the ordinary and usual
course of business and consistent with past practice;
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(b) not (i) amend or propose to alter its memorandum
or articles of association, (ii) split, combine or reclassify
its issued share capital or (iii) declare, set aside or pay any
dividend or distribution payable in cash, stock, property or
otherwise;
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of, any additional shares of,
or any options, warrants or rights of any kind to acquire any
shares of any class or any debt or equity securities
convertible into or exchangeable for such shares, except that
Company may issue shares upon exercise of options outstanding
on the date hereof;
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business or (B) borrowings
to refinance existing indebtedness on terms which are
reasonably acceptable to Buyer, (ii) redeem, purchase, acquire
or offer to purchase or acquire any of its shares or any
options, warrants or rights to acquire any of its shares or any
security convertible into or exchangeable for its shares, (iii)
take any action which would jeopardize the treatment of the
transactions contemplated herein as a Pooling Transaction (iv)
take or fail to take any action which action or failure to take
action would cause the Company or its shareholders (except to
the extent that any shareholders receive cash in lieu of
fractional shares) to recognize gain or loss for income tax
purposes as a result of the consummation of the transactions
contemplated herein, (v) make any acquisition of any assets or
businesses other than expenditures for fixed or capital assets
in the ordinary course of business and consistent with the
Company's capital budget disclosed in the Company Disclosure
Schedule, (vi) sell, pledge, dispose of or encumber any assets
or businesses other than sales in the ordinary course of
business, or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact
its business organization and goodwill, keep available the
services of its present officers and key employees, and
preserve the goodwill and business relationships with customers
and others having business relationships with it and not engage
in any action, with the intent to adversely impact the
transactions contemplated by this Agreement;
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(f) subject to restrictions imposed by applicable
law, confer on a regular and frequent basis with one or more
representatives of Buyer to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment,
severance, special pay arrangement with respect to termination
of employment or other similar arrangements or agreements with
any directors, officers or key employees, except in the
ordinary course and consistent with past practice; provided,
however, that the Company shall in no event enter into any
written employment agreement;
(h) not adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, pension, retirement,
deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement
for the benefit or welfare of any employee or retiree, except
as required to comply with changes in applicable law; and
(i) use commercially reasonable efforts to maintain
with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and
against such risks and losses as are consistent with past
practice.
Section 4.2 Conduct of Business by Buyer and Subsidiary
Pending the Merger. Except as otherwise contemplated by this
Agreement, after the date hereof and prior to the Closing Date
or earlier termination of this Agreement, unless the Company
shall otherwise agree in writing, Buyer shall, and shall cause
its subsidiaries, to:
(a) conduct their respective businesses in the
ordinary and usual course of business and consistent with past
practice;
(b) not (i) amend or propose to amend their
respective charters or by-laws, (ii) split, combine or
reclassify (whether by stock dividend or otherwise) their
outstanding capital stock, or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of (x) a cash dividend
declarable consistent with past practices, at the discretion of
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the Board of Directors of Buyer and (y) dividends or
distributions by a wholly-owned subsidiary of Buyer;
(c) not issue, sell, pledge or dispose of, or agree
to issue, sell, pledge or dispose of, any additional shares of,
or any options, warrants or rights of any kind to acquire any
shares of their capital stock of any class or any debt or
equity securities convertible into or exchangeable for such
capital stock, except that (i) Buyer may issue shares upon
conversion of convertible securities and exercise of options
outstanding on the date hereof and (ii) Buyer may issue
options (and shares upon exercise of such options) pursuant to
its employee stock option plans in effect on the date hereof in
the ordinary course of business and consistent with past
practices.
(d) not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A)
borrowings in the ordinary course of business, or (B)
borrowings to refinance existing indebtedness on terms which
are reasonably acceptable to the Company, or (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of
its capital stock or any options, warrants or rights to acquire
any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) not (A) take any
action which would jeopardize the treatment of the transactions
contemplated herein as a Pooling Transaction, or (B) take or
fail to take any action which action or failure to take action
would cause Buyer or its shareholders (except to the extent
that any shareholders receive cash in lieu of fractional
shares) to recognize gain or loss for federal income tax
purposes as a result of the consummation of the transactions
contemplated herein, (iv) make any acquisition of any assets or
businesses, except in the ordinary course of business (v) sell,
pledge, dispose of or encumber any assets or businesses other
than sales in the ordinary course of business or (vi) enter
into any contract, agreement, commitment or arrangement with
respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact
their respective business organizations and goodwill, keep
available the services of their respective present officers and
key employees, and preserve the goodwill and business
relationships with customers and others having business
relationships with them and not engage in any action, with the
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intent to adversely impact the transactions contemplated by
this Agreement;
(f) subject to restrictions imposed by applicable
law, confer on a regular and frequent basis with one or more
representatives of the Company to report operational matters of
materiality and the general status of ongoing operations; and
(g) use commercially reasonable efforts to maintain
financially responsible insurance companies insurance on its
tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
Section 4.3 Control of the Company's Operations. Nothing
contained in this Agreement shall give to Buyer, directly or
indirectly, rights to control or direct the Company's
operations prior to the Closing Date. Prior to the Closing
Date, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision
of its operations.
Section 4.4 Control of Buyer's Operations. Nothing
contained in this Agreement shall give to the Company, directly
or indirectly, rights to control or direct Buyer's operations
prior to the Closing Date. Prior to the Closing Date, Buyer
shall exercise, consistent with the terms and conditions of
this Agreement, complete control and supervision of its
operations.
Section 4.5 Acquisition Transactions. (a) After the date
hereof and prior to the Closing Date or earlier termination of
this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to, initiate, solicit, negotiate or provide
confidential information to facilitate, and the Company shall,
and shall cause each of its subsidiaries to, cause any officer,
director or employee of, or any attorney, accountant,
investment banker, financial advisor or other agent retained by
it, not to initiate, solicit, negotiate or provide nonpublic or
confidential information to facilitate, any proposal or offer
to acquire all or any substantial part of the business and
properties of the Company or any capital stock of the Company,
whether by transactions contemplated hereby, purchase of
assets, tender offer or otherwise, whether for cash, securities
or any other consideration or combination thereof (any such
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transactions being referred to herein as "Acquisition
Transactions").
(b) The Company shall immediately notify Buyer after
receipt of any Acquisition Proposal or any request for
nonpublic information relating to the Company or its
subsidiaries in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company or
any subsidiary by any person or entity that informs the Board
of Directors of the Company or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such
notice to Buyer shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and
the terms and conditions of such proposal, inquiry or contact.
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1 Access to Information. (a) The Company shall
afford to Buyer its accountants, counsel, financial advisors
and other representatives (the "Buyer Representatives") and
Buyer and its subsidiaries shall afford to the Company and its
accountants, counsel, financial advisors and other
representatives (the "Company Representatives") full access
during normal business hours throughout the period prior to the
Closing Date to all of their respective properties, books,
contracts, commitments and records (including, but not limited
to, Tax Returns) and, during such period, shall furnish
promptly to one another (i) a copy of each report, schedule and
other document filed or received by any of them pursuant to the
requirements of federal or state securities laws or filed by
any of them with the SEC in connection with the transactions
contemplated by this Agreement or which may have a material
effect on their respective businesses, properties or personnel
and (ii) such other information concerning their respective
businesses, properties and personnel as Buyer or the Company,
as the case may be, shall reasonably request; provided that no
investigation pursuant to this Section 5.1 shall amend or
modify any representations or warranties made herein or the
conditions to the obligations of the respective parties to
consummate the transactions contemplated herein. Buyer and its
subsidiaries shall hold and shall use their reasonable best
efforts to cause the Buyer Representatives to hold, and the
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Company shall hold and shall use its reasonable best efforts to
cause the Company Representatives to hold, in strict confidence
all non-public documents and information furnished to Buyer or
the Company, as the case may be, in connection with the
transactions contemplated by this Agreement, except that (i)
Buyer, and the Company may disclose such information as may be
necessary in connection with seeking the Buyer Required
Statutory Approvals and Buyer Shareholders' Approval, the
Company Required Statutory Approvals and (ii) Buyer and the
Company may disclose any information that it is required by law
or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated
in accordance with its terms, each party shall promptly
redeliver to the other all non-public written material provided
pursuant to this Section 5.1 and shall not retain any copies,
extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda,
notes and other writings prepared by Buyer or the Company to
the extent based on the information in such material shall be
deleted or destroyed (and Buyer and the Company shall use their
respective reasonable best efforts to cause their advisors and
representatives to the same extent to delete or destroy their
documents, memoranda and notes), and such destruction (and
reasonable best efforts) shall be certified in writing by an
authorized officer supervising such destruction.
(c) The Company shall promptly advise Buyer and
Buyer shall promptly advise the Company in writing of any
change or the occurrence of any event after the date of this
Agreement having, or which, insofar as can reasonably be
foreseen, in the future may have, any material adverse effect
on the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company or
Buyer and its subsidiaries, as the case may be, taken as a
whole.
Section 5.2 Registration Statement and Proxy Statement.
Buyer shall file with the SEC as soon as is reasonably
practicable after the date hereof the Proxy
Statement/Prospectus and shall use all reasonable efforts to
have the Registration Statement declared effective by the SEC
as promptly as practicable. Buyer shall also take any action
required to be taken under applicable state blue sky or
securities laws in connection with the issuance of Buyer Common
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Stock pursuant hereto. Buyer and the Company shall promptly
furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any
action by any of them in connection with the preceding
sentence. The information provided and to be provided by Buyer
and the Company, respectively, for use in the Proxy
Statement/Prospectus shall be true and correct in all material
respects without omission of any material fact which is
required to make such information not false or misleading as of
the date thereof and in light of the circumstances under which
given or made.
Section 5.3 Buyer Shareholders' Approval. Buyer shall,
as promptly as practicable, submit this Agreement and the
transactions contemplated hereby for the approval of its
shareholders at a meeting of shareholders and, subject to the
fiduciary duties of the Board of Directors of Buyer under
applicable law, shall use its reasonable best efforts to obtain
shareholder approval and adoption (the "Buyer Shareholders'
Approval") of this Agreement and the transactions contemplated
hereby. Such meeting of shareholders shall be held as soon as
practicable following the date on which the Registration
Statement becomes effective. Buyer shall, through its Board of
Directors, but subject to the fiduciary duties of the members
thereof, recommend to its shareholders approval of the
transactions contemplated by this Agreement.
Section 5.4 Compliance with the Securities Act. Buyer
and the Company shall each cause each principal executive
officer, each director and each other person who is an
"affiliate, " as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act, of Buyer or the Company, as
the case may be, to deliver to Buyer and the Company on or
prior to the Closing Date a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to
sell, sell or otherwise dispose of any shares of Buyer Common
Stock issued such person, except, in each case, pursuant to an
effective registration statement or in compliance with Rule
145, as amended from time to time, or in a transaction which,
in the opinion of legal counsel satisfactory to Buyer, is
exempt from the registration requirements of the Securities Act
and, in any case, until after the results covering 30 days of
post-Closing combined operations of Buyer and the Company have
been filed with the SEC, sent to shareholders of Buyer or
otherwise publicly issued.
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Section 5.5 Listing of NTS Shares. Buyer shall use its
reasonable best efforts to effect, at or before the Closing
Date, authorization for listing on the Nasdaq National Market
("Nasdaq"), upon official notice of issuance, of the shares of
Buyer Common Stock to be issued to the Shareholders.
Section 5.6 Expenses and Fees. (a) All costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such expenses. Expenses incurred in connection with
printing and filing the Proxy Statement/Prospectus shall be
paid by Buyer.
Section 5.7 Agreement to Cooperate. (a) Subject to the
terms and conditions herein provided, each of the parties
hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary or appropriate waivers,
consents or approvals of third parties required in order to
preserve material contractual relationships of the Company, all
necessary or appropriate waivers, consents and approvals and
SEC "no-action" letters to effect all necessary registrations,
filings and submissions and to lift any injunction or other
legal bar to the transactions contemplated hereby (and, in such
case, to proceed with the transactions contemplated hereby as
expeditiously as possible), subject, however, to the requisite
votes of the shareholders of Buyer.
(b) The Company and Buyer each agree to give prompt
notice to the other of, and to use their respective reasonable
best efforts to prevent or promptly remedy, (i) the occurrence
or failure to occur or the impending or threatened occurrence
or failure to occur, of any event which occurrence or failure
to occur would be likely to cause any of its representations or
warranties in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the
Closing Date and (ii) any material failure on its part to
comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
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(c) In the event any litigation is commenced by any
person or entity relating to the transactions contemplated by
this Agreement, Buyer shall have the right, at its own expense,
to participate therein, and the Company will not settle any
such litigation without the consent of Buyer, which consent
will not be unreasonably withheld.
Section 5.8 Public Statements. The parties shall consult
with each other prior to issuing any press release or any
written public statement with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such
press release or written public statement prior to such
consultation.
Section 5.9 Option Plans. Prior to the Closing Date, the
Company and Buyer shall take such action as may be necessary to
cause each unexpired and unexercised option (each a "Company
Option") to be automatically converted at the Closing Date into
an option (each a "Buyer Option") to purchase a number of
shares of Buyer Common Stock equal to the number of shares of
Company Common Stock that could have been purchased under the
Company Option multiplied by the Exchange Ratio, at a price per
share of Buyer Common Stock equal to the option exercise price
determined pursuant to the Company Option divided by the
Exchange Ratio. At the Closing Date, all references in the
stock option agreements to the Company shall be deemed to refer
to Buyer. Buyer shall assume all of the Company's obligations
with respect to Company Options as so amended and shall from
and after the Closing Date, make available for issuance upon
exercise of the Buyer Options all shares of Buyer Common Stock
covered thereby and amend its Registration Statement on Form S-
8 to cover the additional shares of Buyer Common Stock subject
to Buyer Options granted in replacement of Company Options.
Section 5.10 Directors' and Officers' Indemnification.
(a) The indemnification provisions of the Articles of
Association of the Company as in effect at the Closing Date
shall not be amended, repealed or otherwise modified for a
period of two years from the Closing Date in any manner that
would adversely affect the rights thereunder of individuals who
at the Closing Date were directors, officers, employees or
agents of the Company, unless such modification is required by
law.
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(b) After the Closing Date, the Company shall, to
the fullest extent permitted under applicable law, indemnify
and hold harmless, each present and former director, officer,
employee and agent of the Company or any of its subsidiaries
(each, together with such persons, heirs, executors or
administrators, an "indemnified Party" and collectively, the
"indemnified Parties") against any costs or expenses (including
attorneys fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out
of, relating to or in connection with any action or omission
occurring prior to the Closing Date (including, without
limitation, acts or omissions in connection with such persons
serving as an officer, director or other fiduciary in any
entity if such service was at the request or for the benefit of
the Company) or arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of
any such claim, action, suit, proceeding or investigation
(whether arising before or after the Closing Date), (i) the
Company shall pay the reasonable fees and expenses of counsel
selected by the indemnified Parties, which counsel shall be
reasonably satisfactory to Buyer and the Company, promptly
after statements therefor are received, (ii) Buyer will
cooperate in the defense of any such matter, and (iii) any
determination required to be made with respect to whether an
indemnified Party's conduct complies with the standards set
forth under the Companies Acts of 1985 and 1989 and the
Company's Articles of Association and other applicable laws
shall be made by independent legal counsel acceptable to Buyer
and the indemnified Party, provided, however, that the Company
shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably
withheld).
(c) In the event the Company (i) consolidates with or
merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or
transactions contemplated hereby or (ii) transfers all or
substantially all of its properties and assets to any person,
then and in each such case, proper provisions shall be made so
that the successors and assigns of the Company shall assume the
obligations set forth in this Section 5.10.
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Section 5.11 Corrections to the Proxy
Statement/Prospectus and Registration Statement. Prior to the
date of approval of the transactions contemplated herein by the
shareholders of Buyer, the Company and Buyer shall correct
promptly any information provided by it to be used specifically
in the Proxy Statement/Prospectus and Registration Statement
that shall have become false or misleading in any material
respect and shall take all steps necessary to file with the SEC
and have declared effective or cleared by the SEC any amendment
or supplement to the Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause
the Proxy Statement/Prospectus as so corrected to be
disseminated to the shareholders of Buyer to the extent
required by applicable law.
Section 5.12 Effect on Accounting Treatment. Each of the
parties hereto agrees that, notwithstanding anything to the
contrary contained in the Agreement, nothing contained in or
contemplated by this Agreement shall require any of the parties
hereto to take any action which would jeopardize the treatment
of the transactions contemplated herein as a pooling of
interests under APB No. 16.
Section 5.13 Covenant Not to Compete. (a) For the period
beginning on the Closing Date and ending upon the expiration of
three (3) years after the Closing Date, the Management
Shareholders, and each of them, covenant and agree that they
will not engage directly or indirectly, in the business of (i)
outsourcing people for temporary technical and professional
position in the information technology and information systems
industries and (ii) the recertification of third party software
(together the "Company Business") in the United Kingdom (the
"Territory"), so long as Buyer or any of its affiliates
(including the company) continues to engage in the Company
Business in the Territory. Without limiting the generality of
the foregoing, during such period, no Management Shareholder
will own, manage, operate or control, provide consulting
services to or for, work as an employee or an affiliate of,
serve as a director of, loan funds to, own any equity interest
(either as a shareholder, partner, joint venturer or otherwise)
in, any entity engaged in a business competitive with the
Company Business in the Territory.
(b) Each Management Shareholder acknowledges that in
the event of his or her breach of the foregoing covenant, money
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damages would be an inadequate remedy. Accordingly, without
prejudice to the rights of Buyer to also seek such damages or
other remedies available to it, Buyer may seek injunctive or
other equitable relief in any proceeding which Buyer may bring
to enforce the foregoing covenant not to compete on its express
and explicit terms. No waiver of any breach of the foregoing
covenant shall be implied from the forbearance or failure of
Buyer to take action thereon.
(c) Buyer and each Management Shareholder agree
that, if any provision of this section should be adjudicated to
be invalid or unenforceable, such provision shall be deemed
deleted herefrom with respect, and only with respect, to the
operation of such provision in the particular jurisdiction in
which such adjudication was made; provided, however, that to
the extent any such provision may be valid and enforceable in
such jurisdiction by limitations on the scope of the
activities, geographical area or time period covered, each
Shareholder and Buyer agree that such provision instead shall
be deemed limited to the extent, and only to the extent,
necessary to make such provision enforceable to the fullest
extent permissible under the laws and public policies applied
in such jurisdiction.
(d) The covenants contained in this section shall be
construed and enforced independently of any other provision of
this Agreement or any other provision of this Agreement or any
other understanding or agreement between the parties hereof,
and the existence of any claim or cause of action of any
Management Shareholder against Buyer of whatever nature, shall
not constitute a defense to the enforcement against a
Management Shareholder of the covenants contained herein.
(e) The covenant contained in this section shall
have no force and effect if a Management Shareholder's
employment with the Company ceases for any reason other than
his or her voluntary termination or termination for cause. For
purposes of this Agreement "cause" shall mean termination of
employment for the following reasons:
(i) If a Management Shareholder has been
convicted of, or pleads guilty or nolo contendere to a felony,
or to any other crime as to which a Management Shareholder's
conviction or plea of guilty or nolo contendere could
reasonably be expected to have a material adverse effect on the
Company, its business, its goodwill or its prospects, the
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Company may terminate a Management Shareholder's employment
immediately by notice to the Management Shareholder given at
any time after the occurrence of such conviction or plea.
(ii) If a Management Shareholder has engaged in
embezzlement of Company funds, fraud or theft from the Company,
the Company may terminate the Management Shareholder's
employment immediately by notice to the Management Shareholder.
(iii) If a Management Shareholder has, in
the good faith determination of the Board of Directors of the
Company (1) engaged in willful misconduct with respect to the
Company, or (2) grossly neglected his duties to the Company,
the Company may terminate the Management Shareholder's
employment immediately by notice to the Management Shareholder,
which notice shall specify in reasonable detail the alleged
willful misconduct or gross neglect.
(iv) If a Management Shareholder has, in the
good faith determination of the Board of Directors of the
Company, breached a material term of his employment agreement
with the Company.
(f) Notwithstanding the foregoing, the provisions of
this Section 5.13 shall not apply to John Remington.
Section 5.14 Nonsolicitation. During the Noncompetition
Period, each Management Shareholder agrees that, without
Buyer's prior written consent, he or she will not, either
solicit, induce or attempt to influence any employee of the
Company to terminate his or her employment with the Company or
employ any such individual for a period of twelve (12) months
after such individual's employment with the Company is
terminated.
Section 5.15 Nondisparagement; Referrals. Each
Management Shareholder agrees that he or she will not, nor
shall he or she cause any third party to, either solicit,
induce, attempt to influence, or take any action that is
intended by Management Shareholder to discourage any past or
present lessor, licensor, customer, supplier, licensee,
business prospect or other business associate of Buyer or the
Company from entering into or maintaining, or causing it to
terminate or cease, the same relationships with the Company
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with respect to the Company Business after the Closing Date as
it maintained with the Company with respect to the Company
Business prior to the Closing Date, and during the
Noncompetition Period shall refer, all customer inquiries
relating to the Company Business to the Company or to Buyer as
soon as possible after receiving such inquiries.
Section 5.16 Confidentiality. Each Management
Shareholder agrees that he or she shall not use or disclose
Confidential Information (as hereinafter defined) except with
prior consent of NTS; or pursuant to process or requirements of
law, provided that the Management Shareholder shall have
notified Buyer promptly upon notice to the Management
Shareholder of such process or requirements (including what
type of Confidential Information the Management Shareholder may
be required to disclose) and, to the extent possible without
incurring penalty or liability, shall have afforded Buyer the
opportunity to seek judicial or other protective relief from
the disclosure sought through such process or requirements.
"Confidential Information" means identities, locations and
requirements and proclivities of clients or customers with
respect to services or products provided by the Company
Business; and any other financial, client, customer, supplier,
marketing, distribution and other confidential, private or
proprietary information connected with the Company Business as
conducted by the Company or by Buyer. The foregoing
restrictions with respect to the disclosure of Confidential
Information shall not apply to any information which (i) is on
the date hereof or thereafter becomes generally available to
the public other than as a result of a disclosure, directly or
indirectly by The Management Shareholder, (ii) was available to
The Management Shareholder on a nonconfidential basis prior to
its disclosure to The Management Shareholder, or (iii) becomes
available to The Management Shareholder on a nonconfidential
basis from a source other than the Company or its
representatives, which source was not itself bound by a
confidentiality agreement with the Company or its
representatives and did not receive such information, directly
or indirectly, from a person or entity so bound.
Section 5.17 Obligation to Indemnify. (a) Each
Management Shareholder agrees to indemnify, defend and hold
harmless the Company and Buyer (and their respective directors,
officers, representatives and permitted assigns) from and
against all Losses (as hereinafter defined) in excess of any
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amount received or receivable by the Indemnitee (as hereinafter
defined) from any source, including without limitation,
insurance proceeds or other third party sources, resulting from
or arising out of any claim of whatsoever kind or nature,
including without limitation, claims relating to
misrepresentation with Knowledge (as hereinafter defined), or
breach of any warranty, covenant or agreement of the Management
Shareholders or the Company contained in this Agreement or in
any certificate or other instrument furnished pursuant to this
Agreement.
(b) Buyer and the Company agree to indemnify, defend
and hold harmless each Management Shareholder from and against
all Losses in excess of any amount received or receivable by
the Indemnitees from any source, including without limitation,
insurance proceeds or third party sources, resulting from or
arising out of any claim of whatsoever kind or nature,
including without limitation, claims relating to
misrepresentation with Knowledge, or breach of any warranty,
covenant or agreement of Buyer contained in the this Agreement
or in any certificate or other instrument furnished pursuant to
the this Agreement.
(c) Promptly after receipt by Buyer (or the Company)
or any Management Shareholder of notice of any demand, claim or
circumstances which, with the lapse of time, would give rise to
a claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability")
that results in a Loss, the party receiving such notice (the
"Indemnitee") shall give notice thereof in the manner provided
in this Agreement (the "Claims Notice") to the other party (the
"Indemnitor"). The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary) of the Loss that has been or may be
suffered by Indemnitee. Failure of Indemnitee to promptly give
notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the Indemnitor
demonstrates actual damage caused by such failure. Upon
Indemnitor's request, Indemnitee shall provide Indemnitor with
such reasonable documentation as Indemnitor shall request
pertaining to any Asserted Liability made by the Indemnitee.
(d) Notwithstanding anything to the contrary set
forth herein, if the insurance proceeds received or receivable
by the Indemnitees from and against all Losses are taken into
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account by the insurance carrier in calculating the
Indemnitee's premiums for such type of insurance coverage in
future periods, Indemnitor shall be entitled to offset sums
owing hereunder against the amount of the insurance proceeds
received by Indemnitees net of premium increases in the next
succeeding year attributable to the event giving right to
indemnification hereunder.
(e) The term "Losses" as used in this Section 5.17
is not limited to matters asserted by third parties against
NTS, each Management Shareholder, or the Company, but includes
Losses incurred or sustained by any of them in the absence of
third party claims.
(f) Indemnitor may elect to compromise or defend, at
its own expense and by its own counsel, any Asserted Liability;
provided, however, that Indemnitor may not compromise or settle
any Asserted Liability without the consent of Indemnitee unless
such compromise or settlement requires no more than a monetary
payment for which Indemnitee and any other indemnifiable
parties hereunder are fully indemnified or involves other
matters not binding upon Indemnitee or such other indemnifiable
parties. If Indemnitor elects to compromise or defend such
Asserted Liability, it shall within fifteen (15) days (or
sooner, if the nature of the Asserted Liability so requires)
notify Indemnitee of its intent to do so and Indemnitee shall
cooperate in the compromise of, or defense against, such
Asserted Liability. If Indemnitor elects not to compromise or
defend any Asserted Liability, fails to notify Indemnitee of
its election as herein provided or contests its obligation to
indemnify hereunder, Indemnitee may pay, compromise or defend
such Asserted Liability without prejudice to any right it may
have hereunder. In any event, Buyer (or the Company) and each
Management Shareholder may participate, at their own expense,
in the defense of any Asserted Liability in respect of which
such person may have an indemnification obligation hereunder.
If either party chooses to defend or participate in the defense
of any Asserted Liability, it shall have the right to receive
from the other party any books, records or other document Buyer
within such party's control that are necessary or appropriate
for such defense.
(g) Notwithstanding anything to the contrary
contained in this Agreement, a party shall be liable for any
Losses only to the extent that such party had knowledge (as
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hereinafter defined) of the facts and circumstances giving rise
to such Losses. As used herein, "Knowledge means, as to any
person's awareness of any fact as of the time of determination,
such person's then current actual conscious awareness of such
fact. In the case of NTS, Knowledge shall be limited to the
Knowledge of the Chief Executive Officer, Senior Executive Vice
President, Chief Financial Officer and Secretary of Buyer.
(h) Notwithstanding anything herein contained to the
contrary, each Management Shareholder's obligation to indemnify
against any Losses under this Article V shall be limited to a
percentage of the Loss equal to each Management Shareholder's
pro rata share of the Parent Common Stock issued in connection
with the Merger, which percentage is reflected on Schedule I
attached hereto.
(i) Notwithstanding anything contained in this
Agreement to the contrary, (i) the liability of the Management
Shareholders under the Covenant for Taxation set forth in
Section 5.18 shall be reduced if and to the extent that the
Liability to Taxation shall have been recovered pursuant to a
claim by Buyer under the warranties and representations
contained in Article III (the "Shareholders' warranties and
representations"). In the absence of fraud or dishonesty on
the part of any of the Management Shareholders: (a) the Buyer
shall not have any claim against any Shareholder for any Loss
of whatsoever kind or nature, including, without limitation,
any Loss related to any warranty, representation or covenant
contained herein or any claim of any kind by any third party
for any reason whatsoever, if, and to the extent that, it is
fully and fairly disclosed in the Company Disclosure Schedule;
(b) the Management Shareholders shall not be liable for any
claim against any Shareholder for any Loss whatever kind or
nature, including, without limitation, any Loss related to any
warranty, representation or covenant contained herein or any
claim of any kind by any third party for any reason whatsoever,
unless: (i) they have received written notice from the Buyer
giving reasonable details of the claim and, if practicable, the
Buyer's estimate of the amount involved on or before the
expiration of twenty-four (24) months from the Closing Date or,
in the case of any claim relating to Taxation, not later than
six (6) years from the Closing Date; (ii) the amount of the
claim is no less than $10,000 and when aggregated with all
other claims made on the same occasion or previously, is equal
to or exceeds $50,000 (in which case the Management
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Shareholders shall be liable for the whole amount and not
simply the excess); (c) the aggregate claim against any
Shareholder for any Loss of whatsoever kind or nature,
including, without limitation, any Loss related to any
warranty, representation or covenant contained herein or any
claim of any kind by any third party for any reason whatsoever,
shall not exceed an amount equal to the average closing price
of Buyer's common stock, as quoted on the Nasdaq national
market for the ten (10) trading days immediately preceding the
Closing multiplied by the number of NTS Shares received by the
Management Shareholder under the terms of this Agreement;
(d) the Management Shareholders shall not be liable for any
claim if and to the extent that a liability arises or is
increased as a result of: (i) any voluntary act or omission of
the Buyer (or any persons deriving title from it) or the
Company after Closing done or suffered outside the ordinary
course of business and other than pursuant to a legally binding
obligation entered into by the Company before Closing; or
(ii) the retrospective imposition of Taxation or by a change in
the law (whether retrospectively or not) occurring after
Closing or the withdrawal after completion of any published
concession or general practice of a Tax Authority.
Section 5.18 Covenant for Taxation. (a) Except to the
extent that a provision or reserve in respect of such Liability
to Taxation was made in the Company Financial Statements or
such Liability to Taxation arises in respect of any Transaction
in the ordinary course of business since June 30, 1998, the
Shareholders shall pay to Buyer an amount equal to any
Liability to Taxation of the Company or any settlement of any
claim of Liability to Taxation] (i) arising directly or
indirectly from any Transaction effected on or before the
Closing Date; or (ii) in respect of, or by reference to, any
Profits earned, accrued or received on or before the Closing
Date; or (ii) arising from the failure by a Vendor Associate
(as that term is defined in Section 5.15(e)) to discharge a
Liability to Taxation which falls upon such Vendor Associate
arising directly or indirectly from any Transaction effected or
deemed to have been effected at any time by the Shareholders;
or in respect of any Profits earned, accrued or received at any
time by the Shareholders together with all costs and expenses
incurred by Buyer or the Company in connection with any such
Liability to Taxation or Claim for Taxation.
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(b) In a case of a loss of any Relief, the amount
that is to be treated for the purposes of subparagraph (b) as a
Liability to Taxation shall (i) be the amount of that Relief,
if the Relief that was the subject of the loss was either a
deduction from or offset against Taxation or a right to a
repayment of Taxation; (ii) be the amount of Taxation which has
been saved in consequence of the setting off where the Relief
that was the subject of the loss was a deduction from or offset
against gross Profits, and the Relief was the subject of a
setting off; and (iii) in any other case where the Relief that
was the subject of the loss was a deduction from or offset
against gross Profits, be the amount of Taxation which would,
on the basis of the rates of Taxation current at the date of
the loss, have been saved but for the loss.
(c) Where the Shareholders become liable to make any
payment under the Covenant for Taxation, the due date for the
making of that payment shall be (i) in a case that involves an
actual payment of Taxation by the Company, the date that is the
last date on which the Company is liable to pay to the
appropriate Tax Authority the Taxation in question in order to
avoid incurring a liability to interest or penalty or, if
later, five days following a written demand from Buyer; or
(ii) in the case of a loss of any Relief, the date falling five
days following the date when the Shareholders have been
notified by Buyer that the auditors for the time being of the
Company have certified, at the request of Buyer, that the
Shareholders have a liability for a determinable amount in
respect of the loss of such Relief under the Covenant for
Taxation.
(d) The liability of the Shareholders under this
Section shall be joint and several.
(e) Certain terms used in this Agreement shall have
the meanings set forth below:
"Liability to Taxation":
(a) any liability of the Company to make actual
payments of Taxation regardless of whether such Taxation
is chargeable or attributable directly or primarily to the
Company or to any other person;
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(b) the loss of any Relief which would (were it
not for the loss) have been available to the Company and
which has been treated as an asset in preparing the
Company Financial Statements Accounts or taken into
account in computing (and so reducing) any provision for
Taxation (including deferred taxation) which appears in
the Company Financial Statements (or which, but for the
availability of such Relief prior to its loss would have
appeared in the Accounts); and
(c) the setting off against any liability to
Taxation or against Profits earned, accrued or received on
or before Completion of any Relief which arises in respect
of any Transaction effected on or after Completion in
circumstances where, but for the setting off, the Company
would have had an actual liability to Taxation in respect
of which Buyer would have been able to make a claim
against the Shareholders under the Covenant for Taxation;
"Profits": income, profits and gains, the value of
any supply and any other consideration, value or receipt
used or charged for Taxation purposes and references to
"Profits earned, accrued or received" include Profits
deemed to have been earned, accrued or received for
Taxation purposes;
"Relevant Claim or Surrender": any claim or
surrender to or by the Company of:
(a)(a) group relief under Chapter IV, Part X,
ICTA;
(b)(b) advance corporation tax under
Section 240, ICTA; or
(c)(c) a tax refund under Section 102,
Finance Act 1989;
"Relief": any loss, relief, allowance, exemption,
set off, deduction, credit or right to repayment of
Taxation and references to the "loss of any Relief"
include the loss, reduction, counteraction, disallowance,
setting-off against Profits, crediting against a liability
to make an actual payment of Taxation or failure to obtain
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a Relief and "lose" and "lost" shall be construed
accordingly;
"Taxation": all forms of taxation and statutory,
governmental, supra-governmental, state, provincial, local
governmental or municipal impositions, duties,
contributions and levies (including withholdings and
deductions), whether domestic or foreign, whenever imposed
and all penalties, fines, charges, costs and interest
relating to any such matters and "Tax" shall be construed
accordingly;
"Tax Authority": any taxing or other authority, body
or official competent to administer, impose or collect any
Liability to Taxation;
"TCGA": the Taxation of Chargeable Gains Act 1992;
"Transaction": any transaction, deed, act, event,
omission, payment or receipt of whatever nature and
whether actual or deemed for Tax purposes and references
to "any Transaction effected on or before Completion"
include the combined result of two or more Transactions,
the first of which shall have taken place or commenced (or
be deemed to have taken place or commenced) on or before
Completion;
"VATA": the Value Added Tax Act 1994 and all other
statutes, statutory instruments, regulations and notices
containing provisions relating to value added tax;
"Vendor Associate": each of the Shareholders and any
persons connected with any of them within the meaning of
Section 839, ICTA;
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligations. The
respective obligations of each party to enter into and complete
the Closing shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions:
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(a) this Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite
vote of the shareholders of the Buyer under applicable law and
in accordance with the rules of the Nasdaq National Market;
(b) the shares of Buyer Common Stock issuable in the
Shareholders shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance;
(c) the Registration Statement shall have become
effective in accordance with the provisions of the Securities
Act, and no stop order suspending such effectiveness shall have
been issued and remain in effect and no proceeding for that
purpose shall have been instituted by the SEC or any state
regulatory authorities;
(d) no preliminary or permanent injunction or other
order or decree by any federal or state court which prevents
the consummation of the transactions contemplated herein shall
have been issued and remain in effect (each party agreeing to
use its reasonable efforts to have any such injunction, order
or decree lifted);
(e) no action shall have been taken, and no statute,
rule or regulation shall have been enacted, by any state or
federal government or governmental agency in the United States
which would prevent the consummation of the transactions
contemplated herein or make the consummation of the
transactions contemplated herein illegal;
(f) all governmental waivers, consents, orders and
approvals legally required for the consummation of the
transactions contemplated hereby, and all consents from lenders
and other parties required to consummate the transactions
contemplated herein, shall have been obtained and be in effect
at the Closing Date;
(g) Ernst & Young, LLP, certified public accountants
for Buyer, shall have delivered a letter, dated the Closing
Date, addressed to Buyer, in form and substance reasonably
satisfactory to Buyer, to the effect that the transactions
contemplated herein will qualify for a pooling of interests
accounting treatment if consummated in accordance with this
Agreement; and
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(h) Duitch, Franklin & Co. LLP, certified public
accountants for the Company, shall have delivered a letter
dated the Closing Date, addressed to the Company, in form and
substance reasonably satisfactory to the Company, stating that
the transactions contemplated herein will qualify for a pooling
of interests accounting treatment if consummated in accordance
with this Agreement.
Section 6.2 Conditions to Obligations of the Company and
Shareholders. Unless waived by the Company, the obligation of
the Company to enter into and complete the Closing shall be
subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) Buyer shall have performed in all material
respects their agreements contained in this Agreement required
to be performed on or prior to the Closing Date and the
representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects on
and as of the date made and on and as of the Closing Date as if
made at and as of such date, and the Company shall have
received a certificate of the President and Chief Executive
Officer or a Vice President of Buyer to that effect;
(b) the Company shall have received an opinion of
Foley Lardner Weissburg & Aronson in form and substance
reasonably satisfactory to the Company, dated the Closing Date,
to the effect that the Company and holders of Company Common
Stock (except to the extent any shareholders receive cash in
lieu of fractional shares) will recognize no gain or loss for
federal income tax purposes as a result of consummation of the
transactions contemplated herein;
(c) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have
occurred which have resulted in or constitute, a material
adverse change in the business, operations, properties, assets,
condition (financial or other) or results of operations of
Buyer and its subsidiaries, taken as a whole; and
(d) all governmental waivers, consents, orders, and
approvals legally required for the consummation of the
transactions contemplated herein shall have been obtained and
be in effect at the Closing Date, and no governmental authority
shall have promulgated any statute, rule or regulation which,
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when taken together with all such promulgations, would
materially impair the value to Buyer of the transactions
contemplated herein.
(e) NTS Acquisition Corp., a wholly owned subsidiary
of NTS Technical Systems, a wholly owned subsidiary of Buyer
shall have consummated its merger with and into XXCAL, Inc., a
California corporation, and an affiliate of the Company.
(f) The Company and Shareholders shall have received
a favorable opinion, in form and content reasonably acceptable
to them, dated the Closing Date, from Buyer's counsel.
(g) Buyer shall have received a favorable opinion,
in form and content reasonably acceptable to Buyer, dated as of
the Closing Date, from the Company's counsel.
(h) Buyer shall have received resignations from each
director and officer of the Company and each of the Company's
subsidiaries.
Section 6.3 Conditions to Obligations of Buyer. Unless
waived by Buyer the obligations of Buyer to effect the
transactions contemplated herein shall be subject to the
fulfillment at or prior to the Closing Date of the additional
following conditions:
(a) the Company shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date and the
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on
and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Buyer shall have received a
Certificate of the President and Chief Executive Officer or of
a Vice President of the Company to that effect;
(b) Buyer shall have received an opinion of
Sheppard, Mullin, Richter & Hampton LLP, in form and substance
reasonably satisfactory to Buyer, dated the Closing Date, to
the effect that Buyer will recognize no gain or loss for
federal income tax purposes as a result of consummation of the
transactions contemplated herein;
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(c) the Affiliate Agreements required to be
delivered to Buyer pursuant to Section 5.4 shall have been
furnished as required by Section 5.4;
(d) since the date hereof, there shall have been no
changes that constitute, and no event or events shall have
occurred which have resulted in or constitute, a material
adverse change in the business, operations, properties, assets,
condition (financial or other) or results of operations of the
Company taken as a whole; and
(e) all governmental waivers, consents, orders and
approvals legally required for the consummation of the
transactions contemplated herein and the transactions
contemplated hereby shall have been obtained and be in effect
at the Closing Date, and no governmental authority shall have
promulgated any statute, rule or regulation which, when taken
together with all such negotiations, would materially impair
the value to Buyer of the transactions contemplated herein.
(f) NTS Acquisition Corp., a wholly owned subsidiary
of NTS Technical Systems, a wholly owned subsidiary of Buyer
shall have consummated its merger with and into XXCAL, Inc., a
California corporation, and an affiliate of the Company.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date, whether
before or after approval by the shareholders of the Company or
Buyer, as follows:
(a) The Company shall have the right to terminate
this Agreement:
(i) if the Closing is not completed by December
31, 1998 (provided that the right to terminate this
Agreement under this Section 7.1 (a) (i) shall not be
available to the Company if the failure of the Company to
fulfill any obligation to Buyer under or in connection
with this Agreement has been the cause of or resulted in
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the failure of the transactions contemplated hereby to
occur on or before such date);
(ii) if the Closing is enjoined by a final,
unappealable court order;
(iii) if Buyer (A) fails to perform in any
material respect any warranty or representation or fails
to perform in any material respect any of its material
covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after
notice of such default is given to Buyer by the Company.
(iv) if there shall be any statute, rule or
regulation enacted that would prevent the consummation of
the transactions contemplated hereby or make the
consummation of the transactions contemplated hereby
illegal.
(b) Buyer shall have the right to terminate this
Agreement:
(i) if the transactions contemplated herein are
not completed by November 30, 1998 (provided that the
right to terminate this Agreement under this Section 7.1
(b) (i) shall not be available to Buyer if the failure of
Buyer to fulfill any obligation to the Company under or in
connection with this Agreement has been the cause of or
resulted in the failure of the transactions contemplated
hereby to occur on or before such date);
(ii) if the transactions contemplated herein is
enjoined by a final, unappealable court order; or
(iii) if the Company (A) fails to perform in
any material respect any warranty or representation or
fails to perform in any material respect any of its
material covenants in this Agreement and (B) does not cure
such default in all material respects within 30 days after
notice of such default is given to the Company by Buyer.
(iv) if there shall be any statute, rule or
regulation enacted that would prevent the consummation of
the transactions contemplated hereby or make the
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<PAGE>
consummation of the transactions contemplated hereby
illegal.
(c) As used in this Section 7.1, (i) "affiliate" has
the meaning assigned to it in Section 5.4 and (ii) "group" has
the meaning set forth in Section 13(d) of the Exchange Act and
the rules and regulations thereunder.
Section 7.2 Effect of Termination. In the event of
termination of this Agreement by either Buyer or the Company
pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void and there shall be no further obligation
on the part of the Company, Buyer or their respective officers
or directors or shareholders (except as set forth in this
Section 7.2 and in Sections 5.1, 5.6, 5.13 and 5.17 all of
which shall survive the termination). Nothing in this Section
7.2 shall relieve any party from liability for any willful or
intentional breach of this Agreement.
Section 7.3 Amendment. This Agreement may not be amended
except by action taken by the parties' respective Boards of
Directors or duly authorized committees thereof and then only
by an instrument in writing signed on behalf of each of the
parties hereto and in compliance with applicable law.
Section 7.4 Waiver. At any time prior to the Closing
Date, the parties hereto may (a) extend the time for the
performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension
or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Survival of Representations and Warranties.
All representations and warranties in this Agreement shall
survive the Closing, for a period of two years from the Closing
Date other than (i) representations and warranties in regard to
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<PAGE>
Taxation which shall survive the Closing for a period of six
years and (ii) the warranties of the Company, which shall cease
as of the Closing.
Section 8.2 Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed given if delivered personally, mailed by registered or
certified mail (return receipt requested) or sent via facsimile
to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Buyer to:
National Technical Systems, Inc.
24007 Ventura Boulevard
Calabasas, California 91302
Attention: Chief Executive Officer
Telecopy: (818) 591-0776
with a copy to:
James J. Slaby, Esq.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street
Los Angeles, California 90071-1780
Telecopy: (213) 620-1398
(b) If to the Company, to:
XXCAL, LIMITED
11500 West Olympic Boulevard, Suite 325
Los Angeles, California 90064
Attention: Chief Executive Officer
Telecopy: (310) 478-6226
with copies to:
Gregory L. Larson, Esq.
500 North Parkway Calabasas, Suite 220
Calabasas, California 91302-1494
Telecopy: (818) 222-2690
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<PAGE>
(c) If to the Shareholders to:
XXCAL, LIMITED Shareholders
c/o Gregory L. Larson, Esq.
500 North Parkway
Suite 220
Calabasas, California 91302-1494
Telecopy: (818) 222-2690
Section 8.3 Interpretation. The headings contained in
this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means
such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto
solely because such party or its legal representative drafted
such provision.
Section 8.4 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision in invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good
faith to modify this agreement so as to effect the original
intent of the parties as closely as possible in a mutually
acceptable manner to the fullest extent permitted by applicable
law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
Section 8.5 Miscellaneous. This Agreement (including the
documents and instruments referred to herein) (a) constitutes
the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof
(provided, however, that the provisions of agreement(s) between
the Company and Buyer concerning confidentiality shall remain
in effect to and including the Closing Date) (b) is not
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<PAGE>
intended to confer upon any other person any rights or remedies
hereunder, except for rights of Indemnitees under Section 5.17
and (c) shall not be assigned by operation of law or otherwise,
except that Subsidiary may assign this Agreement to any other
wholly-owned subsidiary of Buyer. THIS AGREEMENT SHALL BE
GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE, EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNTIED KINGDOM
MANDATORILY APPLY.
Section 8.6 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to
be an original, but all of which shall constitute one and the
same agreement.
Section 8.7 No Third Party Beneficiaries. Nothing in
this Agreement is intended or shall be construed to give any
person any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein.
Without limiting the generality of the foregoing, no provision
in this Agreement shall create any third party beneficiary or
other right in any employee or former employee of the Company
(including any beneficiary or dependent thereof) in respect of
continued employment (or resumed employment) with Buyer or the
Company or in respect of any benefits that may be provided,
directly or indirectly, under any benefit plan now or hereafter
maintained by the Company or Buyer.
Section 8.8 Parties In Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party
hereto, and except as set forth in Section 5.11, nothing in
this Agreement (either express or implied), is intended to
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<PAGE>
confer upon any other person any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, Buyer, the Company and the
Shareholders have caused this Agreement to be signed by their
respective officers and attested to as of the date flat written
above.
NATIONAL TECHNICAL SYSTEMS, INC.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ---------------------- -----------------------------
Secretary Name: Jack Lin
Title: President and Chief
Executive Officer
XXCAL, LIMITED
Attest:
/s/ Eugene Gold By: /s/ Marvin Hoffman
- ---------------------- -----------------------------
Secretary Name: Marvin Hoffman
Title: Chairman and Chief
Executive Officer
SHAREHOLDERS OF XXCAL, LIMITED
/s/ Marvin Hoffman /s/ Eugene Gold
- ----------------------------- -----------------------------
Marvin Hoffman Eugene Gold
/s/ Bill Schoneman /s/ Marilyn Gold
- ----------------------------- -----------------------------
Bill Schoneman Marilyn Gold
/s/ Darryl Hoffman /s/ Loren Hoffman
- ----------------------------- -----------------------------
Darryl Hoffman Loren Hoffman
/s/ Susan Bohle /s/ Al Lay
- ----------------------------- -----------------------------
Susan Bohle Al Lay
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<PAGE>
/s/ Steve Oettinger /s/ Bill Avery
- ----------------------------- -----------------------------
Steve Oettinger Bill Avery
/s/ Andrea Gold /s/ John Knoeppel
- ----------------------------- -----------------------------
Andrea Gold John Knoeppel
/s/ Dave Trebas /s/ Rose Marie Antonio
- ----------------------------- -----------------------------
Dave Trebas Rose Marie Antonio
/s/ Christopher Smith /s/ Felicity Smith
- ----------------------------- -----------------------------
Christopher Smith Felicity Smith
/s/ John Remington
- -----------------------------
John Remington
-73-
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<PAGE>
EXHIBIT 2.4
AMENDMENT NO. 1
TO
SHARE PURCHASE AGREEMENT
THIS AMENDMENT TO SHARE PURCHASE AGREEMENT dated as of the 19th day
of October 1998, by and among National Technical Systems, Inc., a California
corporation ("Buyer"), XXCAL, LIMITED, a United Kingdom corporation (the
"Company"), and Marvin Hoffman, Eugene Gold, Bill Schoneman, Marilyn Gold,
Darryl Hoffman, Loren Hoffman, Susan Bohle, Al Lay, Steve Oettinger, Bill Avery,
Andrea Gold, John Knoeppel, Dave Trebas, Rose Marie Antonio, Christopher Smith,
Felicity Smith and John Remington (collectively, the "Shareholders").
WITNESSETH
WHEREAS, Buyer, the Company and the Shareholders entered into that certain
Share Purchase Agreement (the "Agreement") dated as of the 21st day of August
1998; and
WHEREAS, Buyer, the Company and the Shareholders desire to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained hereinbelow, it is mutually agreed as follows:
1. Section 2.4(c) of said Agreement is hereby deleted and the following
substituted therefor:
"(c) Except for (i) filings with various state blue sky authorities,
and (ii) any required filings with or approvals from applicable state
authorities or commissions (the filings and approvals referred to in
clauses (i) and (ii) are collectively referred to as the "Buyer Required
Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery
of this Agreement by Buyer or the consummation by Buyer of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, in the aggregate,
-1-
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<PAGE>
have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) or results of operations of Buyer
and its subsidiaries, taken as a whole."
2. Section 2.9 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 2.9 Registration Statement and Proxy Statement. Neither (a)
the Registration Statement on Form S-3 to be filed under the Securities
Act with the SEC by Buyer in accordance with that certain Registration
Rights Agreement dated as of October 20, 1998 between Buyer and the
Company for the purpose of registering the resale of the shares of Buyer
Common Stock received by the Shareholders in connection with the Merger
(the "Registration Statement") or (b) the proxy statement to be
distributed in connection with the meeting of Company's shareholders to
obtain the approval of the Shareholders (the "Proxy Statement") will, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting of
shareholders of the Company to be held in connection with the transactions
contemplated by this Agreement, or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement and the Prospectus will, as of
their mailing date and effective date, respectively, comply as to form in
all material respects with all applicable laws, including the provisions
of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by Buyer
with respect to information supplied by the Company or the Shareholders
for inclusion therein."
3. Section 3.20 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 3.20 Registration Statement and Proxy Statement.
None of the information to be supplied by the Company or the
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<PAGE>
Shareholders for inclusion in (a) the Registration Statement or (b) the
Proxy Statement will, in the case of the Proxy Statement or any amendments
thereof or supplements thereto, at the time of the mailing of the Proxy
Statement and any amendments or supplements thereto, and at the time of
the meeting of shareholders of the Company to be held in connection with
the transactions contemplated by this Agreement or, in the case of the
Registration Statement, as amended or supplemented, at the time it becomes
effective and at the time of the meeting of the shareholders of the
Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading."
4. Section 5.2 of said Agreement is hereby deleted and the following
substituted therefor:
"Section 5.2 Investment Representation Letters and Registration
Rights Agreement. The issuance of Buyer Common Stock in the share purchase
will be a private offering exempt from registration provisions of the
Securities Act of 1933 (the "Securities Act") pursuant to Section 4(2) of
the Securities Act and Section 5 of the Securities Act pursuant to Rule
506 of Regulation D promulgated thereunder ("Regulation D"). The Company
will use its best efforts to (a) assist in qualifying the share purchase
as exempt from the registration provisions of Section 4(2) of the
Securities Act and Section 5 of the Securities Act pursuant to Rule 506 of
Regulation D and (b) cause each Shareholder to complete an investment
representation letter in a form to be provided by Buyer. The Buyer Common
Stock received by the Shareholders in the share purchase will not be
eligible for sale in the public market until after Buyer files with the
SEC a Registration Statement on Form S-3 covering such stock in accordance
with that certain Registration Rights Agreement dated as of October 19,
1998 between Buyer and the Company (which must be filed with the SEC
within ten (10) days following the Closing Date) and that registration
statement thereafter becomes effective. Buyer Common Stock issued pursuant
to the exercise of Company Options also will not be eligible for sale in
the public market until after Buyer files with the SEC a Registration
Statement or Form S-8 (which must be done within approximately 30 days
following the Closing Date). Thereafter, certain Company shareholders will
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<PAGE>
be subject to certain volume and other resale limitations as affiliates
of Buyer pursuant to SEC rules and the Buyers's policies."
5. The second sentence of Section 5.3 of said Agreement is hereby deleted.
6. The second sentence of Section 5.6(a) of said Agreement is hereby
deleted and the following substituted therefor:
"All costs and expenses incurred in connection with the preparation
of the Proxy Statement shall be paid by the party incurring such costs and
expenses."
7. Section 5.11 of said Agreement is hereby deleted.
8. Section 6.1(c) of said Agreement is hereby deleted.
9. Any and all other terms and conditions contained in the Agreement
shall remain in full force and effect and are hereby reaffirmed.
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<PAGE>
IN WITNESS WHEREOF, Buyer, the Company and the Shareholders have executed
or caused their duly authorized representatives to execute this Amendment to
Share Purchase Agreement as of the date first written above.
NATIONAL TECHNICAL SYSTEMS, INC.
Attest:
/s/ Harold Lipchik By: /s/ Jack Lin
- ----------------------- -------------------------------------------
Secretary Name: Jack Lin
Title: President and Chief Executive Officer
XXCAL, LIMITED
Attest:
/s/ Eugene Gold By: /s/ Marvin Hoffman
- ----------------------- -------------------------------------------
Secretary Name: Marvin Hoffman
Title: Chairman and Chief Executive Officer
SHAREHOLDERS OF XXCAL, LIMITED
/s/ Marvin Hoffman /s/ Eugene Gold
- ----------------------------- -----------------------------
Marvin Hoffman Eugene Gold
/s/ Bill Schoneman /s/ Marilyn Gold
- ----------------------------- -----------------------------
Bill Schoneman Marilyn Gold
/s/ Darryl Hoffman /s/ Loren Hoffman
- ----------------------------- -----------------------------
Darryl Hoffman Loren Hoffman
/s/ Susan Bohle /s/ Al Lay
- ----------------------------- -----------------------------
Susan Bohle Al Lay
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<PAGE>
/s/ Steve Oettinger /s/ Bill Avery
- ----------------------------- -----------------------------
Steve Oettinger Bill Avery
/s/ Andrea Gold /s/ John Knoeppel
- ----------------------------- -----------------------------
Andrea Gold John Knoeppel
/s/ Dave Trebas /s/ Rose Marie Antonio
- ----------------------------- -----------------------------
Dave Trebas Rose Marie Antonio
/s/ Christopher Smith /s/ Felicity Smith
- ----------------------------- -----------------------------
Christopher Smith Felicity Smith
/s/ John Remington
- -----------------------------
John Remington
-6-
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As the independent certified public accountants, we hereby consent to the
incorporation in the form 8-k of our report dated June 19, 1998 on the financial
statements of XXCAL, Inc. as of and for the years ended December 31, 1997, 1996
and 1995.
/s/ Duitch Franklin & Co., LLP
- ------------------------------
Duitch Franklin & Co., LLP
Los Angeles, California
October 27, 1998
Page 190 of 193
<PAGE>
EXHIBIT 23.2
Dear Sir
XXCAL LIMITED re Financials 1997, 1996, and 1995
------------------------------------------------
As Registered Auditors, we consent to the incorporation in this
form 8-K (that you transmitted to us earlier today) of our report
dated July 15, 1998 on the financial statements of XXCAL Limited
for the three years ended December 31, 1997, 1996 and 1995.
/s/ Richardson Whitby Smith
- ------------------------------
Richardson Whitby Smith
Chartered Accountants
Bristol, England
November 2, 1998
Page 191 of 193
<PAGE>
EXHIBIT 99.1
NTS(R) FOR IMMEDIATE RELEASE
- -------------------------------------------------------------------------------
National Agency Contact: Company Contact: Executive Office
Technical Neil Berkman Associates Lloyd Blonder 24007 Ventura Blvd.
Systems, Inc. (310) 277-5162 Chief Financial Calabasas, California
Officer 91302
Tel: (818) 591-0776
Fax: (S 18) 591-0899
NATIONAL TECHNICAL SYSTEMS COMPLETES MERGER
WITH XXCAL, INC. AND XXCAL LIMITED
XXCAL Becomes Part of NTS's New Information Technology (IT) Solutions Group
---------------------------------------------------------------------------
CALABASAS, CALIFORNIA, November 2, 1998 . . . NATIONAL TECHNICAL SYSTEMS, INC.
(NASDAQ: NTSC) (NTS) announced today that it has completed its merger with XXCAL
Inc. and XXCAL Limited, privately-held information technology (IT) consulting
and services companies based in Los Angeles, California. The merger, accounted
for as a pooling of interests, involved the issuance of approximately
1.3 million shares of NTS common stock. Prior to the merger, there were
approximately 7.3 million NTS common shares outstanding.
Noting that the XXCAL companies were profitable on combined revenue of
approximately $14 million for the six months ended June 30, 1998, NTS President
and Chief Executive Officer Jack Lin said, "XXCAL will be the core of our new IT
Solutions Group under the direction of Aaron Cohen, a founder of NTS and Vice
Chairman of its Board of Directors. This Group, which also will include NTS's
Technical Staffing and Registration businesses, is expected to generate revenue
of at least $44 million for the fiscal year ending January 31, 1999,
approximately half of the Company's total anticipated revenue for the year."
For fiscal 1998 ended January 31, 1998, NTS posted net income of $0.41
per diluted share on revenue of $81 million, both restated to reflect the
pooling of the XXCAL companies.
"NTS now has established a strong platform in the IT industry that will
promote continued growth in this segment of our business. XXCAL's people,
equipment and facilities complement NTS's resources. With its unique technical
capabilities, our new IT Solutions Group will offer our clients one-stop
shopping for IT consulting, staffing, and software and hardware evaluation," Lin
said. He added that Marvin Hoffman, founder of XXCAL, and all senior staff will
join NTS and continue to manage XXCAL's operations in the United States, Japan
and Great Britain. Hoffman also is expected to join the NTS Board of Directors.
(more)
Page 192 of 193
<PAGE>
NATIONAL TECHNICAL SYSTEMS COMPLETES MERGER WITH XXCAL, INC.
AND XXCAL LIMITED
November 2, 1998
Page 2
Lin continued, "With 47 locations nationwide and about 800 technical
personnel to provide consulting, testing, staffing and related services, the new
NTS fills the need for a growing base of clients."
National Technical Systems provides information technology (IT)
consulting, staffing, registration and other services through its IT Solutions
Group; and technical and engineering services through its Evaluation &
Engineering Group.
The statements contained in this release which are not historical facts may
constitute forward-looking statements. Actual results could differ materially
from those projected in such statements due to a number of risks and
uncertainties, including, without limitation, demand and competition for the
Company's services, and other risks or uncertainties detailed in the Company's
annual report on Form 10-K for the year ended January 31, 1996 as filed with the
Securities and Exchange Commission.
* * * * * #1811
Page 193 of 193
<PAGE>
