================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
(mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For transition period from ________________ to _________________
0-16438
(Commission File Number)
NATIONAL TECHNICAL SYSTEMS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-4134955
---------------------- ---------------------
(State of Incorporation) (IRS Employer
Identification number)
24007 Ventura Boulevard, Suite 200, Calabasas, California
---------------------------------------------------------
(Address of registrant's principal executive office)
(818) 591-0776 91302
------------------------------ ---------
(Registrant's telephone number) (Zip code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [x] NO [ ]
The number of shares of common stock, no par value, outstanding as of December
11, 2000 was 8,509,875.
Exhibit Index on Page 18
1
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
October 31, 2000 (unaudited) and January 31, 2000 3
Unaudited Condensed Consolidated Statements of Income
For the Nine Months Ended October 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statements of Income
For the Three Months Ended October 31, 2000 and 1999 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended October 31, 2000 and 1999 6
Notes to the Unaudited Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION & SIGNATURE
Item 6. Exhibits and Reports on Form 8-K 17
2
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<CAPTION>
October 31, January 31,
2000 2000
(unaudited)
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,744,000 $ 3,133,000
Accounts receivable, less allowance for doubtful accounts
of $935,000 at October 31, 2000 and $803,000 at January 31, 2000 20,901,000 20,114,000
Income taxes receivable 79,000 1,387,000
Inventories 3,331,000 1,804,000
Deferred tax assets 838,000 847,000
Prepaid expenses 1,268,000 719,000
------------ ------------
Total current assets 29,161,000 28,004,000
Property, plant and equipment, at cost 68,104,000 63,347,000
Less: accumulated depreciation 39,336,000 36,310,000
------------ ------------
Net property, plant and equipment 28,768,000 27,037,000
Property held for sale 544,000 544,000
Intangible assets, net 1,017,000 1,077,000
Other assets 2,228,000 1,969,000
------------ ------------
TOTAL ASSETS $ 61,718,000 $ 58,631,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,588,000 $ 5,249,000
Accrued expenses 4,659,000 2,913,000
Deferred income 550,000 309,000
Income taxes payable - 106,000
Current installments of long-term debt 3,356,000 3,195,000
------------ ------------
Total current liabilities 13,153,000 11,772,000
Long-term debt, excluding current installments 19,055,000 18,639,000
Deferred income taxes, net 3,067,000 3,075,000
Deferred compensation 803,000 615,000
Minority interest 82,000 67,000
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, no par value. Authorized, 20,000,000; issued and outstanding
8,509,000 as of October 31, 2000 and 8,404,000 as of January 31,2000 11,912,000 11,764,000
Retained earnings 13,704,000 12,706,000
Accumulated other comprehensive income (58,000) (7,000)
------------ ------------
Total shareholders' equity 25,558,000 24,463,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,718,000 $ 58,631,000
============ ============
See accompanying notes.
</TABLE>
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<TABLE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for the Nine Months Ended October 31, 2000 and 1999
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 63,899,000 $ 64,190,000
Cost of sales 46,522,000 45,381,000
------------ ------------
Gross profit 17,377,000 18,809,000
Selling, general and administrative expense 13,594,000 14,571,000
------------ ------------
Operating income 3,783,000 4,238,000
Other income (expense):
Interest expense, net (1,487,000) (1,027,000)
Other (82,000) 40,000
------------ ------------
Total other income (expense) (1,569,000) (987,000)
------------ ------------
Income from continuing operations before income taxes and minority interest 2,214,000 3,251,000
Income taxes 863,000 1,296,000
------------ ------------
Income from continuing operations before minority interest 1,351,000 1,955,000
Minority interest (15,000) (1,000)
------------ ------------
Income from continuing operations 1,336,000 1,954,000
Loss from discontinued operations, net of taxes - (98,000)
------------ ------------
Net income $ 1,336,000 $ 1,856,000
============ ============
Basic earnings (loss) per common share:
Continuing operations $ 0.16 $ 0.23
Discontinued operations - (0.01)
------------ ------------
Net income $ 0.16 $ 0.22
============ ============
Diluted earnings (loss) per common share: $ 0.16 $ 0.23
Continuing operations - (0.01)
------------ ------------
Discontinued operations $ 0.16 $ 0.22
============ ============
Net income
Weighted average common shares outstanding 8,493,000 8,337,000
Dilutive effect of stock options 58,000 257,000
------------ ------------
Weighted average common shares outstanding, assuming dilution 8,551,000 8,594,000
============ ============
</TABLE>
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<TABLE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
for the Three Months Ended October 31, 2000 and 1999
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 22,103,000 $ 20,831,000
Cost of sales 16,363,000 15,123,000
------------ ------------
Gross profit 5,740,000 5,708,000
Selling, general and administrative expense 4,498,000 4,634,000
------------ ------------
Operating income 1,242,000 1,074,000
Other income (expense):
Interest expense, net (500,000) (376,000)
Other (26,000) 14,000
------------ ------------
Total other income (expense) (526,000) (362,000)
------------ ------------
Income from continuing operations before income taxes and minority interest 716,000 712,000
Income taxes 281,000 273,000
------------ ------------
Income from continuing operations before minority interest 435,000 439,000
Minority interest (11,000) (1,000)
------------ ------------
Income from continuing operations 424,000 438,000
Loss from discontinued operations, net of taxes - (15,000)
------------ ------------
Net income $ 424,000 $ 423,000
============ ============
Basic earnings (loss) per common share:
Continuing operations $ 0.05 $ 0.05
Discontinued operations - -
------------ ------------
Net income $ 0.05 $ 0.05
============ ============
Diluted earnings (loss) per common share: $ 0.05 $ 0.05
Continuing operations - -
------------ ------------
Discontinued operations $ 0.05 $ 0.05
============ ============
Net income
Weighted average common shares outstanding 8,509,000 8,352,000
Dilutive effect of stock options 22,000 191,000
------------ ------------
Weighted average common shares outstanding, assuming dilution 8,531,000 8,543,000
============ ============
See accompanying notes.
</TABLE>
5
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<TABLE>
NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended October 31, 2000 and 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 1,336,000 $ 1,954,000
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 3,086,000 2,432,000
Provision for losses on receivables 132,000 48,000
Undistributed earnings of affiliate 15,000 1,000
Deferred income taxes 1,000 7,000
Changes in assets and liabilities:
Accounts receivable (919,000) (900,000)
Inventories (1,527,000) (840,000)
Prepaid expenses (549,000) (538,000)
Other assets and Intangibles (259,000) (218,000)
Accounts payable (661,000) 32,000
Accrued expenses 1,746,000 961,000
Deferred income 241,000 -
Deferred compensation 188,000 45,000
Income taxes 1,202,000 359,000
----------- -----------
Cash provided by continuing operations 4,032,000 3,343,000
Loss from discontinued operations - (98,000)
----------- -----------
Cash provided by operating activities 4,032,000 3,245,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,757,000) (5,434,000)
Investment in new business - (375,000)
----------- -----------
Net cash used for investing activities (4,757,000) (5,809,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from current and long-term debt 5,516,000 5,771,000
Repayments of current and long-term debt (4,939,000) (2,669,000)
Cash dividends paid (338,000) (584,000)
Distributions paid - (120,000)
Proceeds from stock options exercised 148,000 69,000
----------- -----------
Net cash provided by financing activities 387,000 2,467,000
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (51,000) 1,000
----------- -----------
Net decrease in cash (389,000) (96,000)
Beginning cash balance 3,133,000 2,599,000
----------- -----------
ENDING CASH BALANCE $ 2,744,000 $ 2,503,000
=========== ===========
See accompanying notes
</TABLE>
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NATIONAL TECHNICAL SYSTEMS, INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
In accordance with instructions to Form 10-Q the accompanying consolidated
financial statements and footnotes of National Technical Systems, Inc.
(NTS or the Company) have been condensed and, therefore, do not contain
all disclosures required by generally accepted accounting principles.
These statements should not be construed as representing pro rata results
of the Company's fiscal year and should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
for the year ended January 31, 2000.
The statements presented as of and for the nine month and three month
periods ended October 31, 2000 and 1999 are unaudited. In management's
opinion, all adjustments have been made to present fairly the results of
such unaudited interim periods. All such adjustments are of a normal
recurring nature.
The consolidated financial statements include the accounts of the Company
and its wholly owned and financially controlled subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to
conform with the current year presentation.
2. Income Taxes
Income taxes for the interim periods are computed using the effective tax
rates estimated to be applicable for the full fiscal year.
3. Comprehensive Income
Accumulated other comprehensive income on the Company's condensed
consolidated balance sheets consists of cumulative equity adjustments from
foreign currency translation. During the nine months ended October 31,
2000 and 1999, total comprehensive income was $1,285,000 and $1,868,000,
respectively. During the three months ended October 31, 2000 and 1999,
total comprehensive income was $404,000 and $420,000, respectively. The
reported amount for total comprehensive income differs from net income for
the three months and nine months ended October 31, 2000 due to foreign
currency translation adjustments. The tax effect related to foreign
currency translation adjustments is immaterial and has not been recognized
as part of comprehensive income or in accumulated other comprehensive
income.
4. Recently Issued Accounting Standards
SAB No. 101 -- In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB No. 101). SAB No. 101 provides the Commission's
views in applying generally accepted accounting principles to selected
revenue recognition issues. The Company has reviewed the requirements of
SAB No. 101 and has determined that it is in compliance with SAB No. 101.
SFAS No. 138, 137 and 133 -- In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133--"Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives in the statement of financial position and
measure those instruments at fair value. In 1999, the FASB issued SFAS No.
137--"Accounting for Derivative Instruments and Hedging Activities--
7
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Deferral of the Effective Date of FASB Statement No. 133--an amendment of
FASB Statement No. 133," which defers the effective date of SFAS No. 133
for one year. In June 2000, the FASB issued SFAS No. 138 -- "Accounting
for Certain Derivative Instruments and Certain Hedging Activities -- an
amendment of SFAS No. 133," which amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and hedging
activities. The adoption of SFAS No. 133, which will be effective February
1, 2001, is not expected to have an impact on the Company's results of
operations.
5. Inventories
Inventories consist of accumulated costs applicable to uncompleted
contracts and are stated at actual cost which is not in excess of
estimated net realizable value.
6. Interest and Taxes
Cash paid for interest and taxes for the nine months ended October 31,
2000 was $1,554,000 and $580,000, respectively. Cash paid for interest and
taxes for the nine months ended October 31, 1999 was $1,101,000 and
$885,000, respectively.
7. Minority Interest
Minority interest in the Company's NQA-USA, Inc. subsidiary is a result of
50% of the stock of NQA-USA, Inc. being issued to National Quality
Assurance, Ltd. Profits and losses are allocated 61% to NTS, and 39% to
National Quality Assurance, Ltd. for the fiscal year ending January 31,
2001.
8. Dividends
On February 4, 2000, pursuant to the Company's current dividend policy,
the Company's Board of Directors authorized the regular semiannual cash
dividend of $0.02 per share, that was paid on March 15, 2000 to
shareholders of record at the close of business on February 28, 2000. The
second semi-annual dividend of $0.02 per share was paid on August 2, 2000
to shareholders of record at the close of business on July 14, 2000.
In the prior year, the Company paid a total cash dividend of $.07 per
share through August 4, 1999, which included a special dividend of $.03
per share that was paid on August 4, 1999.
9. Reporting of discontinued operations
In as much as discontinued operations (see caption in management
discussion and analysis) took place in the fourth quarter of last fiscal
year, the results for the three months and nine months ended October 31,
1999 have been restated to exclude discontinued operations.
8
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
addressed in this Item 2 contain forward-looking statements that involve risks
and uncertainties, including risks associated with uncertainties pertaining to
operating new facilities, customer orders, demand for services and products,
development of markets for the Company's services and products and other risks
identified in the Company's SEC filings. Actual results, events and performance
may differ materially. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to release publicly the result of any revisions
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
GENERAL
-------
NTS is a diversified services company which operates in two segments:
"Engineering & Evaluation" and "Technical Staffing". The business of the Company
is conducted by a number of operating units, each with its own organization.
Each segment is under the direction of its own executive and operational
management team.
The Engineering & Evaluation segment performs technical services for a
wide range of industries (aerospace, automotive, computer, defense, medical,
public utilities, telecommunications, among others) including analysis,
engineering and mechanical and electronic testing to ascertain performance and
reliability, computer-based structural dynamics and finite element analysis. In
addition, this segment performs quality management registration services.
Special evaluation and certification of products require unique test
equipment which are either purchased or designed and built by the Company to
simulate environments such as outer space, deep-sea, earthquake, fire,
cryogenics, among others. The Company has recently shifted its high-technology
defense and aerospace knowledge into commercial markets such as
telecommunications, medical electronics and medical computers.
The Technical Staffing segment is a provider of information technology,
managed services and staffing. Utilizing full-time salaried and hourly
consultants, the Company offers a wide range of staffing solutions to meet its
clients' information technology "IT", information systems ("IS") and software
engineering needs.
The following discussion should be read in conjunction with the
consolidated quarterly financial statements and notes thereto. All information
is based upon operating results of NTS for the nine months ended October 31.
RESULTS OF OPERATIONS
---------------------
REVENUES
Nine months ended October 31, 2000 % Change 1999
(Dollars in thousands)
-----------------------------------
Engineering & Evaluation $44,004 18.5% $37,138
Technical Staffing 19,895 (26.5)% 27,052
----------- ------------
Total revenues $63,899 (0.5)% $64,190
=========== ============
For the nine months ended October 31, 2000, consolidated revenues decreased by
$291,000 or 0.5% when compared to the same period in 1999 due to the decrease in
revenues at the Technical Staffing segment.
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Engineering & Evaluation:
-------------------------
In 2000, the Engineering & Evaluation segment revenues increased by $6,866,000
or 18.5%, primarily due to the continued strength in business generated from the
telecommunications, automotive, aerospace and defense markets, the addition of a
new testing facility in Texas and the benefit the Company is receiving from the
increased investment in equipment at some of its facilities during the past two
years.
Technical Staffing
------------------
Revenues in the Technical Staffing segment decreased by $7,157,000 or 26.5%
primarily due to the closure of several non-performing staffing offices, the
cessation of Year 2000 related projects and competitive pricing pressures in the
staffing industry which forced the Company to lower its prices to maintain
existing relationships with several valued clients. During this last quarter,
the Company has consolidated its staffing business by moving to a "virtual
office" model in anticipation of movement in technology towards the new Internet
era of "E-Cruiting" with regional "Hubs" providing the necessary administrative
support. The Company is starting to benefit from this new business model by
reducing the costs of doing business and at the same time increasing
productivity of the staff.
GROSS PROFIT
Nine months ended October 31, 2000 % Change 1999
(Dollars in thousands) ------------------------------
Engineering & Evaluation $12,700 10.9% $11,452
% to segment revenue 28.9% 30.8%
Technical Staffing 4,677 (36.4)% 7,357
% to segment revenue 23.5% 27.2%
--------- ---------
Total gross profit $17,377 (7.6)% $18,809
========= =========
% to total revenue 27.2% 29.3%
Total gross profit for the nine months ended October 31, 2000 decreased by
$1,432,000 or 7.6% when compared to the same period in 1999 due to the decrease
in gross profit at the Technical Staffing segment.
Engineering & Evaluation:
------------------------
Gross profit for the Engineering & Evaluation Group increased by $1,248,000 or
10.9% for the nine months ended October 31, 2000 when compared to the same
period in 1999, as a result of the increased revenues.
Technical Staffing
------------------
Gross profit in 2000 decreased by $2,680,000 or 36.4% in the Technical Staffing
group when compared to the same period in 1999. This was due to the decrease in
revenues and increased competitive pricing pressures. Gross profit was also
affected by costs incurred in servicing one customer which were deemed to be
un-reimbursable as a result of fraud that has been perpetrated against the
Company (see operating income below).
SELLING, GENERAL & ADMINISTRATIVE
Nine months ended October 31, 2000 % Change 1999
(Dollars in thousands) ------------------------------
Engineering & Evaluation $7,820 5.3% $7,424
% to segment revenue 17.8% 20.0%
Technical Staffing 5,774 (19.2)% 7,147
% to segment revenue 29.0% 26.4%
--------- ---------
Total S G & A $13,594 (6.7)% $14,571
========= =========
% to total revenue 21.3% 22.7%
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<PAGE>
Total selling, general and administrative expenses decreased $977,000 or 6.7%
for the nine months ended October 31, 2000 when compared to the same period in
1999.
Engineering & Evaluation:
------------------------
Selling, general and administrative expenses increased by $396,000 in the
Engineering & Evaluation segment primarily due to the programs established by
the Company to hire specialists to expand the base of business into new
technology areas. Selling, general and administrative expenses decreased 2.2% as
a percentage of sales for the nine months ended October 31, 2000 when compared
to the same period in 1999.
Technical Staffing:
-------------------
Selling, general and administrative expenses in the Technical Staffing segment
decreased by $1,373,000 or 19.2% when compared to the same period in 1999 as a
result of the closure of several non-performing staffing offices and the
consolidation of its operations in an effort to streamline this business. This
decrease was offset by an increase in bad debt expense as a result of fraud that
has been perpetrated against the Company (see operating income below).
OPERATING INCOME (LOSS)
Nine months ended October 31, 2000 % Change 1999
(Dollars in thousands) --------------------------------
Engineering & Evaluation $4,880 21.2% $4,028
% to segment revenue 11.1% 10.8%
Technical Staffing (1,097) (622.4)% 210
% to segment revenue (5.5)% 0.8%
--------- -----------
Total operating income $3,783 (10.7)% $4,238
========= ===========
% to total revenue 5.9% 6.6%
Operating income for the nine months ended October 31, 2000 decreased by
$455,000 when compared to the same period in1999.
Engineering & Evaluation:
------------------------
Operating income for the nine months ended October 31, 2000 for the Engineering
& Evaluation Group increased by $852,000 when compared to the same period in
1999 primarily as a result of the increase in gross profit.
Technical Staffing:
-------------------
Operating income (loss) for the nine months ended October 31, 2000 decreased by
$1,307,000 in the Technical Staffing segment when compared to the same period in
1999 primarily as a result of the decrease in gross profit partially offset by a
decrease in selling and general and administrative expenses discussed above.
Operating income (loss) was also affected by costs incurred in servicing one
customer which were deemed to be un-reimbursable as a result of fraud that has
been perpetrated against the Company. The Company has concluded its preliminary
investigation into this matter and is in the process of submitting a claim to
its insurance carrier under its employee dishonesty policy. After reviewing the
Company's claim, the insurance carrier may request further information before
accepting or rejecting the Company's claim. The effect on operating loss was
approximately $880,000. The Company provided for the balance of this customer's
accounts receivable in the second quarter and does not anticipate any additional
bad debt expense related to this customer.
INTEREST EXPENSE
Net interest expense increased $460,000 in the nine months ended October 31,
2000 when compared to the same period in 1999. This increase was principally due
to higher average debt balances for the nine months ended October 31, 2000, and
slightly higher interest rates, when compared to the same period last year.
11
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INCOME TAXES
The income tax provisional rate of 39.0% for the nine months ended October 31,
2000 reflects a rate in excess of the U.S. federal statutory rate primarily due
to the inclusion of state income taxes. This rate is based on the estimated tax
provision accrual for the fiscal year ending January 31, 2001. The income tax
rate for the nine months ended October 31, 1999 was 39.9%. Management has
determined that it is more likely than not that the deferred tax asset will be
realized on the basis of offsetting it against deferred tax liabilities. It is
the Company's intention to evaluate the realizability of the deferred tax asset
quarterly by assessing the need for a valuation account based upon future net
income of the Company.
NET INCOME
The decrease in net income for the nine months ended October 31, 2000, compared
to the same period in 1999, was primarily due to the decrease in revenues in
Technical Staffing and increase in interest expense, partially offset by a
decrease in selling, general and administrative expenses.
The following information is based upon results for NTS for the three months
ended October 31.
RESULTS OF OPERATIONS
---------------------
REVENUES
Three months ended October 31, 2000 % Change 1999
(Dollars in thousands) -----------------------------------
Engineering & Evaluation $14,790 20.2% $12,303
Technical Staffing 7,313 (14.2)% 8,528
----------- ------------
Total net revenues $22,103 6.1% $20,831
=========== ============
For the three months ended October 31, 2000, consolidated revenues increased by
$1,272,000 or 6.1% when compared to the same period in 1999 due to the increase
in revenues at the Engineering & Evaluation segment.
Engineering & Evaluation:
-------------------------
For the three months ended October 31, 2000, Engineering & Evaluation revenues
increased by $2,487,000 or 20.2% when compared to the same period in 1999,
primarily due to the continued strength in business generated from the
telecommunications, automotive, aerospace and defense markets, the addition of a
new testing facility in Texas and the benefit the Company is receiving from the
increased investment in equipment at some of its facilities during the past two
years.
Technical Staffing:
-------------------
Revenues in Technical Staffing decreased by $1,215,000 or 14.2% when compared to
the same period in 1999, due to the closure of several non-performing staffing
offices and the consolidation of its operations to control costs and focus on
profitability. This decrease was offset by an increase in revenues from a new
major client which started during the three months ended October 31, 2000.
Revenues were also affected by the cessation of Year 2000 related projects and
competitive pricing pressures in the staffing industry.
During the three months ended October 31, 2000, the Company has consolidated its
staffing business by moving to a "virtual office" model in anticipation of
movement in technology towards the new Internet era of "E-Cruiting" with
regional "Hubs" providing the necessary administrative support. The Company is
starting to benefit from this new business model by reducing the costs of doing
business and at the same time increasing productivity of the staff.
12
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<PAGE>
GROSS PROFIT
Three months ended October 31, 2000 % Change 1999
(Dollars in thousands) --------------------------------
Engineering & Evaluation $4,085 13.8% $3,591
% to segment revenue 27.6% 29.2%
Technical Staffing 1,655 (21.8)% 2,117
% to segment revenue 22.6% 24.8%
---------- ---------
Total $5,740 0.6% $5,708
========== =========
% to total net revenue 26.0% 27.4%
Total gross profit for the three months ended October 31, 2000 increased by
$32,000 or 0.6% when compared to 1999.
Engineering & Evaluation:
------------------------
For the three months ended October 31, 2000, gross profit for the Engineering &
Evaluation Group increased by $494,000 or 13.8% when compared to the same period
in 1999, as a result of the increased revenues.
Technical Staffing:
-------------------
For the three months ended October 31, 2000, gross profit decreased by $462,000
or 21.8% in the Technical Staffing Group when compared to the same period in
1999. This was due to the decrease in revenues and increased competitive pricing
pressures.
SELLING, GENERAL & ADMINISTRATIVE
Three months ended October 31, 2000 % Change 1999
(Dollars in thousands) --------------------------------
Engineering & Evaluation $2,877 26.6% $2,273
% to segment revenue 19.5% 18.5%
Technical Staffing 1,621 (31.3)% 2,361
% to segment revenue 22.2% 27.7%
--------- ----------
Total S G & A $4,498 (2.9)% $4,634
========= ==========
% to total net revenue 20.4% 22.2%
Total selling, general and administrative expenses decreased $136,000 for the
three months ended October 31, 2000 when compared to the same period in 1999.
Engineering & Evaluation:
------------------------
For the three months ended October 31, 2000, selling, general and administrative
expenses increased by $604,000 or 26.6% primarily due to the programs
established by the Company to hire specialists to expand the base of business
into new technology areas. Selling, general and administrative expenses
increased by 1.0% as a percentage of sales for the three months ended October
31, 2000 when compared to the same period in 1999.
Technical Staffing:
------------------
For the three months ended October 31, 2000, selling, general and administrative
expenses decreased by $740,000 or 31.3% when compared to the same period in 1999
due to the closure of several non-performing staffing offices and the
consolidation of its operations into the new business model discussed above.
13
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<PAGE>
OPERATING INCOME (LOSS)
Three months ended October 31, 2000 % Change 1999
(Dollars in thousands) ---------------------------------
Engineering & Evaluation $1,208 (8.3)% $1,318
% to segment revenue 8.2% 10.7%
Technical Staffing 34 113.9% (244)
% to segment revenue 0.5% (2.9)%
--------- ----------
Total operating income $1,242 15.6% $1,074
========= ==========
% to total net revenue 5.6% 5.2%
Operating income for the three months ended October 31, 2000 increased by
$168,000 or 14.2% when compared to 1999.
Engineering & Evaluation
------------------------
Operating income for the three months ended October 31, 2000 decreased by
$110,000 in the Engineering & Evaluation Group when compared to the same period
in 1999, primarily due to the increase in selling and general and administrative
expenses discussed above.
Technical Staffing:
------------------
Operating income for the three months ended October 31, 2000 increased by
$278,000 in the Technical Staffing Group when compared to the same period in
1999, as a result of the decrease in selling and general and administrative
expenses discussed above.
INTEREST EXPENSE
Net interest expense increased by $124,000 in the three months ended October 31,
2000 when compared to the same period in 1999. This increase was principally due
to higher average debt balances for the three months ended October 31, 2000, and
slightly higher interest rates when compared to the same period last year.
INCOME TAXES
The income tax rate of 39.2% for the three months ended October 31, 2000 is
based on the estimated tax provision accrual for fiscal year ending January 31,
2001. Management has determined that it is more likely than not that the
deferred tax asset will be realized on the basis of offsetting it against
deferred tax liabilities. It is the Company's intention to evaluate the
realizability of the deferred tax asset quarterly by assessing the need for a
valuation account based upon future net income of the Company.
DISCONTINUED OPERATIONS
The discontinued operations represents the results of operations of the
Company's McClellan Air Force base facility in Sacramento, California. During
fiscal 1998, the Company took over the operations and employees of the Science
and Engineering Test Laboratories at McClellan. This facility allowed the
Company to enter a new segment of business which provided chemical, materials
and electronic analysis for the government, including failure analysis of fuels
and lubricants, electronic components, materials and processes, metal fatigue
simulation and corrosion analysis. This was the only facility in the Company
that had the necessary equipment and knowledge to perform these types of testing
services. During the fourth quarter of fiscal 2000, the Company decided to
discontinue this line of business and close its operations in Sacramento as it
experienced a significant loss of business due to the government decision to
transfer work, planned for that operation, to another Air Force base.
14
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<PAGE>
NET INCOME
Net income for the three months ended October 31, 2000 remained approximately
the same when compared to the same period in 1999. This was primarily due to the
increase in operating income in the current quarter, offset by higher interest
expense when compared to the same period last year.
YEAR 2000
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
BUSINESS ENVIRONMENT
Engineering & Evaluation:
-------------------------
The Company's basic service to industry is to support the development of new
products. Much of that new product development in basic industries such as
automotive, aerospace and defense was not evident in fiscal 2000 except for
research and development on new spacecraft such as X-33, Delta IV and Atlas V.
For these programs, the Company anticipates increased workload in cryogenics
evaluation. The Company also expects that due to anticipated increases in
military spending, increases in research and development spending will benefit
the Company.
The information technology market, on the other hand, continues its
technological growth cycle due to the use of computers, wireless systems, cell
phones, e-mail and faxes. The Company is serving this growing market in four of
its locations. Competition is more limited in these markets for two reasons.
First, when international standards and approval are required, only third party
laboratories such as National Technical Systems can perform this service.
Second, information technology companies need all their scientists and engineers
working on the design and manufacturing of their evolving products, and will
make more "make or buy" decisions to use independent, qualified test labs to
evaluate and test their products.
Total bookings in the Engineering & Evaluation Group, which includes
telecommunications testing, continued to show steady increases, growing to $44.8
million for the first nine months of this year, up 24 percent from $36.1 million
for the first nine months of last year. NTS bookings for its higher margin
telecommunications testing business in the first nine months of fiscal 2001
increased to approximately $9 million in the current year, which was
significantly higher than the same period last year.
Technical Staffing:
-------------------
The Company supplies professionals in support of customers who need help-desk
analysts and managers, relational database administrators and developers,
application and systems programmers, configuration and project managers, and
multiple levels of system operations personnel. Because of the technology
advancements made in the Internet, the number of methods of obtaining staffing
are expanding. Presently, with low price connectivity for home use as well as
for businesses available through cable modems and "DSL", tele-commuting is a
reality for the new "E-Cruiting" segment of the staffing industry. In
anticipation of these rapid changes in the industry, the Company is moving from
the traditional "bricks and mortar" model of a business to a "virtual office"
model with regional "Hubs" providing the necessary administrative support to the
virtual offices. The Company believes that this new business model will reduce
the costs of doing business and at the same time increase productivity of the
staff. However, the shortage of qualified temporary and permanent candidates is
still an obstacle to a healthy growth in this highly competitive business.
Notwithstanding the foregoing, and because of factors affecting the Company's
operating results, past financial performance should not be considered to be a
reliable indicator of future performance.
15
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended October 31, 2000, cash provided by operations
increased by $787,000 when compared to the same period in 1999. This increase
was primarily due to the effect of changes in depreciation and amortization,
accrued expenses, income taxes, deferred income and deferred compensation,
partially offset by decreases in net income and the effect of changes in
inventories and accounts payable.
Net cash used in investing activities in the nine-month period ended October 31,
2000 decreased by $1,052,000 over the same period in 1999, primarily due to the
decrease in capital purchases during the nine-month period ended October 31,
2000 and the acquisition of two quality-registration and certification services
companies during the nine-month period ended October 31, 1999.
In the nine-month period ended October 31, 2000, net cash provided by financing
activities decreased by $2,080,000 over the same period in 1999. Net cash
provided by financing activities consisted of debt reduction on lines of credit
and short term and long term debt of $4,939,000 and cash dividends paid of
$338,000, offset by increases in proceeds from lines of credit and term loans of
$5,516,000 and proceeds from issuance of common stock of $148,000.
In September 1997, the Company negotiated with Sanwa Bank California, as agent,
and Mellon Bank, for a credit agreement which included a $6,000,000 revolving
line of credit at an interest rate equal to the bank's reference rate plus
0.25%. On October 30, 1998, the credit agreement was amended to extend the term
of the revolving line to September 8, 2000 and to increase the revolving line
amount from $6,000,000 to $8,000,000 at an interest rate equal to the bank's
reference rate. A flat fee of $18,750 was charged to set up the new revolving
line and a facility fee of 0.5% of the total line is charged on a quarterly
basis. On October 29, 1999, the credit agreement was amended again to extend the
term of the revolving line to September 8, 2001 and to increase the revolving
line amount from $8,000,000 to $10,000,000 at an interest rate equal to the
bank's reference rate. Effective October 31, 2000, the credit agreement was
amended again to extend the term of the revolving line to November 1, 2002 and
to increase the line amount to $11,000,000.
The Company has additional equipment line of credit agreements (at interest
rates of 7.60 % to 10.25%) to finance various test equipment with terms of 60
months for each equipment schedule. The outstanding balance at October 31, 2000
is $3,412,000.
Management is not aware of any significant demands for capital funds that may
materially affect the short or long-term liquidity in the form of large fixed
asset acquisitions, unusual working capital commitments or contingent
liabilities. In addition, the Company has made no material commitments for
capital expenditures. The Company's future working capital will be provided from
operations and the current bank revolving line of credit which had $2,893,000
available at October 31, 2000.
16
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.7 - Fifth Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective August 3, 2000.
Exhibit 10.8 - Sixth Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective September 19, 2000.
Exhibit 10.9 - Seventh Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective October 31, 2000.
Exhibit 27 - Financial Data Schedule
(b) Form 8-K
During the quarter ended October 31, 2000 the registrant did not file a
current report on Form 8-K.
SIGNATURE
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.
NATIONAL TECHNICAL SYSTEMS, INC.
Date: December 13, 2000 By: /s/ Lloyd Blonder
------------------------- ------------------------------------
Lloyd Blonder
Senior Vice President
Chief Financial Officer
(Signing on behalf of the
registrant and as principal
financial officer)
17
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<PAGE>
Exhibit Index
Exhibit No. Description Page No.
--------------------------------------------------------------------------------
10.7 Fifth Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective August 3, 2000 19
10.8 Sixth Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective September 19, 2000 28
10.9 Seventh Amendment to Credit Agreement between Sanwa Bank
California, Mellon Bank and NTS effective October 31, 2000 37
27 Financial Data Schedule 45
18
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<PAGE>
Exhibit 10.7
------------
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT (the "Fifth Amendment") is made
and dated as of the 3rd day of August, 2000, by and among SANWA BANK CALIFORNIA
("Sanwa"), those other banks (each, including Sanwa, a "Lender" and,
collectively, the "Lenders"), party with Sanwa to the Agreement defined in
Recital A below, SANWA, as agent for the Lenders (in such capacity, the "Agent")
and as the L/C Bank (as defined in the Agreement), and NTS TECHNICAL SYSTEMS, a
California corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of September 8,
1997 among the Agent, the Lenders and the Borrower (as amended, modified, or
waived, the "Agreement"), the Lenders agreed to extend credit to the Borrower on
the terms and subject to the conditions set forth therein. All capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the
Agreement.
B. The Borrower has notified the Lenders that ETCR, Inc., a wholly-owned
subsidiary of the Borrower ("ETCR"), has received from General Electric Capital
BAF Corporation ("GE Capital") (a) a mortgage loan commitment in an amount of
$1,400,000 to be secured by a Lien upon the real property owned by ETCR and
located at 1536 Valencia Avenue, Fullerton, CA, and (b) a loan commitment to
refinance the existing mortgage loan which is secured by a Lien on the real
property owned by ETCR and located at 1146 Massachusetts Avenue, Boxborough, MA
(both mortgage loans described above shall be referred to herein as the "GE
Capital Mortgage").
C. At the request of the Borrower, the Agent, the L/C Bank and the
Lenders have agreed to provide such amendments to the Agreement as more
particularly described below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Inducement Representations by the Borrower and Waiver.
-----------------------------------------------------
(a) Inducement Representations. In addition to the other
representations and warranties contained in this Fifth Amendment and the other
terms and provisions hereof, to induce the Agent, the L/C Bank and the Lenders
1
Page 19 of 45
<PAGE>
to enter into this Fifth Amendment, the Borrower hereby represents and warrants
as of the Effective Date (as such term is defined in Paragraph 3 below) that:
(i) All descriptions of the GE Capital Mortgage heretofore
delivered to the Lenders by or on behalf of the Borrower and ETCR are
complete and accurate in all material respects, do not contain any
material misstatement of fact, and do not fail to contain any statement
that results in such statements being misleading in any material
respect.
(ii) No Events of Default or Potential Defaults have
occurred under the Agreement (or to the best of the knowledge of the
Borrower, after due diligent investigation and supported by its most
recent quarterly financials ended on April 30, 2000, if such Events of
Default or Potential Defaults result from or relate to any
non-compliance of the financial covenants under Section 7 of the
Agreement).
2. Amendments Regarding Certain Covenants and Exhibits. To reflect
the agreement of the parties hereto to amend certain covenants set forth in the
Agreement, effective as of the Effective Date:
(a) A new Paragraph 7(a)(7) of the Agreement is hereby added to
Paragraph 7(a) of the Agreement to read in its entirety as follows:
"(7) Liens in favor of General Electric Capital BAF
Corporation and Springfield Institution for Savings in an
aggregate amount not to exceed $3,028,000 and secured by property
of the Borrower or its Subsidiaries in (x) Fullerton, California,
(y) Boxborough, Massachusetts, and/or (z) Acton, Massachusetts."
In connection with adding this new Paragraph 7(a)(7), Paragraph
7(a)(5) is hereby amended by deleting the last word "and" thereof, and Paragraph
7(a)(6) is hereby amended by replacing the period thereof with "; and."
(b) A new Paragraph 7(b)(8) of the Agreement is hereby added to
Paragraph 7(b) of the Agreement to read in its entirety as follows:
"(8) Funded Debt incurred by ETCR, Inc. and Acton
Environmental Testing Corporation in an aggregate amount
outstanding not to exceed $3,028,000."
In connection with adding this new Paragraph 7(b)(8),
Paragraph 7(b)(6) is hereby amended by deleting the last word "and" thereof, and
Paragraph 7(b)(7) is hereby amended by replacing the period thereof with ";
and."
(c) Exhibit E to the Agreement is hereby amended and supplemented
by adding (without deleting) the Amendment Exhibit 1 attached hereto.
(d) A new Paragraph 7(l)(iv) of the Agreement is hereby added to
Paragraph 7(l) of the Agreement to read in its entirety as follows:
2
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<PAGE>
"(iv) The Borrower may become and remain liable with
respect to Contingent Obligations in an aggregate amount not to exceed
$3,028,000 in the nature of guarantees of Indebtedness secured by Liens
(otherwise permitted under this Agreement) on property of the Borrower
or its Subsidiaries in (x) Fullerton, California, (y) Boxborough,
Massachusetts, and/or (z) Acton, Massachusetts."
In connection with adding this new Paragraph 7(l)(iv), Paragraph
7(l)(ii) is hereby amended by deleting the last word "or" thereof, and Paragraph
7(l)(iii) is hereby amended by replacing the period thereof with "; and."
2. Reaffirmation of Security Agreements. The Borrower hereby affirms
and agrees that (a) the execution and delivery by the Borrower of and the
performance of its obligations under this Fifth Amendment shall not in any way
amend, impair, invalidate or otherwise affect any of the Obligations of the
Borrower or the rights of the Lenders under the Security Documents or any other
document or instrument made or given by the Borrower in connection therewith,
(b) the term "Obligations" as used in the Security Agreement includes, without
limitation, the Obligations of the Borrower under the Agreement as amended
hereby, and (c) the Security Documents remain in full force and effect and
constitutes a continuing first priority security interest in and lien upon the
Collateral described therein.
3. Effective Date. This Fifth Amendment shall be effective on the
date (the "Effective Date") when all of the following conditions precedent have
been satisfied:
(a) The Borrower shall have delivered or shall have had delivered
to the Agent each of the following (with sufficient copies for each of the
Lenders):
(i) A duly executed copy of this Fifth Amendment; and
(ii) Such credit applications, financial statements,
authorizations, environmental reviews of the Property, and such information
concerning the Borrower and its Guarantors and their business, operations and
condition (financial and otherwise) as any Lender may reasonably request.
(b) All fees and other amounts payable hereunder prior to such date
shall have been paid, and all acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the making
of any required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of this Fifth Amendment and to constitute the same legal, valid and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
(c) The representations and warranties made by or on behalf of the
Borrower and each Guarantor in or pursuant to the Loan Documents (and by
executing and delivering this Fifth Amendment, the Borrower represents that all
such representations and warranties) shall be accurate and complete in all
3
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<PAGE>
material respects as if made on and as of such date (or as of April 30, 2000 if
such representations and warranties relate to the financial results or condition
of the Borrower).
(d) There shall not have occurred an Event of Default or Potential
Default not otherwise cured or waived (or to the best of the knowledge of the
Borrower, after due diligent investigation and supported by its most recent
quarterly financials ended on April 30, 2000, if such Events of Default or
Potential Defaults result from or relate to any non-compliance of the financial
covenants under Section 7 of the Agreement).
If this Fifth Amendment shall not have become effective on or before
August __, 2000, then this Fifth Amendment shall, at the election of the Lenders
as evidenced by written notice to such effect given by the Lenders to the
Borrower, terminate and be of no further force or effect.
4. Representations and Warranties. As an inducement to the Agent, the
L/C Bank and each Lender to enter into this Fifth Amendment, the Borrower
represents and warrants to the Agent, the L/C Bank and each Lender that:
(a) Corporate Existence; Compliance with Law. The Borrower and each
Guarantor (1) is duly organized, validly existing and in good standing as a
corporation under the laws of the state of its incorporation and is qualified to
do business in each jurisdiction where its ownership of property or conduct of
business requires such qualification and where failure to qualify would have a
material adverse effect on it or its property and/or business or on its ability
to pay or perform the Obligations, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with all
Requirements of Law and Contractual Obligations.
(b) Corporate Power; Authorization; Enforceable Obligations. The
Borrower and each Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform this Fifth Amendment and the Agreement as
amended hereby to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of this Fifth
Amendment and the Agreement as amended hereby. This Fifth Amendment and the
Agreement as amended hereby have been duly executed and delivered on behalf of
the Borrower and each Guarantor party thereto and constitute such Person's
legal, valid and binding obligations enforceable against it in accordance with
their respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity.
(c) No Legal Bar. The execution, delivery and performance of this
Fifth Amendment and the Agreement as amended hereby, the borrowings hereunder
and the use of the proceeds thereof, will not violate any Requirement of Law or
any Contractual Obligations of the Borrower or any Guarantor or create or result
in the creation of any Lien on any assets of the Borrower or any Guarantor
except as contemplated thereby.
4
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<PAGE>
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower or any Guarantor, threatened by or against the
Borrower or any Guarantor or against any of the Borrower's or any Guarantor's
properties or revenues which is likely to be adversely determined and which, if
adversely determined, is likely to have a material adverse effect on the
business, operations, property or financial or other condition of the Parent and
its Subsidiaries, taken as a whole.
(e) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with any Governmental Authority is required
on the part of the Borrower or any Guarantor in connection with the execution
and delivery of this Fifth Amendment and the Agreement as amended hereby or the
performance of or compliance with the terms, provisions and conditions hereof or
thereof.
(f) No Default. No Potential Default or Event of Default has
occurred under the Agreement which has not otherwise been cured or waived (or to
the best of the knowledge of the Borrower, after due diligent investigation and
supported by its most recent quarterly financials ended on April 30, 2000, if
such Events of Default or Potential Defaults result from or relate to any
non-compliance of the financial covenants under Section 7 of the Agreement).
(g) Full Disclosure. None of the representations or warranties made
by the Borrower or any Guarantor in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Guarantor in connection with the Loan
Documents contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
5. Miscellaneous Provisions.
------------------------
(a) Expenses. In accordance with Paragraph 6(g) of the Agreement,
the Borrower agrees to pay all reasonable out-of-pocket expenses of the Agent
incident to the preparation and negotiation of this Fifth Amendment.
(b) Entire Agreement. This Fifth Amendment embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof and thereof.
(c) Governing Law. This Fifth Amendment shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to choice of law rules.
(d) Counterparts. This Fifth Amendment may be executed in any
number of counterparts, all of which together shall constitute one agreement.
5
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be executed as of the day and year first above written.
NTS TECHNICAL SYSTEMS, a California corporation
By: /s/ Lloyd Blonder
--------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
SANWA BANK CALIFORNIA, as Agent and the L/C
Bank
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
SANWA BANK CALIFORNIA, as a Lender
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
MELLON BANK, N.A., as a Lender
By: /s/ Garry Handelman
--------------------------------------
Name: Garry Handelman
Title: Vice President
6
Page 24 of 45
<PAGE>
REAFFIRMATION OF GUARANTIES
Each of the undersigned Subsidiaries and Guarantors agrees to the terms of this
Fifth Amendment and hereby ratifies and reaffirms its Guaranty of the
Obligations of the Borrower and its grant of a security interest in certain
property to secure such Guaranty in favor of the Agent, on behalf of itself, the
Lender, and the L/C Bank and agrees that, notwithstanding this Fifth Amendment
and any other amendment or supplement to the Agreement entered into prior to
this Fifth Amendment, its Guaranty shall remain in full force and effect with
respect to the Agreement as amended hereby.
NATIONAL TECHNICAL SYSTEMS, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
ETCR, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
APPROVED ENGINEERING TEST
LABORATORIES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
ACTON ENVIRONMENTAL TESTING
CORPORATION
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
7
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<PAGE>
NATIONAL TECHNICAL SYSTEMS
- CERTIFICATION SERVICES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
WISE AND ASSOCIATES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
NTS TECHNICAL SERVICES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
XX CAL, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
8
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<PAGE>
AMENDMENT
EXHIBIT 1
---------
PERMITTED LIENS"
----------------
TO CREDIT AGREEMENT
-------------------
Lien upon the real property owned by ETCR and located at 1536 Valencia Avenue
the real property owned by ETCR and located at 1146 Massachusetts Avenue,
Boxborough, MA in the amount of $736,000 An existing mortgage loan which is
secured by a Lien on the real property owned by Acton Acton Environmental
Testing Corporation in an amount of $892,000. For an aggregate amount
outstanding not to exceed $3,028,000.
9
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<PAGE>
Exhibit 10.8
------------
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (the "Sixth Amendment") is made
and dated as of September 19, 2000, by and among SANWA BANK CALIFORNIA
("Sanwa"), those other banks (each, including Sanwa, a "Lender" and,
collectively, the "Lenders"), party with Sanwa to the Agreement defined in
Recital A below, SANWA, as agent for the Lenders (in such capacity, the "Agent")
and as the L/C Bank (as defined in the Agreement), and NTS TECHNICAL SYSTEMS, a
California corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of September 8,
1997 among the Agent, the Lenders and the Borrower (as amended, modified, or
waived, the "Agreement"), the Lenders agreed to extend credit to the Borrower on
the terms and subject to the conditions set forth therein. All capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the
Agreement.
B. The Borrower has requested the Lenders to consent to the proposed
sale of its wholly-owned subsidiary, National Technical Systems - Certification
Services, Inc., a Delaware corporation ("NTSCS"), to National Quality Assurance
USA ("NQA-US"), which is equally owned by both the Borrower and National Quality
Assurance U.K., for a total sale price of $1,150,000 (the "NTSCS Sale"), and to
further amend the Agreement accordingly.
C. In connection with the NTSCS Sale, the Borrower has also requested
the Lenders to release NTSCS from its obligations under the Guaranty of the
Obligations and to terminate the security interest granted by NTSCS to the Agent
for the benefit of the Lenders pursuant to the Security Agreement.
D. The Agent, the L/C Bank and the Lenders have agreed to such requests
of the Borrower on the terms and conditions contained in this Sixth Amendment.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Inducement Representations by the Borrower and Waiver.
-----------------------------------------------------
(a) Inducement Representations. In addition to the other
representations and warranties contained in this Sixth Amendment and the other
terms and provisions hereof, to induce the Agent, the L/C Bank and the Lenders
1
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<PAGE>
to enter into this Sixth Amendment, the Borrower hereby represents and warrants
as of the Effective Date (as such term is defined in Paragraph 5 below) that:
(i) All descriptions of the NTSCS Sale heretofore
delivered to the Agent, the L/C Bank or any of the Lenders by or on
behalf of the Borrower or NTSCS are complete and accurate in all
material respects, do not contain any material misstatement of fact, and
do not fail to contain any statement that results in such statements
being misleading in any material respect.
(ii) No Events of Default or Potential Defaults have
occurred under the Agreement.
2. Consent to NTSCS Sale; Amendments. To reflect the agreement of
the parties hereto regarding the NTSCS Sale by the Borrower and to modify
certain provisions of the Agreement affected by such sale, effective as of the
Effective Date:
(a) The Agent, the L/C Bank, and the Lenders hereby consent to
the NTSCS Sale under Paragraph 7(g) of the Agreement (regarding the disposition
of assets).
(b) Exhibit I (List of Subsidiaries) to the Agreement is hereby
amended to delete NTSCS as a Subsidiary of the Borrower.
3. Release of Guaranty and Termination of Security Agreement. The
Agent, L/C Bank, and Lenders hereby release NTSCS from its obligations under the
Guaranty, agree that NTSCS shall no longer be a Guarantor for purposes of the
Agreement, and release their security interest under the Security Agreement.
4. Reaffirmation of Security Agreements. The Borrower hereby affirms
and agrees that, except as otherwise provided herein, (a) the execution and
delivery by the Borrower of and the performance of its obligations under this
Sixth Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of the Obligations of the Borrower or the rights of the Lenders under
the Security Documents or any other document or instrument made or given by the
Borrower in connection therewith, (b) the term "Obligations" as used in the
Security Agreement includes, without limitation, the Obligations of the Borrower
under the Agreement as amended hereby, and (c) the Security Documents remain in
full force and effect and constitute a continuing first priority security
interest in and lien upon the Collateral described therein.
5. Effective Date. This Sixth Amendment shall be effective on the
date (the "Effective Date") when all of the following conditions precedent have
been satisfied:
(a) The Borrower shall have delivered or shall have had delivered
to the Agent each of the following (with sufficient copies for each of the
Lenders):
2
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<PAGE>
(i) A duly executed copy of this Sixth Amendment; and
(ii) Such credit applications, financial statements,
authorizations and such information concerning the Borrower and its Guarantors
and their business, operations and condition (financial and otherwise) as any
Lender may reasonably request.
(b) All fees and other amounts payable hereunder prior to such
date shall have been paid, and all acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the making
of any required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of this Sixth Amendment and to constitute the same legal, valid and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
(c) The representations and warranties made by or on behalf of the
Borrower and each Guarantor in or pursuant to the Loan Documents (and by
executing and delivering this Sixth Amendment, the Borrower represents that all
such representations and warranties) shall be accurate and complete in all
material respects as if made on and as of such date (or as of August 31, 2000 if
such representations and warranties relate to the financial results or condition
of the Borrower).
(d) There shall not have occurred an Event of Default or Potential
Default not otherwise cured or waived.
If this Sixth Amendment shall not have become effective on or before
September 30, 2000, then this Sixth Amendment shall, at the election of the
Lenders as evidenced by written notice to such effect given by the Lenders to
the Borrower, terminate and be of no further force or effect.
6. Representations and Warranties. As an inducement to the Agent, the
L/C Bank and each Lender to enter into this Sixth Amendment, the Borrower
represents and warrants to the Agent, the L/C Bank and each Lender that:
(a) Corporate Existence; Compliance with Law. The Borrower and each
Guarantor (1) is duly organized, validly existing and in good standing as a
corporation under the laws of the state of its incorporation and is qualified to
do business in each jurisdiction where its ownership of property or conduct of
business requires such qualification and where failure to qualify would have a
material adverse effect on it or its property and/or business or on its ability
to pay or perform the Obligations, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with all
Requirements of Law and Contractual Obligations.
(b) Corporate Power; Authorization; Enforceable Obligations. The
Borrower and each Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform this Sixth Amendment and the Agreement as
3
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<PAGE>
amended hereby to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of this Sixth
Amendment and the Agreement as amended hereby. This Sixth Amendment and the
Agreement as amended hereby have been duly executed and delivered on behalf of
the Borrower and each Guarantor party thereto and constitute such Person's
legal, valid and binding obligations enforceable against it in accordance with
their respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity.
(c) No Legal Bar. The execution, delivery and performance of this
Sixth Amendment and the Agreement as amended hereby, the borrowings hereunder
and the use of the proceeds thereof, will not violate any Requirement of Law or
any Contractual Obligations of the Borrower or any Guarantor or create or result
in the creation of any Lien on any assets of the Borrower or any Guarantor
except as contemplated thereby.
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower or any Guarantor, threatened by or against the
Borrower or any Guarantor or against any of the Borrower's or any Guarantor's
properties or revenues which is likely to be adversely determined and which, if
adversely determined, is likely to have a material adverse effect on the
business, operations, property or financial or other condition of the Parent and
its Subsidiaries, taken as a whole.
(e) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with any Governmental Authority is required
on the part of the Borrower or any Guarantor in connection with the execution
and delivery of this Sixth Amendment and the Agreement as amended hereby or the
performance of or compliance with the terms, provisions and conditions hereof or
thereof.
(f) No Default. No Potential Default or Event of Default has
occurred under the Agreement which has not otherwise been cured or waived.
(g) Full Disclosure. None of the representations or warranties made
by the Borrower or any Guarantor in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Guarantor in connection with the Loan
Documents contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
7. Miscellaneous Provisions.
------------------------
(a) Expenses. In accordance with Paragraph 6(g) of the Agreement,
the Borrower agrees to pay all reasonable out-of-pocket expenses of the Agent
incident to the preparation and negotiation of this Sixth Amendment.
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<PAGE>
(b) Entire Agreement. This Sixth Amendment embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof and thereof.
(c) Governing Law. This Sixth Amendment shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to choice of law rules.
(d) Counterparts. This Sixth Amendment may be executed in any
number of counterparts, all of which together shall constitute one agreement.
5
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be executed as of the day and year first above written.
NTS TECHNICAL SYSTEMS, a California corporation
By: /s/ Lloyd Blonder
--------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
SANWA BANK CALIFORNIA, as Agent and the L/C
Bank
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
SANWA BANK CALIFORNIA, as a Lender
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
MELLON BANK, N.A., as a Lender
By: /s/ Garry Handelman
--------------------------------------
Name: Garry Handelman
Title: Vice President
6
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<PAGE>
REAFFIRMATION OF GUARANTIES
Each of the undersigned Guarantors agrees to the terms of this Sixth Amendment
and hereby ratifies and reaffirms its Guaranty of the Obligations of the
Borrower and its grant of a security interest in certain property to secure such
Guaranty in favor of the Agent, on behalf of itself, the Lender, and the L/C
Bank and agrees that, notwithstanding this Sixth Amendment and any other
amendment or supplement to the Agreement entered into prior to this Sixth
Amendment, its Guaranty shall remain in full force and effect with respect to
the Agreement as amended hereby. Without limiting the generality of the
foregoing, by their respective signatures below, the undersigned Guarantors
agree that the Guaranty and Security Agreement executed by NTSCS and to which
the undersigned are or may be parties shall be and hereby is deemed to be
amended to delete all references to NTSCS.
NATIONAL TECHNICAL SYSTEMS, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
ETCR, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
APPROVED ENGINEERING TEST
LABORATORIES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
ACTON ENVIRONMENTAL TESTING
CORPORATION
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
7
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<PAGE>
WISE AND ASSOCIATES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
NTS TECHNICAL SERVICES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
XX CAL, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
8
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<PAGE>
The undersigned hereby acknowledges, consents and agrees to the foregoing.
NATIONAL TECHNICAL SYSTEMS-CERTIFICATION
SERVICES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
9
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<PAGE>
Exhibit 10.9
------------
SEVENTH AMENDMENT TO CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO CREDIT AGREEMENT (the "Seventh Amendment") is
made and dated as of December 9, 2000, by and among SANWA BANK CALIFORNIA
("Sanwa"), those other banks (each, including Sanwa, a "Lender" and,
collectively, the "Lenders"), party with Sanwa to the Agreement defined in
Recital A below, SANWA, as agent for the Lenders (in such capacity, the "Agent")
and as the L/C Bank (as defined in the Agreement), and NTS TECHNICAL SYSTEMS, a
California corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of September 8,
1997 among the Agent, the Lenders and the Borrower (as amended, modified, or
waived, the "Agreement"), the Lenders agreed to extend credit to the Borrower on
the terms and subject to the conditions set forth therein. All capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the
Agreement.
B. The Borrower has asked the Agent, the L/C Bank and the Lenders to
increase its Revolving Credit Limit, extend the Revolving Loan Maturity Date
until November 1, 2002, relax the minimum Debt Coverage Ratio requirement for
the fiscal quarter ending October 31, 2000, and increase the maximum capital
expenditures that may be made by the Borrower during fiscal year 2001 and 2002.
C. The Agent, the L/C Bank and the Lenders have agreed to such requests
of the Borrower on the terms and conditions contained in this Seventh Amendment.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1
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<PAGE>
AGREEMENT
1. Increase in Revolving Credit Limit. To reflect the agreement of the
parties hereto to increase the Revolving Credit Limit, the definition thereof in
Paragraph 1 of the Agreement is amended to read as follows:
"'Revolving Credit Limit' shall mean $11,000,000, as such amount may be
increased or decreased by written agreement of the Agent, the Borrower
and one hundred percent (100%) of the Lenders."
2. Extension of Revolving Loan Maturity Date. To reflect the agreement
of the parties to extend the Revolving Loan Maturity Date from September 8,
2001, the definition thereof in Paragraph 1 of the Agreement is amended to read
as follows:
"'Revolving Loan Maturity Date' shall mean the earliest of (i) November
1, 2002, as such date may be extended from time to time in writing by
the Borrower and one hundred percent (100%) of the Lenders, in their
sole discretion, (ii) the date the Lenders terminate their obligation to
make further Loans hereunder pursuant to Paragraph 8 below, or (iii) the
date the Revolving Credit Limit is reduced to $0.00."
3. Relaxation of Debt Coverage Ratio. To reflect the agreement of the
parties to relax the minimum Debt Coverage Ratio requirement from 1.30 to 1.00
for the fiscal quarter ending October 31, 2000, Paragraph 7(j)(5) of the
Agreement is amended to read as follows:
"(5) as at the fiscal quarter ending October 31, 2000, permit the Debt
Coverage Ratio for the preceding four fiscal quarters to be less than
1.25 to 1.00 or, as at the end of any other fiscal quarter, permit the
Debt Coverage Ratio for the preceding four fiscal quarters to be less
than 1.30 to 1.00."
4. Capital Expenditures. To reflect the agreement of the parties to
increase the limitations on capital expenditures that the Borrower may make,
Paragraph 7(j)(3) of the Agreement is amended to read as follows:
"(3) make capital expenditures in an aggregate amount in excess of (i)
$6,500,000 in the Borrower's fiscal year ending January 31, 2001, (ii)
$4,500,000 in the Borrower's fiscal year ending January 31, 2002, or
(iii) $2,500,000 thereafter."
5. Permitted Acquisitions. To reflect the agreement of the parties to
reduce additional acquisitions that the Borrower may make, Paragraph 7(d)(5) of
the Agreement is amended to read as follows:
"(5) Acquisitions by the Borrower and the Guarantors in an aggregate
amount not to exceed $500,000 in any fiscal year; and"
6. Reaffirmation of Security Agreements. The Borrower hereby affirms
and agrees that, except as otherwise provided herein, (a) the execution and
2
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<PAGE>
delivery by the Borrower of and the performance of its obligations under this
Seventh Amendment shall not in any way amend, impair, invalidate or otherwise
affect any of the Obligations of the Borrower or the rights of the Lenders under
the Security Documents or any other document or instrument made or given by the
Borrower in connection therewith, (b) the term "Obligations" as used in the
Security Agreement includes, without limitation, the Obligations of the Borrower
under the Agreement as amended hereby, and (c) the Security Documents remain in
full force and effect and constitute a continuing first priority security
interest in and lien upon the Collateral described therein.
7. Effective Date. This Seventh Amendment shall be effective as of
October 31, 2000 (the "Effective Date") if all of the following conditions
precedent have been satisfied on or prior to December 15, 2001:
(a) The Borrower shall have delivered or shall have had delivered
to the Agent each of the following (with sufficient copies for each of the
Lenders):
(i) A duly executed copy of this Seventh Amendment; and
(ii) Such credit applications, financial statements,
authorizations and such information concerning the Borrower and its Guarantors
and their business, operations and condition (financial and otherwise) as any
Lender may reasonably request.
(b) The Borrower shall have paid to the Agent for the account of
the Lenders an amendment fee of $13,750.00, and all fees and other amounts
payable hereunder prior to such date shall have been paid, and all acts and
conditions (including, without limitation, the obtaining of any necessary
regulatory approvals and the making of any required filings, recordings or
registrations) required to be done and performed and to have happened precedent
to the execution, delivery and performance of this Seventh Amendment and to
constitute the same legal, valid and binding obligations, enforceable in
accordance with their respective terms, shall have been done and performed and
shall have happened in due and strict compliance with all applicable laws.
(c) The representations and warranties made by or on behalf of the
Borrower and each Guarantor in or pursuant to the Loan Documents (and by
executing and delivering this Seventh Amendment, the Borrower represents that
all such representations and warranties) shall be accurate and complete in all
material respects as if made on and as of such date (or as of October 31, 2000
if such representations and warranties relate to the financial results or
condition of the Borrower).
(d) There shall not have occurred an Event of Default or Potential
Default not otherwise cured or waived.
8. Representations and Warranties. As an inducement to the Agent, the
L/C Bank and each Lender to enter into this Seventh Amendment, the Borrower
represents and warrants to the Agent, the L/C Bank and each Lender that:
3
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<PAGE>
(a) Corporate Existence; Compliance with Law. The Borrower and each
Guarantor (1) is duly organized, validly existing and in good standing as a
corporation under the laws of the state of its incorporation and is qualified to
do business in each jurisdiction where its ownership of property or conduct of
business requires such qualification and where failure to qualify would have a
material adverse effect on it or its property and/or business or on its ability
to pay or perform the Obligations, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with all
Requirements of Law and Contractual Obligations.
(b) Corporate Power; Authorization; Enforceable Obligations. The
Borrower and each Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform this Seventh Amendment and the Agreement
as amended hereby to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of this Seventh
Amendment and the Agreement as amended hereby. This Seventh Amendment and the
Agreement as amended hereby have been duly executed and delivered on behalf of
the Borrower and each Guarantor party thereto and constitute such Person's
legal, valid and binding obligations enforceable against it in accordance with
their respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in equity.
(c) No Legal Bar. The execution, delivery and performance of this
Seventh Amendment and the Agreement as amended hereby, the borrowings hereunder
and the use of the proceeds thereof, will not violate any Requirement of Law or
any Contractual Obligations of the Borrower or any Guarantor or create or result
in the creation of any Lien on any assets of the Borrower or any Guarantor
except as contemplated thereby.
(d) No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower or any Guarantor, threatened by or against the
Borrower or any Guarantor or against any of the Borrower's or any Guarantor's
properties or revenues which is likely to be adversely determined and which, if
adversely determined, is likely to have a material adverse effect on the
business, operations, property or financial or other condition of the Parent and
its Subsidiaries, taken as a whole.
(e) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with any Governmental Authority is required
on the part of the Borrower or any Guarantor in connection with the execution
and delivery of this Seventh Amendment and the Agreement as amended hereby or
the performance of or compliance with the terms, provisions and conditions
hereof or thereof.
(f) No Default. No Potential Default or Event of Default has
occurred under the Agreement which has not otherwise been cured or waived.
4
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<PAGE>
(g) Full Disclosure. None of the representations or warranties made
by the Borrower or any Guarantor in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Guarantor in connection with the Loan
Documents contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
9. Miscellaneous Provisions.
------------------------
(a) Expenses. In accordance with Paragraph 6(g) of the Agreement,
the Borrower agrees to pay all reasonable out-of-pocket expenses of the Agent
incident to the preparation and negotiation of this Seventh Amendment.
(b) Entire Agreement. This Seventh Amendment embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof and thereof.
(c) Governing Law. This Seventh Amendment shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to choice of law rules.
(d) Counterparts. This Seventh Amendment may be executed in any
number of counterparts, all of which together shall constitute one agreement.
5
Page 41 of 45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Amendment to be executed as of the day and year first above written.
NTS TECHNICAL SYSTEMS, a California corporation
By: /s/ Lloyd Blonder
--------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
SANWA BANK CALIFORNIA, as Agent and the L/C
Bank
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
SANWA BANK CALIFORNIA, as a Lender
By: /s/ Robert Ligon
--------------------------------------
Name: Robert Ligon
Title: Vice President
MELLON BANK, N.A., as a Lender
By: /s/ Garry Handelman
--------------------------------------
Name: Garry Handelman
Title: Vice President
6
Page 42 of 45
<PAGE>
REAFFIRMATION OF GUARANTIES
Each of the undersigned Guarantors agrees to the terms of this Seventh Amendment
and hereby ratifies and reaffirms its Guaranty of the Obligations of the
Borrower and its grant of a security interest in certain property to secure such
Guaranty in favor of the Agent, on behalf of itself, the Lender, and the L/C
Bank and agrees that, notwithstanding this Seventh Amendment and any other
amendment or supplement to the Agreement entered into prior to this Seventh
Amendment, its Guaranty shall remain in full force and effect with respect to
the Agreement as amended hereby.
NATIONAL TECHNICAL SYSTEMS, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Chief Financial Officer
ETCR, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
APPROVED ENGINEERING TEST
LABORATORIES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
ACTON ENVIRONMENTAL TESTING
CORPORATION
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
7
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<PAGE>
WISE AND ASSOCIATES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
NTS TECHNICAL SERVICES, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
XX CAL, INC.
By: /s/ Lloyd Blonder
--------------------------------------------
Name: Lloyd Blonder
Title: Vice President
8
Page 44 of 45
