<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Nuclear Research Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement (if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
____________________________________________________________________
2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
____________________________________________________________________
5) Total fee paid:
____________________________________________________________________
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form of schedule and the date of its filing.
1) Amount Previously Paid:
____________________________________________________________________
2) Form, Schedule or Registration Statement No.:
____________________________________________________________________
3) Filing Party:
____________________________________________________________________
4) Date Filed:
____________________________________________________________________
<PAGE>
[NRC logo/letterhead]
August 9, 1999
Dear Shareholders:
I am pleased to invite you to attend a special meeting of
shareholders of Nuclear Research Corporation ("NRC") which will be held on
Thursday, September 9, 1999, at 9:00 a.m., local time, at NRC's offices, located
at 125 Titus Avenue, Warrington, Pennsylvania.
At this special meeting, shareholders will be asked to
consider and vote upon a proposal to approve and adopt an agreement and plan of
merger, dated as of June 16, 1999, among NRC, Aptec Instruments Ltd., an Ontario
corporation, and Aptec Acquisition Corp., a Pennsylvania corporation which is a
wholly-owned subsidiary of Aptec Instruments Ltd. This merger agreement
provides, among other things, for the merger of NRC with and into Aptec
Acquisition Corp., which will continue as the surviving corporation under the
name "Aptec-NRC Inc."
The affirmative vote of a majority of the votes cast by all
shareholders entitled to vote is necessary to approve the merger agreement. Earl
M. Pollock and Dorothy S. Pollock together own approximately 56% of the
outstanding shares of NRC common stock, which is a sufficient number of shares
of NRC common stock to assure approval and adoption of the merger agreement at
the special meeting. Earl and Dorothy Pollock have agreed to vote all of their
shares of NRC common stock in favor of the approval and adoption of the merger
agreement. Accordingly, approval of the merger agreement is assured, and no
affirmative votes from other NRC shareholders are necessary to approve the
merger agreement.
Upon consummation of the merger, NRC will cease to exist. Each
share of NRC common stock, other than shares held by Earl and Dorothy Pollock
and by shareholders who properly exercise their dissenters rights under
Pennsylvania law, will be converted, after adjusting for existing stock options
and warrants, into the right to receive cash in the amount of $226.02 per share.
Earl and Dorothy Pollock will receive a combination of cash and 12,720 shares of
common stock of Aptec Instruments Ltd. No interest will accrue or be paid on
cash payable to NRC shareholders, including Earl and Dorothy Pollock.
In connection with the proposed merger, NRC and Earl and
Dorothy Pollock have entered into a stock acquisition agreement, dated June 16,
1999, with Eurisys Mesures SA, a French corporation, Aptec Instruments Ltd. and
certain other parties. Under this agreement, Eurisys Mesures SA, following the
merger, will acquire a 51% controlling interest in Aptec Instruments Ltd. common
stock by purchasing 5,860 shares of Aptec Instruments Ltd. from Earl and Dorothy
Pollock for $2,930,000 in cash and by purchasing additional shares directly from
Aptec Instruments Ltd. and from the pre-merger stockholders of Aptec Instruments
Ltd. The NRC board of directors has considered the merger and the purchases of
Aptec Instruments Ltd. stock by Eurisys Mesures SA, each of which transactions
is conditioned on completion of the other at approximately the same time,
together as a single transaction for purposes of determining the consideration
payable to all NRC shareholders. The $3,285,201 in cash to be received by the
NRC shareholders other than Earl and Dorothy Pollock, combined with the
$3,144,799 in cash, and the 6,860 (net after the sale of 5,860 shares to Eurysis
Mesures SA) shares of Aptec Instruments Ltd. common stock, to be received by
Earl and Dorothy Pollock, represents, in the determination of NRC's board of
directors, after adjusting for existing stock options and warrants, a value per
share of $226.02 to all NRC shareholders. The merger agreement provides for
possible reductions in the merger consideration in the event of purchase price
adjustments in the stock acquisition agreement, and if all such potential
pre-closing purchase price adjustments are made, the value per share to all NRC
shareholders, after adjusting for outstanding stock options and warrants, would
be reduced to $215.59. In the event adjustments would reduce the purchase price
further, either Eurisys Mesures SA or NRC is permitted, in certain
circumstances, to terminate the merger agreement and the stock acquisition
agreement, and in other instances, Earl and Dorothy Pollock have agreed to bear
the additional costs.
<PAGE>
NRC's board of directors, including the sole independent
director, Charles G. Sulzberger, Jr., has determined that the merger agreement,
the merger, and the transactions involving the acquisition of Aptec Instruments
Ltd. shares by Eurisys Mesures SA, all of which are described in the proxy
statement provided with this letter, are fair to and in the best interests of
NRC and its shareholders. The board has approved the merger agreement, the
merger and the related transactions and recommended that NRC's shareholders
approve and adopt the agreement and plan of merger. Howard, Lawson & Co., NRC's
financial advisor, rendered a written opinion to the independent director which
was delivered to NRC board to the effect that the allocation of consideration in
the merger is fair to the shareholders of NRC, other than Earl and Dorothy
Pollock, from a financial point of view. A copy of the written opinion of
Howard, Lawson is attached to the accompanying proxy statement as Annex B. NRC's
shareholders are urged to read this opinion carefully in its entirety for a
description of the assumptions made, factors considered and procedures followed
by Howard, Lawson & Co.
Shareholders who do not vote to approve and adopt the merger
agreement and who comply with the requirements of Sections 1571 to 1580 of the
Pennsylvania Business Corporation Law of 1988 will be entitled, if the merger is
consummated, to exercise dissenters rights with respect to their shares of NRC
common stock. See "The Merger and Contingent Transactions -- Dissenters Rights"
in the accompanying proxy statement for a description of the procedures to be
followed to exercise these rights.
We have enclosed a notice of special meeting of shareholders
and proxy statement which describe the merger and the related transactions and
contain other pertinent information. You are urged to read all of these
materials carefully.
A form of proxy solicited by the board is enclosed for your
convenience. Please mark, sign, date and return it promptly. If you attend the
special meeting you may vote your shares personally whether or not you have
previously submitted a proxy.
Promptly after the merger, a letter of transmittal will be
mailed to all shareholders of record to use in surrendering your share
certificates. Please do not send any share certificates until you receive the
letter of transmittal, which will include instructions as to the procedure to be
used in sending in your certificates.
I strongly support the merger and join with the other members
of the board in recommending it. We urge you to vote in favor of approval and
adoption of the merger agreement.
I look forward to seeing you on September 9, 1999 and thank
you for your support of NRC.
Sincerely,
/s/ Earl M. Pollock
----------------------------
Earl M. Pollock
<PAGE>
NUCLEAR RESEARCH CORPORATION
125 Titus Avenue
Warrington, PA 18976
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held September 9, 1999
This is a notice that a special meeting of shareholders of
Nuclear Research Corporation ("NRC"), will be held on Thursday, September 9,
1999 at 10:00 a.m., local time, at NRC's offices, located at 125 Titus Avenue,
Warrington, Pennsylvania to consider and act on the following matters:
1. To consider and vote upon a proposal to
approve and adopt the agreement and plan of
merger, dated as of June 16, 1999, among
NRC, Aptec Instruments Ltd., an Ontario
corporation, and Aptec Acquisition Corp., a
Pennsylvania corporation which is a wholly
owned subsidiary of Aptec Instruments Ltd.
Under the merger agreement, NRC will merge
with and into Aptec Acquisition Corp., which
will remain as the surviving corporation.
2. Any other matter that may properly come
before the meeting or any postponement or
adjournment of the meeting.
Shareholders of record at the close of business on August 9,
1999 will be entitled to vote at the special meeting and any postponement or
adjournment of the meeting.
If the merger agreement is approved and adopted and the merger
becomes effective, any shareholder of NRC:
o who, prior to the vote on the merger, files a written
objection to the proposed merger stating that he or
she intends to demand payment pursuant to statutory
procedures for his or her shares of NRC common stock
if the merger agreement is approved; and
o whose shares of NRC common stock are not voted in
favor of the merger agreement
has or may have the right to demand payment of fair value, determined in
accordance with statutory procedures, for his or her shares of NRC common stock.
This demand must be in writing and sent to NRC within 30 days after the date NRC
mails notice to its shareholders that the merger has become effective. NRC and
any shareholder exercising his or her dissenters rights must follow the
procedures set forth in Pennsylvania law regarding dissenters rights. See "The
Merger and Contingent Transactions - Dissenters Rights" in the accompanying
proxy statement for a statement of the rights of dissenting shareholders and a
description of the procedure required to be followed in order to perfect
dissenters rights. Annex C to the proxy statement sets forth the text of the
relevant provisions of the Pennsylvania Business Corporation Law of 1988
regarding dissenters rights. NRC's board of directors believes that the range of
values that shareholders may receive for each share of NRC common stock upon
consummation of the merger and the related transactions, represents the fair
value for those shares.
<PAGE>
Earl and Dorothy Pollock own a sufficient number of shares of
NRC common stock to approve and adopt the merger agreement without the vote of
any other shareholder. They have agreed to vote their shares of NRC common stock
in favor of the approval and adoption of the merger agreement. Accordingly,
approval of the merger is assured, and no affirmative votes from other NRC
shareholders are necessary to approve the merger agreement.
By Order of the Board of Directors
/s/ Dorothy S. Pollock
Dorothy S. Pollock
Secretary
All shareholders of NRC are cordially invited to attend the
special meeting. Whether or not you plan to attend in person, you are urged to
complete, date and sign the enclosed proxy card and return it promptly in the
enclosed reply envelope. This will assure your representation at the special
meeting. If you attend the special meeting, you may, of course, vote your shares
of NRC common stock in person even though you have sent in your proxy.
Do not send in your NRC common stock certificates with your
proxy. After the merger is completed, you will be sent written instructions for
delivering your stock certificates in exchange for the cash consideration to be
paid to you in the merger.
This proxy statement is dated August 9, 1999 and was first
mailed to NRC shareholders on or about August 9, 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SUMMARY......................................................................................................-3-
Date, Time and Place of Meeting.....................................................................-3-
Record Date and Outstanding Shares..................................................................-3-
Purpose of Special Meeting; Quorum; Votes Required..................................................-3-
Proxies, Voting and Revocation......................................................................-4-
Recommendation of the Board of Directors and Reasons for the Merger.................................-4-
Interests of NRC's Management in the Merger.........................................................-4-
Effective Time......................................................................................-4-
The Merger and Contingent Transactions .............................................................-4-
Treatment of Stock Options and Warrants.............................................................-5-
Conditions to Closing; Regulatory Approvals.........................................................-5-
Termination of the Merger Agreement.................................................................-5-
Federal Income Tax Consequences.....................................................................-6-
Dissenters Rights...................................................................................-6-
Selected Financial Data.............................................................................-6-
MARKET FOR NRC'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS...............................................................-7-
SELECTED HISTORICAL FINANCIAL DATA OF NRC ...................................................................-7-
THE SPECIAL MEETING..........................................................................................-8-
Date, Time and Place of Meeting of Holders of Shares................................................-8-
Record Date and Outstanding Shares..................................................................-8-
Voting Rights; Quorum and Vote Required.............................................................-8-
Proxies.............................................................................................-8-
Solicitation of Proxies and Expenses................................................................-9-
THE MERGER AND CONTINGENT TRANSACTIONS......................................................................-10-
General............................................................................................-10-
Structure of the Merger............................................................................-10-
Background of the Merger...........................................................................-11-
Recommendation of the Board of Directors and Reasons for the Merger................................-13-
Opinion of Financial Advisor.......................................................................-13-
Effects of the Merger..............................................................................-15-
Exchange Procedures for NRC Stock..................................................................-15-
Interests of NRC's Management in the Merger........................................................-16-
Federal Income Tax Consequences....................................................................-16-
Regulatory and Other Approvals.....................................................................-17-
Dissenters Rights..................................................................................-17-
THE MERGER AGREEMENT AND CONTINGENT AGREEMENTS..............................................................-20-
The Merger Agreement...............................................................................-20-
Voting Agreement...................................................................................-21-
Stock Acquisition Agreement........................................................................-22-
Shareholders Agreement.............................................................................-23-
Interim Management Agreement.......................................................................-23-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
INFORMATION CONCERNING NRC..................................................................................-24-
Business...........................................................................................-24-
Products and Markets...............................................................................-24-
Patents............................................................................................-25-
Distribution.......................................................................................-25-
Backlog............................................................................................-25-
Sources of Supply..................................................................................-25-
Competitive Conditions.............................................................................-26-
Customers..........................................................................................-26-
Regulation.........................................................................................-27-
Research and Development...........................................................................-27-
Personnel..........................................................................................-27-
Properties.........................................................................................-27-
Legal Proceedings..................................................................................-28-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................................-29-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NRC............................................................-35-
INFORMATION CONCERNING APTEC INSTRUMENTS LTD.
AND APTEC ACQUISITION CORP.........................................................................-36-
INDEPENDENT ACCOUNTANTS.....................................................................................-37-
AVAILABLE INFORMATION.......................................................................................-37-
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
OF NRC SHAREHOLDERS................................................................................-37-
INDEX TO FINANCIAL STATEMENTS...............................................................................F-1
FINANCIAL STATEMENTS OF NUCLEAR RESEARCH CORPORATION
Independent Auditors'Report........................................................................F-2
Consolidated Statements of Operations for the Years Ended
June 30, 1998, 1997 and 1996...............................................................F-3
Consolidated Balance Sheets as of June 30, 1998 and 1997...........................................F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998, 1997 and 1996...............................................................F-5
Consolidated Statements of Changes in Shareholders'Equity
for the Years Ended June 30, 1998, 1997 and 1996...........................................F-7
Notes to Consolidated Financial Statements for the Years Ended June 30,
1998, 1997 and 1996........................................................................F-10
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998.................................F-23
Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended
March 31, 1999 and 1998....................................................................F-25
Consolidated Statements of Changes in Shareholders'Equity for the Nine-Months Ended
March 31, 1999 and Year Ended June 30, 1998................................................F-27
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1999 and 1998....................................................................F-28
Notes to Consolidated Financial Statements for the Nine-Month Periods Ended
March 31, 1999 and 1998....................................................................F-29
ANNEXES
ANNEX A Merger Agreement...........................................................................A-1
ANNEX B Opinion of Financial Advisor...............................................................B-1
ANNEX C Sections 1571 through 1580 and 1906 of the Pennsylvania Business
Corporation Law of 1988...........................................................C-1
</TABLE>
<PAGE>
PROXY STATEMENT
for the
Special Meeting of Shareholders of
NUCLEAR RESEARCH CORPORATION
to be held on September 9, 1999
We are furnishing this proxy statement to our shareholders in
connection with the solicitation of proxies by our board of directors for use at
the special meeting of shareholders to be held on Thursday, September 9, 1999 at
9:00 a.m., local time, at the offices of NRC, located at 125 Titus Avenue,
Warrington, Pennsylvania, and any and all adjournments or postponements of the
special meeting. This proxy statement, the attached notice of special meeting of
shareholders and the enclosed form of proxy are being mailed to NRC's
shareholders on or about August 9, 1999.
At the special meeting, shareholders entitled to notice of and to vote
at the special meeting will be asked to approve and adopt an agreement and plan
of merger, dated as of June 16, 1999, among NRC, Aptec Instruments Ltd., an
Ontario corporation and Aptec Acquisition Corp., a Pennsylvania corporation
which is a wholly-owned subsidiary of Aptec Instruments Ltd. Under this merger
agreement, NRC will merge with and into Aptec Acquisition Corp., with Aptec
Acquisition Corp. remaining as the surviving corporation. Each share of NRC
common stock, other than a portion of the shares held by Earl and Dorothy
Pollock and shares held by shareholders who properly exercise their dissenters
rights under Pennsylvania law, will be converted, after adjusting for existing
stock options and warrants, into the right to receive cash in the amount of
$226.02 per share. Earl and Dorothy Pollock will receive a combination of cash
and 12,720 shares of common stock of Aptec Instruments Ltd. No interest will
accrue or be paid on cash payable to NRC shareholders, including Earl and
Dorothy Pollock. All summaries and references to the merger agreement in this
proxy statement are qualified in their entirety by reference to the text of the
merger agreement which is attached to this proxy statement as Annex A.
In connection with the proposed merger, NRC and Earl and Dorothy
Pollock have entered into a stock acquisition agreement, dated June 16, 1999,
with Eurisys Mesures SA, a French corporation, Aptec Instruments Ltd. and
certain other parties, under which agreement Eurisys Mesures SA will acquire a
51% controlling interest in Aptec Instruments Ltd. common stock by purchasing
5,860 shares of Aptec Instruments Ltd. from Earl and Dorothy Pollock for
$2,930,000 in cash and by purchasing additional shares directly from Aptec
Instruments Ltd. and from the stockholders of Aptec Instruments Ltd. The NRC
board of directors has considered the merger and the purchases of Aptec
Instruments Ltd. stock by Eurisys Mesures SA, each of which transactions is
conditioned on completion of the other at approximately the same time, together
as a single transaction for purposes of determining the consideration payable to
all NRC shareholders. The $3,285,201 in cash to be received by the NRC
shareholders other than Earl and Dorothy Pollock, as well as the $3,144,799 in
cash and the 6,860 shares of Aptec Instruments Ltd. to be received by Earl and
Dorothy Pollock, after the sale of 5,860 shares to Eurisys Mesures SA
represents, in the determination of NRC's board of directors and after adjusting
for existing stock options and warrants, a value per share of $226.02 to all NRC
shareholders. The merger agreement and the stock acquisition agreement provide
for possible reductions in the merger consideration in the event of purchase
price adjustments in the stock acquisition agreement, and if all such potential
pre-closing purchase price adjustments are made at closing, the value per share
to all NRC shareholders, after adjusting for outstanding stock options and
warrants, would be reduced to $215.59. In the event adjustments reduce the
purchase price further, either Eurisys Mesures SA or NRC is permitted, in
certain circumstances, to terminate the merger agreement and the stock purchase
agreement, and in other instances, Earl and Dorothy Pollock have agreed to bear
the additional cost.
Earl and Dorothy Pollock own a sufficient number of shares of NRC
common stock to assure the approval and adoption of the merger agreement at the
special meeting. Earl and Dorothy Pollock have agreed to vote all of their
shares of NRC common stock in favor of the merger agreement. Accordingly, the
affirmative vote of any other shareholder of NRC is not required to approve and
adopt the merger agreement.
<PAGE>
The board of directors, including the board's sole independent
director, have determined that the merger agreement, in the context of the
transactions related to or contingent upon the merger agreement, is fair to and
in the best interests of NRC and its shareholders, have approved the merger
agreement, as well as the transactions related to, or contingent upon, the
merger agreement, including the merger, and have recommended that NRC's
shareholders approve and adopt the merger agreement. See "The Merger and
Contingent Transactions -- Recommendation of the Board of Directors and Reasons
for the Merger."
Shareholders who fully comply with the requirements of Pennsylvania law
with respect to dissenters rights will have the right to dissent from the merger
and obtain fair value, determined in accordance with statutory procedures, for
their shares of NRC common stock. Failure to take any step in connection with
the exercise of dissenters rights may result in the termination or waiver of
these rights. See "The Merger and Contingent Transactions -- Dissenters Rights"
for a statement of the rights of dissenting shareholders and a description of
procedures that must be followed to enforce these rights. All references to and
summaries of Pennsylvania laws regarding dissenters rights in this proxy
statement are qualified in their entirety by reference to the text of these laws
which is attached to this proxy statement as Annex C.
We do not anticipate that any other matter will be brought before the
special meeting. If, however, other matters are presented, proxies will be voted
in accordance with the best judgment of the proxyholders.
The date of this proxy statement is August 9, 1999.
-2-
<PAGE>
SUMMARY
This is a brief summary of important information contained elsewhere in
this proxy statement. References in this proxy statement to "we," "our company"
and "NRC" are references to Nuclear Research Corporation. Reference is made to,
and this summary is qualified in its entirety by, the more detailed information
contained in this proxy statement, and the attached Annexes, including the
merger agreement, a copy of which is attached as Annex A to this proxy
statement. We urge you to read this proxy statement and the Annexes in their
entirety.
Date, Time and Place of Meeting
The special meeting will be held on Thursday, September 9, 1999, at
9:00 a.m., local time, at our offices, located at 125 Titus Avenue, Warrington,
Pennsylvania 18976.
Record Date and Outstanding Shares
Our board of directors has fixed the close of business on August 9,
1999 as the record date for determining which holders of our outstanding shares
of common stock are entitled to notice of and to vote at the special meeting. On
the record date, we had 27,658 issued and outstanding shares held by
approximately 1,675 holders of record. The shares constitute our only
outstanding class of stock. Each share is entitled to one vote. See "The Special
Meeting -- Record Date and Outstanding Shares."
Purpose of Special Meeting; Quorum; Votes Required
At the special meeting, shareholders will be asked to consider and vote
upon a proposal to approve and adopt an agreement and plan of merger, dated as
of June 16, 1999, among NRC, Aptec Instruments Ltd., an Ontario corporation and
Aptec Acquisition Corp., a Pennsylvania corporation which is a wholly-owned
subsidiary of Aptec Instruments Ltd. Under this merger agreement, NRC will merge
with and into Aptec Acquisition Corp., with Aptec Acquisition Corp. remaining as
the surviving corporation. Each issued and outstanding share of NRC common
stock, other than shares held by shareholders who properly exercise their
dissenters rights under Pennsylvania law, will be converted into the right to
receive, after adjusting for existing stock options and warrants, a maximum of
$226.02, and a minimum of $215.59 per share. All shareholders of NRC other than
Earl and Dorothy Pollock will receive this payment in cash, without interest.
Earl and Dorothy Pollock will receive consideration valued at a maximum of
$226.02, and a minimum of $215.59, per share of NRC common stock, consisting of
a combination of cash, without interest, and 12,720 shares, or 12,210 shares if
the minimum consideration is received, of Aptec Instruments Ltd. common stock.
Their shareholdings of Aptec Instruments Ltd. will be reduced to 6,860 shares
upon closing of a related contemporaneous transaction. See "The Merger and
Contingent Transactions."
Pennsylvania law requires:
o the presence, in person or by duly executed proxy, of the holders of
a majority of the outstanding shares entitled to vote to constitute a quorum;
and
o the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote on the merger to approve the merger agreement.
The shares owned by Earl and Dorothy Pollock represent 56% of the issued and
outstanding shares of NRC common stock and are therefore sufficient to assure
approval and adoption of the merger agreement without the vote of any other
shareholder. Earl and Dorothy Pollock agreed to vote or cause to be voted all of
their shares in favor of the merger agreement. See "The Special Meeting --
Voting Rights; Quorum and Vote Required" and "The Merger Agreement and
Contingent Agreements - Voting Agreement."
-3-
<PAGE>
Proxies, Voting and Revocation
All eligible shares represented by properly executed proxies will,
unless these proxies have previously been revoked, be voted at the special
meeting, and any adjournments or postponements of the special meeting, in
accordance with the directions on the proxies. If a proxy is duly executed and
submitted without directions, the shares will be voted for the approval and
adoption of the merger agreement.
A proxy may be revoked by:
o delivering to our Secretary at or before the special meeting
a written notice of revocation bearing a later date than the proxy;
o executing a later-dated proxy relating to the same shares
and delivering it to our Secretary at or before the special meeting; or
o attending the special meeting and voting in person;
attendance alone will not in and of itself constitute revocation of a proxy.
Any written notice revoking a proxy should be delivered to Nuclear Research
Corporation, 125 Titus Avenue, Warrington, Pennsylvania 18976, Attention:
Dorothy S. Pollock, Secretary. See "The Special Meeting -- Proxies."
Recommendation of the Board of Directors and Reasons for the Merger
After an evaluation of business and financial factors relating to NRC,
including concerns about future management, recent reductions in sales and
profitability and the incurrence of bank credit restrictions, the board,
including the board's sole independent director, approved the merger agreement
and unanimously recommended that our shareholders vote FOR the approval and
adoption of the merger agreement. See "The Merger and Contingent Transactions --
Recommendation of the Board of Directors and Reasons for the Merger."
Interests of NRC's Management in the Merger
Some members of our management will receive direct or indirect
additional benefits as a result of the merger and related transactions. See "The
Merger and Contingent Transactions -- Interests of NRC's Management in the
Merger."
Effective Time
The merger is conditioned upon the contemporaneous closing of the
related stock acquisition and will become effective as of the date and time when
articles of merger are filed with and have received the endorsed approval of the
Secretary of State of the Commonwealth of Pennsylvania.
The Merger and Contingent Transactions
Under the merger agreement, we will merge with and into Aptec
Acquisition Corp., with Aptec Acquisition Corp. continuing as the surviving
corporation. Each share, other than shares held by shareholders who properly
exercise their dissenters rights under Pennsylvania law, will be converted into
the right to receive $226.02 per share, after adjusting for existing stock
options and warrants. All shareholders other than Earl and Dorothy Pollock will
receive this payment in cash, without interest. Earl and Dorothy Pollock, in the
aggregate, will receive a combination of cash and 12,720 shares of Aptec
Instruments Ltd. common stock, which will be reduced to 6,860 shares upon
closing of the related contemporaneous transaction summarized in the next
paragraph.
Contemporaneous with the execution of the agreement and plan of merger,
NRC and Earl and Dorothy Pollock entered into a stock acquisition agreement
dated June 16, 1999, with Eurisys Mesures SA, a French corporation, Aptec
Instruments Ltd. and certain other parties. Under this agreement, Eurisys
Mesures SA,
-4-
<PAGE>
immediately upon and as a condition of effectiveness of the merger, will acquire
a 51% controlling interest in Aptec Instruments Ltd. common stock by purchasing
5,860 shares of Aptec Instruments Ltd. from Earl and Dorothy Pollock for
$2,930,000 in cash and by purchasing additional shares directly from Aptec
Instruments Ltd. and from the stockholders of Aptec Instruments Ltd. The NRC
board of directors has considered the merger and the contemporaneous purchases
of Aptec Instruments Ltd. stock from Earl and Dorothy Pollock by Eurisys Mesures
SA, together as a single transaction for purposes of determining the merger
consideration to be paid to NRC shareholders. The resulting $3,285,201 in cash
to be received by the NRC shareholders other than Earl and Dorothy Pollock,
combined with the $3,144,799 in cash to be received and the net amount of 6,860
shares of Aptec Instruments Ltd. common stock to be retained by Earl and Dorothy
Pollock, represents a price per share of $226.02 to all NRC shareholders, after
adjusting for existing stock options and warrants. The merger agreement and the
stock acquisition agreement provide for possible reductions in the purchase
price, and if the maximum pre-closing contractual adjustments are made at
closing, the value of the merger consideration payable to all NRC shareholders,
after adjusting for outstanding stock options and warrants, would be reduced to
$215.59 per share. In the event adjustments reduce the purchase price further,
either Eurisys Mesures SA or NRC is permitted, in certain circumstances, to
terminate the merger agreement and the stock purchase agreement.
After the merger, our company will cease to exist and holders of shares
of NRC common stock will have no continuing equity interest in Aptec Acquisition
Corp. Therefore, current NRC shareholders will not share in future earnings,
dividends or growth, if any, of the surviving corporation, although Earl and
Dorothy Pollock will own shares of Aptec Instruments Ltd., Aptec Acquisition
Corp.'s parent company. See "The Merger and Contingent Transactions -- Effects
of the Merger."
Treatment of Stock Options and Warrants
Each option and warrant to purchase shares of NRC common stock held by
any shareholder of NRC will be converted into the right to receive the merger
cash consideration, less the exercise price of the option or warrant, except
that Earl and Dorothy Pollock will receive payment for their options and
warrants in the form of Aptec Instruments Ltd. common stock. The Aptec
Instruments Ltd. common stock Earl and Dorothy Pollock receive for their
warrants is included in the 12,720 shares of common stock they will receive
under the terms of the merger agreement. See "The Merger Agreement and
Contingent Agreements -- The Merger Agreement -- Treatment of Options and
Warrants."
Conditions to Closing; Regulatory Approvals
The merger is subject to the prior approval and adoption of the merger
agreement by our shareholders and certain other customary closing conditions.
See "The Merger Agreement and Contingent Agreements -- The Merger Agreement --
Conditions to the Merger" and "The Merger and Contingent Transactions --
Regulatory and Other Approvals."
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to closing by,
among other things, the mutual agreement of the parties or, after the occurrence
of various events or actions described in the merger agreement, by one of the
parties acting independently. See "The Merger Agreement and Contingent
Agreements -- The Merger Agreement -- Representations and Warranties;
Termination."
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<PAGE>
Federal Income Tax Consequences
If the merger is consummated, the exchange of NRC shares by holders,
other than Earl and Dorothy Pollock, exclusively in exchange for the cash
consideration to be paid in the merger will be a taxable transaction under the
Internal Revenue Code of 1986. Because of the complexities of the tax laws,
shareholders are advised to consult their own tax advisors concerning the
applicable federal, state, local, foreign and other tax consequences resulting
from the merger. See "The Merger and Contingent Transactions -- Federal Income
Tax Consequences."
Dissenters Rights
Section 1930 of the Pennsylvania Business Corporation Law of 1988
provides that shareholders who do not vote in favor of the merger will be
entitled to exercise dissenters rights in connection with the merger.
Shareholders desiring to exercise dissenters rights will have the rights and
duties and must follow the procedures set forth in relevant provisions of
Pennsylvania law, the full text of which is attached to this proxy statement as
Annex C. Shareholders desiring to exercise dissenters rights must carefully
follow the procedures described in Pennsylvania law and are urged to read Annex
C in its entirety. The board of directors determined that the merger agreement
should indicate that the fairness of the differences in form of consideration
between Earl and Dorothy Pollock and the remaining shareholders is to be
governed by Section 1906(a) of the Pennsylvania Business Corporation Law, which
basically provides that the differences not be manifestly unreasonable; the
board of directors has determined that the differences in the form of
consideration are both fair and not manifestly unreasonable. In the absence of
fraud or fundamental unfairness, these dissenters rights will be the exclusive
remedy for shareholders objecting to the merger. It is a condition precedent to
the obligations of Aptec Instruments Ltd. and Aptec Acquisition Corp. under the
merger agreement that shareholders owning no more than 10% of the common stock
of NRC elect to exercise their dissenters rights under Pennsylvania law. See
"The Merger and Contingent Transactions -- Dissenters Rights."
Selected Financial Data
For selected financial data regarding NRC, see "Selected Historical
Financial Data of NRC."
-6-
<PAGE>
MARKET FOR NRC'S COMMON
STOCK AND RELATED SHAREHOLDER MATTERS
There is no established public trading market for NRC's common stock.
As of June 30, 1999, NRC had approximately 1,675 shareholders of record, of
which approximately 1,616 shareholders own ten shares or fewer.
NRC did not pay any dividends in fiscal years 1999 and 1998 and does
not anticipate paying dividends in the foreseeable future.
SELECTED HISTORICAL FINANCIAL DATA OF NRC
The selected historical consolidated financial information with respect
to NRC and its subsidiaries for the fiscal years ended June 30, 1998, 1997,
1996, 1995 and 1994 are excerpted from the audited financial statements of NRC.
The selected financial data for the nine months ended March 31, 1999 are derived
from the unaudited financial statements of NRC and, in the opinion of NRC's
management, include all adjustments, consisting only of normal recurring
adjustments, which are necessary to present fairly the results of operations and
financial position for that period. The results for the nine months ended March
31, 1999 are not necessarily indicative of the results to be expected for the
full year. The following financial information should be read in conjunction
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and the consolidated financial statements and related notes
included elsewhere in this proxy statement.
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31, For the Fiscal Year Ended June 30,
---------------------- -------------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------------------- --------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $13,581,755 $ 6,494,671 $ 9,728,960 $12,202,559 $25,100,604 $27,051,737 $20,852,694
Net Income (Loss) $ 774,009 $(2,713,907) $(2,964,272) $(1,300,095) $ 1,706,967 $ 1,278,476 $ 622,353 (1)
Net Income (Loss) Per
Common Share(3) $ 27.98 $ (98.12) $ (107.18) $ (47.01) $ 61.72 $ 46.22 $ 22.50
Total Assets $10,977,729 $10,099,699 $11,009,940 $11,667,603 $13,809,940 $ 11,392,00(2) $11,024,694
Long-term Debt $ 0 $ 87,500 $ 61,250 $ 217,895 $ 141,666 $ 379,131 $ 738,870
Dividends Declared,
Per Common Share $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
(1) During fiscal 1994, the final settlement of NRC's insurance claim
related to the partial roof collapse at the Dover Division in March
1993 resulted in a recorded gain of $323,209.
(2) Certain items in the 1995 financial statements have been reclassified
to conform with their 1996 presentation.
(3) Net Income (Loss) Per Common Share has been restated for the fiscal
years ended June 30, 1997, 1996, 1995 and 1994 to reflect a correction
in the number of shares reported outstanding for each such fiscal year
from 28,175 to 27,658.
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<PAGE>
THE SPECIAL MEETING
Date, Time and Place of Meeting of Holders of Shares
The special meeting will be held on Thursday, September 9, 1999, at
9:00 a.m., local time, at our offices, located at 125 Titus Avenue, Warrington,
Pennsylvania 18976.
Record Date and Outstanding Shares
The board of directors has fixed the close of business on August 9,
1999 as the record date for the determining which shareholders are entitled to
notice of and to vote at the special meeting. On the record date, NRC had 27,658
outstanding shares held by approximately 1,675 holders of record. These shares
constitute NRC's only outstanding class of stock.
Voting Rights; Quorum and Vote Required
Each holder of NRC common stock on the record date is entitled to one
vote for each share held of record by him or her. Under Pennsylvania law, the
presence, either in person or by duly executed proxy, of the holders of a
majority of the outstanding shares entitled to vote is necessary to constitute a
quorum. Holders present in person at the special meeting but not voting, or for
whom NRC has received proxies but with respect to which authority has been
withheld to vote on any matter, will be counted as present at the special
meeting only for purposes of determining the presence or absence of a quorum.
NRC will treat broker non-votes in a similar manner.
Pennsylvania law requires the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote on the merger to approve the
merger agreement. Earl and Dorothy Pollock own 15,502 shares, or approximately
56%, of the issued and outstanding shares of NRC common stock, and have agreed
to vote or cause to be voted all of their shares in favor of the merger
agreement. Accordingly, approval of the merger agreement is assured without the
vote of any other shareholder.
Proxies
All shares represented at the special meeting by properly executed
proxies received prior to or at the special meeting, and not revoked, will be
voted at the special meeting in accordance with their instructions. If no
instructions are included on the proxy, it will be voted FOR approval of the
merger agreement except as otherwise set forth in this proxy statement. Such
proxies are solicited on behalf of the board.
A proxy given pursuant to this solicitation may be revoked at
any time before it is voted. A proxy may be revoked by:
o delivering to our Secretary at or before the special meeting
a written notice of revocation bearing a later date than the proxy;
o executing a later-dated proxy relating to the same shares
and delivering it to our Secretary at or before the special meeting; or
o attending the special meeting and voting in person; although
attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
Any written notice revoking a proxy should be delivered to Nuclear Research
Corporation, 125 Titus Avenue, Warrington, Pennsylvania 18976, Attention:
Dorothy S. Pollock, Secretary.
-8-
<PAGE>
Solicitation of Proxies and Expenses
NRC will bear the entire cost of this solicitation of proxies; however,
in the event fees and expenses incurred between April 1, 1999 and closing exceed
$350,000, all shareholders will bear the next $75,000 of those costs through a
reduction in their merger consideration and, thereafter, Earl and Dorothy
Pollock have agreed to reimburse NRC or Aptec Instruments Ltd. for amounts in
excess of $425,000. Copies of solicitation material will be furnished to
brokerage houses, fiduciaries and custodians holding shares of NRC common stock
in their names but beneficially owned by others to forward to the beneficial
owners. NRC will reimburse persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone or
personal solicitations by directors, officers or other regular employees of NRC.
No additional compensation will be paid to directors or officers or other
regular employees for these services.
Do not send in your NRC common stock certificates with your proxy.
After the merger is completed, we will send you written instructions for
delivering your stock certificates in exchange for the cash consideration to be
paid to you in the merger.
-9-
<PAGE>
THE MERGER AND CONTINGENT TRANSACTIONS
General
The merger agreement provides, among other things, for the merger of
NRC with and into Aptec Acquisition Corp., with Aptec Acquisition Corp.
continuing as the surviving corporation. As soon as possible following the
approval and adoption of the merger agreement by the shareholders of NRC and the
satisfaction or waiver of the other conditions to the merger, the merger will be
consummated. The merger will become effective as of the date and time when
articles of merger as required by Pennsylvania law are filed with, and have
received the endorsed approval of, the Secretary of State of the Commonwealth of
Pennsylvania.
Structure of the Merger
Upon consummation of the merger, NRC will cease to exist. Each share of
NRC common stock, other than shares held by shareholders who properly exercise
their dissenters rights under Pennsylvania law, will be converted into the right
to receive $226.02 per share, after adjusting for existing stock options and
warrants. All shareholders of NRC other than Earl and Dorothy Pollock will
receive this payment in cash, without interest. Earl and Dorothy Pollock will
receive a combination of cash and 12,720 shares of common stock of Aptec
Instruments Ltd., which will be reduced to 6,860 shares upon closing of the
related contemporaneous transaction summarized in the next paragraph.
Concurrently with the execution of the merger agreement, NRC and Earl
and Dorothy Pollock entered into a stock acquisition agreement dated June 16,
1999, with Eurisys Mesures SA, a French corporation, Aptec Instruments Ltd. and
certain other parties. Under this agreement, immediately upon and as a condition
of effectiveness of the merger, Eurisys Mesures SA, will acquire a 51%
controlling interest in Aptec Instruments Ltd. common stock by purchasing 5,860
shares of Aptec Instruments Ltd. from Earl and Dorothy Pollock for $2,930,000 in
cash and by purchasing additional shares directly from Aptec Instruments Ltd.
and from the pre-merger stockholders of Aptec Instruments Ltd. The NRC board of
directors including the sole independent director, Charles G. Sulzberger, Jr.,
has considered the merger and the contemporaneous purchases of Aptec Instruments
Ltd. stock by Eurisys Mesures SA, together as a single transaction for purposes
of determining the consideration payable to all NRC shareholders. The $3,285,201
in cash to be received by the NRC shareholders other than Earl and Dorothy
Pollock, as well as $3,144,799 in cash, and the 6,860 shares (net after the sale
of 5,860 shares to Eurisys Mesures SA) of Aptec Instruments Ltd. common stock,
to be received by Earl and Dorothy Pollock, represents, in the determination of
NRC's board of directors, after adjusting for existing stock options and
warrants, a value per share of $226.02 to all NRC shareholders. The merger
agreement provides for possible reductions in the merger consideration in the
event of purchase price adjustments in the stock acquisition agreement, and if
all such potential pre-closing purchase price adjustments are made, the value
per share to all NRC shareholders, including Earl and Dorothy Pollock, after
adjusting for existing stock options and warrants, would be reduced to $215.59.
In the event adjustments would reduce the purchase price further, either Eurisys
Mesures SA or NRC is permitted, in certain circumstances, to terminate the
merger agreement and the stock acquisition agreement, and in other instances,
Earl and Dorothy Pollock have agreed to bear the additional cost. Earl and
Dorothy Pollock have agreed to be the sole source of funding an escrow holdback
of $314,480 to protect Eurisys Mesures SA against breaches of certain
representations, warranties and covenants in the merger agreement and the stock
acquisition agreement. See "The Merger Agreement and Contingent Agreements --
The Merger Agreement" and "- Stock Acquisition Agreement."
As noted above, the merger and the transactions under the stock
acquisition agreement have been treated by the NRC board as one transaction for
purposes of allocating value to Earl and Dorothy Pollock and the remaining NRC
shareholders. The board's sole independent director obtained an opinion from the
investment banking firm of Howard, Lawson & Co. dated June 16, 1999, that the
allocation of the value in these transactions to the shareholders of NRC was
fair, from a financial point of view. See "Background of the Merger,"
"Recommendation of the Board of Directors and Reasons for the Merger" and
"Opinion of Financial Advisor."
-10-
<PAGE>
Background of the Merger
The board of directors of NRC, while addressing its strategic goals in
late 1997, determined that it was always open to indications of interest for the
acquisition of NRC, or other strategic transactions, but that a reasonable
approach for NRC at that time would be to remain independent. Shortly
thereafter, NRC, at the suggestion of its bank lender, was requested to retain a
consultant to advise it in connection with current management and operations in
light of NRC's significant prior year loss and deterioration in collateral for
NRC's outstanding bank loans. At a meeting of the board of directors in May
1998, NRC's newly retained consultant suggested that various strategic
alternatives be explored, including finding a significant investor for NRC,
selling NRC, or selling one of NRC's divisions and recapitalizing the balance of
NRC. The consultant also advised the board that NRC's bank lender had moved
NRC's loans into a troubled loan category and had insisted that Earl and Dorothy
Pollock guarantee collateral shortfall underlying the debt.
NRC's consultant was authorized at that time to explore whether NRC
could find a buyer or a significant investor. A total of fifteen parties were
approached by the consultant. One of these parties ultimately made a proposal to
acquire NRC. The proposal, received in July 1998, contemplated a purchase of NRC
for $4.5 million in cash, the assumption of all debt of NRC and potential
deferred payments, if earned, over several years. After further discussions, it
appeared that the prospective purchaser was interested ultimately in acquiring
only one of NRC's two divisions and eventually the discussions were mutually
discontinued.
At approximately the same time that NRC was pursuing the above
discussions, informal discussions between Edward Zieba and Earl Pollock
commenced concerning the possibility of NRC merging with Aptec Instruments Ltd.,
an Ontario corporation engaged generally in the same business as NRC. Mr. Zieba
indicated a desire at that time to keep NRC's operations intact after the
merger. On September 17, 1998, Aptec Instruments Ltd. made a proposal to acquire
NRC through merger, whereby NRC shareholders would receive a 30%, later
increased to 32%, equity interest in the merged entity and a cash payment of
$3.5 million. NRC shareholders who received stock of the merged entity would
have an option to "put" their shares to the merged entity after three years to
sell their shares to the merged entity for twice the attributed value of the
shares at closing, conditioned upon the entity's ability to pay, which would
have been dependent upon NRC's performance over that period. In addition, Aptec
Instruments Ltd.'s ability to deliver $3.5 million of cash at closing, the
maximum amount of cash that it represented it could raise, was dependent upon
the availability of a bank line in that amount. In the fall of 1998, letters of
intent were executed with Aptec Instruments Ltd. concerning a proposed merger of
the two companies and effectively prohibiting the resale of NRC, or a
substantial interest in NRC, within one year following closing. The proposed
merger was conditioned upon Aptec Instruments Ltd. receiving financing
sufficient to fund the cash portion of the transaction, virtually all of which
would be paid to NRC shareholders other than Earl and Dorothy Pollock in order
to minimize the number of shareholders in the surviving corporation.
Mr. Zieba, meanwhile, discussed with Eurysis Mesures SA whether Aptec
Instruments Ltd. and NRC would be interested in selling a majority of their
merged company to Eurisys Mesures SA at a higher valuation than that implied in
the Aptec/NRC transaction. The NRC board of directors, on January 14, 1999,
authorized NRC to proceed to pursue and enter into an agreement with Aptec
Instruments Ltd. for merger in accordance with the latest letter of intent and
definitive documentation to be negotiated. The board of directors further
resolved that NRC should advise Aptec Instruments Ltd. and Eurisys Mesures SA
that it was also willing to complete a merger with Aptec Instruments Ltd.
contemporaneously with the acquisition by Eurisys Mesures SA of a 51% interest
in the merged entity to be formed by the merger of Aptec Instruments Ltd. and
NRC.
Thereafter, following extensive due diligence by the parties, a letter
of intent was executed on March 26, 1999 by Eurisys Mesures SA, NRC, Aptec
Instruments Ltd., Earl and Dorothy Pollock and Mr. Zieba. The letter of intent
placed a $23 million value on the merged entity, and provided for a $2 million
additional investment by Eurisys Mesures SA into the merged entity. Eurisys
Mesures SA had determined that it was interested solely in a transaction in
which it would pay cash for 51% of the merged entity; in addition, because of
concerns about inheriting multiple shareholders and public company issues,
Eurisys Mesures SA's participation was conditioned on cashing out all remaining
shareholders of NRC other than Earl and Dorothy Pollock. The total consideration
for the transaction, in addition to the $3.5 million payable to the
shareholders, other than Earl and Dorothy Pollock, as
-11-
<PAGE>
result of the merger of Aptec Instruments Ltd. and NRC, would involve an
additional $3.4 million of cash to Earl and Dorothy Pollock in exchange for a
sufficient number of shares to increase Eurisys Mesures SA's ownership to 51% of
the surviving entity, with Earl and Dorothy Pollock retaining a 15.68% interest
in Aptec Instruments Ltd. The letter of intent envisioned a shareholders
agreement with "put" and "call" options between Eurisys Mesures SA and Earl and
Dorothy Pollock and Mr. Zieba with regard to their post-merger Aptec Instruments
Ltd. shares, at multiples of earnings before interest taxes, depreciation and
amortization, over a three year period following a three year moratorium, but
with no minimum purchase price protection. The letter of intent further provided
for a one year employment agreement for Earl Pollock at $225,000 and a one year
consulting agreement thereafter for $150,000. Eurisys Mesures SA received a
120-day exclusive right to deal with NRC in connection with the letter of
intent.
In May 1999, the NRC board of directors determined that the two
contemporaneous transactions, consisting of the merger and the purchase of
shares by Eurisys Mesures SA, should be treated as one transaction for the
purpose of determining the ultimate consideration to be shared by all
shareholders, and Earl and Dorothy Pollock advised that they were amenable to
this result. The board also approved negotiated adjustments to the purchase
price. The independent director considered, but took no action on, the question
of whether Earl and Dorothy Pollock were entitled to a premium price in
connection with the proposed transactions in exchange for their willingness to
pass on to the other shareholders of NRC the benefits of the sale of a portion
of their Aptec Instruments Ltd. shares to Eurisys Mesures SA, and their
agreement, after negotiation with the independent director, to provide to
Eurisys Mesures SA all of the representations, warranties and covenants which
would survive closing and to provide the escrow funds necessary to secure a
portion of those representations and warranties for the duration of their
survival. At that meeting, the board authorized the independent director to
retain an investment banking firm to provide a fairness opinion to assist him in
determining the fairness of the consideration to be paid to shareholders,
particularly the allocation of cash and shares as between Earl and Dorothy
Pollock and all other shareholders of NRC. The board was informed of the legal
issues involved in determining the fairness of the transactions.
The board, at a meeting held on May 26, 1999, approved the independent
director's retention of Howard, Lawson & Co., a Philadelphia-based investment
banking firm, for the purpose of providing a fairness opinion. The board
reviewed various considerations relating to fairness which resulted from
discussions with Howard, Lawson & Co. and reviewed again the legal bases in
connection with the board's determinations. The board, including the independent
director, then received the opinion of Howard, Lawson & Co., to the effect that
the allocation of $3,285,201 cash for the shares of all shareholders other than
Earl and Dorothy Pollock and $3,144,799 cash and a net amount of 6,860 shares,
or 14.4%, of Aptec Instruments Ltd. common stock for the shares of Earl and
Dorothy Pollock, was fair to the non-Pollock shareholders from a financial point
of view. The independent director, in part on the basis of the advice of Howard,
Lawson & Co., determined that the difference in the form of consideration to be
paid to the non-Pollock shareholders and to Earl and Dorothy Pollock was fair
and appropriate. In so doing, he determined that the value of the consideration
to be received by Earl and Dorothy Pollock, based on various factors delineated
by Howard, Lawson & Co., would be no greater per share than the cash value per
share to be paid to shareholders and that, therefore, no control premium would
be involved for Earl and Dorothy Pollock. At that meeting, the board of
directors and the independent director authorized the officers and NRC's
representatives to negotiate and execute definitive documents relating to the
merger and the subsequent agreement of sale by Earl and Dorothy Pollock to
Eurisys Mesures SA, which required NRC to be a party.
Negotiations continued among the parties to the proposed merger and the
other proposed transactions. Various issues relating to environmental concerns
and transaction costs caused the transactions to be further amended to provide
that the ultimate purchase price to shareholders, including Earl and Dorothy
Pollock, would be reduced if certain limits were exceeded with regard to the
cost of environmental remediation or incurrence of costs in excess of specified
amounts. The parties, however, effectively agreed that the reduction, on a
per-share basis, would be no greater than $10.43 per share which resulted in the
maximum per share price remaining at $226.02 per share and the minimum being
$215.59 per share. On June 16, 1999, definitive agreements were executed. NRC's
bank lender, First Union National Bank, has acquiesced to the proposed
transactions on a conditional basis.
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<PAGE>
Recommendation of the Board of Directors and Reasons for the Merger
After an evaluation of business and financial factors relating to NRC,
including concerns about future management, recent reductions in sales and
profitability and bank credit restrictions, the board, as well as the board's
sole independent director, approved the merger agreement and unanimously
recommended that our shareholders vote FOR the approval and adoption of the
merger agreement.
Opinion of Financial Advisor
The independent director of NRC received the oral opinion of Howard,
Lawson & Co. on May 26, 1999 and the written opinion of Howard, Lawson & Co.
dated June 16, 1999. A copy of this opinion is attached to this proxy statement
as Annex B. The opinion states that the allocation of consideration in the
merger is fair to the shareholders of NRC, other than Earl and Dorothy Pollock,
from a financial point of view.
In rendering its opinion, Howard, Lawson & Co., among other things:
o reviewed the Agreement and Plan of Merger, dated June 16, 1999;
o reviewed the Stock Acquisition Agreement, dated June 16, 1999;
o reviewed the proposed Shareholders Agreement;
o reviewed the proposed Non-Competition Agreement, among Aptec
Instruments, Ltd., Eurisys Mesures SA, and Mr. Earl M. Pollock;
o reviewed the proposed Employment Agreement and the Consulting
Agreement between Aptec Instruments Ltd., Aptec Acquisition Corp.,
and Mr. Earl M. Pollock;
o reviewed the Interim Management Agreement, dated June 16, 1999;
o reviewed the Voting Agreement, dated June 16, 1999;
o reviewed the NRC Annual Report and Form 10-KSB for the fiscal year
ended June 30, 1998, NRC Forms 10-QSB for the quarters ended
September 30, 1998 and December 31, 1998;
o reviewed the NRC Statement of Operations and Balance Sheet for the
nine months ended March 31, 1999; o reviewed the NRC Projected
Statement of Income and Cash Flow for the Years Ending June 30, 1999,
2000, and 2001;
o reviewed the Aptec Instruments Ltd. audited consolidated financial
statements for the fiscal years ended August 31, 1997 and August 31,
1998;
o reviewed the Aptec Instruments Ltd., Projected Combined Financial
Statements for the years ending August 31, 1999, 2000, and 2001
(unaudited);
o reviewed minutes from certain meetings of the board of directors of
NRC;
o reviewed other operating and financial information provided by NRC
related to the business and prospects of NRC;
o reviewed other documents related to the transactions; performed
studies, analysis, inquiries and investigations as it deemed relevant
for the purposes of its opinion; and
o held discussions with representatives of the NRC concerning the
transactions, events leading to the transaction, the business and
operations of NRC and historical and projected financial statements
of NRC.
Specifically, Howard, Lawson & Co. considered and analyzed the
financial data of NCR and performed a variety of financial and comparative
analyses, as described below.
Howard, Lawson & Co. noted that, as a result of the merger and the
transactions under the stock acquisition agreement, which have been treated by
the NRC board as one transaction for purpose of allocating value to Earl and
Dorothy Pollock and the remaining NRC shareholders, the shareholders of NRC will
receive $6,430,000 in cash and 6,860 shares of Aptec Instruments Ltd. common
stock. For the purpose of its opinion, Howard, Lawson & Co. analyzed the fair
market value of the Aptec Instruments Ltd. common stock received. Because there
is no market for the common stock of Aptec Instruments Ltd., Howard, Lawson &
Co. prepared a number of analyses of the value of the Aptec Instruments Ltd.
common stock.
-13-
<PAGE>
Howard, Lawson & Co. prepared an analysis of the value of the Aptec
Instruments Ltd. common stock as measured by the present value of the likely
proceeds from the sale of the stock under the terms of the shareholders
agreement. The shareholders agreement provides that the holders of the Aptec
Instruments Ltd. common stock will have the right to sell to Eurisys Mesures SA,
and that Eurisys Mesures SA will have the right to purchase, the Aptec
Instruments Ltd. common stock at certain times and under certain conditions.
Specifically, beginning in 2003 and ending in 2005 each will have the
opportunity to effect a sale. The sale price will be determined by a formula
which is a multiple of the average earnings before interest, taxes, depreciation
and amortization of Aptec Instruments Ltd. for the two years preceding the
purchase. The multiple applied will be four times, five times, and six times
respectively in 2003, 2004, and 2005. Because of the structure of these options,
Howard, Lawson & Co. believed it highly likely that they will be exercised, and
that a present value analysis of the proceeds from the sales provides a highly
relevant indication of the value of the Aptec Instruments Ltd. common stock.
Howard, Lawson & Co. utilized financial projections of Aptec Instrument
Ltd. through 2001 as prepared by management of Aptec Instruments Ltd. to include
the effects of the merger. In order to calculate the likely option prices,
Howard, Lawson & Co. extrapolated the projections to the year 2005 using a
16.35% annual growth rate for earnings before interest, taxes, depreciation and
amortization. It then calculated the proceeds from the exercise of the option in
each of the year 2003, 2004, and 2005. It then calculated the present value of
such proceeds at annual discount rates ranging from 18% to 25% a year, resulting
in a range of $280 to $375 per Aptec Instruments Ltd. common stock.
Howard, Lawson & Co. also prepared an analysis of the fair market value
of the Aptec Instruments Ltd. common stock in light of the prices paid by
Eurisys Mesures SA for a 51% interest in the common stock of Aptec Instruments
Ltd. In a series of related transactions, Eurisys Mesures SA will acquire 24,225
shares of the common stock of Aptec Instruments Ltd., equal to a 51% interest in
the common stock, for $12,112,500, or $500 per share. For the purpose of its
opinion, Howard, Lawson & Co. considered these transaction as a single
arms-length transaction. As such, it analyzed the fair market value of the Aptec
Instruments Ltd. common stock in light of these transactions. Since the Aptec
Instruments Ltd. common stock which Earl and Dorothy Pollock will receive
represent a minority interest in a privately-held company for which no market
exists, Howard, Lawson & Co. considered the effect on value of the relative lack
of control of the Aptec Instruments Ltd. common stock and their lack of
marketability. After review of a number of relevant studies and after taking
into consideration the rights and restrictions contained in the shareholders
agreement, including the right to elect a director, restrictions on sale and
transferability, and the sale options, Howard, Lawson & Co. determined that a
discount of 25% to 44%, as implied by the range of $280 to $375 to the price
paid by Eurisys Mesures SA, would appropriately reflect the fair market value of
the Aptec Instruments Ltd. common stock.
Such a range of value indicates a fair market value of $1,920,800 to
$2,572,500 for the Aptec Instruments Ltd. common stock and $8,350,800 to
$9,002,500 for the total consideration in the transaction. The independent
director assigned a value of $8,488,000 to the transaction, which, after
adjusting for existing stock options and warrants, was allocated on a pro rata
basis to all shares, resulting in $226.02 per share. Howard, Lawson & Co. noted
that no premium was assigned to the shares owned by Earl and Dorothy Pollock,
despite their control position, and no value was ascribed to the representations
and warranties provided by Earl and Dorothy Pollock in the merger. Howard,
Lawson & Co. opined that, on the basis of the their analysis, the allocation of
consideration in the merger is fair to the shareholders of NRC, other than Earl
and Dorothy Pollock, from a financial point of view.
In rendering its opinion, Howard, Lawson & Co. relied on the
completeness and accuracy of the information provided to it by the management of
NRC including the information listed earlier. Howard, Lawson & Co. did not
independently verify the financial, legal, tax, operating and other information
provided to it by NRC or publicly available and relied on the completeness and
accuracy of such information in all respects. Howard, Lawson & Co. did not make
independent appraisals or evaluations of the assets of NRC, and relied upon the
representations of management concerning information with respect to NRC and its
financial statements. Howard, Lawson & Co. assumed that the information relating
to the prospects of NRC and Aptec Instruments Ltd., furnished by the companies,
reflects the best then currently available estimates and judgments of their
respective management. Howard, Lawson & Co. relied on NRC to advise it promptly
if any information previously provided became inaccurate or was required to be
updated. Its analysis is necessarily based upon economic, market and other
conditions and the information made available to it as of the date of its
opinion. Howard, Lawson & Co. was not asked to provide an opinion on the
aggregate transaction price or on the transaction taken as a whole and,
therefore, provided no such opinion.
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The independent director selected Howard, Lawson & Co. solely to render
a fairness opinion in connection with the transaction after receiving referrals
of investment banking firms from NRC's consultant and counsel and after
considering various firms. Howard, Lawson & Co. is an investment banking firm
with substantial experience in transactions similar to the merger and is
familiar with NRC and its business. Howard, Lawson & Co. has had no prior
business relationship with NRC. As part of its investment banking business,
Howard, Lawson & Co. is continually engaged in the evaluation of businesses and
their securities in connection with mergers and acquisitions, competitive
biddings, private placements and valuations for corporate and other purposes.
Pursuant to the terms of the engagement of Howard, Lawson & Co. for its
opinion with respect to the fairness of the transaction, NRC agreed to pay
Howard, Lawson & Co. an aggregate fee of $22,500 plus hourly charges in
connection with its assistance in preparing the proxy statement and certain
out-of-pocket expenses.
Effects of the Merger
If the merger is consummated, NRC shareholders, other than Earl and
Dorothy Pollock through their ownership of shares of Aptec Instruments Ltd.,
will not have an opportunity to continue their equity interest in NRC or the
surviving corporation as an ongoing corporation, and therefore, will not have
the opportunity to share in its future earning and potential growth, if any.
The merger agreement provides that, at the time the merger becomes
effective, each share of NRC common stock, other than shares held by
shareholders who properly exercise their dissenters rights under Pennsylvania
law, will be converted, after adjusting for existing stock options and warrants,
into the right to receive $226.02, or a minimum of $215.59 per share. All
shareholders of NRC other than Earl and Dorothy Pollock will receive this
payment in cash, without interest after adjusting for existing stock options and
warrants. Earl and Dorothy Pollock will receive a combination of cash in the
same per share amounts as all other shareholders, without interest, and 12,720
shares, or 12,210 shares if the minimum consideration is received of Aptec
Instruments Ltd. common stock. All shares of NRC common stock will be canceled.
Once the merger becomes effective, NRC shall cease to exist and the
articles of incorporation of Aptec Acquisition Corp. will be the articles of
incorporation of the surviving corporation, and the by-laws of Aptec Acquisition
Corp. will be the by-laws of the surviving corporation.
Exchange Procedures for NRC Stock
As soon as is practicable after the date the merger is completed, the
surviving corporation or NRC's designated exchange agent will mail or deliver,
to each NRC shareholder as of the date the merger is completed, instructions for
use in surrendering his or her NRC stock certificates. Upon the surrender by an
NRC shareholder other than Earl and Dorothy Pollock of an NRC stock certificate
to the surviving corporation or the exchange agent in accordance with the
instructions, the surviving corporation or the exchange agent will exchange the
NRC stock certificate for the cash consideration, without interest. Until
surrendered to the surviving corporation or the exchange agent, each NRC stock
certificate will be deemed to evidence ownership only of the right to receive
the cash consideration (or in the case of Earl and Dorothy Pollock, applicable
amounts of cash and shares of Aptec Instruments Ltd. common stock), and shall
not entitle the holder to any voting, dividend or other rights as a shareholder
of NRC or the surviving corporation.
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Interests of NRC's Management in the Merger
In considering the recommendation of the board with respect to the
merger agreement, shareholders should be aware that certain members of NRC's
management will receive direct or indirect additional benefits in connection
with the merger agreement and the contingent transactions.
Upon completion of the merger, Aptec Instruments Ltd. will enter into
an employment agreement and a consulting agreement with Earl Pollock. Mr.
Pollock will be employed by Aptec Acquisition Corp. commencing on the effective
date of the merger. Under his employment agreement, Mr. Pollock will serve as
advisor to the president of the surviving corporation for which he will be paid
an annual salary of $225,000. The employment agreement will terminate on the one
year anniversary from the effective time of the merger, at which time Mr.
Pollock will become a consultant to the surviving corporation under the
consulting agreement. The consulting agreement will be for a term of one year
for which Mr. Pollock will receive $150,000. In connection with his employment
and consultant agreements, Mr. Pollock will agree not to compete with the
surviving corporation for a period of no less than five years from the date he
ceases to be employed by NRC as an employee or consultant. Payments to Mr.
Pollock, or if necessary to his estate, under the employment agreement and the
consulting agreement are guaranteed regardless of Mr. Pollock's incapacity or
death.
In recognition of his extraordinary efforts to help effectuate the
merger and the contingent transactions, NRC agreed to pay Carl Katz, its chief
financial officer, a transaction bonus of $25,000 upon the signing of the merger
agreement and the stock acquisition agreement.
Federal Income Tax Consequences
The following summary is based on the provisions of the Internal
Revenue Code of 1986, United States Treasury Department regulations and
published rulings and court decisions currently in effect, all of which are
subject to change. This summary does not take into account possible changes in
the law or interpretations thereof; any changes may have retroactive effect and
may adversely affect the discussion in this summary.
The receipt of cash for shares of NRC common stock in the merger will
be a taxable transaction for federal income tax purposes. Accordingly, a
shareholder who receives cash in exchange for shares in the merger, including as
a result of perfecting his or her dissenter rights under the Pennsylvania
Business Corporation Law, will recognize gain or loss for federal income tax
purposes equal to the difference, if any, between the amount of cash received
and the shareholder's tax basis in the shares sold. Gain or loss will be
determined separately for each block of shares (i.e., shares acquired at the
same time and price) exchanged pursuant to the merger. Gain or loss generally
will be capital gain or loss if the shares disposed of were held as capital
assets by the shareholder, and will be long-term capital gain or loss if the
shares disposed of were held for more than one year at the effective time of the
merger, as the case may be.
The receipt of cash in the merger in exchange for incentive stock
options issued under NRC's incentive stock option plan ("ISO") or
"non-qualified" compensatory stock options ("Employment Options") issued to
NRC's employees will result in compensation taxable as ordinary income which
will be subject to tax withholding at the time of payment. Outstanding stock
options held by employees of NRC, other than Earl Pollock, are either ISOs or
Employment Options.
Under present law, the maximum federal long-term capital gain tax rate
on the sale of stock by individuals is 20%. The maximum marginal ordinary income
tax rate for individuals is 39.6%. Individuals may deduct capital losses against
capital gains and against up to $3,000 of ordinary income annually. Unused
capital losses may be carried forward indefinitely.
The surviving corporation or the designated exchange agent for the
merger is required to withhold 31% from payments to shareholders unless a
shareholder provides its tax identification number and certifies that the tax
identification number is correct or properly certifies that it is awaiting a tax
identification number, or unless an exemption applies. Exempt shareholders
include, among others, all corporations and some foreign individuals and
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entities. This backup withholding is not an additional tax. Rather, the amount
of the backup withholding can be credited against the federal income tax
liability of the person subject to the backup withholding, provided that the
required information is given to the Internal Revenue Service. If backup
withholding results in an overpayment of tax, a refund can be obtained by the
shareholder upon filing an income tax return. A shareholder that does not
furnish its tax identification number may be subject to a penalty imposed by the
IRS.
The above is a general description of some United States federal income
tax consequences of the merger without regard to the particular facts and
circumstances of each shareholder of NRC. Special tax consequences not described
in this proxy statement may be applicable to some shareholders subject to
special tax treatment, including insurance companies, tax-exempt organizations,
financial institutions or broker dealers, foreign shareholders and shareholders
who have acquired their shares pursuant to the exercise of employee stock
options or otherwise as compensation. All shareholders should consult their own
tax advisors with respect to specific tax effects that may apply to them as a
result of the merger, including the applicability and effect of any state, local
and foreign tax laws.
Regulatory and Other Approvals
The merger is subject to the prior approval and adoption of the merger
agreement by our shareholders and other customary closing conditions, including
industry-related governmental filings or approvals and the filing of the
articles of merger with the Department of State of the Commonwealth of
Pennsylvania.
Dissenters Rights
Section 1930 of the Pennsylvania Business Corporation Law provides that
shareholders who do not vote in favor of the merger will be entitled to exercise
dissenters rights in connection with the merger. Shareholders desiring to
exercise dissenters rights must follow the procedures in Sections 1571 to 1580
of the Pennsylvania Business Corporation Law. The full text of these laws is
attached to this proxy statement as Annex C. Shareholders desiring to exercise
dissenters rights must carefully follow the procedures described in these
sections and are urged to read Annex C in its entirety. In addition, the NRC
board of directors determined that the merger agreement should provide that the
fairness of the differences in form of consideration between Earl and Dorothy
Pollock and the remaining shareholders is to be governed by Section 1906(a) of
the Pennsylvania Business Corporation Law, which basically provides that the
differences not be manifestly unreasonable. That section is set forth in Annex
C. In the absence of fraud or fundamental unfairness, these dissenters rights
will be the exclusive remedy for shareholders objecting to the merger. It is a
condition precedent to the obligations of Aptec Instruments Ltd. and Aptec
Acquisition Corp. under the merger agreement that shareholders owning no more
than 10% of the common stock of NRC elect to exercise their dissenters rights
under Pennsylvania law.
Pursuant to Sections 1571 to 1580, any shareholder of NRC who files a
written objection to the merger prior to the vote to approve and adopt the
merger agreement at the special meeting stating that he or she intends to demand
payment for his or her shares if the merger agreement is approved and adopted by
the shareholders of NRC, and who does not vote in favor of the approval and
adoption of the merger agreement, is entitled to demand in writing that NRC pay
the shareholder in cash the fair value of his or her shares, excluding any
element of value arising from the expectation or accomplishment of the merger.
If you wish to exercise your dissenters rights, you are urged to review
carefully the provisions of Sections 1571 to 1580 of the Pennsylvania Business
Corporation Law, particularly the provisions setting forth the procedural steps
required to perfect dissenters rights. Dissenters rights will be lost if these
procedural requirements are not fully satisfied.
Shareholders wishing to exercise dissenters rights should bear in mind
that the fair value of their shares determined under the Pennsylvania Business
Corporation Law could be more than, the same as or less than the value of the
consideration they will be entitled to receive under the merger agreement if
they do not seek to exercise their dissenters rights. Shareholders should also
bear in mind that opinions of investment banking firms as to fairness from a
financial point of view are not necessarily opinions as to fair value under the
Pennsylvania Business Corporation Law.
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Set forth below is a summary of the procedures relating to the exercise
of dissenters rights. The following summary is not a complete statement of, and
is qualified in its entirety by reference to, the provisions of Sections 1571 to
1580 of the Pennsylvania Business Corporation Law which, together with any
amendments to these sections that may be adopted after the date of this proxy
statement, are incorporated by reference.
Before the shareholders' vote is taken on the proposal to approve and
adopt the merger agreement, a shareholder who intends to exercise dissenters
rights must deliver to NRC a written objection to the proposed merger, stating
that he or she shareholder intends to demand payment for the shares held by the
shareholder if the merger is consummated. This written objection should be
addressed to Nuclear Research Corporation, 125 Titus Avenue, Warrington,
Pennsylvania 18976, Attention: Dorothy S. Pollock, Secretary. The written
objection to the merger must be in addition to and separate from any proxy or
vote against the merger. Neither voting against, nor the failure to vote for,
the merger will satisfy this written objection requirement. A shareholder voting
for the merger waives his or her dissenters rights under Pennsylvania law. A
signed proxy that is returned but which does not contain any instructions as to
how it should be voted will be voted in favor of approval and adoption of the
merger agreement and will be deemed a waiver of dissenters rights under
Pennsylvania law. Failure to vote against approval and adoption of the merger
agreement, however, will not constitute a waiver of dissenters rights. In
addition, shareholders who intend to exercise dissenters rights must make no
change in the beneficial ownership of his or her shares of NRC common stock from
the date of delivery of his or her written objection continuing through the date
the merger becomes effective.
If the merger agreement is approved and adopted at the special meeting
the surviving corporation will, within ten days after the date the merger
becomes effective, notify each shareholder who has filed a written objection
meeting the requirements of Section 1574 of the Pennsylvania Business
Corporation Law, and whose shares were not voted in favor of the proposal to
approve and adopt the merger agreement, that the merger has become effective.
This notice does not create any rights in the shareholder receiving the notice
to demand payment for the shareholder's shares. The notice will be sent by
registered or certified mail, addressed to the shareholder at his or her last
known address as it appeared on our records immediately prior to the merger.
Within 30 days after the mailing of the notice described above, any
shareholder to whom the surviving corporation was required to give notice may
demand in writing from the surviving corporation payment for the fair value of
all of his or her shares. Any shareholder who fails to make a written demand
within the prescribed time period will lose his or her dissenters rights.
Upon receiving timely written demand for payment, the surviving
corporation will remit the amount it estimates to be the fair value of the
shareholders' shares. If the shareholder believes that the amount remitted is
less than the fair value of his or her shares, he or she may send the surviving
corporation his or her own estimate of the fair value of the shares, which will
be deemed a demand for payment of the amount or deficiency. Unless a responsive
estimate is filed within 30 days of the date the surviving corporation mailed
its remittance, the shareholder will be entitled to no more than the amount
remitted to him or her by the surviving corporation.
Within 60 days after the latest of:
o the effective time of the merger;
o timely receipt of any demands for payment under Section 1575 of the
Pennsylvania Business Corporation Law; or
o timely receipt of any estimates of fair value from dissenters
pursuant to Section 1578 of the Pennsylvania Business Corporation Law
if any demands remain unsettled, the surviving corporation may file in court an
application for relief requesting that the fair value of the shares be
determined by the court. If the surviving corporation fails to file an
application within the 60 day period, any dissenter who made a proper demand and
has not settled his or her claim may file an application in the name of the
surviving corporation at any time within 30 days after the expiration of the
60-day
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period. All dissenters whose demands have not been settled will be made parties
to the action. The jurisdiction of the court will be plenary and exclusive. The
court, in determining fair value of the shares of NRC common stock, may appoint
an appraiser to receive evidence and recommend a decision on the issue of fair
value. Each dissenter who is a party to the action will be entitled to recover
the amount by which the fair value of his or her shares is found to exceed the
amount previously remitted, plus interest. If a dissenter does not file an
application within the 30-day period in response to the surviving corporation's
failure to do so, each dissenter entitled to file an application will be paid
the surviving corporation's estimate of the fair value of the shares and no
more.
Any NRC shareholder who desires to exercise dissenters rights should
carefully review the Pennsylvania Business Corporation Law and is advised to
consult his or her legal advisor before exercising or attempting to exercise
these rights.
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THE MERGER AGREEMENT AND CONTINGENT AGREEMENTS
The Merger Agreement
Effective Time of the Merger
As soon as practicable after the vote of the shareholders in favor of
the approval and adoption of the merger agreement, NRC is required to file
articles of merger with the Department of State of the Commonwealth of
Pennsylvania.
Conversion of Shares Pursuant to Merger
At the effective time of the merger, each share, other than shares held
by shareholders who properly exercise their dissenters rights under Pennsylvania
law, will be converted into the right to receive a maximum of $226.02, and a
minimum of $215.59 per share, after adjusting for existing stock options and
warrants. All shareholders other than Earl and Dorothy Pollock will receive this
payment in cash, without interest. Earl and Dorothy Pollock will receive a
combination of cash and 12,720 shares, or 12,210 shares if the minimum
consideration is received, of Aptec Instruments Ltd. common stock, which will be
reduced to 6,860 shares upon closing of a related contemporaneous transaction.
Conditions to the Merger
The respective obligations of Aptec Instruments Ltd. and Aptec
Acquisition Corp., on the one hand, and NRC, on the other hand, to effect the
merger are subject to the conditions that:
o the merger agreement has been approved and adopted by the
shareholders of NRC;
o no law has been enacted by any governmental authority which prohibits
the consummation of the merger;
o there is no order or injunction of a United States federal or state
court effectively precluding consummation of the merger;
o NRC has received an opinion from Wolf, Block, Schorr and Solis-Cohen
LLP to the effect that the merger will be treated for federal income tax
purposes as a reorganization and each of Aptec Instruments Ltd., Aptec
Acquisition Corp. and NRC will be a party to the reorganization for federal
income tax purposes; and
o the closing of the transactions under the stock acquisition agreement
will have occurred as of the effective time of the merger.
Treatment of Options and Warrants
The merger agreement provides that immediately prior to the effective
time of the merger, each option and warrant to purchase shares of NRC common
stock held by any shareholder of NRC, whether or not then presently exercisable,
will be converted into the right to receive $226.02 in cash, or a lesser amount,
as described above, less the exercise price of the option or warrant, except
that Earl and Dorothy Pollock will receive this payment in the form of Aptec
Instruments Ltd. common stock. The stock Earl and Dorothy Pollock receive for
their warrants is included in the 12,720 shares of Aptec Instruments Ltd. common
stock they will receive under the terms of the merger agreement.
Indemnification and Insurance
The merger agreement provides that in the event Aptec Instruments Ltd.
or Aptec Acquisition Corp. takes any action, or causes another to take any
action or breaches or violates certain of the representations, warranties and
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covenants contained in the merger agreement, which results in Earl and Dorothy
Pollock being required to recognize gain on the exchange of his or her shares of
NRC common stock or options, warrants or other rights to purchase shares of NRC
common stock for shares of Aptec Instruments Ltd. common stock prior to the end
of the five taxable year period referred to in United States Treasury
Regulations Section 1.367(a)-8(b)(3), then Aptec Instruments Ltd. will be liable
to reimburse Earl and Dorothy Pollock for the amount of interest and penalties
which he or she is required to pay to the United States government as a
consequence of the gain recognition, plus an amount equal to the interest on the
amount of taxes paid to the United States government as a consequence of the
gain recognition. All other indemnification obligations imposed in connection
with the merger are contained in the stock acquisition agreement. See "Stock
Acquisition Agreement."
Representations and Warranties; Termination
In the merger agreement, NRC has made customary representations and
warranties to Aptec Instruments Ltd. and Aptec Acquisition Corp. regarding,
among other things, its capitalization, financial statements, public filings and
conduct of business.
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after approval by the
shareholders:
o by mutual consent of Aptec Instruments Ltd. and NRC if there is any
law or regulation that makes consummation of the merger illegal or otherwise
prohibited;
o by either Aptec Instruments Ltd. or NRC if any court or other
governmental body within the United States has issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the merger and the order, decree, ruling or other action has become
final and nonappealable;
o by Aptec Instruments Ltd. if there is a material breach by Earl and
Dorothy Pollock under the voting agreement; or
o by either Aptec Instruments Ltd. or NRC if the merger has not been
consummated by September 30, 1999, provided that the party wishing to terminate
has not breached the merger agreement and caused the merger not to be
consummated, and further provided that Aptec Instruments Ltd. may extend the
date of termination to October 31, 1999 under some circumstances.
Regardless of whether the merger is consummated, all costs and expenses
incurred in connection with the merger, the execution of the merger agreement
and the transactions contemplated thereby will be paid by the party incurring
such expenses except as otherwise provided in the stock acquisition agreement.
Voting Agreement
Under a voting agreement dated as of June 16, 1999 between Aptec
Instruments Ltd. and Earl and Dorothy Pollock, Earl and Dorothy Pollock agreed
to vote, or cause their shares of NRC common stock to be voted:
o in favor of the merger and the approval and adoption of the merger
agreement; and
o against any other merger agreement or other merger, sale of
substantially all assets, dissolution, liquidation or other significant
transaction by or involving NRC or any sale or exchange of any other substantial
part or all of the stock or assets of NRC or any amendment to NRC's articles of
incorporation or by-laws or other proposal, which amendment or proposal would
impede or prevent the merger or the merger agreement or change the voting rights
of any class of capital stock of NRC.
This voting agreement terminates if the merger agreement is terminated
or on October 31, 1999 if the merger has not been completed by that time.
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Stock Acquisition Agreement
The stock acquisition agreement dated as of June 16, 1999 among Eurisys
Mesures SA, Aptec Instruments Ltd., Aptec Acquisition Corp., the stockholders of
Aptec Instruments Ltd., NRC and Earl and Dorothy Pollock provides that
immediately following the merger, Eurisys Mesures SA will make loans in the
amount of $3,500,000 to Edward Zieba, who is required to contribute these loans
to the capital of Aptec Instruments Ltd. Aptec Instruments Ltd. will then
contribute these amounts to the capital of Aptec Acquisition Corp., which
capital contributions will be used as a portion of the funds necessary to
consummate the merger.
Immediately following the merger, Eurisys Mesures SA will under the
stock acquisition agreement acquire a 51% controlling interest in Aptec
Instruments Ltd. common stock by purchasing 5,860 shares of Aptec Instruments
Ltd. from Earl and Dorothy Pollock for $2,930,000 in cash and by purchasing
additional shares directly from Aptec Instruments Ltd. and from the stockholders
of Aptec Instruments Ltd. The stockholders of Aptec Instruments Ltd. will be
left with a 34.6% interest and Earl and Dorothy Pollock will retain a 14.4%
interest in Aptec Instruments Ltd. The parties' obligations under this stock
acquisition agreement are conditioned upon the consummation of the merger. The
stock acquisition agreement may be terminated at any time prior to closing:
o by the mutual written agreement of Eurisys Mesures SA, the
stockholders of Aptec Instruments Ltd. and Earl and Dorothy Pollock;
o by Eurisys Mesures SA, the stockholders of Aptec Instruments Ltd. or
Earl and Dorothy Pollock upon termination of the merger agreement or in the
event closing has not occurred on or before November 24, 1999;
o by either Eurisys Mesures SA or Earl and Dorothy Pollock in the event
pre-closing purchase price adjustments would reduce the value to be received by
all NRC shareholders below $215.59 per share; or
o by Eurisys Mesures SA, the stockholders of Aptec Instruments Ltd. or
Earl and Dorothy Pollock if the transactions associated with the stock
acquisition agreement are enjoined or otherwise become prohibited by law.
The stock acquisition agreement requires Earl and Dorothy Pollock and
the stockholders of Aptec Instruments Ltd. to indemnify Eurisys Mesures SA for
the amount of any damages arising, directly or indirectly, from any breach or
violation of any representation, warranty or covenant made by NRC. The
representations and warranties of NRC will survive for varying periods,
depending on the specific representation and warranty. Once the survival period
for each has expired, Earl and Dorothy Pollock are no longer required to
indemnify Eurysis Mesures SA for any breach or violation. Earl and Dorothy
Pollock's obligation to indemnify Eurisys Mesures SA is further limited to a
maximum amount of $1,500,000, excluding certain tax and other similar claims.
Under the stock acquisition agreement, each party is to bear its own
fees, costs and expenses incurred in connection with the merger and the
contingent transactions. If NRC incurs fees, costs and expenses through closing
in excess of $350,000, all shareholders will bear the next $75,000 of those
costs. Thereafter, Earl and Dorothy Pollock have agreed to reimburse NRC or
Aptec Instruments Ltd. for amounts in excess of $425,000.
The stock acquisition agreement provides that Eurisys Mesures SA will
indemnify Earl and Dorothy Pollock and the stockholders of Aptec Instruments
Ltd. for the amount of any damages arising, directly or indirectly, from any
breach or violation of any representation, warranty or covenant made by Eurisys
Mesures SA in the stock acquisition agreement. The stock acquisition further
provides that in the event Eurisys Mesures SA takes any action, or causes
another to take any action or breaches representations, warranties or covenants
contained in the stock acquisition agreement which results in Earl and Dorothy
Pollock being required to recognize gain on the exchange of his or her shares of
NRC common stock, or options or warrants exercisable for NRC common stock, for
shares of Aptec Instruments Ltd. common stock, prior to the end of the five
taxable year period referred to in the United States Treasury Regulations
Section 1.367(a)-8(b)(3), then Eurisys Mesures SA will be liable to reimburse
Earl and Dorothy Pollock for the amount of interest and penalties which he or
she is required to pay to the United States government as a consequence of the
gain recognition, plus an amount equal to the interest on the amount of taxes
paid to the United States government as a consequence of the gain recognition.
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Shareholders Agreement
Under a shareholders agreement which will be executed upon completion
of the merger and the transactions under the stock acquisition agreement among
Aptec Instruments Ltd., the stockholders of Aptec Instruments Ltd., Earl and
Dorothy Pollock and Eurisys Mesures SA, each of the parties has preemptive
rights with respect to any proposed issuance of additional shares of Aptec
Instruments Ltd.'s common stock. In the event Eurisys Mesures SA proposes to
sell any of its Aptec Instruments Ltd.'s common stock, Earl and Dorothy Pollock
have the right to include their shares of Aptec Instruments Ltd.'s common stock
in the proposed sale.
Beginning January 1, 2003, Earl and Dorothy Pollock have the right to
require Eurisys Mesures SA to buy 33% of their shares of Aptec Instruments
Ltd.'s common stock at a price equal to four times Aptec Instrument Ltd.'s
average earnings per share before interest, taxes, depreciation and amortization
for the two years immediately preceding the exercise of the right. In the period
from January 1, 2004 to January 1, 2005, Earl and Dorothy Pollock may require
Eurisys Mesures SA to buy up to 66%, less any shares of stock already purchased
by Eurisys Mesures SA, of the original number of shares of Aptec Instruments
Ltd.'s common stock held by Earl and Dorothy Pollock at a price equal to five
times Aptec Instruments Ltd.'s average earnings per share before interest,
taxes, depreciation and amortization for the two years immediately preceding the
exercise of the right. From and after January 1, 2005, Earl and Dorothy Pollock
may require Eurisys Mesures SA to buy all remaining shares of Aptec Instruments
Ltd.'s common stock held by them at a price equal to six times Aptec Instruments
Ltd.'s average earnings per share before interest, taxes, depreciation and
amortization for the two years immediately preceding the exercise of the right.
The shareholders agreement permits Eurisys Mesures SA to require Earl and
Dorothy Pollock to sell their shares of Aptec Instruments Ltd. common stock to
Eurisys Mesures SA in these same increments and at these same prices. After
January 1, 2003, upon Earl Pollock's death, his estate may require Eurisys
Mesures SA to purchase or Eurisys Mesures SA may require his estate to sell, all
remaining shares of Aptec common stock held by Earl and Dorothy Pollock
immediately prior to his death.
Interim Management Agreement
Until consummation of the merger or the termination of the merger
agreement and the stock acquisition agreement, NRC will be managed by Edward
Zieba, president of Aptec Instruments Ltd., pursuant to an interim management
agreement dated as of June 16, 1999, among Aptec Instruments Ltd., Edward Zieba,
NRC and Earl and Dorothy Pollock. Under the terms of this management agreement,
Mr. Zieba has assumed the roles of interim chief executive office and interim
chief operating officer of NRC.
-23-
<PAGE>
INFORMATION CONCERNING NRC
Business
NRC was incorporated on July 17, 1950 under the laws of the
Commonwealth of Pennsylvania. NRC is engaged in the business of designing,
manufacturing and servicing the detection, measurement and monitoring devices
and gauges described below.
Products and Markets
NRC's product categories consist of:
o portable radiation detection and health physics measuring
instruments;
o environmental monitoring systems and equipment for
detecting, measuring, and monitoring radiation in air, liquid and gases for
nuclear materials
o temperature/humidity monitoring and alarm systems for food
processing plants, cold storage and transit, Geiger Muller tubes for detecting
radiation and nuclear gauges for industrial process control. NRC sells products
to the United States government, to foreign governments, and to utilities and
companies in the processing industry, including mining, chemical, petroleum,
steel, paper, glass, transportation and food and beverage companies.
Net sales contributed by these product categories and their percentage
of total sales are as follows:
<TABLE>
<CAPTION>
Net Sales
--------- Net Sales
(Dollars in Thousands) ---------
For the Nine Months (Dollars in Thousands)
Product Categories Ended March 31, 1999 For the Fiscal Year Ended June 30,
------------------ ---------------------- ----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Health Physics Instruments $ 8,959 $4,667 $5,818 $17,641
Environmental Monitoring Systems
and Equipment 4,101 4,442 5,418 7,049
Industrial Process Control Gauges,
Geiger Muller Tubes and
Temperature/Humidity Monitoring 432 620 967 411
Systems ---------- ------ ------- -------
TOTAL $ 13,582 $9,729 $12,203 $25,101
</TABLE>
<TABLE>
<CAPTION>
Percentage of Net Sales
----------------------- Percentage of Net Sales
For the Nine Months -------------------------------------
Product Categories Ended March 31, 1999 For the Fiscal Year Ended June 30,
------------------ --------------------- -----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Health Physics Instruments 66.0% 47.9% 47.7% 70.3%
Environmental Monitoring
Systems and Equipment 30.9 45.6 44.4 28.1
Industrial Process Control Gauges,
Geiger Muller Tubes and
Temperature/Humidity Monitoring
Systems 3.1 6.5 7.9 1.6
------------ ------ ------ ------
TOTAL 100.0% 100.0% 100.0% 100.0%
</TABLE>
During fiscal 1998, NRC continued its efforts to expand its business in
its temperature/humidity monitoring systems product line.
-24-
<PAGE>
In July 1995, NRC entered into an operating agreement for the formation
of Measurement Dynamics LLC, a New Jersey limited liability company, which was
established to develop, manufacture, produce and sell temperature/humidity
monitoring systems and other related products or services. NRC contributed cash,
inventory and other business assets with a fair market value of $300,000, in
exchange for a 42% membership interest in Measurement Dynamics LLC. In September
1998, NRC acquired all of the outstanding membership interests of Measurement
Dynamics LLC not then owned by NRC.
Patents
In 1986, NRC obtained two United States patents that are significant to
its business. One patent covers a radiation measurement apparatus that utilizes
a technique used in certain of NRC's health physics instruments and
environmental monitoring systems and equipment. The technique of operation, as
described in the patent, permits more extensive use of a stable, inexpensive
radiation detector that, prior to the invention, was limited to a comparatively
narrow scope of use. The possession of this patent allows NRC, in a protected
fashion, to compete in a much broader market. The second patent covers an
apparatus that utilizes a computer program that permits more accurate
measurement of radiation in connection with the apparatus covered by the first
patent and is an improvement over the devices covered by the first patent. The
second patent allows NRC to address additional business opportunities in
specialized low level nuclear measurement. The United States government has
certain use rights with respect to these patents. NRC also has obtained
corresponding patents in certain foreign countries. In 1991, NRC obtained a
United States patent relating to a radiation measurement device used in
connection with other products manufactured by NRC. The patents obtained in the
United States have a life of 17 years from the date of grant.
Distribution
NRC's products are marketed directly to its customers through its own
marketing staff and through a variety of manufacturers' representatives acting
as independent commissioned sales agents and distributors. Commissions range
generally from 3% to 15% depending upon the amount of follow-up service
provided. In certain instances, where opportunities for growth or expansion are
unique, NRC has tailored its agreements with such representatives with a view to
enhance sales efforts. Approximately 75% of all sales in fiscal 1998 were
obtained through NRC's internal marketing staff which currently consists of
seven persons.
Backlog
At March 31, 1999, NRC's backlog of orders was approximately
$26,093,000. Substantially all of these orders are subject to cancellation. NRC
expects to ship approximately $4,015,000 of the March 31, 1999 backlog during
the fourth quarter of fiscal year ended June 30, 1999. Also included in its
backlog of orders at March 31, 1999 is $15,408,000, representing the unfunded
amount on a United States government contract awarded in December, 1998. This
contract represents a continuation of NRC's manufacturing for the United States
government of a next generation product that utilized NRC's patented technique
of radiation measurement.
Domestic commercial orders for the nine months ended March 31, 1999
were approximately $2,639,000.
Sources of Supply
NRC's products are manufactured from widely distributed electronic
components and fabricated parts made of metal, plastics and rubber. Nuclear
materials are used to calibrate the products or to create a radiation source for
checks or measurements, but are not normally used in the manufacturing process.
Required materials and components have been readily available from multiple
sources at competitive prices and NRC foresees no significant problem of
availability.
-25-
<PAGE>
Competitive Conditions
NRC has a limited number of competitors in each of its product
categories. Some of these companies have greater capital and technical resources
than NRC. Competition in each of NRC's product categories is based primarily
upon price, technology and ability to deliver.
Customers
Contracts with the United States government, including the United
States Department of Defense were 63.8% of revenues for the nine months ended
March 31, 1999. A substantial portion of these revenues were generated by
completion of an initial five year contract for the next generation product
utilizing NRC's patented technique of radiation measurement. As noted above, NRC
has been awarded a continuation contract for this product.
Some of the products manufactured for the United States government are
proprietary and others are manufactured in accordance with United States
government specifications and drawings. All of NRC's contracts with the United
States government provide for termination at the discretion of the United States
government for reasons of convenience and/or justifiable cause. Only four of the
United States government contracts accepted by NRC in its 48-year history have
been terminated by the government. The final negotiated settlements in three of
those instances did not result in a material loss of profits on completed
portions of the contracts because earned profits were paid up the points of
termination. However, termination does not cause a reduction in backlog and in
projected revenues and profits from the terminated portion of the contract.
The United States government is the only customer that accounted for at
least 10% of NRC's total revenues during the nine months ended March 31, 1999.
The loss or significant reduction of United States government contract work
would be likely to have a material adverse effect on NRC.
Foreign shipments accounted for 22% of NRC's total revenues for the
nine months ended March 31, 1999.
Domestic commercial sales were $1,981,000 for the nine months ended
March 31, 1998.
Substantially all of NRC's sales to unaffiliated customers are
manufactured in and shipped from the United States. Export sales information
appears below:
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31, 1999 For the Fiscal Year Ended June 30,
-------------------- ----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Export Sales:
Australia $ 21,000 $ 39,900 $ 10,000 $ 106,000
Europe 281,000 710,800 906,000 662,000
Far East 454,000 397,300 3,818,000 4,966,000
Middle East 30,000 117,200 29,000 21,000
North America 2,182,000 950,900 619,000 648,000
Other 18,000 10,900 - 24,000
---------- ---------- ---------- ----------
TOTAL $2,986,000 $2,227,000 $5,382,000 $6,427,000
</TABLE>
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<PAGE>
Regulation
The United States Nuclear Regulatory Commission imposes controls on the
handling of nuclear materials, including disposal of material waste and toxic
material discharge, as well as security against loss or theft of nuclear
material and the protection of personnel in or near nuclear environments. NRC is
subject to these regulations and has on staff a qualified health physicist who
serves as NRC's radiation safety officer and supervises NRC's compliance. He is
responsible for the preparation, updating and implementation of NRC Radiation
Safety Handbook, a copy of which is on file with the Nuclear Regulatory
Commission. The Nuclear Regulatory Commission periodically conducts spot
inspections to determine compliance with its regulations and license
requirements.
NRC considers the maintenance and upgrading of these controls as well
as the maintenance of adequate storage facilities to be normal costs of
business. NRC believes its current facilities and administrative procedures meet
Nuclear Regulatory Commission requirements.
NRC holds licenses granted by the Nuclear Regulatory Commission for the
receipt, use, storage and distribution of various radioisotope source materials
used in its normal course of business. Each of the licenses is for a term of
five years. Prior to their expiration, two licenses were renewed for an
additional five year term. The expiration dates of the licenses are: April 30,
2000; September 30, 2000; January 31, 2001; November 30, 2002; October 31, 2004.
"Radiac" (radiation detection, identification and computation)
instruments for military use constitute a portion of NRC's foreign sales.
Approval by the Office of Munitions Control of the United States Department of
State is required prior to the issuance of an export license for such
instruments. The Office of Munitions Control can impose certain restrictions on
the sale of these instruments.
Research and Development
NRC draws from its technical staff to assign personnel to research and
development functions as required and as resources will allow. NRC has
substantially reduced research and development activities due to its recent
financial results.
NRC expended $0 on research for the nine months ended March 31, 1999.
Customer-sponsored research accounted for $0 for the nine months ended March 31,
1999.
Personnel
At March 31, 1999, NRC had a total of 152 full-time employees,
consisting of 92 employees at NRC's Warrington, Pennsylvania location and 60
employees at NRC's Dover, New Jersey location. Of these employees, 86 were
engineering and production workers and the balance were officers, managers,
sales and office personnel and indirect labor. None of NRC's employees are
represented by a labor union.
Properties
NRC owns the premises at 125 Titus Avenue, Warrington, Pennsylvania for
use as NRC's headquarters and as a manufacturing facility. The building, which
is located on a three-acre site, contains approximately 49,000 square feet with
approximately 18,000 square feet reserved for offices and engineering
laboratories and 31,000 square feet for manufacturing facilities.
NRC leases 38,000 square feet of space on the second floor of a
building on Richboynton Road in Dover, New Jersey, for offices, engineering
laboratories and manufacturing facilities. The lease expired effective February
28, 1999 and NRC executed a letter agreement extending the lease on a month to
month basis, provided that NRC is required to give three months notice if it
decides to terminate the lease.
-27-
<PAGE>
NRC believes that its properties are adequate to meet its current
requirements.
Legal Proceedings
NRC is not a party to any material legal proceedings.
-28-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations for the Fiscal Year Ended June 30, 1998
NRC experienced disappointing results in both sales and earnings during
fiscal 1998, in part due to:
o decreased sales resulting from NRC's inability to complete
first article testing and obtain first article approval of test units from the
United States government on a new product to be shipped to the United States
government;
o customer budget constraints, which delayed orders;
o a loss of $954,424 in connection with the acquisition of all
of the outstanding membership interests of Measurement Dynamics LLC;
o delays in the full implementation of cost reduction
programs.
NRC commenced shipping of the new product to the United States
government in the last quarter of fiscal 1998, and sales and earnings, exclusive
of the Measurement Dynamics LLC write-offs, increased significantly over each of
the first three quarters of fiscal 1998. NRC expects the shipments of the new
product to the United States government to continue through fiscal 1999 and
beyond.
NRC suffered a net loss on the acquisition of Measurement Dynamics LLC
of $954,424, which was recognized during the fourth quarter of fiscal 1998.
NRC's management believed, and continues to believe, that the most effective way
to secure a return on NRC's investment in Measurement Dynamics LLC and to expand
its temperature/humidity monitoring systems product line business was to become
the sole owner of the outstanding membership interests of Measurement Dynamics
LLC and thereby gain total control over all operating decisions for the product
line.
NRC reduced its work force during the first and second quarters of
fiscal 1998. However, during the third and fourth quarters of fiscal 1998, NRC
expanded its workforce in order to meet production requirements for the product
approved by the United States government for production in March 1998, as
discussed above.
Fiscal 1998 Compared with Fiscal 1997
Sales for fiscal 1998 decreased to $9,728,960 from $12,202,559 for
fiscal 1997. The decrease in sales in fiscal 1998 is attributable primarily to
delays in shipping a new United States government product, as noted above.
Loss from operations increased to a loss of $3,782,455 in fiscal 1998
compared to a loss of $2,214,398 in fiscal 1997 partly because of reduced sales.
Due to reduced sales, inventory write-downs and a change in NRC's product mix,
gross profit as a percentage of sales decreased to negative 3.25% as compared to
17.57% for fiscal 1997.
Selling and administrative expenses decreased $102,066 to $2,974,546 in
fiscal 1998. Due to reduced sales, as a percentage of sales, selling and
administrative expenses increased to 30.57% for fiscal 1998 as compared to
25.21% for fiscal 1997.
Research and development expenses decreased $954,389 to $100,000 for
fiscal 1998, due to NRC's decision to de-emphasize research and development.
Research and development expenses as a percentage of sales decreased to 1.03%
for fiscal 1998 as compared to 8.64% for fiscal 1997, also as a result of the
decision to de-emphasize research and development.
-29-
<PAGE>
Interest expenses increased $165,032 to $392,160 for fiscal 1998 as a
result of increased borrowings, an increase in related costs associated with a
letter of credit for a multi-year contract and reduced sales volume.
The effective tax rate decreased from 39% in fiscal 1997 to 37% in
fiscal 1998.
FAS 106 - Post Retirement Benefits Other than Pensions and FAS 109 -
Accounting for Income Taxes have been issued and are effective for the years
beginning after December 15, 1992. In our management's opinion, the adoption of
these pronouncements has not had a material effect on NRC's financial position
or its results of operations.
Fiscal 1997 Compared with Fiscal 1996
Sales for fiscal 1997 decreased to $12,202,559 from $25,100,604 for
fiscal 1996. The decrease in sales in fiscal 1997 was due to:
o the completion of several United States government
contracts;
o NRC's inability to ship a new product to the United States
government due to delays in completion of first article testing and in obtaining
United States government approval of test units during fiscal 1997;
o customers' budget constraints, which delayed orders; and
o a lower order base which our management attributed to
competitive conditions.
Income (loss) from operations decreased to a loss of $2,214,398 in
fiscal 1997 from income of $2,312,394 in fiscal 1996 because of reduced sales.
Due to reduced sales, gross profit as a percentage of sales decreased to 17.57%
as compared to 27.06% for fiscal 1996.
Selling and administrative expenses increased $49,534 to $3,076,612 in
fiscal 1997. Due to reduced sales, as a percentage of sales, selling and
administrative expenses increased to 25.21% for fiscal 1997 as compared to
12.06% for fiscal 1996.
During fiscal 1997, NRC continued its practice of investing in the
development of new technologies and new applications of its existing
technologies in an effort to create new business opportunities. Research and
development expenses decreased $41,817 to $1,054,389 for fiscal 1997. Due to
reduced sales, as a percentage of sales, research and development expenses
increased to 8.64% for fiscal 1997 as compared to 4.37% for fiscal 1996.
Interest expenses decreased $130,268 to $227,128 for fiscal 1997 as a
result of decreased borrowings and a reduction in related costs associated with
a letter of credit for a multi-year contract.
The effective tax rate increased from 36% in fiscal 1996 to 39% in
fiscal 1997.
FAS 106 - Post Retirement Benefits Other than Pensions and FAS 109 -
Accounting for Income Taxes have been issued and are effective for the years
beginning after December 15, 1992. In the opinion of our management, the
adoption of these pronouncements has not had a material effect on NRC's
financial position or its results of operations.
-30-
<PAGE>
Results of Operations for the Quarter Ended March 31, 1999
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
Sales for the three months ended March 31, 1999 increased to $3,677,664
from $2,494,762 for the three months ended March 31, 1998, primarily due to the
shipment of a new product to the United States government. Shipments of the new
product commenced in April 1998 and continued through the reporting period
following an extended period prior to April 1998 during which NRC was unable to
ship the product pending first article testing and government approval. NRC
expects the shipments of the new product to the government to continue through
the remainder of the fiscal year ended June 30, 1999 and beyond.
Loss from operations decreased to $(329,772) for the three months ended
March 31, 1999 as compared to a loss of $(3,424,864) for the three months ended
March 31, 1998 due to an increase in sales and gross profit as a percentage of
sales. Gross profit as a percentage of sales for the three months ended March
31, 1999 was 23.1% as compared to a negative 99.4% for the three months ended
March 31, 1998. The increase in gross profit as a percentage of sales was
primarily due to the increase in revenue associated with the shipment of a new
product to the government as described above.
Selling and administrative expenses increased to $1,049,068 for the
three months ended March 31, 1999 compared to $848,136 for the three months
ended March 31, 1998, primarily due to increased sales. Selling and
administrative expense as a percentage of sales decreased to 28.5% as compared
to 34.8% for the three months ended March 31, 1998 due to the increase in sales.
NRC had no research and development expenses for the three months ended
March 31, 1999 and March 31, 1998.
Interest expense increased from $97,120 for the three months ended
March 31, 1998 to $130,470 for the three months ended March 31, 1999. The
increase can be attributed to an increase in borrowings and related costs
associated with letters of credit.
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March
31, 1998
Sales for the nine months ended March 31, 1999 increased to $13,581,755
from $6,494,671 for the nine months ended March 31, 1998 largely due to the
shipment of a new product to the government, as described above.
Income from operations increased to $1,233,528 for the nine months
ended March 31, 1999 from a loss of $(4,198,776) for the nine months ended March
31, 1998 because of increases in sales and gross profit as a percentage of
sales. Gross profit as a percentage of sales increased to 31.2% as compared to a
negative 31.3% for the nine months ended March 31, 1998 due to a shift in
product mix and an increase in revenue associated with the shipment of a new
product to the government as describe above.
Selling and administrative expenses increased $807,787 to $2,681,335
for the nine months ended March 31, 1999 compared to the nine months ended March
31, 1998, primarily due to an increase in sales. As a percentage of sales,
selling and administrative expenses decreased to 19.7% for the nine months ended
March 31, 1999 as compared to 28.8% for the nine months ended March 31, 1998 due
to increased sales.
NRC had no research and development expenses for either the nine months
ended March 31, 1999 or the nine months ended March 31, 1998.
Interest expense increased to $320,067 for the nine months ended March
31, 1999 as compared to $292,374 for the nine months ended March 31, 1998. The
increase was due to increasing borrowings and costs associated with letters of
credit.
-31-
<PAGE>
Liquidity and Capital Resources
During fiscal 1998, increases in prepaid taxes on income tax refund
receivable of $242,540 and deferred income taxes of $701,703 combined with a
reduction in inventory of $813,290 were principal factors that affected cash
provided by operating activities. The increases in prepaid taxes on income and
tax refund receivable combined with the increase in deferred income taxes is
primarily the result of the tax benefits associated with the net loss in fiscal
1998. The reduction in inventory is primarily the result of write down for
obsolete inventory. Increases in write down of intangible assets of $175,583,
accounts payable of $157,288 and accrued expenses and accrued payroll and
payroll taxes of $578,251, combined with decreases in accounts receivable of
$128,515 and costs and estimated earnings in excess of billings on uncompleted
contracts of $207,604 were additional factors affecting cash provided by
operating activities. The write down of intangible assets is related to the
acquisition of all of the outstanding membership interests of Measurement
Dynamics LLC and the related treatment of Measurement Dynamics LLC's assets and
liabilities as the assets and liabilities of NRC. See Note 1 to NRC's
Consolidated Financial Statements. The increases in accounts payable and accrued
expenses were due primarily to customer advances on services to be performed and
the fiscal 1998 net loss. The increase in accrued payroll and payroll taxes is
due to a provision for severance pay in anticipation of layoffs related to cost
reduction efforts. The decrease in accounts receivable is primarily due to the
decrease in sales from fiscal 1997. The decrease in costs and estimated earnings
in excess of billings on uncompleted contracts is primarily attributable to
completion of several multi-year contracts as of June 30, 1998.
NRC made capital expenditures in fiscal 1998 in the amount of $100,276
to purchase manufacturing and computer equipment and to make certain
expenditures associated with patents. Cash provided by financing activities for
fiscal 1998 increased to $1,548,184 as a result of proceeds on NRC's working
capital line of credit in the amount of $1,865,000 partially offset by payments
on long-term debt of $316,816.
During fiscal 1998, NRC increased its working capital line of credit to
$6,000,000 of which $5,190,000 was outstanding at June 30, 1998. The maximum
amount available under this line of credit is limited by certain outstanding
standby letters of credit, in the amount of $784,734 at June 30, 1998, issued as
collateral for performance on long-term contracts. See Note 4 to NRC's
Consolidated Financial Statements. The interest rate on the working capital line
of credit is payable at the prime rate of NRC's lender, First Union National
Bank, successor by merger to CoreStates Bank, N.A. and Bucks County Bank and
Trust Company and was 8.5% at June 30, 1998. The working capital line of credit
is collateralized by accounts receivable, inventory, property, plant and
equipment, assignment of letters of credit confirmed and negotiated by the bank
and the assignment of all existing and future United States government contracts
that exceed $500,000.
NRC also has a long-term note with the bank at an interest rate of
8.25%. The note is collateralized by accounts receivable, inventory, property,
plant and equipment and assignment of a letter of credit confirmed and
negotiated by the bank. The principal balance of this loan at June 30, 1998 was
$41,666. See Note 5 to NRC's Consolidated Financial Statements.
On January 14, 1997, NRC entered into a $1,800,000 term loan with
repayment based on a five year term, with interest at 7.85% per annum. In June
1997, NRC negotiated with the bank the terms of a commercial promissory note
modification agreement pursuant to which the principal amount of the term loan
note was reduced to approximately $400,000; the amount of monthly principal
payments on the note was reduced to $8,750 and the term of the loan was reduced
to three years. The note is collateralized by accounts receivable, inventory,
property, plant and equipment, assignment of a letter of credit confirmed and
negotiated by the bank, assignment of all existing and future United States
government contracts that exceed $500,000 and the guaranty of a subsidiary of
NRC and Measurement Dynamics LLC. The purpose of this loan was to assist in
financing the working capital requirements of the Measurement Dynamics LLC. The
principal balance of this loan at June 30, 1998 was $166,250. See Note 5 to
NRC's Consolidated Financial Statements.
In May 1998, NRC and the bank entered into a first amendment to the
line of credit agreement. Under this amendment, the borrowing availability on
NRC's line of credit loans with the bank was increased from $5,500,000 to
$6,000,000. Additional credit availability was made available to NRC on a
committed basis until June 30, 1998
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<PAGE>
under this amendment, provided that no event of default or collateral
deterioration, as those terms are defined in the amendment, greater than
$800,000 occurred. Effective July 1, 1998, the line of credit was provided at
the sole and absolute discretion of the bank, repayable on demand regardless of
whether an event of default or collateral deterioration greater than $800,000
occurred.
As a condition precedent of the bank's entering into this amendment,
Earl and Dorothy Pollock entered into a guaranty pursuant to which they jointly
and severally guaranteed the obligations of NRC to the bank up to the lesser of
$800,000 or the amount of any collateral deterioration. In exchange for entering
into the guaranty, NRC issued to Earl and Dorothy Pollock, as tenants by the
entireties, a warrant for the purchase of 3,000 shares of NRC common stock at an
exercise price of $117.03 per share, the book value per share of NRC common
stock as of June 30, 1998. The warrant expires on May 20, 2003.
On January 20, 1999, the bank and NRC entered into a term sheet
agreeing to the terms and conditions under which the bank would agree to extend
the forbearance period set forth in the amendment through June 30, 1999. As
consideration for this extension, NRC paid to the bank $200,000 as a principal
reduction to NRC's line of credit and agreed to amortize the working capital
line of credit at a rate of $25,000 per month plus interest. In addition, the
amount from which collateral deterioration is measured was reduced from
$4,127,730 to $3,800,000 effective January 1, 1999. On April 29, 1999, NRC and
the bank entered into a forbearance agreement in accordance with the terms of
the term sheet. In connection with the forbearance agreement, the bank required
Earl and Dorothy Pollock to pledge their shares of NRC common stock and acquired
a security interest in NRC's patents and trademarks. In consideration of Earl
and Dorothy Pollock's pledge of their shares and their continuation of their
collateral deterioration guaranty, the board issued an additional five-year
warrant for 5,000 shares of NRC common stock to them at an exercise price of
$117.03 per share, the book value per share of NRC common stock as of June 30,
1998. As of the date of this proxy statement, no event of default or collateral
deterioration has occurred.
Year 2000 Readiness Disclosure
Background
In the past, many computer software systems were written using two
digits rather than four digits to define the applicable year. As a result, there
is the potential that many computer systems and applications will be unable to
accurately process information in the year 2000, and beyond. For example,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000. This is referred to generally as the "Year 2000
issue." If this situation occurs, the potential exists for computer system
failures or miscalculations by computer programs that could disrupt NRC's
activities and operations. Programs that will operate in the Year 2000
unaffected by the change in year from 1999 to 2000 are referred to as "Year 2000
compliant." Certain portions of the discussion set forth below contain
"forward-looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended, including, but not limited to those relating to the Year
2000 compliance of NRC's products and systems, future costs to remediate Year
2000 issues, and the impact on NRC of the failure of it or a material third
party to become fully Year 2000 compliant. The actual impact on NRC of Year 2000
issues could differ materially from those in the forward-looking statement(s)
due to a number of uncertainties set forth below.
Year 2000 Readiness
Internal Systems: NRC's technical staff conducted a review of
NRC's computer and information technology systems, including accounting, word
processing and operating systems, and its embedded technology, such as
microprocessors embedded in equipment or other non-information technology
systems. NRC has concluded that its material information technology systems
recognize four digits and are expected to be Year 2000 compliant. NRC has not
identified, to date, any Year 2000 issues with regard to material internal
non-information technology systems.
Primary Vendors and Service Providers: NRC has contacted its
primary vendors in order to determine their Year 2000 compliance. As a result of
these inquiries, NRC is not aware of any material Year 2000 issues with respect
to its primary vendors. NRC has multiple sources for the raw materials and
component parts it needs to operate its business in the event a particular
vendor is not Year 2000 compliant.
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<PAGE>
Products: NRC has forward-date tested the current version of
each of its principal products and has concluded that the essential functions of
the products will not be impaired by Year 2000 issues because the products
contain no microprocessor circuits that have a date/time function, or if the
products do contain microprocessor circuits that have a date/time function, they
have been successfully tested to the criteria of British Standard DISC PD
2000-1:1996.
Cost: NRC believes that its cost to become Year 2000 compliant
is not and will not be material to NRC's operations. Based on estimates of NRC's
technical staff, NRC believes that the cost of compliance will not exceed
$25,000, net of reimbursements from vendors of any components that are not Year
2000 compliant.
Risks Associated with Year 2000 Issues
Internal System: NRC uses computer systems in many aspects of
its business. As noted, NRC's material internal information technology systems
are believed to be Year 2000 compliant. If NRC's assessment of Year 2000
readiness of those systems is incorrect or incomplete or if a Year 2000 issue
exists with respect to a system NRC previously determined to be non-material but
which is in fact material, NRC could experience interruptions in operations that
could have material adverse effects on operating results.
Principal Vendors and Service Providers: NRC is also exposed
to the risk that one or more of its vendors, suppliers, or service providers
could experience Year 2000 issues that could impact the ability of such vendor,
supplier, or service provider to provide goods and services. Though this is not
considered a significant risk with respect to the suppliers of goods, due to the
availability of alternative suppliers, the disruption of certain services, such
as utilities, could, depending upon the nature and extent of the disruption,
have a material adverse impact on NRC's operations. To date NRC is not aware of
any vendor or service provider with a Year 2000 issue that it believes would
have a material adverse impact on NRC's operations. However, NRC has no means of
insuring that its vendors or service providers will be Year 2000 compliant. The
inability of vendors or service providers to complete their Year 2000 resolution
process in a timely fashion could have an adverse impact on NRC.
Products: As noted above, NRC believes the essential functions
of its principal products will not be impaired by Year 2000 issues. If NRC's
assessment of the Year 2000 compliance status of these products is incorrect or
incomplete or if a Year 2000 issue with respect to a product exists that NRC
previously determined to be non-material but that is in fact material, NRC could
be required to repair or replace equipment that is not Year 2000 compliant
and/or could be subject to claims for damages related to the failure of the
equipment to perform its essential functions.
Customers: In addition, NRC is exposed to the risk that
customers could experience Year 2000 problems that impact NRC. If customers'
systems or the products into which they integrate NRC's products are not Year
2000 compliant, orders for NRC's products may decline or, at a minimum, be
delayed. If customer's internal operating systems, such as accounting systems,
are not Year 2000 compliant customers may be unable to pay NRC for its products
in a timely fashion.
NRC does not believe that these problems are likely to affect
a sufficient number of customers to pose a material problem for NRC. NRC is not
aware of any customer Year 2000 issue that is likely to have a material adverse
impact on NRC's operations. However, NRC has no means of ensuring that its
customers will be Year 2000 ready. The inability of customers to complete their
Year 2000 resolution process in a timely fashion could have an adverse impact on
NRC.
Contingency Plans
NRC has not developed formal contingency plans with respect to Year
2000 issues, however NRC has multiple sources from which it can obtain raw
materials and component parts in the event any of its primary vendors experience
Year 2000 issues. NRC intends to resolve any Year 2000 issues with respect to
its products as they occur or are brought to NRC's attention.
-34-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NRC
The following table sets forth, as of June 30, 1999, the number of
shares owned beneficially by all persons known to NRC to be the beneficial
owners of more than 5% of NRC's shares, by all directors and named executive
officers of NRC and by all directors and officers of NRC as a group.
<TABLE>
<CAPTION>
====================================================================================================================
Amount and Nature of
Beneficial Percent of
Beneficial Owner (1) Ownership (2) Shares
- ------------------------------------------------------------------------ -------------------------- ----------------
<S> <C> <C>
Earl M. Pollock ................................................... 18,750 (3) 48.5%
- ------------------------------------------------------------------------ -------------------------- ----------------
Dorothy S. Pollock ................................................ 10,752 (4) 35.1%
- ------------------------------------------------------------------------ -------------------------- ----------------
Harold J. Cooley .................................................. 2,477 (5) 8.2%
- ------------------------------------------------------------------------ -------------------------- ----------------
Charles H. Sulzberger, Jr.......................................... 1,896 6.9%
- ------------------------------------------------------------------------ -------------------------- ----------------
Reba Pollock ...................................................... 1,681 6.1%
- ------------------------------------------------------------------------ -------------------------- ----------------
Directors and officers as a group (4 persons)...................... 30,875 (3)(5) 74.8%
- ------------------------------------------------------------------------ -------------------------- ----------------
</TABLE>
(1) The address of each of the persons listed above is 125 Titus Avenue,
Warrington, Pennsylvania 18976.
(2) Based on information furnished to NRC by its directors and
officers, except as otherwise described in footnotes (3) and
(4), these persons hold sole voting and dispositive power with
respect to the shares of stock owned by them as of June 30, 1999.
(3) Includes 8,000 shares issuable upon exercise of warrants held by Mr.
Pollock and 3,000 shares issuable upon exercise of a warrant held by
Mr. Pollock jointly with his wife, Dorothy S. Pollock. Does not include
any other shares owned by his wife as to which Mr. Pollock disclaims
beneficial ownership.
(4) Includes 5,000 shares issuable upon exercise of a warrant held by Mrs.
Pollock jointly with her husband, Earl M. Pollock. Does not include any
other shares owned by her husband as to which Mrs. Pollock disclaims
beneficial ownership.
(5) Includes 2,450 shares that Mr. Cooley has the option to purchase, all
of which are currently exercisable. Excludes an aggregate of 150 shares
issuable upon exercise of options held by Mr. Cooley that are not
exercisable within 60 days.
-35-
<PAGE>
INFORMATION CONCERNING APTEC INSTRUMENTS LTD.
AND APTEC ACQUISITION CORP.
Aptec Instruments Ltd.
Generally
Aptec Instruments Ltd. manufactures and supplies analytical
spectroscopy and health physics/safety monitoring detectors and instrumentation
to nuclear medicine departments of hospitals and clinics, public and private
sector organizations that monitor environmental conditions, general industrial
users, basic and applied research institutions, nuclear power utilities and
defense-related establishments. Aptec Instruments Ltd. was founded by Edward
Zieba of Aurora, Ontario. Mr. Zieba and certain of his familial affiliates and
associates own 100% of Aptec Instruments Ltd. Mr. Zieba is also the President,
Secretary and sole director of Aptec Instruments Ltd.
Aptec Instruments Ltd.'s products target two primary markets:
analytical spectroscopy detectors and instruments which are used in a
wide variety of applications to quantify the nature and level of gamma
radiation; and
health physics/safety monitoring detectors and instruments which are
used to monitor surface contamination on human beings and within the
environment.
Aptec Instruments Ltd. sales for the fiscal years ended August 31, 1997
and 1998, and for the unaudited six months ended February 28, 1999, were
$5,359,417, $5,162,544 and $3,156,560, respectively; net income before taxes,
management bonuses and, as to the 1999 period, non-recurring expenses for the
same periods was $624,268, $1,033,600 and $803,000, respectively. Stockholders
equity as of August 31, 1997 and August 31, 1998 was $1,883,023 and $2,341,623,
respectively. All of the above amounts are stated in Canadian dollars; as of
July 8, 1999, the Canadian dollar, as reported in the Wall Street Journal, was
exchangeable for .6797 U.S. dollar.
Technology
The bulk of the technology utilized by Aptec Instruments Ltd. has been
developed in-house. It is focused in two primary fields: gas filled detectors
and nucleonics instrumentation. Aptec Instruments Ltd. possesses the technology
to produce a variety of different types of gas-filled detectors which are used
in different applications including geiger-mueller tubes, ionization chambers,
boron trifluoride detectors and proportional detectors. Aptec Instruments Ltd.
also uses its detector technology to interface these detector "front ends" with
microprocessor and personal computer based technology to produce analytical
spectroscopy equipment as well as health physics/safety equipment.
Sales and Marketing
Aptec Instruments Ltd. employs several different sales tactics in order
to market its products, including direct demonstrations in trade show and within
its showroom van, trade journal advertising, direct mail campaigns and overseas
sales representation.
Aptec Instruments Ltd. produces its detector and instrumentation
products by batch processing. To facilitate its overall operations, Aptec
Instruments Ltd. has installed a full personal computer networked system using
Windows-based Visual Manufacturing software.
Dealings with Nuclear Research Corporation
For several years Aptec Instruments Ltd. and NRC have enjoyed a number
of commercial dealings with one another on an arm's-length basis. NRC has not,
however, constituted a major source of Aptec Instruments Ltd.'s business at any
given time. For Aptec Instruments Ltd.'s most recently completed fiscal year, it
sold approximately US $467,346 (converted using June 30, 1999 exchange rate of
US $1.47 = C1.00) worth of equipment to NRC. Aptec Instruments Ltd. did not
purchase any products from NRC during that period.
-36-
<PAGE>
Aptec Instruments Ltd. was incorporated pursuant to the laws of the
Province of Ontario, Canada on February 27, 1968 under the name "Aptec
Engineering Limited." Aptec Instruments Ltd. will be "continued" pursuant to the
laws of the Province of New Brunswick prior to the closing of the merger with
NRC and the acquisition of 51% of its capital by Eurisys Mesures SA. Aptec
Instruments Ltd. registered office, mailing address and principal place of
business is located at East-50B Caldari Road, Concord, Ontario, Canada L4K 4N8.
Its telephone number is (905) 660-5373. Aptec Instruments Ltd. also has a United
States wholly-owned subsidiary, Aptec Instruments Ltd. which manages its U.S.
sales.
Aptec Acquisition Corp.
Aptec Acquisition Corp., a Pennsylvania corporation, which is a
wholly-owned subsidiary of Aptec Instruments Ltd., was organized to merge with
NRC and has conducted no activities unrelated to that purpose since its
organization. All of the issued and outstanding shares of capital stock of Aptec
Acquisition Corp. are beneficially owned by Aptec Instruments Ltd. The principal
executive offices of Aptec Acquisition Corp. are located at the principal
executive offices of Aptec Instruments Ltd. The telephone number of Aptec
Acquisition Corp. is the same as that listed above for Aptec Instruments Ltd.
INDEPENDENT ACCOUNTANTS
NRC's independent accountants are Goldenberg Rosenthal LLP, formerly
known as Schmeltzer o Master Group, P.C. There has been no change in or
disagreement with Goldenberg Rosenthal LLP with respect to accounting and
financial disclosure. A representative of Goldenberg Rosenthal LLP is not
expected to be present at the special meeting.
AVAILABLE INFORMATION
NRC files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
and other information NRC files with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
NRC's SEC filings are also available on the SEC's Internet site
(http://www.sec.gov).
- --------------------
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
OF NRC SHAREHOLDERS
If the merger is not consummated, it is currently anticipated that the
1999 annual meeting of shareholders of NRC will be held as soon as practicable
after the special meeting. If the annual meeting is held, shareholder proposals
intended to be presented at that meeting must be received by NRC a reasonable
time before the mailing date for inclusion in the proxy materials for such
meeting. A shareholder of NRC may wish to have a proposal presented at the 1999
annual meeting of shareholders to be held if the merger is not consummated, but
not to have the proposal included in our proxy statement and form of proxy
relating to that meeting. If we do not receive notice of any proposal, addressed
to us at our address on the cover of this proxy statement, within a reasonable
time before the mailing date, then a proposal will be deemed "untimely" for
purposes of Rule 14a-4(c) under the Securities Exchange Act of 1934 and,
therefore, the individuals named in the proxies solicited on behalf of our board
for use at our 1999 annual meeting will have the right to exercise discretionary
voting on such proposal.
-37-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF
NUCLEAR RESEARCH CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report................................................................................ F-2
Consolidated Statements of Operations for the Years Ended June 30, 1998, 1997 and 1996...................... F-3
Consolidated Balance Sheets as of June 30, 1998 and 1997.................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 1998, 1997 and 1996...................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended June 30, 1998, 1997 and 1996.................................................................. F-7
Notes to Consolidated Financial Statements for the Years Ended June 30, 1998, 1997 and 1996................. F-10
Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998.......................................... F-23
Consolidated Statements of Operations for the Three-Month and Nine-Month Periods Ended
March 31, 1999 and 1998............................................................................. F-25
Consolidated Statements of Changes in Shareholders' Equity for the Nine-Months Ended
March 31, 1999 and Year Ended June 30, 1998......................................................... F-27
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended
March 31, 1999 and 1998............................................................................. F-28
Notes to Consolidated Financial Statements for the Nine-Month Periods Ended
March 31, 1999 and 1998............................................................................. F-29
</TABLE>
F-1
<PAGE>
SMG LETTERHEAD
Independent Auditors' Report
To the Board of Directors
Nuclear Research Corporation
Warrington, Pennsylvania
We have audited the accompanying balance sheet of Nuclear Research Corporation
as of June 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. We have also audited the
accompanying consolidated balance sheet of Nuclear Research Corporation and
Subsidiaries as of June 30, 1997 and the related consolidated statements of
operations, stockholders equity and cash flows for each of the years in the
two-year period ended June 30, 1997. These financial statements and consolidated
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 1998 financial statements referred to above present fairly,
in all material respects, the financial position of Nuclear Research Corporation
as of June 30, 1998, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the 1997 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Nuclear Research Corporation and Subsidiaries, as of June 30, 1997
and the results of their operations and their cash flows for each of the two
years in the period ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Schmeltzer o Master Group
-------------------------------------
September 22, 1998
F-2
<PAGE>
Nuclear Research Corporation
Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Consolidated Consolidated
Years Ended June 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales (Note 10) $ 9,728,960 $12,202,559 $25,100,604
Cost of Sales 10,044,709 10,058,828 18,307,530
- ----------------------------------------------------------------------------------------------------------
Gross Profit (Loss) (315,749) 2,143,731 6,793,074
Selling and Administrative Expenses 2,974,546 3,076,612 3,027,078
Research and Development Expenses (Note 1) 100,000 1,054,389 1,096,206
Interest Expense 392,160 227,128 357,396
- ----------------------------------------------------------------------------------------------------------
Income (Loss) from Operations (3,782,455) (2,214,398) 2,312,394
Other Income (Loss)
Miscellaneous 47,144 11,293 41,764
Interest 8,407 2,481 5,922
Net loss on merger (Note 1) (954,424) - -
- ----------------------------------------------------------------------------------------------------------
Total Other Income (Loss) (898,873) 13,774 47,686
- ----------------------------------------------------------------------------------------------------------
Income (Loss) Before Minority Interest (4,681,328) (2,200,624) 2,360,080
Minority Interest in Loss of Consolidated
Subsidiary (Note 1) - 81,056 316,427
- ----------------------------------------------------------------------------------------------------------
Income (Loss) - Before Income Taxes (Benefit) (4,681,328) (2,119,568) 2,676,507
Less: income tax (benefit) (Note 11) (1,717,056) (819,473) 969,540
- ----------------------------------------------------------------------------------------------------------
Net Income (Loss) $(2,964,272) $(1,300,095) $ 1,706,967
- ----------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share (Note 1)
(Restated for 1997 and 1996) $ (107.18) $ (47.01) $ 61.72
- ----------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share -
Assuming Dilution (Note 1)
(Restated for 1997 and 1996) $ (107.18) $ (47.01) $ 49.25
- ----------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
F-3
<PAGE>
Nuclear Research Corporation
Balance Sheets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Consolidated
June 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash (Note 1) $ 132,036 $ 183,610
Accounts receivable (Notes 1, 4, and 5) 1,881,026 2,009,541
Inventory (Notes 1, 2, 4, and 5) 4,250,787 5,064,077
Prepaid taxes-on income and tax refund receivable 1,092,062 849,522
Prepaid expenses and other current assets 180,357 130,319
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 1) - 207,604
Deferred income taxes (Note 11) 881,103 179,400
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 8,417,371 8,624,073
Property, Plant and Equipment - Net (Notes 1, 3, 4, and 5) 2,072,608 2,360,304
Other Assets
Intangible assets, net (Note 1) 353,927 540,417
Other 166,034 142,809
- ----------------------------------------------------------------------------------------------------------
Total Other Assets 519,961 683,226
- ----------------------------------------------------------------------------------------------------------
Total Assets $11,009,940 $11,667,603
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Short-term borrowings (Note 4) $ 5,190,000 $ 3,325,000
Current portion of long-term debt (Note 5) 146,666 306,837
Accounts payable 902,653 745,365
Accrued expenses 1,103,500 643,928
Accrued payroll and payroll taxes 319,184 200,505
Billings on uncompleted contracts in excess
of costs and estimated earnings (Note 1) 23,656 -
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 7,685,659 5,221,635
Long-Term Debt (Note 5) 61,250 217,895
Deferred Income Taxes (Note 11) 26,194 26,964
Minority Interest in Equity of Consolidated Subsidiary (Note 1) -
Commitments and Contingency (Note 8)
Stockholders' Equity
Common stock
Stated value $5 per share, with 60,000
shares authorized, 31,356 shares issued,
and 27,658 shares outstanding 159,365 159,365
Additional paid-in capital 517,010 517,010
Retained earnings 2,622,815 5,587,087
Less: treasury stock, 3,698 shares at cost (62,353) (62,353)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 3,236,837 6,201,109
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $11,009,940 $11,667,603
- ----------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
F-4
<PAGE>
Nuclear Research Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Consolidated Consolidated
Years Ended June 30, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $(2,964,272) $(1,300,095) $1,706,967
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Deferred income taxes (702,473) (133,670) (47,270)
Depreciation and amortization 387,855 430,263 428,008
Gain on disposition of property and equipment 33,229 - (4,000)
Minority interest in loss of consolidated subsidiary - (81,056) (316,427)
Write down of intangible assets 175,583 - -
(Increase) decrease in:
Accounts receivable 128,515 862,763 1,254,016
Other receivable 10,000 - -
Inventory 813,290 (454,903) (880,449)
Prepaid taxes - on income and tax refund receivable (242,540) (849,522) -
Prepaid expenses and other assets (50,038) 79,940 (94,544)
Costs and estimated earnings in excess of
billings on uncompleted contracts 207,604 2,962,602 (1,436,654)
Increase (decrease) in:
Accounts payable 157,288 (147,949) (661,568)
Accrued expenses and payroll taxes 578,251 (393,014) 273,294
Taxes payable - on income - (114,145) (342,910)
Billings on uncompleted contracts in excess
of costs and estimated earnings 23,656 - -
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used by) Operating Activities (1,444,052) 861,214 (121,537)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (100,276) (688,409) (1,069,149)
Proceeds from sale of equipment - - 4,000
Increase in other assets (55,430) (62,524) (50,833)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (155,706) (750,933) (1,115,982)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net proceeds (payments) on line of credit 1,865,000 - 1,475,000
Proceeds of long-term debt - 511,816 300,000
Payments of long-term debt (316,816) (613,224) (417,032)
Other - - (12,617)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used by) Financing Activities 1,548,184 (101,408) 1,345,351
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (51,574) 8,873 107,832
Cash - Beginning 183,610 174,737 66,905
- -----------------------------------------------------------------------------------------------------------------------
Cash - Ending $ 132,036 $ 183,610 $ 174,737
- -----------------------------------------------------------------------------------------------------------------------
Supplementary Disclosures:
Interest paid $ 365,327 $ 251,757 $ 355,700
- -----------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 66,929 $ 284,704 $ 889,935
- -----------------------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
F-5
<PAGE>
This Page Was Intentionally Left Blank
F-6
<PAGE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________
Years Ended June 30, 1998, 1997 and 1996
_________________________________________________________________________________________________________
Common Stock
__________________________________
Number of Shares Amount
__________________________________
<S> <C> <C>
Balance at June 30, 1995 (consolidated) 27,658 $159,365
Net income for the year ended June 30, 1996 (consolidated) - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 (consolidated) 27,658 159,365
Net loss for the year ended June 30, 1997 (consolidated) - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 (consolidated) 27,658 159,365
Net loss for the year ended June 30, 1998 - -
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 27,658 $159,365
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
Nuclear Research Corporation
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
Additional Total
Paid-in Retained Treasury Stockholders'
Capital Earnings Stock Equity
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$ 517,010 $ 5,180,215 $(62,353) $ 5,794,237
- 1,706,967 - 1,706,967
- ---------------------------------------------------------------------------------------------------------------
517,010 6,887,182 (62,353) 7,501,204
- (1,300,095) - (1,300,095)
- ---------------------------------------------------------------------------------------------------------------
517,010 5,587,087 (62,353) 6,201,109
- (2,964,272) - (2,964,272)
- ---------------------------------------------------------------------------------------------------------------
$ 517,010 $ 2,622,815 $(62,353) $ 3,236,837
- ---------------------------------------------------------------------------------------------------------------
See Accompanying Notes
</TABLE>
F-8
<PAGE>
This Page Was Intentionally Left Blank
F-9
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Organization
Organization ------------
and Nuclear Research Corporation (the Company) was incorporated on
Summary of July 17, 1950 under the laws of the Commonwealth of
Significant Pennsylvania. The Company is engaged in the business of
Accounting designing, manufacturing and servicing detection, measurement
Policies and monitoring devices and gauges for customers throughout the
world, with a majority of its revenue derived from products
primarily manufactured for use by the United States Department
of Defense. During the year ended June 30, 1998, the Company's
wholly owned subsidiaries, NRC Acquisition Corporation and
Northeast Nuclear, Ltd. were dissolved. The assets and
liabilities of the wholly owned subsidiaries were merged into
the Company. Measurement Dynamics LLC (MDLLC), owned 42% by the
Company, was terminated on June 30, 1998. The Company acquired
all of the outstanding membership interest of MDLLC, not then
owned by the Company. The assets and liabilities of MDLLC were
merged into the Company as of June 30, 1998. In addition,
amounts due the Company from MDLLC were written off.
Principles of Consolidation
---------------------------
The consolidated financial statements prior to the year ended
June 30, 1998 included the accounts of Nuclear Research
Corporation (the parent), NRC Acquisition Corporation and
Northeast Nuclear, Ltd., wholly-owned subsidiaries, and
Measurement Dynamics LLC (MDLLC), owned 42% by Nuclear Research
Corporation, hereafter referred to collectively as the
"Company". All significant intercompany accounts and
transactions were eliminated in consolidation. Northeast
Nuclear, Ltd. was a foreign sales corporation (FSC) and as such
filed its own corporate tax return. MDLLC was a limited
liability company (LLC) and as such filed its own partnership
tax return (see Note 11). MDLLC had a deficit in its equity
account; therefore, according to generally accepted accounting
principles, the liability in minority interest in equity of
subsidiary has been reduced to zero on the balance sheet at June
30, 1997.
Use of Estimates
----------------
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from estimates that were
used.
Accounting for Contracts
------------------------
Substantially all of the Company's contracts are firm-fixed
price. The units of delivery method (a modification of the
percentage-of-completion method) recognizes as revenue the
contract price of units delivered during a period and recognizes
the costs allocable to the delivered units. Estimates of cost to
complete are reviewed and revised periodically throughout the
lives of the contracts, and adjustments to profit resulting from
such revisions are recorded in the accounting period in which
the revisions are made. Losses on specific contracts are
recorded by charging any amounts in excess of estimated
realizable value to cost of sales as they are identified.
F-10
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Accounting for Contracts (Continued)
Organization ------------------------------------
and The Company recognizes revenues on several fixed-price contracts
Summary of using the percentage-of-completion method, measured by the
Significant percentage of cost incurred to date compared to the estimated
Accounting total cost for the contracts. That method is used because
Policies management considers total cost to be the best available measure
(Continued) of progress on the contracts. Because of inherent uncertainties
in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term.
Contract costs include all direct material, direct labor and
indirect costs related to contract performance. Provisions for
estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in estimated job
profitability resulting from job performance, job conditions,
claims, change orders, and settlements are accounted for in the
period in which the changes occur.
The asset account entitled "costs and estimated earnings in
excess of billings on uncompleted contracts", represents
revenues recognized in excess of amounts billed. The liability
account entitled "billings on uncompleted contracts in excess of
costs and estimated earnings", represents billings in excess of
revenues recognized.
Costs, estimated earnings, and billings on uncompleted contracts
at June 30 are summarized as follows:
1998 1997
----------------------------------------------------------------
Costs incurred and estimated earnings
on uncompleted contracts $408,047 $9,457,954
Less: Billings to date 431,703 9,250,350
----------------------------------------------------------------
$(23,656) $ 207,604
----------------------------------------------------------------
Included in accompanying balance sheet
under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ - $ 207,604
----------------------------------------------------------------
Billings on uncompleted contracts in
excess of costs and estimated earnings $ 23,656 $ -
----------------------------------------------------------------
Cash
----
The Company maintains cash at a financial institution
headquartered in Philadelphia, Pennsylvania which may exceed
federally insured amounts at times and which may at times
significantly exceed balance sheet amounts due to outstanding
checks.
For purposes of preparing the statement of cash flows, the
Company considers all highly liquid investments available for
current use with an initial maturity of three months or less to
be cash and cash equivalents
F-11
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Accounts Receivable
Organization -------------------
and Accounts receivable at June 30, consists of:
Summary of
Significant
Accounting 1998 1997
Policies ----------------------------------------------------------------
(Continued)
United States Government $ 749,771 $ 485,625
Commercial contracts 745,161 757,162
Foreign contracts 386,094 750,066
Unbilled receivables - U. S. Government - 16,688
----------------------------------------------------------------
Total $1,881,026 $2,009,541
----------------------------------------------------------------
The Company does not provide an allowance for doubtful accounts
because of the composition of its customer base, the use of
irrevocable letters of credit for export sales and the lack of
any significant uncollectible amounts in prior years.
Inventory
---------
Inventories, other than inventoried costs relating to long-term
contracts, are stated at the lower of cost (principally last-in,
first-out - LIFO) or market and include material, labor and
factory overhead. Market represents the lower of replacement
cost or estimated net realizable value (see Note 2). Inventoried
costs relating to long-term contracts are stated at the actual
production cost including factory overhead incurred to date,
reduced by amounts identified with revenue recognized on
delivered units. The costs attributed to delivered units under
long-term contracts are based on the estimated average cost of
all manufactured units.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Expenditures
for maintenance and repairs are charged against operations.
Renewals and betterments that materially extend the life of the
assets are capitalized (see Note 3). Depreciation and
amortization are computed using straight-line and accelerated
methods over the estimated useful lives of the related assets.
Intangible Assets
-----------------
Intangible assets at June 30, consist of:
1998 1997
----------------------------------------------------------------
Patents and trademarks, net $ 176,351 $ 164,556
Copyrights, net 2,576 2,944
Other, net 175,000 372,917
----------------------------------------------------------------
$ 353,927 $ 540,417
----------------------------------------------------------------
F-12
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Intangible Assets (Continued)
Organization -----------------------------
and The costs of the patents and trademarks are being amortized
Summary of using the straight line method over their remaining useful
Significant lives, not to exceed seventeen years. Accumulated amortization
Accounting was $111,769 at June 30, 1998 and $90,821 at June 30, 1997.
Policies Amortization expense amounted to $20,948, $13,559 and $13,956 in
(Continued) 1998, 1997 and 1996, respectively.
The cost of the copyrights is being amortized using the straight
line method over their remaining useful lives, which has been
determined by management to be five years. Accumulated
amortization was $1,104 at June 30, 1998 and $736 at June 30,
1997. Amortization expense was $368 for the years ended June 30,
1998 and 1997 and 1996.
Other intangible assets represent the assets contributed to
MDLLC by the minority members of the LLC and include products,
product ideas and various trade names. The assets are being
amortized using the straight line method over their remaining
useful lives, not to exceed nineteen years. Accumulated
amortization was $63,417 at June 30, 1998 and $41,083 at June
30, 1997. Amortization expense was $22,334, $20,700 and $20,383
for the years ended June 30, 1998, 1997 and 1996, respectively.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising expense
for 1998, 1997 and 1996 was $16,287, $17,388 and $17,040
respectively.
Income Taxes
------------
Deferred income taxes are recorded based upon differences
between the financial statement and the tax basis of assets and
liabilities. The temporary differences include the inclusion of
the loss from MDLLC in the tax returns of the parent
corporation, depreciation from an involuntary conversion of
property and Federal and state net operating loss carryovers
(see Note 11).
Research and Development
------------------------
Research and development costs related to both present and
future products are charged to operations as incurred. These
costs amounted to $100,000, $1,054,389, and $1,096,206 in 1998,
1997 and 1996, respectively. Customer-sponsored research
accounted for $-0-, $-0- and $97,382 in 1998, 1997 and 1996,
respectively.
Earnings Per Share
------------------
During the year ended June 30, 1998, FASB No. 128, Earnings per
Share, became effective for financial statements issued for
periods ending after December 15, 1997. This statement requires
dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This statement
also requires restatement of all prior-period EPS data
presented. As a result, we have restated the EPS information for
June 30, 1997 and 1996.
F-13
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 1 Earnings Per Share (Continued)
Organization ------------------------------
and Basic EPS is calculated by dividing net income (loss) by the
Summary of weighted average shares of common stock of the Company ("Common
Significant Stock"). The calculation of fully dilutive EPS assumes the
Accounting dilutive effect of the Company's stock options and warrants
Policies converted into Common Stock at the later of the beginning of the
(Continued) year or issue date. During a loss period, the assumed exercise
of outstanding in-the-money stock options and warrants have an
antidilutive effect. As a result, these shares are not included
in the weighted average shares outstanding of 27,658 used in the
calculation of basic and fully dilutive EPS at June 30, 1998,
1997 and 1996.
Reclassifications
-----------------
Certain items in the 1997 financial statements have been
reclassified to conform with current year presentation.
Note 2 Inventory at June 30, consists of:
Inventory
1998 1997
----------------------------------------------------------------
Work-In-Process
United States Government contracts $1,585,356 $3,512,367
Commercial contracts 695,253 1,421,592
Purchased and manufactured parts 2,872,827 1,063,454
----------------------------------------------------------------
5,153,436 5,997,413
Less: Progress payments on United
States Government contracts 902,649 933,336
----------------------------------------------------------------
Total $4,250,787 $5,064,077
----------------------------------------------------------------
The Company uses the last-in, first-out (LIFO) method to
determine its material inventory costs, because it results in a
better matching of costs and revenues. The following information
will facilitate comparison with operating results of companies
using the FIFO method. If the Company's inventory had been
determined using the FIFO method at June 30, 1998 and 1997,
reported inventories would have been higher by $1,188,945 and
$1,143,627, respectively. Reported net loss for the year ended
June 30, 1998 would have decreased by $27,961 ($1.01 per share).
Reported net loss for the year ended June 30, 1997 would have
decreased by $72,487 ($2.62 per share). Reported net income for
the year ended June 30, 1996 would have decreased by $1,167
($.04 per share).
F-14
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 2 The proforma effect relating to the use of the FIFO method would
Inventory have resulted in the following balances for the statements of
(Continued) operations presentation for the years ended June 30:
Restated
1998 1997 1996
----------------------------------------------------------------
Gross profit (loss) $ (270,431) $ 2,261,130 $ 6,790,429
----------------------------------------------------------------
Income (loss) from
operations $(3,737,137) $(2,096,999) $ 2,309,749
----------------------------------------------------------------
Net income (loss) $(2,936,311) $(1,227,608) $ 1,705,350
----------------------------------------------------------------
In the year ended June 30, 1998 and 1996, a reduction in
inventory resulted in a liquidation of LIFO inventory carried at
lower costs in prior years as compared with the cost of 1998 and
1996 purchases. The effect of this liquidation was to increase
net income by $23,594 ($.84 per share) and $96,663 ($2.75 per
share) for the years ended June 30, 1998 and 1996, respectively.
Note 3 Property, plant and equipment at June 30, consists of:
Property,
Plant and 1998 1997
Equipment ----------------------------------------------------------------
Land and land improvements $ 79,207 $ 79,207
Building and improvements 1,771,102 1,763,490
Equipment and furniture 3,631,524 3,594,427
Leasehold improvements 120,701 120,701
----------------------------------------------------------------
5,602,534 5,557,825
Less: accumulated depreciation and
amortization 3,529,926 3,197,521
----------------------------------------------------------------
Total $2,072,608 $2,360,304
----------------------------------------------------------------
Depreciation expense amounted to $344,205, $395,636, and
$393,301 in 1998, 1997 and 1996, respectively.
Note 4 The Company maintains a working capital line of credit in the
Short-Term maximum amount of $6,000,000, payable on demand of which
Borrowings $5,190,000 was outstanding at June 30, 1998. The additional
credit availability will be made available on a committed basis,
provided that no default or collateral deterioration greater
than $800,000 occurs. The maximum amount available under this
line of credit is limited by certain outstanding standby letters
of credit in the amount of $784,734 at June 30, 1998 (see Note
8). Interest is payable at the bank's prime rate (8.5% at June
30, 1998). The line is collateralized by accounts receivable,
inventory, property, plant and equipment, assignment of a letter
of credit confirmed and negotiated by the bank, and assignment
of all existing and future United States Government contracts
that exceed $500,000.
F-15
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 4 At June 30, 1997 the Company maintained a working capital line
Short-Term of credit in the maximum amount of $5,500,000, payable on demand
Borrowings of which $3,325,000 was outstanding. The maximum amount
(Continued) available under this line of credit was limited by certain
outstanding standby letters of credit in the amount of $272,622
at June 30, 1997 (see Note 8). Interest was payable at the
bank's prime rate (8.5% at June 30, 1997). The line was
collateralized by accounts receivable, inventory, property,
plant and equipment, assignment of a letter of credit confirmed
and negotiated by the bank, and assignment of all existing and
future United States Government contracts that exceed $500,000.
The line was guaranteed by NRC Acquisition Corporation and
MDLLC. The maximum amount guaranteed by MDLLC was $400,000.
Note 5 Long-term debt consists of the following:
Long-Term
Debt
1998 1997
----------------------------------------------------------------
Note payable - bank - payable in
monthly installments of $8,750,
including interest at 7.85%,
collateralized by accounts
receivable, inventory, property,
plant and equipment, assignment of
a letter of credit confirmed and
negotiated by the bank and
assignment of all existing and
future United States Government
contracts that exceed $500,000
(see Notes 1, 2 and 3). Payments
extend through January, 2000 $166,250 $271,250
Note payable - bank - payable in
monthly installments of $8,334
plus interest at 8.25%,
collateralized by accounts
receivable, inventory, property,
plant and equipment, assignment of
a letter of credit confirmed and
negotiated by the bank and a
non-recourse surety agreement
executed by the President and a
director for $1,000,000 secured by
a pledge of 8,476 shares of the
Company's stock. Payments extend
through November, 1998. In
January, 1997 the President and a
director were released from the
non-recourse surety agreement. 41,666 141,666
F-16
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 5 Note payable - government -
Long-Term payable in monthly installments of
Debt $8,987 plus interest at 9%. The
(Continued) Note was paid off in 1998. - 107,840
Note payable - township - payable
in monthly installments of $248
plus interest at 4.8%. The Note
was paid off in 1998. - 3,976
----------------------------------------------------------------
207,916 524,732
Less: current portion (146,666) (306,837)
----------------------------------------------------------------
Total long-term debt $ 61,250 $217,895
----------------------------------------------------------------
The following schedule represents the annual obligations on
long-term debt outstanding at June 30, 1998:
Year Amount
----------------------------------------------------------------
1999 $ 146,666
2000 61,250
----------------------------------------------------------------
Total $ 207,916
----------------------------------------------------------------
Note 6 Supplementary information regarding non-cash investing and
Statement financing activities:
of Cash
Flows 1998 1997 1996
----------------------------------------------------------------
Non-cash acquisition of
intangible assets $ - $ - $414,000
----------------------------------------------------------------
Disposition of fully
depreciated property
and equipment $11,024 $ - $ -
----------------------------------------------------------------
Non-cash disposal of
minority interest
inventory $ - $3,900 $ -
----------------------------------------------------------------
Organization cost
written off due to
termination of
Measurement
Dynamics, LLC and
Northeast Nuclear Ltd. $22,205 $ - $ -
----------------------------------------------------------------
F-17
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 7 The Company sponsors a 401(k) retirement plan which is funded
Retirement entirely by employee contributionsand covers substantially all
Plan full-time eligible employees.
Note 8 Lease Obligations
Commitments -----------------
and The Company leases administrative and manufacturing facilities
Contingency under an operating lease that expired February, 1997. The lease
was renewed for two years, and now expires in February, 1999
with three separate one year renewal options. The lease
generally provides that the Company pays the taxes, insurance
and maintenance expenses related to the leased property.
The minimum future rentals under this lease as of June 30, 1998
are as follows:
Year ending June 30, Amount
----------------------------------------------------------------
1999 $ 54,667
----------------------------------------------------------------
Total $ 54,667
----------------------------------------------------------------
Rent expense associated with operating leases amounted to
$82,000, $66,681 and $54,103 in 1998, 1997 and 1996,
respectively.
Employment Agreements
---------------------
The Company has employment agreements with two officers which
call for future minimum payments for each of the next four years
as follows:
Year ending June 30, Amount
----------------------------------------------------------------
1999 $235,040
2000 235,040
2001 235,040
2002 235,040
----------------------------------------------------------------
Total $940,160
----------------------------------------------------------------
Standby Letters of Credit
-------------------------
The Company is contingently liable for standby letters of credit
aggregating $1,437,037 as of June 30, 1998, as collateral for
performance on long-term contracts.
F-18
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 9 The following methods and assumptions were used to estimate the
Fair Value fair value of each class of financial instruments for which it
of Financial is practicable to estimate that value:
Instruments
Long-Term Debt
--------------
The fair value of the corporation's long-term debt is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the corporation for debt of
the same remaining maturities.
The estimated fair values of the corporation's financial
instruments are as follows:
1998 1997
----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
Long-term debt $207,916 $207,033 $524,732 $522,482
----------------------------------------------------------------
Note 10 Total sales in fiscal 1998 included 45.3% to various branches of
Major the United States Department of Defense excluding sales to
Customers private contractors who in turn sell to the United States
and Export Government. Sales to the United States Department of Defense in
Sales 1997 and 1996 accounted for 31.9% and 65.1% of total sales,
respectively.
Export sales in U. S. dollars were as follows:
1998 1997 1996
----------------------------------------------------------------
Australia $ 39,900 $ 10,000 $ 106,000
Europe 710,800 906,000 662,000
Far East 397,300 3,818,000 4,966,000
Middle East 117,200 29,000 21,000
North America 950,900 619,000 648,000
Other 10,900 - 24,000
----------------------------------------------------------------
Total $2,227,000 $5,382,000 $6,427,000
----------------------------------------------------------------
The majority of export sales are secured by irrevocable letters
of credit.
F-19
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 11 Provision (benefit) for income taxes consisted of the following:
Income
Taxes 1998 1997 1996
----------------------------------------------------------------
Federal:
Current tax (benefit) $(1,014,383) $(682,726) $ 834,484
Deferred provision
(benefit) (573,417) (708) (41,708)
State:
Current tax - - 182,326
Deferred benefit $ (129,256) (136,039) (5,562)
----------------------------------------------------------------
Total $(1,717,056) $(819,473) $ 969,540
----------------------------------------------------------------
The following is a reconciliation of income taxes at the Federal
statutory rate with income taxes recorded by the Company:
1998 1997 1996
----------------------------------------------------------------
Federal tax at statutory
rate from continuing
operations $(1,638,465) $(747,853) $ 910,012
State income taxes, net
of Federal benefit (84,016) (89,759) 120,335
Other 5,982 (4,857) (4,972)
Minority interest in
loss of subsidiary - 69,410 19,085
Research and development
and other credits (557) (14,865) (4,074)
Federal tax savings
attributable to foreign
sales corporation - (31,549) (70,846)
----------------------------------------------------------------
Provision (benefit) for
taxes on income $(1,717,056) $ (819,473) $ 969,540
----------------------------------------------------------------
The deferred tax asset and deferred tax liability comprised the
following at June 30:
1998 1997
----------------------------------------------------------------
Deferred tax assets:
Deferred loss from MDLLC $ - $ 46,500
Net operating loss and
tax credit carryforward 583,303 132,900
Obsolete inventory write
down for books 442,139 -
----------------------------------------------------------------
1,025,442 179,400
Valuation allowance (144,339) -
----------------------------------------------------------------
Net deferred tax assets 881,103 179,400
----------------------------------------------------------------
Deferred tax liability:
Depreciation (26,194) (26,964)
----------------------------------------------------------------
Net deferred tax liability $ (26,194) $(26,964)
----------------------------------------------------------------
F-20
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 11 The valuation allowance increased $144,339 during the year ended
Income June 30, 1998. At June 30, 1997 the Company believed that all of
Taxes the deferred tax assets were more likely than not to be
(Continued) realized.
Income taxes (receivable and prepaid) at June 30, 1998 and 1997
were $1,092,062 and $849,522, respectively.
The Company has loss carryforwards totaling $813,000 which may
be used to offset future taxable income. The carryforwards
expire in 2013.
Note 12 Stock Option Plan
Related -----------------
Party The Company maintains an Incentive Stock Option and
Transactions Non-Qualified Option Plan (the Plan). Pursuant to the terms of
the Plan, 10,000 shares of the Company's common stock are
reserved for issuance.
The Plan provides for the granting of incentive stock options as
defined under the Internal Revenue Code. Also under the Plan,
non-qualified options may be granted to selected officers and
employees. The Plan was effective October 29, 1990 and expires
October 28, 2000. The exercise price is fair market value on the
date of grant. As of June 30, 1998 there have been no grants.
Outstanding Stock Options
-------------------------
Incentive stock options to purchase an aggregate amount of 1,000
shares were issued to two key employees and are exercisable at
an aggregate rate of 200 shares per year beginning October 29,
1991. The exercise price is $90 per share.
Prior to the adoption of the Plan, the Company granted to the
Senior Vice President an option to purchase 2,000 shares of
common stock. The option expires March 31, 2004. The option is
exercisable at $67.68 per share.
During the year ended June 30, 1995, incentive stock options to
purchase an aggregate amount of 2,050 shares were issued to
three key employees and one consultant and are exercisable at an
aggregate rate of 410 shares per year beginning November 8,
1995. The exercise price is $160.28.
Option Shares Exercisable Non-Exercisable
----------------------------------------------------------------
Outstanding, July 1, 1997 4,520 1,530
Expired (700) (300)
Issued during year ended
June 30, 1998 - -
Exercisable during year ended
June 30, 1998 410 (410)
----------------------------------------------------------------
Outstanding June 30, 1998 4,230 820
----------------------------------------------------------------
Exercisable June 30, 1998 $422,160 -
----------------------------------------------------------------
During the year ended June 30, 1998 a key employee left. As a
result, options which were available to him expired.
F-21
<PAGE>
Nuclear Research Corporation
Notes to Financial Statements
________________________________________________________________________________
Note 12 Stock Warrants
Related --------------
Party
Transactions The Company issued stock warrants to the President of the
(Continued) Company. The warrants are exercisable into 5,000 shares of the
Company's stock in 1,000 share increments at a price of $100 per
share. The warrants, which expire March 31, 2004, were
outstanding at June 30, 1998, 1997 and 1996.
The Company issued additional warrants during the year ended
June 30, 1995 to the President that are exercisable into 3,000
shares of the Company's stock in 1,000 share increments at a
price of $160.28 per share. The warrants, which expire November
8, 2004, were outstanding at June 30, 1998, 1997 and 1996.
The Company issued additional warrants during the year ended
June 30, 1998 to the President that are exercisable into 3,000
shares of the Company's stock at price of $114.88 per share. The
warrants expire May 20, 2003 and were outstanding at June 30,
1998.
F-22
<PAGE>
NUCLEAR RESEARCH CORPORATION
BALANCE SHEET
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
ASSETS
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 913,379 $ 132,036
Accounts receivable 2,507,746 1,881,026
Inventory (Note 2) 3,844,465 4,250,787
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Note 3) 104,696 -
Prepaid taxes on income
and tax refund receivable 24,835 1,092,062
Prepaid expenses and
other current assets 287,770 180,357
Deferred income taxes 881,103 881,103
------------- -------------
Total current assets 8,563,994 8,417,371
PROPERTY, PLANT AND EQUIPMENT
(net of accumulated depreciation and amortization
of $3,730,208 at March 31, 1999 and $3,529,926
at June 30, 1998) 1,897,741 2,072,608
OTHER ASSETS
Intangible assets (net of accumulated amortization
of $0 at March 31, 1999
and $0 at June 30, 1998) 175,000 175,000
Patents (net of accumulated
amortization of $112,873
at March 31, 1999 and
$112,873 at June 30, 1998) 180,497 178,927
Other 160,497 166,034
------------- -------------
Total other assets 515,994 519,961
------------- -------------
TOTAL ASSETS $ 10,977,729 $ 11,009,940
============= =============
</TABLE>
See Notes to Financial Statements
F-23
<PAGE>
NUCLEAR RESEARCH CORPORATION BALANCE SHEET
(UNAUDITED)
------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowings $ 4,865,000 $ 5,190,000
Current portion of
long-term debt 87,500 146,666
Accounts payable 663,704 902,653
Accrued expenses 380,629 1,103,500
Accrued payroll and
payroll taxes 427,851 319,184
Taxes payable on income 516,005 -
Billings on uncompleted contracts in excess of
costs and estimated earnings - 23,656
--------------- --------------
Total current liabilities 6,940,689 7,685,659
LONG-TERM DEBT - 61,250
DEFERRED INCOME TAXES 26,194 26,194
MINORITY INTEREST IN EQUITY OF
CONSOLIDATED SUBSIDIARY - -
COMMITMENTS AND CONTINGENCY
(Note 4) - -
SHAREHOLDERS' EQUITY
Common Stock
Stated value $5 per
share, with 60,000 shares
authorized, 31,873 shares
issued and 27,658 shares
outstanding 159,365 159,365
Additional paid in
capital 517,010 517,010
Retained Earnings 3,396,824 2,622,815
Less: treasury stock,
3,698 shares at cost (62,353) (62,353)
--------------- --------------
Total shareholders' equity 4,010,846 3,236,837
--------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 10,977,729 $ 11,009,940
=============== ==============
</TABLE>
See Notes to Financial Statements
F-24
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 3,677,664 $ 2,494,762
COST OF SALES 2,827,898 4,974,370
------------- -------------
GROSS PROFIT 849,766 (2,479,608)
SELLING AND ADMINISTRATIVE EXPENSES 1,049,068 848,136
RESEARCH AND DEVELOPMENT EXPENSES - -
INTEREST EXPENSE 130,470 97,120
------------- -------------
INCOME (LOSS) FROM OPERATIONS (329,772) (3,424,864)
OTHER INCOME 31,627 17,546
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (298,145) (3,407,318)
LESS: TAXES (BENEFIT) ON INCOME (118,995) (1,192,562)
------------- -------------
NET INCOME (LOSS) $ (179,150) $ (2,214,756)
============= =============
PRIMARY EARNINGS (LOSS) PER SHARE $ (6.48) $ (80.08)
============= =============
WEIGHTED AVERAGE COMMON SHARES 27,658 27,658
============= =============
</TABLE>
See Notes to Financial Statements
F-25
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
-----------------------------
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 13,581,755 $ 6,494,671
COST OF SALES 9,346,825 8,527,525
-------------- -------------
GROSS PROFIT 4,234,930 (2,032,854)
SELLING AND ADMINISTRATIVE EXPENSES 2,681,335 1,873,548
RESEARCH AND DEVELOPMENT EXPENSES - -
INTEREST EXPENSE 320,067 292,374
-------------- -------------
INCOME (LOSS) FROM OPERATIONS 1,233,528 (4,198,776)
OTHER INCOME 56,486 23,534
-------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 1,290,014 (4,175,242)
LESS: TAXES (BENEFIT) ON INCOME 516,005 (1,461,335)
-------------- -------------
NET INCOME (LOSS) $ 774,009 $ (2,713,907)
============== =============
PRIMARY EARNINGS (LOSS) PER SHARE $ 27.98 $ (98.12)
============== =============
WEIGHTED AVERAGE COMMON SHARES 27,658 27,658
============== =============
</TABLE>
See Notes to Financial Statements
F-26
<PAGE>
NUCLEAR RESEARCH CORPORATION STATEMENTS
OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED MARCH 31, 1999 AND YEAR ENDED JUNE 30, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid In Retained Shareholders'
Shares Amount Capital Earnings Treasury Stock Equity
------ ------ ------- -------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1997 27,658 $159,365 $517,010 $ 5,587,087 $(62,353) $ 6,201,109
Net loss for
the year ended
June 30, 1998 -- -- -- (2,964,272) -- (2,964,272)
---------- -------- -------- ----------- -------- -----------
Balance at
June 30, 1998 27,658 159,365 517,010 2,622,815 (62,353) 3,236,837
Net profit for
the nine months
ended March 31, 1999 -- -- -- 774,009 -- 774,009
---------- -------- -------- ----------- -------- -----------
Balance at
March 31, 1999 27,658 $159,365 $517,010 $ 3,396,824 $(62,353) $ 4,010,846
========== ======== ======== =========== ======== ===========
</TABLE>
See Notes to Financial Statements
F-27
<PAGE>
NUCLEAR RESEARCH CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 774,009 $ (2,713,907)
Adjustments to reconcile net income to
net cash provided by (used by) operating
activities:
Depreciation and amortization 200,282 285,459
(Increase) decrease in:
Accounts receivable (626,720) 143,551
Inventory 406,322 1,642,725
Prepaid taxes on income tax and
tax refund receivable 1,067,227 (620,313)
Prepaid expenses and other assets (107,413) (152,559)
Costs and estimated earnings in
excess of billings on
uncompleted contracts (104,696) 207,604
Increase (decrease) in:
Accounts payable (238,949) 505,491
Accrued expenses and payroll taxes (614,204) (168,871)
Taxes payable on income 516,005 -
Billings on uncompleted contracts in excess of cost and
estimated earnings (23,656) -
------------ -------------
NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES 1,248,207 (870,820)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (25,415) (60,230)
(Increase) decrease in other assets 3,967 (70,443)
------------ -------------
NET CASH USED BY INVESTING ACTIVITIES (21,448) (130,623)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit (325,000) 1,055,000
Payments of (proceeds from) long-term debt 120,416 (237,117)
Other - -
------------ -------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES (445,416) 817,813
------------ -------------
NET INCREASE (DECREASE) IN CASH 781,343 (183,610)
------------ -------------
CASH - beginning 132,036 183,610
------------ -------------
CASH - ending $ 913,379 $ -
============ =============
</TABLE>
See Notes to Financial Statements
F-28
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999 and March 31, 1998
Note 1. The Financial Statements of Nuclear Research Corporation have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the accompanying
Financial Statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
March 31, 1999 and June 30, 1998 and the results of operations and cash flows
for the three months and nine months ended March 31, 1999 and 1998. Certain
information and footnote disclosures prepared in accordance with generally
accepted accounting principles have either been condensed or omitted pursuant to
SEC rules and regulations. These financial statements should be read in
conjunction with the financial statements and the notes included in the
Company's latest Annual Report on Form 10-K.
The results of operations for the nine months ended March 31, 1999 and 1998 are
not necessarily indicative of the results for the full year.
The Financial Statements include the accounts of Nuclear Research Corporation,
NRC Acquisition Corporation and Northeast Nuclear, Ltd., wholly-owned
subsidiaries hereafter referred to collectively as the "Company." Also included
in the Financial Statements are the accounts of Measurement Dynamics LLC
("MDLLC").
The Company has two subsidiaries, NRC Acquisition Corporation, a Pennsylvania
corporation and Northeast Nuclear Ltd., a Virgin Islands corporation. Neither of
these subsidiaries has any business operations and, commencing with the
Company's fiscal year ended June 30, 1998 ("fiscal 1998"), the assets and
liabilities of these subsidiaries are treated as the assets and liabilities of
the Company.
In September 1998 the Company acquired all of the outstanding membership
interests of MDLLC, not then owned by the Company. In connection with that
acquisition, as of June 30, 1998, all of the assets and liabilities of MDLLC
became the assets and liabilities of the Company and the Company wrote off
amounts due the Company from MDLLC. Prior to its acquisition of the other
outstanding membership interests of MDLLC, the Company owned 42% of the
outstanding membership interests of MDLLC.
F-29
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. Inventory.
(Unaudited)
March 31, June 30,
1999 1998
----------------------------------------
Inventory consists of:
Work-In-Process
United States Government
contracts $ 795,825 $ 1,585,356
Commercial contracts 1,579,335 695,253
Purchased and manufactured
parts 1,599,081 2,872,827
----------------- -----------------
3,974,241 5,153,436
Less: Progress payments on United
States Government contracts 129,776 902,649
----------------- -----------------
Total $ 3,844,465 $ 4,250,787
================= =================
The Company uses the last-in, first-out (LIFO) method to determine its material
inventory costs. The following information will facilitate comparison with
operating results of companies using the FIFO method. If the Company's inventory
had been determined using the FIFO method at March 31, 1999, reported
inventories would have been $758,573 higher and reported net income would have
increased by $41,158 ($1.48 per share). The pro forma effect relating to the use
of the FIFO method would have resulted in the following balances for the
statement of operations presentation for the nine months ended March 31, 1999:
Gross Profit $4,337,825
==========
Income from Operations $1,336,423
==========
Net Income $ 815,167
==========
F-30
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 3. Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts.
The Company recognizes revenues on several fixed-price contracts using the
percentage-of-completion method, measured by the percentage of cost incurred to
date compared to the estimated total cost for the contracts. That method is used
because management considers total cost to be the best available measure of
progress on the contracts. Because of inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates used will change
within the near term.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Provisions for estimated losses on the
uncompleted contracts are made in the period in which such losses are
determined. Changes in estimated job profitability resulting from job
performance, job conditions, claims, change orders, and settlements, are
accounted for in the period in which the changes occur.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
The liability "Billings on uncompleted contracts in excess of cost and estimated
earnings" represents billings in excess of revenue recognized.
Costs, estimated earnings, and billings on uncompleted contracts are summarized
as follows:
Costs incurred and estimated
earnings on uncompleted
contracts $ 647,414
Billings to date 542,718
-----------
$ 104,696
===========
Included in accompanying balance sheet under the following
caption:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 104,696
==========
F-31
<PAGE>
NUCLEAR RESEARCH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 4. Commitments and Contingency.
---------------------------
In September 1995, the Company's management was notified that
MDLLC, Mark A. Sitcoske and a company controlled by Mr. Sitcoske, Measurement
Dynamics, Inc., had been named as co-defendants in a suit filed on September 7,
1995 in the Superior Court of the State of Rhode Island by Hanna Manufacturing,
Inc. ("Hanna"), a Rhode Island company that previously employed Mr. Sitcoske.
The suit alleged that the defendants acted in violation of an existing
employment and non-compete agreement between Hanna and Mr. Sitcoske and sought
to enjoin Mr. Sitcoske from his continued employment with MDLLC and to obtain
damages; however, at December 31, 1997, Hanna had not sought a hearing to obtain
injunctive relief and the matter was in discovery. In September, 1998, the
Company acquired all of the outstanding membership interests in MDLLC not then
owned by the Company. In March 1999, the Hanna lawsuit was settled and a
Stipulation of Dismissal, dismissing the lawsuit with prejudice, was filed with
the court. In settlement of the Hanna lawsuit, each of Hanna, on the one hand,
and the defendants in the Hanna lawsuit and the Company, on the other hand,
granted to the other a general release, and Hanna received a settlement payment
of $12,500. The Company contributed the $12,500 settlement amount.
F-32
<PAGE>
ANNEXES
ANNEX A Agreement and Plan of Merger
ANNEX B Opinion of Financial Advisor
ANNEX C Sections 1571 through 1580 and 1906 of the Pennsylvania
Business Corporation Law of 1988
<PAGE>
Annex A
Agreement and Plan of Merger
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made on the 16th day of
June 1999 by and among (i) Aptec Instruments Ltd., an Ontario corporation,
which, prior to the Closing (as defined below), shall be continued as a
corporation formed under the laws of the province of New Brunswick, Canada
("Aptec"), (ii) Nuclear Research Corporation, a Pennsylvania corporation
("NRC"), and (iii) Aptec Acquisition Corp., a Pennsylvania corporation which is
a wholly-owned subsidiary of Aptec ("Newco").
WHEREAS, the Boards of Directors of Aptec and NRC deem it in the best interests
of Aptec and NRC and their respective shareholders that Aptec and NRC combine
their businesses and operations in a transaction pursuant to which Aptec will
own 100% of the capital stock of NRC;
WHEREAS, the issued and outstanding share capital of Aptec consists of 30,780
shares of common stock, no par value ("Aptec Common Stock") all of which are
currently owned by the shareholders whose names appear on Exhibit A (the "Aptec
Shareholders"); and
WHEREAS, the issued and outstanding capital stock of NRC consists of 27,658
shares of common stock, par value $5.00 per share (the "NRC Common Stock"), of
which 15,502 shares are owned by the shareholders whose names appear on Exhibit
B hereto (the "Pollock Holders") and 12,156 shares are owned by other
shareholders.
ARTICLE I
THE MERGER
Section 1.01 The Merger.
(a) At the Effective Time (as defined in Section 1.01(c)), NRC
shall be merged (the "Merger") with and into Newco in accordance with the
Pennsylvania Business Corporation Law of 1988 , as amended (the "PBCL"),
whereupon the separate existence of NRC will cease, and Newco shall be the
surviving corporation (the "Surviving Corporation").
(b) The closing of the Merger (the "Closing") will take place
at 10:00 a.m. (New York City time) on a date to be specified by the parties (the
"Closing Date"), which shall be no later than the second Business Day after
satisfaction of the conditions set forth in Article V, at the offices of Gibson,
Dunn & Crutcher LLP, 200 Park Avenue, New York, New York 10166, unless the
parties agree in writing to another time, date or place.
(c) Upon the Closing, NRC and Newco will file articles of
merger with the Department of State of the Commonwealth of Pennsylvania and make
all other filings or recordings required by Pennsylvania law in connection with
the Merger. The Merger will become effective at such time as the articles of
merger are filed with the Department of State of the Commonwealth of
Pennsylvania (the "Effective Time").
A-1
<PAGE>
The amounts in Section 1.02 are to be adjusted to reflect the
purchase price adjustments set forth in Schedule A of the Stock Acquisition
Agreement.
(d) From and after the Effective Time, the Surviving
Corporation will possess all the rights, powers, privileges and franchises and
be subject to all of the obligations, liabilities, restrictions and disabilities
of NRC and Newco, all as provided under the PBCL.
Section 1.02 Merger Consideration. At the Effective Time:
(a) Each share of NRC Common Stock issued and outstanding
immediately prior to the Effective Time held by the Public Shareholders (as
defined below) shall be converted into the right to receive from Newco $226.02
per share in cash (the "Cash Consideration") and each NRC option, warrant and
other rights to acquire shares under any stock option or purchase plan, program
or similar arrangement (each, as amended, an "Option Plan" and such option,
warrant and other rights, "Stock Options") held by a Public Shareholder
immediately prior to the Effective Time shall be converted into the right to
receive in cash from Newco the difference between the Cash Consideration and the
exercise price of such Stock Options as set forth on Schedule 1.02(a).
(b) Each share of NRC Common Stock held by the Pollock Holders
issued and outstanding immediately prior to the Effective Time shall be
exchanged with Newco for .5525 share of Aptec Common Stock and $13.8562 in cash.
Accordingly, assuming that the Pollock Holders own 15,502 shares of NRC Common
Stock at the Effective Time, the Pollock Holders will receive an aggregate of
8,566 shares of Aptec Common Stock and $214,799 in cash.
(c) Each Stock Option of NRC Common Stock held by the Pollock
Holders (the "Pollock Warrants") immediately prior to the Effective Time shall
be exchanged for the number of shares of Aptec Common Stock set forth on
Schedule 1.02(c) and shall be canceled.
(d) At the Effective Time, the share certificates for the NRC
Common Stock held by the Pollock Holders (the "Pollock Share Certificates") and
the Pollock Warrants shall each be automatically converted into the number of
shares of Aptec Common Stock provided in Sections 1.02(b) and (c). Upon delivery
to Aptec by the Pollock Holders of the Pollock Share Certificates and the
Pollock Warrants, Aptec shall issue new Aptec share certificates in exchange
therefor. The aggregate of 12,720 shares of Aptec Common Stock issued to the
Pollock Holders under Sections 1.02(b) and (c) shall represent 29.241% of the
shares of all classes of equity securities of Aptec (including options, warrants
and convertible securities) outstanding immediately after the Effective Time.
(e) Notwithstanding the foregoing amounts in Section 1.02 are
to be adjusted to reflect the purchase price adjustments set forth in Schedule A
of the Stock Acquisition Agreement.
Section 1.03 Letter of Transmittal. Promptly after the
Effective Time, Newco will mail to each record holder of NRC Common Stock at the
Effective Time other than the Pollock Holders ("Public Shareholder" or in the
plural "Public Shareholders") (i) a letter of transmittal (the "Letter of
Transmittal") that will specify that delivery will be effected, and risk of loss
and title to the certificates formerly representing the NRC Common Stock will
pass, upon delivery of such certificates to the Surviving Corporation and will
be in such form and have such
A-2
<PAGE>
other provisions, including appropriate provisions with respect to back-up
withholding, as Newco reasonably may specify and (ii) instructions for effecting
the surrender of the certificates formerly representing shares of NRC Common
Stock in exchange for the Cash Consideration, without interest. The Letter of
Transmittal shall contain customary provisions for lost certificates.
Section 1.04 Surrender and Payment.
(a) Upon surrender for cancellation to Newco of a certificate
formerly representing shares of NRC Common Stock, together with the Letter of
Transmittal, duly executed and completed in accordance with the instructions
thereto, a Public Shareholder will be entitled to receive a check from Newco in
the amount equal to the aggregate amount of the Cash Consideration which such
holder has the right to receive pursuant to the provisions of this Article I.
After the Effective Time and until so surrendered, each certificate representing
shares of NRC Common Stock will represent for all purposes only the right to
receive the Cash Consideration and shall have no further rights except as
provided in Section 1.09.
(b) If the Cash Consideration (or any portion thereof) is to
be delivered to a Person other than the Person in whose name the surrendered
certificate or certificates are registered, it will be a condition of such
delivery that the surrendered certificate or certificates shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay any transfer or other Taxes required by reason
of the delivery of the Cash Consideration to a Person other than the registered
holder of the surrendered certificate or certificates or such Person shall
establish to the satisfaction of the Surviving Corporation that any such Tax has
been paid or is not applicable.
Section 1.05 Withholding of Tax. Newco will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of NRC Common Stock such amounts as Newco
reasonably determines it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. Such withheld amounts will be treated for all purposes of this
Agreement as having been paid to the former holder of NRC Common Stock in
respect of whom such deduction and withholding was made by Newco.
Section 1.06 Stock Transfer Books. At the Effective Time, the
stock transfer books of NRC will be closed and there will be no further
registration of transfers of shares of NRC Common Stock on the records of NRC.
Certificates formerly representing shares of NRC Common Stock that are presented
to the Surviving Corporation after the Effective Time will be canceled.
A-3
<PAGE>
Section 1.07 Stock Option Plans. As of the Effective Time, all
existing Option Plans of NRC shall terminate and any rights under any provisions
in any other plan, program or arrangement providing for the issuance or grant by
NRC of any interest in respect of the capital stock of NRC shall be canceled.
Section 1.08 Shareholder Approval. This Agreement shall be
governed by Section 1906 of the PBCL. This Agreement will be submitted for
adoption and approval to the holders of shares of NRC Common Stock at a special
meeting of the NRC shareholders convened for such purpose in accordance with the
provisions of this Agreement. The affirmative vote of the holders of shares of
NRC Common Stock representing a majority of the votes that may be cast by the
holders of all outstanding shares of NRC Common Stock (voting together as a
single class) is required to approve this Agreement. No other approval of NRC's
shareholders shall be required in order to consummate the Merger. Concurrently
herewith, the Pollock Holders have entered into the Voting Agreement attached
hereto as Exhibit C.
Section 1.09 Dissenters Rights. Notwithstanding any provision
of this Agreement to the contrary, NRC Common Stock that is outstanding
immediately prior to the Effective Time and that is held by Public Shareholders
who shall have dissented and demanded the right to receive the fair value of
their shares of NRC Common Stock in accordance with, and otherwise complied in
all respects with, Sections 1930 and 1571 through 1580 of the PBCL
(collectively, the "Dissenting Shares") shall be canceled but not converted into
or represent the right to receive the Cash Consideration. Such Public
Shareholders shall be entitled instead to receive payment of the fair value of
such Dissenting Shares (which may be more than, equal to, or less than the Cash
Consideration) in accordance with the provisions of such Sections 1930 and 1571
through 1580 of the PBCL, except that all shares of NRC Common Stock held by
Public Shareholders who shall fail to perfect or who effectively withdraw or
lose their rights to be paid the fair value for such NRC Common Stock under such
Sections 1930 and 1571 through 1580 of the PBCL shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Cash Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 1.04, of the
certificate or certificates that formerly evidenced such shares of NRC Common
Stock.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF NRC
NRC represents and warrants to Aptec and Newco as follows:
Section 2.01 Corporate Existence and Power. NRC is a
corporation duly incorporated, validly existing and subsisting under the laws of
the Commonwealth of Pennsylvania and has all corporate power required to carry
on its business as now conducted. Except as set forth in Schedule 2.01, NRC is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except where
the failure to so qualify or be in good standing would not have a Material
Adverse Effect. NRC has delivered to Aptec copies of NRC's articles of
incorporation and by-laws as currently in effect.
A-4
<PAGE>
Section 2.02 Corporate Authorization. The execution, delivery
and performance by NRC of this Agreement and the consummation by NRC of the
transactions contemplated hereby are within NRC's corporate powers and, except
for the approval and adoption by NRC's shareholders of this Agreement and the
Merger, have been duly authorized by all necessary corporate action on the part
of NRC. This Agreement has been duly and validly executed and delivered by NRC
and, assuming the due and valid authorization, execution and delivery of this
Agreement by Aptec and Newco constitutes a valid and binding agreement of NRC,
enforceable in accordance with its terms except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws affecting creditors' rights generally and by equitable principles of
general applicability. The Board of Directors of NRC has approved the Merger,
this Agreement and the transactions contemplated hereby. Howard, Lawson & Co.
has delivered to the Board of Directors of NRC its opinion that the Allocation
(as such term is defined in such opinion) of the value of the transactions is
fair to the Public Shareholders from a financial point of view. No other
corporate proceedings on the part of NRC are necessary to authorize or approve
this Agreement or to consummate the transactions contemplated hereby, other than
the approval and adoption of the Merger and this Agreement by the shareholders
of NRC.
Section 2.03 Governmental Authorization. The execution,
delivery and performance by NRC of this Agreement and the consummation by NRC of
the Merger and the other transactions contemplated hereby require no consent,
waiver, approval, authorization or permit by or from, or action by or in respect
of, or filing with, any Governmental Entity, other than: (i) the filing of the
articles of merger as contemplated by Section 1.01(a); (ii) compliance with any
applicable requirements of the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act") and (iii) compliance with any applicable requirements under any contracts
with a Governmental Entity to which NRC is a party.
Section 2.04 Non-contravention. Except as set forth on
Schedule 2.04, the execution, delivery and performance by NRC of this Agreement
and the consummation by NRC of the transactions contemplated hereby do not and
will not: (i) contravene or conflict with the articles of incorporation or
by-laws of NRC; (ii) contravene or conflict with or constitute a violation of
any provision of any state or federal law, regulation, judgment, injunction,
order or decree and to the knowledge of NRC, any foreign law or regulation
binding upon or applicable to NRC or any NRC Subsidiary; (iii) result in a
breach or violation of or constitute a default (or an event that with the giving
of notice or the lapse of time or both would constitute a default) under or give
rise to a right of termination, amendment, cancellation or acceleration of any
material right or obligation of NRC or any NRC Subsidiary or to a loss of any
material benefit to which NRC or any NRC Subsidiary is entitled or require any
consent, approval or authorization under any provision of any material
agreement, contract or other instrument binding upon NRC or any NRC Subsidiary
or any of their respective assets; or (iv) result in the creation or imposition
of any Lien on any material asset of NRC or any NRC Subsidiary.
A-5
<PAGE>
Section 2.05 Capitalization.
(a) As of June 16, 1999, the authorized capital stock of NRC
consisted solely of 60,000 shares of NRC Common Stock, of which 27,658 were
issued and outstanding.
(b) As of June 16, 1999, there were outstanding Stock Options
and Pollock Warrants to purchase an aggregate of 20,230 shares of NRC Common
Stock, held by the persons and in the amounts appearing in Schedule 1.02(a) and
Schedule 1.02(c).
(c) All outstanding shares of NRC Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. Except as
set forth in this Section 2.05, there are outstanding (i) no shares of capital
stock or other voting securities of NRC, (ii) no securities of NRC convertible
into or exchangeable for shares of capital stock or voting securities of NRC and
(iii) no options or other rights to acquire from NRC, and no obligation of NRC
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of NRC. The securities
described in Section 2.05(a) and Section 2.05(b) are referred to collectively as
the "NRC Securities". Except pursuant to the terms of the NRC Securities, there
are no outstanding obligations of NRC or any NRC Subsidiary to repurchase,
redeem or otherwise acquire any NRC Securities.
(d) There are no outstanding contractual obligations of NRC or
any NRC Subsidiary to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, any other Person other than to
wholly-owned NRC Subsidiaries, in the ordinary course of business consistent
with past practice.
Section 2.06 Subsidiaries.
(a) Except as set forth on Schedule 2.06(a), each NRC
Subsidiary is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has all corporate, partnership or similar powers required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation or other legal entity and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, except any
jurisdiction where the failure to so qualify or be in good standing would not
have a Material Adverse Effect. All NRC Subsidiaries and their respective
jurisdictions of organization are identified in Schedule 2.06(b).
(b) All of the outstanding shares of capital stock of, or
other ownership interests in, each NRC Subsidiary, are owned by NRC, directly or
indirectly, free and clear of any Lien and free of any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests). There are no
outstanding (i) securities of NRC convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any NRC
Subsidiary or (ii) options or other rights to acquire from NRC or any NRC
Subsidiary, and no other obligation of NRC or any NRC Subsidiary to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any NRC Subsidiary. The securities
described in clauses (i) and (ii) above are referred to collectively as the "NRC
Subsidiary Securities". There are no outstanding obligations of NRC or any NRC
Subsidiary to repurchase, redeem or otherwise acquire any outstanding
A-6
<PAGE>
NRC Subsidiary Securities or pay any dividend or make any other distribution in
respect thereof to a Person other than NRC or a wholly-owned NRC Subsidiary.
Section 2.07 SEC Filings. NRC has filed with the SEC all
forms, reports, definitive proxy statements, schedules and registration
statements required to be filed with the SEC since January 1, 1996 through and
including the date hereof (the "SEC Reports"). No NRC Subsidiary is required to
file any report, form or document with the SEC. As of its respective filing
date, no SEC Report contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The SEC Reports when filed complied in all material
respects with applicable requirements of the Securities Act of 1933, as amended,
and the Exchange Act.
Section 2.08 Financial Statements.
(a) The audited consolidated financial statements and
unaudited consolidated interim financial statements of NRC included in the SEC
Reports (including, without limitation, the audited consolidated balance sheet
at June 30, 1998 (the "Balance Sheet") and the unaudited consolidated balance
sheet at March 31, 1999 (the "Interim Balance Sheet") (collectively, the
"Financial Statements") fairly present, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto or in the case
of unaudited interim financial statements as permitted by Form 10-Q or 10-QSB of
the SEC), the consolidated financial position of NRC and its consolidated NRC
Subsidiaries as of the dates thereof and its consolidated statements of
operations, shareholders' equity and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements). The Financial Statements have been prepared from the
books and records of NRC and the NRC Subsidiaries maintained in the ordinary
course of business and reflect and provide adequate reserves in respect of all
known liabilities of NRC and the NRC Subsidiaries, including all known
contingent liabilities, as of their respective dates.
(b) NRC and each of the NRC Subsidiaries keeps books, records
and accounts that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets of such entity. None of NRC or any of
the NRC Subsidiaries, and no employee, agent or shareholder of any such entity,
directly or indirectly has made any payment of funds of any such entity or
received or retained any funds in violation of any applicable law, rule or
regulation.
Section 2.09 Disclosure Documents. The Proxy Statement and any
amendment or supplement thereto, when filed, will comply as to form in all
material respects with the applicable requirements of the Exchange Act. At the
time the Proxy Statement or any amendment or supplement thereto is first mailed
to shareholders of NRC and at the time such shareholders vote on the approval
and adoption of this Agreement, the Proxy Statement, as supplemented or amended,
if applicable, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties in this Section 2.09 do not apply
to statements in or omissions from the Proxy Statement or any amendment or
supplement thereto based upon information furnished to NRC in writing by Aptec
or Eurisys Mesures SA ("EM") for use therein.
A-7
<PAGE>
Section 2.10 Absence of Certain Changes or Events. Since June
30, 1998, except as disclosed in the SEC Reports, there has not been: (i) any
change in the business, operations or financial condition of NRC or any of the
NRC Subsidiaries that has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of NRC, or any repurchase, redemption or
other acquisition by NRC or any of the NRC Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
NRC or any of the NRC Subsidiaries; (iii) any incurrence, assumption or
guarantee by NRC or any of the NRC Subsidiaries of any indebtedness for borrowed
money other than in the ordinary course of business and in amounts and on terms
consistent with past practices; or (iv) as of the date hereof, any damage,
destruction or other casualty loss (whether or not covered by insurance)
affecting the business or assets of NRC or any of the NRC Subsidiaries that has
had or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
Section 2.11 Real Property.
(a) Set forth on Schedule 2.11(a) is (i) a complete list of
all real property (the "Owned Property") that NRC or any of the NRC Subsidiaries
owns, or in which NRC or any of the NRC Subsidiaries has legal or equitable
title and (ii) a description of each lease of real property under which NRC or
any of the NRC Subsidiaries is a lessee, lessor, sublessee or sublessor (the
"Leased Property"). The Owned Property and the Leased Property sometimes
collectively are referred to as the "Real Property". True and complete copies of
all leases to which NRC or any Subsidiary is a party respecting any real
property and all other instruments granting such leasehold interests, rights,
options or other interests (the "Property Leases"), and to the extent in
possession of NRC or any NRC Subsidiary of all deeds, title insurance policies,
surveys, mortgages, agreements and other documents granting to NRC or any of the
NRC Subsidiaries title to or an interest in any Real Property (the "Title
Documents"), have been made available to Aptec.
(b) With respect to the Property Leases, no breach or event of
default on the part of NRC or any NRC Subsidiary to any of the Property Leases
and no event that, with the giving of notice or lapse of time or both, would
constitute such breach or event of default, have occurred and are continuing
unremedied. All the Property Leases are in full force and effect and are valid
and enforceable against the parties thereto in accordance with their terms. All
rental and other payments due under each of the Property Leases have been duly
paid in accordance with the terms of such Property Lease. The Merger does not
require the consent of any party to, constitute an event of default under or
trigger any options to terminate or otherwise change the existing terms of any
Property Lease.
(c) With respect to the Title Documents, to NRC's knowledge,
no breach or event of default on the part of NRC or any NRC Subsidiary, or on
the part of any other party thereto and no event that, with the giving of notice
or lapse of time or both, would constitute such breach or event of default under
any term, covenant or condition of such Title Documents, has occurred and is
continuing unremedied.
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(d) NRC and the Subsidiaries have good and marketable title in
fee simple to the Owned Property and to all plants, buildings and improvements
thereon, free and clear of any mortgages, Liens, security interests, claims,
charges, imperfections of title, encroachments, easements, rights-of-way,
squatters' rights, encumbrances, covenants, conditions or restrictions
("Impairments"), except for those Impairments that are described on Schedule
2.11(d) or described in the Title Documents.
(e) To NRC's knowledge, the buildings and improvements owned
or leased by NRC or any NRC Subsidiary, and the operation or maintenance thereof
as operated and maintained do not, (i) contravene any zoning or building law or
ordinance or other administrative regulation (including but not limited to those
relating to zoning, land division, building, fire, health and safety) or (ii)
violate any restrictive covenant or any provision of federal, state, local or
foreign law.
(f) There is no pending or, to NRC's knowledge, threatened
condemnation or eminent domain proceeding with respect to, or that could affect,
any Owned Property or Leased Property.
(g) Schedule 2.11(g) includes a complete and accurate list of
the property classifications for zoning purposes of all Real Property as of the
date hereof. Each parcel of Real Property is currently being used in a manner
that is consistent with and in compliance with the property classification
assigned to it for zoning purposes.
Section 2.12 Personal Property. NRC and the NRC Subsidiaries
have good and marketable title to all personal property reflected on the Balance
Sheet and all personal property acquired by NRC or any of the NRC Subsidiaries
since the date of the Balance Sheet (except such personal property as has been
disposed of in the ordinary course of business), free and clear of any Liens (as
hereinafter defined), except for: (i) the Liens identified on Schedule 2.12;
(ii) Liens for current taxes not yet due and payable or delinquent; and (iii)
mechanics', carriers', workmen's, and similar Liens arising in the ordinary
course of business.
Section 2.13 Accounts Receivable. All accounts receivable of
NRC that are reflected on the Financial Statements or the accounting records of
NRC and the NRC Subsidiaries as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business.
The Accounts Receivable are or will be as of the Closing Date collectible within
360 days of the date due. Except as set forth in Schedule 2.13(a), there is no
contest, claim, or right of setoff other than returns in the ordinary course of
business, under any contract with any obligor of an Accounts Receivable relating
to the amount or validity of such Accounts Receivable. Schedule 2.13(b) contains
complete and accurate lists of all Accounts Receivable as of the date of the
Interim Balance Sheet and as of the date of this Agreement, which lists set
forth the aging of such Accounts Receivable. Since the date of the Interim
Balance Sheet, NRC has not written off or written down or created reserves
against any Accounts Receivable and from the date hereof to the Closing Date,
NRC will not write-off or write down or create reserves against any Accounts
Receivable.
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Section 2.14 Personnel.
(a) Set forth on Schedule 2.14 (a) is a true and complete list
of:
(i) the name of each person employed by NRC or any
NRC Subsidiary (other than hourly employees) whose total compensation
for services rendered, including without limitation bonuses and
deferred compensation, for the fiscal year ended June 30, 1998 was in
excess of the rate of $40,000 per year, the title or job classification
of each such person and the current compensation of each such person;
(ii) the name of each person, if any, holding tax or
other powers of attorney from NRC or any NRC Subsidiary and a summary
of the terms thereof;
(iii) the name and title or job description of each
director and officer, and each other key employee, of NRC and each of
the NRC Subsidiaries; and
(iv) the name and title or job description of each
employee in respect of whom NRC is the beneficiary of a life insurance
policy, and the details of such policy.
(b) Except as set forth on Schedule 2.14(b), since June 30,
1998, there has been no material change in the rate of total compensation for
services rendered, including without limitation bonuses and deferred
compensation, for any of the employees listed on Schedule 2.14(a), and the
bonuses and deferred compensation established for the fiscal year ending June
30, 1998 were consistent with the past practices of NRC for similar employees in
similar situations.
Section 2.15 Labor Matters.
(a) Except as set forth on Schedule 2.15, neither NRC nor any
NRC Subsidiary is a party to any contract or collective bargaining agreement
with any labor organization. Other than as set forth on Schedule 2.15, no
organization or representation question is pending respecting the employees of
NRC or the NRC Subsidiaries, and no such question has been raised within the
preceding three years.
(b) All reasonably anticipated obligations of NRC or the NRC
Subsidiaries, whether arising by operation of law, contract, past custom or
otherwise, for unemployment compensation benefits, pension benefits, salaries,
wages, bonuses, sick leave, vacation and other forms of compensation payable to
the officers, directors and other employees of NRC or the NRC Subsidiaries have
been paid or adequate accruals therefore have been made in the Balance Sheet.
(c) There is no claim, grievance, arbitration, negotiation,
suit, action or charge of or by any employee of NRC or any NRC Subsidiary
pending against NRC or any NRC Subsidiary before the National Labor Relations
Board or any state or local agency or in any court, nor to NRC's knowledge is
there any basis therefor. NRC and the NRC Subsidiaries have complied, in respect
of their employees, in all material respects with all applicable statutes,
regulations, orders and restrictions of the United States of America, all states
and other subdivisions thereof, and to NRC's actual knowledge, all foreign
jurisdictions and all agencies
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and instrumentalities of the foregoing, except where the failure to so comply
would not have a Material Adverse Effect.
(d) NRC has made available to Aptec copies of all claims,
complaints, reports or other documents in NRC's files concerning NRC or any NRC
Subsidiary or their employees made by or against NRC or any NRC Subsidiary
during the past five years pursuant to workers' compensation laws, Title VII of
the Civil Rights Act of 1964, the Occupational Safety and Health Act of 1970,
the National Labor Relations Act of 1935 or any other federal or state laws
relating to employment of labor.
Section 2.16 Environmental Matters.
(a) (i) Except as set forth on Schedule 2.16, none of
NRC, the NRC Subsidiaries nor any previous owner, tenant, occupant,
operator or user of any Real Property or Former Real Property (as
hereinafter defined) or any other Person has engaged in or permitted
any operation or activity at or upon, or any use or occupancy of, any
Real Property or Former Real Property for the purpose of or in any way
involving the handling, manufacture, treatment, storage, use,
generation, release, discharge, refining, reclaiming, recycling,
dumping or disposal of any Hazardous Materials (as hereinafter defined)
on, under, in or about any Real Property or Former Real Property (as
hereinafter defined), or transported any Hazardous Materials to, from
or across any Real Property or Former Real Property (as hereinafter
defined). No Hazardous Materials currently are produced, incorporated
in any construction, deposited, stored or otherwise located on, under,
in or about any Real Property other than in compliance in all material
respects with Environmental Requirements.
(ii) Except as set forth on Schedule 2.16, no
Hazardous Materials have migrated from any Real Property or Former Real
Property onto or under other properties, and no Hazardous Materials
have migrated or threatened to migrate from other properties onto or
under any Real Property.
(iii) Except as set forth on Schedule 2.16, no
underground improvement, including without limitation treatment or
storage tank or water, gas or oil well, is or ever has been located on
any Real Property or Former Real Property. All underground treatment
and storage tanks, if any, have been exhumed and disposed of, and all
portions of the Real Property and Former Real Property and all
groundwater contaminated by any Hazardous Materials contained therein,
have been remediated in full compliance with all Environmental
Requirements.
(iv) All Real Property and Former Real Property and
all current and past activities thereon, during NRC's ownership and
operation, including without limitation the use, maintenance and
operation of all Real Property and Former Real Property and all
activities and conduct of business related thereto, currently comply
and at all times in the past during NRC's ownership and operation have
complied in all material respects with all Environmental Requirements.
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(v) None of NRC, the NRC Subsidiaries nor, any
current or prior owner or occupant of any Real Property or Former Real
Property has received any notice or other communication concerning or
has any knowledge of (A) any violation or alleged violation of
Environmental Requirements, whether or not corrected or (B) any alleged
liability for Environmental Damages (as defined below) in connection
with any Real Property, Former Real Property, or material transported
to, from or across any Real Property or Former Real Property. No writ,
injunction, decree, order or judgment relating to the foregoing is
outstanding. There is no lawsuit, claim, proceeding, citation,
directive, summons or investigation pending or threatened against NRC
or any of the NRC Subsidiaries relating to any alleged violation of or
liability under any applicable Environmental Requirements or the
presence of any Hazardous Materials on any Real Property or Former Real
Property.
(b) For the purposes of this Agreement:
(i) "Environmental Damages" means all claims,
judgments, damages, losses, penalties, fines, liabilities (including
strict liability), encumbrances, Liens, costs and expenses of defense
of a claim (whether or not such claim is ultimately defeated), good
faith settlements of judgment, and costs and expenses of reporting,
investigating, removing and/or remediating Hazardous Materials, of
whatever kind or nature, contingent or otherwise, matured or unmatured,
including without limitation reasonable attorney's fees and
disbursements and consultants' fees, any of which arise out of or
relate to the existence of Hazardous Materials at, upon, about or
beneath the Real Property or Former Real Property, or migrating or
threatening to migrate to or from the Real Property or Former Real
Property or transported to, from, or across any Real Property or Former
Real Property.
(ii) "Environmental Requirements" means all
applicable statutes, regulations, rules, ordinances, codes, actions,
licenses, permits, orders, approvals, plans, authorizations,
concessions, franchises and similar items of all federal state, and
local governmental branches agencies, departments, commissions, boards,
bureaus or instrumentalities domestic and foreign, having jurisdiction
and all applicable judicial and administrative and regulatory decrees,
judgments and orders and all covenants running with the land that
relate to the protection of health or the environment, including
without limitation those that relate to the existence, handling,
manufacture, treatment, storage, use, generation, release, discharge,
refining, recycling, reclaiming or disposal of Hazardous Materials.
(iii) "Former Real Property" means any real property
in which NRC or any of the NRC Subsidiaries heretofore held but no
longer holds a fee, leasehold or other legal, beneficial or equitable
interest.
(iv) "Hazardous Materials" means any substance: (A)
the presence of which requires reporting, investigation, removal or
remediation under any Environmental Requirement; (B) that is defined as
a "hazardous waste," "hazardous substance" or "pollutant" or
"contaminate" under any Environmental Requirement; (C) that is toxic,
explosive, corrosive, flammable, ignitable, infectious, radioactive,
reactive, carcinogenic, mutagenic or otherwise hazardous and is
regulated under any Environmental Requirement; (D) the presence of
which on any Real Property or Former Real Property
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poses a hazard to the health or safety of persons on or about any Real
Property or Former Real Property; (E) the presence of which on adjacent
properties constitutes a trespass by NRC or an NRC Subsidiary; (F) that
contains gasoline, diesel fuel or other petroleum hydrocarbons; or (G)
that contains PCBs, asbestos or urea formaldehyde foam insulation.
(c) Except as set forth on Schedule 2.16, NRC and the NRC
Subsidiaries have complied in all material respects with all Environmental
Requirements.
(d) NRC has made available to Aptec true and complete copies
of all claims, complaints, reports assessments, audits, investigations and other
documents in the possession of or obtainable by NRC made by, on behalf of or
against NRC or any NRC Subsidiary during the past five (5) years pertaining to
Environmental Requirements or Hazardous Materials.
(e) Notwithstanding anything to the contrary in this Section
2.16, all representations made by NRC in this Section 2.16 with respect to the
actions or omissions of any current or prior owner or occupant of any Real
Property or Former Real Property, other than NRC or any NRC Subsidiary, are made
to the actual knowledge of NRC.
Section 2.17 Non-ERISA Plans. Set forth on Schedule 2.17 is a
complete list of each current employment contract and consulting agreement
entered into by NRC or any NRC Subsidiary, or by which NRC or any NRC Subsidiary
is bound (b), and each deferred compensation, bonus, incentive compensation,
restricted stock, stock option, employee stock purchase, savings, severance or
termination pay agreement or plan and any other employee benefit plan,
agreement, arrangement or commitment, whether formal or informal, not required
to be listed on Schedule 2.18, maintained, entered into or contributed to, or
which is required to be maintained, entered into or contributed to, by NRC or
any NRC Subsidiary for the benefit of any current or former director, officer or
employee of NRC or any NRC Subsidiary (the "Non- ERISA Plans").
Section 2.18 ERISA Plans.
(a) Except as set forth on Schedule 2.18(a), there is no
employee pension benefit plan (the "Pension Plans") as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974 ("ERISA") or employee
welfare benefit plan (the "Welfare Plans" and, together with the Pension Plans,
collectively referred to as the "ERISA Plans") as defined in Section 3(1) of
ERISA established, maintained or contributed to by NRC or any ERISA Affiliate or
to which NRC or any ERISA Affiliate had an obligation to contribute during the
five years preceding the date hereof. As used herein, the term "ERISA Affiliate"
means a corporation which is a member of a controlled group of corporations with
NRC or any NRC Subsidiary within the meaning of Section 414(b) of the Internal
Revenue Code of 1986 (the "Code"), a trade or business (including a sole
proprietorship, partnership, trust, estate or corporation) which is under common
control with NRC or any NRC Subsidiary within the meaning of Section 414(c) of
the Code, or a member of an affiliated service group with NRC or any NRC
Subsidiary within the meaning of Section 414(m) or Section 414(o) of the Code.
(b) Except as set forth on Schedule 2.18(b), no contract,
agreement, plan or other arrangement, whether or not an ERISA Plan (other than
this Agreement), exists pursuant to
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which the execution of this Agreement would trigger an obligation by NRC or any
NRC Subsidiary to pay any amount or provide any property to any employee,
officer or director of NRC or any of the NRC Subsidiaries.
Section 2.19 Compliance with Law. Except as set forth in
Schedule 2.16 or 2.19, NRC and the NRC Subsidiaries, their officers, directors,
agents and employees have complied with all applicable statutes, regulations,
orders and restrictions of the United States of America, all states and other
subdivisions thereof, to NRC's actual knowledge all applicable foreign
jurisdictions, all agencies and instrumentalities of the foregoing and all
national and international self-regulatory bodies and authorities in respect of
the conduct of NRC's and the NRC Subsidiaries' business and ownership of their
properties, except where such failure to comply would not have a Material
Adverse Effect.
Section 2.20 Litigation. Except as set forth on Schedule 2.20,
there is no action, suit, claim, proceeding, inquiry or investigation pending
or, to NRC's knowledge, threatened, against or affecting NRC or any NRC
Subsidiary, or the assets, properties, business or business prospects of NRC or
any NRC Subsidiary, or relating to or involving the transactions contemplated by
this Agreement at law or in equity, or before or by any arbitrator or any
federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, and NRC knows of no
basis for any of the foregoing. Except as set forth on Schedule 2.20, none of
NRC or any NRC Subsidiary has received any opinion or memorandum or legal advice
or notice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage that may have a Material Adverse
Effect. Neither NRC nor any NRC Subsidiary is in default with respect to any
order, writ, injunction or decree known to or served upon NRC or such NRC
Subsidiary. Except as set forth on Schedule 2.20, there is no pending action or
suit brought by NRC or any NRC Subsidiary against others.
Section 2.21 Material Contracts.
(a) Except as set forth on Schedules 2.21(a), neither NRC nor
any NRC Subsidiary is a party to any written or to NRC's knowledge, oral:
(i) contract involving an income or expense in excess
of $50,000 (on an annualized basis) or contract not made in the
ordinary course of business;
(ii) consulting agreement or contract for the
employment of any officer, employee or other person on a full-time,
part-time or consulting basis;
(iii) agreement, mortgage, indenture, loan or credit
agreement, security agreement, guaranty or indemnity or other agreement
or instrument relating to the borrowing or lending of money or
extension of credit or providing for the mortgaging or pledging of, or
otherwise placing a Lien or security interest on, any assets or
properties of NRC or any NRC Subsidiary;
(iv) option, warrant or other contract for the
purchase of any debt or equity security of any corporation, or for the
issuance of any debt or equity security, or the conversion of any
obligation, instrument or security into debt or equity securities, of
NRC or any NRC Subsidiary; or
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(v) settlement agreement of any administrative or
judicial proceedings within the past five years; or
(vi) intellectual property (including trademark)
licensing agreement.
(b) Except as set forth in Schedule 2.21(b), neither NRC nor
any of the NRC Subsidiaries is in breach of or in default in any material
respect under any provisions of the contracts, obligations or commitments set
forth on Schedule 2.21 (collectively, the "Contracts"), and no event has
occurred that, with the giving of notice or lapse of time or both, would
constitute such a breach or default. NRC has made available to Aptec a true and
complete copy of all written contracts, obligations or commitments set forth on
Schedule 2.21(b), and accurate descriptions of all oral contracts, obligations
or commitments set forth on Schedule 2.21(b).
Section 2.22 Conduct of Business. Since June 30, 1998, NRC has
preserved the business organization of NRC intact, kept available to NRC the
services of all current officers and employees and preserved the goodwill of the
suppliers, customers, employees and others having business relations with NRC.
Except as set forth on Schedule 2.22, since June 30, 1998, NRC has conducted its
business in the ordinary course, has maintained its assets and properties in at
least as good order and condition as existed on June 30, 1998 (other than wear
as may be accounted for by reasonable use) and as is necessary to continue to
conduct its business and has not and will not through to the Closing Date:
(a) incurred any material obligation or liability (absolute,
accrued, contingent or other), except in the ordinary course of business;
(b) discharged or satisfied any material Lien or encumbrance,
or paid or satisfied any material obligation or liability (absolute, accrued,
contingent or other), other than liabilities reflected on the Balance Sheet or
incurred since June 30, 1998 in the ordinary course of business consistent with
past practice;
(c) written down or written off any Accounts Receivable,
except as permitted under Section 2.13;
(d) increased or established any reserve for taxes or other
liabilities on its books or otherwise provided therefor, except for current
taxes due in the ordinary course of business;
(e) mortgaged, pledged or subjected to any Lien, charge or
other encumbrance any of the assets or properties of NRC or any of the NRC
Subsidiaries; except for leases and financing of equipment in the ordinary
course of business.
(f) sold, assigned or transferred any asset, property or
business or canceled any debt or claim or waived any right, except sales of
inventory and immaterial amounts of other assets in the ordinary course of
business;
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(g) granted any increase in the compensation (including
bonuses and deferred compensation) payable to any executive officer, director,
or key employee of NRC, or granted any increase in compensation to any other
employee of NRC in excess of five percent (5%).
(h) made or authorized any capital expenditure for additions
to plant and equipment of NRC and the NRC Subsidiaries in excess of $100,000 in
the aggregate except as may have been necessary for ordinary repair, maintenance
and replacement;
(i) made or forgiven any loan to any shareholder or any
relative or affiliate of any shareholder, or declared, set aside or paid to any
shareholder any dividend or other distribution in respect of its capital stock,
or redeemed or purchased any of its capital stock, or agreed to take any such
action;
(j) transferred any asset or paid any commission, salary or
bonus to any shareholder or any relative or affiliate of any shareholder other
than the payment of wages or salaries to shareholder employees in the ordinary
course of business and as disclosed on Schedule 2.15 or paid any rent,
commission or fee to any shareholder or any relative or affiliate of any
shareholder other than pursuant to leases disclosed on Schedule 2.11 in the
amounts shown thereon;
(k) entered into or agreed to enter into any transaction with
or for the benefit of any shareholder or any relative or affiliate of any
shareholder other than the transactions contemplated by this Agreement and the
Stock Acquisition Agreement;
(l) issued, sold or transferred, or agreed to issue, sell or
transfer, any stock, bond, debenture or other security of NRC or the NRC
Subsidiaries;
(m) paid, incurred or made any commitments to pay or incur any
default rate of interest, fees, costs or expenses of any nature whatsoever in
connection with any credit or loan facilities extended to NRC.
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Section 2.23 Tax Matters.
(a) Except as set forth on Schedule 2.23(a), NRC and the NRC
Subsidiaries in a timely manner (including extensions) have filed and will file
all returns and other reports required to be filed on or before the Effective
Time by them under all federal, state, local and foreign tax laws to which they
are subject. All such returns and reports are true, correct and complete in all
material respects and accurately set forth all items to the extent required to
be reflected or included in such returns by applicable federal, state, local or
foreign tax laws, regulations or rules. NRC and the NRC Subsidiaries have paid
in full or set up an adequate reserve in respect of all taxes for the periods
covered by such returns, as well as all other taxes, penalties, interest, fines,
deficiencies, assessments and governmental charges that have become due or
payable, including without limitation all taxes that NRC or any of the
Subsidiaries is obligated to withhold from amounts paid or payable to or
benefits conferred upon employees, creditors and third parties. Neither NRC nor
any NRC Subsidiary has any tax liability for which an adequate tax reserve has
not been established on the Balance Sheet, whether or not disputed, including
any interest and penalty in connection therewith, for all periods ending on or
prior to the date of the Balance Sheet. There are no representations or
warranties being made with respect to: (i) the availability of net operating
loss carry forwards for income tax purposes or other carry forwards which may
apply for taxable periods after the Effective Time; or (ii) the income tax basis
for any assets of NRC or any NRC Subsidiary. With respect to any periods for
which tax returns have not yet been required to be filed or for which taxes are
not yet due and payable, NRC has only incurred liability for taxes in the
ordinary course of its business and in the manner and at a level consistent with
prior years.
(b) Set forth on Schedule 2.23(b) is a complete list of income
and other tax returns filed by NRC or any of the NRC Subsidiaries pursuant to
the laws or regulations of any federal, state, local or foreign tax authority
that have been examined or audited by the IRS or other appropriate authority
during the preceding five years. Also set forth on Schedule 2.23(b) is a
complete list of all adjustments resulting from each such examination or audit.
No tax examination or audit is in progress. No changes proposed by a taxing
authority in an audit during such five year period (other than changes disclosed
in Schedule 2.23(b)) can reasonably be expected to affect the amount of tax
liability for NRC or any NRC Subsidiary in the future. All deficiencies proposed
as a result of such examinations or audits have been paid or finally settled and
no issue has been raised in any such examination or audit that, by application
of similar principles, reasonably can be expected to result in the assertion of
a deficiency for any other year not so examined or audited. The results of any
settlement and the necessary adjustments resulting therefrom properly are
reflected in the Balance Sheet. The period during which any assessment against
NRC or any of the NRC Subsidiaries may be made by the IRS or other appropriate
authority has expired without waiver or extension for the years set forth on
Schedule 2.23(b) for each such authority. There are no grounds for any further
tax liability with respect to the years ended on or before the date of the
Balance Sheet that have not been examined or audited. There is no outstanding
agreement or waiver made by or on behalf of NRC or any of the NRC Subsidiaries
for the extension of time for any applicable statute of limitations, and neither
NRC nor any of the NRC Subsidiaries has requested any extension of time in which
to file any tax return.
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(c) Except for taxes for the payment of which an adequate
reserve has been established on the Balance Sheet and for property taxes that
are not delinquent, there is no tax Lien, whether imposed by any federal, state,
local or foreign taxing authority, outstanding against any of the assets or
properties of NRC or any of the NRC Subsidiaries.
(d) NRC is not a United States Real Property Holding
Corporation (a "USRPHC") within the meaning of Section 897 of the Code and was
not a USRPHC on any "determination date" (as defined in ss.1.897-2(c) of the
Treasury Regulations) that occurred in the five-year period preceding the
Closing Date.
(e) Neither NRC nor any NRC Subsidiary has executed any
closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof, or any similar provision of state or local law.
(f) NRC has not filed a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by NRC or any NRC Subsidiary.
(g) None of the assets owned by NRC or any NRC Subsidiary is
property that is required to be treated as owned by any other Person pursuant to
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, as in effect
immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(h) NRC is not a party to a tax sharing agreement or similar
arrangement.
(i) Neither NRC nor any NRC Subsidiary has agreed to make, and
none is required to make any adjustments pursuant to Section 481(a) of the Code
or any similar provision of state or local law by reason of a change in
accounting method initiated by it or any other relevant party; none has any
knowledge that the IRS has proposed any such adjustment or change in accounting
method; and there is no application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business or
assets of NRC or any NRC Subsidiary.
(j) NRC has not made any payments, is not obligated to make
any payments, and is not a party to any agreement that under any circumstances
could obligate it to make payments, that would not in each case be deductible
under Section 280G of the Code.
(k) As used in this Agreement, the term "Tax Return" includes
any material report, statement, form, return or other document or information
required to be supplied to a taxing authority in connection with taxes. As used
in this Agreement, the term "Taxes" means any federal, state, local or foreign
income or gross receipts tax, alternative or add-on minimum tax, sales and use
tax, customs duty and any other tax, charge, fee, levy or other assessment
including without limitation property, transfer, occupation, service, license,
payroll, franchise, excise, withholding, ad valorem, severance, stamp, premium,
windfall profit, employment, rent or other tax, governmental fee or like
assessment or charge of any kind whatsoever, together with any interest, fine or
penalty thereon, addition to tax, additional amount, deficiency, assessment or
governmental charge imposed by any federal, state, local or foreign taxing
authority.
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Section 2.24 Absence of Undisclosed Liabilities. Except as
specifically identified on Schedules 2.20 and 2.24, neither NRC nor any NRC
Subsidiary has any indebtedness or liability, whether accrued, fixed or
contingent, other than (a) liabilities reflected in the Balance Sheet, and (b)
liabilities incurred in the ordinary course of business of NRC and the NRC
Subsidiaries (consistent with past practice in terms of both frequency and
amount) subsequent to the date of the Balance Sheet.
Section 2.25 Insurance. Set forth on Schedule 2.25 is a
complete list and description of all policies of insurance, together with the
premiums currently payable thereon, (i) covering damage to goods being
manufactured, shipped, held or otherwise processed by NRC or any of the NRC
Subsidiaries, (ii) providing for fire, property, casualty, business
interruption, personal or product liability, workers' compensation and other
forms of insurance coverage for NRC, or (iii) providing for fire, property,
casualty and other forms of insurance coverage for the Real Property. All such
policies or substantially comparable insurance coverage will be outstanding and
in full force and effect at the Closing Date. There was no material inaccuracy
in any application for any such insurance coverage. Except as set forth on
Schedule 2.25, there is no claim, action, suit or proceeding arising out of or
based upon any of such policies of insurance, and no basis for any such claim,
action, suit or proceeding exists. There is no notice of any pending or
threatened termination or premium increase with respect to any of such policies,
and NRC and the NRC Subsidiaries are in compliance with all conditions contained
therein.
Section 2.26 Corporate Name. "Nuclear Research Corporation",
"NRC" and "NRC Industries" constitute all of the corporate names presently used
by NRC and the NRC Subsidiaries. Set forth on Schedule 2.26 is a list of all
jurisdictions, and the locations in such jurisdictions, in which the corporate
name, or any variations thereof are used by NRC or the NRC Subsidiaries. NRC and
the NRC Subsidiaries have the full legal right to use such names in each of such
jurisdictions and locations. There is no actual or, to NRC's knowledge,
threatened claim by any third party with respect to the use of such names or of
any actual or proposed use of the name or any variations thereof by any third
party in conflict with the use thereof by NRC and the NRC Subsidiaries. To NRC's
knowledge, the use by NRC and the NRC Subsidiaries of the name or any variations
thereof do not infringe upon the rights of any third party and neither NRC nor
any NRC Subsidiary has granted any third party any right to use such name or any
variations thereof.
Section 2.27 Transactions with Related Parties.
(a) Except as set forth on Schedule 2.27, there are no
outstanding notes payable to, accounts receivable from or advances by NRC or any
of the NRC Subsidiaries to, and neither NRC nor any of the NRC Subsidiaries is
otherwise a creditor of, any shareholder or former shareholder of NRC or any
relative or affiliate of any shareholder or former shareholder of NRC. Since the
date of the Balance Sheet, neither NRC nor any of the NRC Subsidiaries has
incurred any obligation or liability to, or become a creditor of, any
shareholder or former shareholder of NRC or any relative or affiliate of any
shareholder or former shareholder of NRC.
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(b) Except as set forth on Schedule 2.27, since the date of
the Balance Sheet, NRC has neither declared any dividends nor paid any dividends
to any shareholder or former shareholder of NRC or any relative or affiliate of
any shareholder or former shareholder of NRC.
(c) Neither NRC nor any of the NRC Subsidiaries has purchased
or leased real property from any shareholder or former shareholder of NRC or any
relative or affiliate of such person, including any other instruments granting
such leasehold interests, or involving rights, options or other interests.
Section 2.28 Permits. NRC and the NRC Subsidiaries have all
franchises, licenses, permits, certificates and other authorizations from
federal, state, local or to NRC's actual knowledge foreign governments or
governmental agencies, departments or bodies that are necessary for the conduct
of their business and which, if not obtained, would, individually or in the
aggregate, have a Material Adverse Effect (each a "Permit"). Schedule 2.28
contains a list of all Permits. NRC has no knowledge of any fact, error or
omission relevant to any Permit that would permit the revocation or withdrawal,
or the threatened revocation or withdrawal, thereof. NRC and the Subsidiaries
will continue to have the use and benefit thereof and the rights granted thereby
after the Merger has occurred.
Section 2.29 Bank Accounts. Schedule 2.29 contains an accurate
and complete list of:
(a) the names and addresses of each bank in which NRC or any
NRC Subsidiary has an account;
(b) the account numbers of such accounts; and
(c) the authorized signatories and amounts for such accounts.
Section 2.30 Product Liability. Except as set forth on
Schedule 2.30, there are no pending product liability, warranty, backcharge, or
other claims by any third party (whether based on contract or tort and whether
relating to personal injury, including death, property damage or economic loss)
arising from (A) services rendered by NRC or any NRC Subsidiary, (B) the
manufacture, sale, distribution, erection or installation of products by NRC or
any NRC Subsidiary or (C) the operation of NRC's or any NRC Subsidiary's
business.
Section 2.31 Customers. Set forth on Schedule 2.31 is a
complete list of the ten (10) largest (in terms of dollar volume) customers of
NRC and the NRC Subsidiaries for each of the fiscal years ended June 30, 1997
and 1998, indicating the amount paid to NRC by each customer for each such
fiscal year and the names of the employees of NRC who are primarily responsible
for servicing each such customer as of the date hereof. Except as set forth on
Schedule 2.31, to NRC's knowledge, none of such customers has terminated or
indicated an intention or plan to terminate all or a material part of the
services performed for or orders historically placed by such customers. Except
as set forth on Schedule 2.31, NRC has satisfactory relationships with its major
customers, suppliers and contractors, and NRC has no reason to believe there
will be any adverse change in any of such relationships, whether by reason of
the Merger or for any other reason. None of the employees primarily responsible
for servicing customers listed thereon has indicated an intention or to NRC's
knowledge, plan to terminate his or her employment with NRC.
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Section 2.32 Intellectual Property Matters.
(a) As used herein, the term "Intellectual Property Assets"
includes:
(i) all fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable owned by NRC or any NRC
Subsidiary (collectively, "Patents");
(iii) all registered copyrights in both published
works and unpublished works, and all rights in mask works
(collectively, "Copyrights"); and
(iv) all know-how, trade secrets, confidential
information, customer lists, customer histories, product formulations,
product information and specifications, software, technical
information, data, process technology, plans, drawings, and blueprints
(collectively, "Trade Secrets") owned, used, or licensed by NRC as
licensee or licensor.
(b) (i) Schedule 2.32(b) attached hereto contains a
complete and accurate list and summary description, including any
royalties paid or received by NRC, of all contracts relating to the
Intellectual Property Assets to which NRC is a party or by which NRC is
bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs
with a value of less than $500 under which NRC is the licensee. There
are no outstanding and to NRC's knowledge no threatened disputes or
disagreements with respect to any such agreement.
(ii) The Intellectual Property Assets owned or used
by NRC are all those necessary for the operation of NRC's business as
currently conducted. Except as set forth on Schedule 2.32(b), NRC is
the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all Liens and, to NRC's
knowledge, other adverse claims, and to NRC's knowledge has the right
to use without payment to a third party all of the Intellectual
Property Assets. No employee of NRC has any rights to or interests in
the Intellectual Property Assets.
(iii) Except as set forth in Schedule 2.32(c)
attached hereto, all NRC research employees who are currently employed
or were employed during the past two years have executed written
contracts with NRC that assign to NRC all rights to any inventions,
improvements, discoveries, or information relating to the business of
NRC. To NRC's knowledge, no employee has entered into any contract that
restricts or limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to transfer, assign,
or disclose information concerning his work to anyone other than NRC.
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(c) Patents.
(i) Schedule 2.32(c) attached hereto contains a
complete and accurate list and summary description of all Patents.
(ii) All of the issued Patents are currently in
compliance with formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use), and,
to NRC's knowledge, are valid and enforceable and are not subject to
any maintenance fees or taxes or actions falling due within ninety days
after the Closing Date.
(iii) To NRC's knowledge, no Patent has been or is
now involved in any interference, reissue, reexamination, or opposition
proceeding. To NRC's knowledge, there is no potentially interfering
patent or patent application of any third party.
(iv) Except as set forth on Schedule 2.32(c), and to
NRC's actual knowledge, no Patent is infringed or, has been challenged
or threatened in any way. None of the products manufactured and sold,
nor any process or know-how used, by NRC infringes or is alleged to
infringe any patent or other proprietary right of any other Person. NRC
has not received notice of any Person's intent to challenge the
validity of any of the Patents.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
(d) Trademarks.
(i) Schedule 2.32(d) attached hereto contains a
complete and accurate list and summary description of all Marks.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are currently in compliance
with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and are not subject
to any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date.
(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to NRC's knowledge, no
such action is threatened with respect to any of the Marks.
(iv) To NRC's knowledge, there is no potentially
interfering trademark or trademark application of any third party.
(v) To NRC's knowledge, no Mark is infringed or has
been challenged or threatened in any way and none of the Marks used by
NRC infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) All products and materials containing a Mark
bear the proper federal registration notice where permitted by law.
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(e) Copyrights.
(i) Schedule 2.32(e) attached hereto contains a
complete and accurate list and summary description of all Copyrights.
(ii) All Copyrights have been registered and are
currently in compliance with all formal legal requirements, are valid
and enforceable, and are not subject to any maintenance fees or taxes
or actions falling due within ninety days after the Closing Date.
(iii) No Copyright is infringed or, to NRC's
knowledge, has been challenged or threatened in any way. None of the
subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based
on the work of a third party.
(iv) All works encompassed by the Copyrights have
been marked with the proper copyright notice.
(f) Trade Secrets.
(i) With respect to each Trade Secret, the
documentation if any, defining such Trade Secret is current, accurate,
and sufficient in detail and content to identify and explain it and to
allow its full and proper use without reliance on the knowledge or
memory of any individual.
(ii) NRC has taken all reasonable precautions to
protect the secrecy, confidentiality, and value of the Trade Secrets.
(iii) NRC has an absolute (but not necessarily
exclusive) right to use the Trade Secrets. Except as set forth on
Schedule 2.32(f), the Trade Secrets are not part of the public
knowledge or literature, and, to NRC's knowledge, have not been used,
divulged, or appropriated either for the benefit of any Person or to
the detriment of NRC. No Trade Secret is subject to any adverse claim
or has been challenged or threatened in any way.
Section 2.33 Government Contracts. Schedule 2.33 sets forth
the nature and dollar amount of each contract obtained by NRC and the NRC
Subsidiaries since January 1, 1994 from any U.S. governmental body, agency or
department or by reason of NRC's and the NRC Subsidiaries' status as a "small
business" or any other preferential, priority or set-aside treatment granted
under any federal, state or local law.
Section 2.34 Brokers. None of NRC or any of the NRC
Subsidiaries, or any of their respective officers, directors or employees, has
employed any investment banker, broker, finder or other intermediary or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF APTEC AND NEWCO
Aptec and Newco represent and warrant to NRC as follows:
Section 3.01 Corporate Existence and Power.
(a) Aptec is a corporation duly incorporated, validly existing
and subsisting under the laws of Ontario, and will on or before the Closing
Date, subject to regulatory approval, be continued as a corporation incorporated
under the law of the province of New Brunswick, and has and will have on the
Closing Date all corporate power required to carry on its business as now
conducted. Aptec is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except where the failure to so qualify or be in good standing would
not have a Material Adverse Effect. Aptec has delivered to NRC copies of Aptec's
certificate of incorporation and by-laws as currently in effect.
(b) Newco is a corporation duly incorporated, validly existing
and subsisting under the laws of the Commonwealth of Pennsylvania and has all
corporate power required to carry on its business as now conducted. Newco is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary. Newco has
delivered to NRC copies of Newco's articles of incorporation and by-laws as
currently in effect.
Section 3.02 Corporate Authorization. The execution, delivery
and performance by each of Aptec and Newco of this Agreement and the
consummation by Aptec and Newco of the transactions contemplated hereby are
within the corporate powers of each of Aptec and Newco and have been duly
authorized by all necessary corporate action on the part of Aptec and Newco.
This Agreement has been duly and validly executed and delivered by each of Aptec
and Newco and, assuming the due and valid authorization, execution and delivery
of this Agreement by NRC, constitutes a valid and binding agreement of each of
Aptec and Newco, enforceable in accordance with its terms except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability. The Board of Directors of each of
Aptec and Newco, and Aptec as the sole shareholder of Newco, have approved the
Merger, this Agreement and the transactions contemplated hereby. No other
corporate proceedings or shareholder approvals on the part of Aptec or Newco are
necessary to authorize or approve this Agreement or to consummate the
transactions contemplated hereby.
Section 3.03 Governmental Authorization. The execution,
delivery and performance by each of Aptec and Newco of this Agreement and the
consummation by each of Aptec and Newco of the Merger and the other transactions
contemplated hereby require no consent, waiver, approval, authorization or
permit by or from, or action by or in respect of, or filing with, any
Governmental Entity, other than: (i) the filing of the articles of merger as
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contemplated by Section 1.01(a); (ii) compliance with any applicable
requirements of the Exchange Act; and (iii) Canadian, federal and provincial
regulatory consents and filings.
Section 3.04 Non-contravention. Assuming compliance with the
matters referred to in Section 3.03, the execution, delivery and performance by
each of Aptec and Newco of this Agreement and the consummation by each of Aptec
and Newco of the transactions contemplated hereby do not and will not: (i)
contravene or conflict with the articles or by-laws of each of Aptec and Newco;
(ii) contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to Aptec, Newco or any Subsidiary of Aptec; (iii) result in a breach
or violation of or constitute a default (or an event that with the giving of
notice or the lapse of time or both would constitute a default) under or give
rise to a right of termination, amendment, cancellation or acceleration of any
right or obligation of Aptec, Newco or any Subsidiary of Aptec or to a loss of
any material benefit to which Aptec, Newco or any Subsidiary of Aptec is
entitled or require any consent, approval or authorization under any provision
of any material agreement, contract or other instrument binding upon Aptec,
Newco or any Subsidiary of Aptec or any of their respective assets (including
any material license, franchise, permit or other similar authorization held by
Aptec, Newco or any Subsidiary of Aptec); or (iv) result in the creation or
imposition of any Lien on any material asset of Aptec, Newco or any Subsidiary
of Aptec.
Section 3.05 Aptec Shares. The Shares of Aptec Common Stock
issued to the Pollock Holders in the Merger, when issued, will be validly
issued, fully paid, and non-assessable.
ARTICLE IV
COVENANTS OF Aptec AND NRC
Section 4.01 Reasonable Best Efforts. Subject to the terms and
conditions herein provided, each of the parties will use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done and to assist and cooperate with the other parties in doing, as promptly as
practicable, all things necessary or advisable under applicable laws and
regulations to ensure that the conditions set forth in Article V are satisfied
and to consummate and make effective the transactions contemplated by this
Agreement. If at any time after the Effective Time any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
including the execution of additional instruments, the proper officers and
directors of each party will take all such action.
Section 4.02 NRC Shareholder Meeting.
(a) NRC will take all action necessary in accordance with the
PBCL, the Exchange Act, and its Articles of Incorporation and by-laws to call,
give notice of and hold a meeting (the "Shareholder Meeting") of its
shareholders to consider and vote upon the approval and adoption of this
Agreement and the Merger and for such other purposes as may be necessary or
desirable.
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(b) Promptly after the date hereof, NRC will prepare a proxy
statement pertaining to the Shareholder Meeting to be distributed to the holders
of NRC Common Stock (the "Proxy Statement"). The NRC Board will recommend that
the shareholders of NRC vote to approve the Merger and adopt this Agreement and
approve any other matters to be submitted to shareholders in connection
therewith, and NRC will include such recommendation in the Proxy Statement.
(c) NRC will promptly notify Aptec of the receipt of comments
from the SEC and of any request by the SEC for amendments or supplements to the
Proxy Statement or for additional information, and promptly will supply Aptec
with copies of all correspondence between NRC and the SEC with respect thereto.
If, at any time prior to the NRC Shareholder Meeting, any event should occur
relating to or affecting NRC, Aptec or Newco, or to their respective
Subsidiaries, officers or directors, which event should be described in an
amendment or supplement to the Proxy Statement, the parties promptly will inform
each other and cooperate in preparing, filing and having declared effective or
clearing with the SEC and, if required by applicable state securities laws,
distributing to NRC's shareholders such amendment or supplement.
Section 4.03 Consents. Each of the parties will use its
reasonable best efforts to obtain as promptly as practicable all consents,
waivers, approvals, authorizations or permits of any Governmental Entity or any
other Person required in connection with the consummation of the transactions
contemplated by this Agreement.
Section 4.04 Public Announcements. Neither Aptec nor NRC will
issue any press release or make any other public announcement concerning this
Agreement, the Merger or the transactions contemplated hereby without the prior
consent of the other, except that either party may make such public disclosure
that it believes in good faith to be required by law (in which event such party
will notify the other party prior to making such disclosure).
Section 4.05 Notification of Certain Matters. Aptec and NRC
promptly will notify the other of: (i) the occurrence or non-occurrence of any
fact or event that would be reasonably likely to cause any (x) representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (y) material
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in all material respects; and (ii) any failure of NRC, Aptec
or Newco to comply with or satisfy in any material respect any covenant,
condition or agreement contained in this Agreement.
Section 4.06 Access to Information. From the date hereof until
the Effective Time, Aptec and NRC will, and will cause each of their
Subsidiaries to: (i) give the other party and its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of such party and
its Subsidiaries as the other party reasonably may request, and furnish the
other party with such financial and operating data and other information as the
other party reasonably may request; and (ii) instruct such parties' employees,
counsel and financial advisors to cooperate with the other party in their
investigation of the business of such party and its Subsidiaries.
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Section 4.07 Tax-free Reorganization. Prior to the Effective
Time, each party will use its best efforts to cause the Merger to qualify as a
reorganization within the meaning of Section 368 of the Code, and will not take
any action reasonably likely to cause the Merger not to qualify as such a
reorganization.
ARTICLE V
CONDITIONS TO THE MERGER
Section 5.01 Conditions to the Obligations of Each Party. The
respective obligations of the parties to consummate the Merger are subject to
the satisfaction, at or prior to the Effective Time, of each of the following
conditions:
(a) The shareholders of NRC shall have approved and adopted
this Agreement and the Merger pursuant to the requirements of NRC's articles of
incorporation and by-laws and the PBCL;
(b) The consummation of the Merger shall not be restrained,
enjoined or prohibited by any order, judgment, decree, injunction or ruling of a
court of competent jurisdiction or any Governmental Entity entered after the
parties have used their reasonable best efforts to prevent such entry. There
shall not have been any statute, rule or regulation enacted, promulgated or
deemed applicable to the Merger by any Governmental Entity that prevents the
consummation of the Merger;
(c) NRC shall have received an opinion of Wolf, Block, Schorr
and Solis- Cohen LLP, dated the Effective Time, to the effect that (i) the
Merger should be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and (ii) each of Aptec, Newco
and NRC should be a party to the reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, Wolf, Block, Schorr and
Solis-Cohen LLP may receive and rely upon representations contained in
certificates of Aptec, Newco, EM, NRC and others, in each case in form and
substance reasonably acceptable to such counsel;
(d) NRC's indebtedness to First Union National Bank shall have
been repaid in full and new credit facilities acceptable to Aptec and EM shall
have been established in an amount sufficient to effect make such repayment;
(e) Howard, Lawson & Co. shall not have withdrawn its fairness
opinion; and
(f) All conditions to closing of the Stock Acquisition
Agreement dated the date hereof among EM, the Pollock Holders, the Zieba
Holders, Aptec and NRC (the "Stock Acquisition Agreement") shall have been
satisfied or waived and the closing of the transactions contemplated therein
shall have taken place simultaneously with the Merger.
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Section 5.02 Conditions Precedent to the Obligations of Aptec
and Newco. The obligations of Aptec and Newco to consummate the Merger are
subject to the satisfaction, at or prior to the Effective Time, of each of the
following further conditions:
(a) Each of the representations and warranties of NRC
contained in this Agreement shall have been true and correct in all material
respects when made and on and as of the Closing Date as if made on and as of
such date. Aptec shall have received a certificate to such effect by an
executive officer of NRC;
(b) NRC shall have performed and complied in all material
respects with all agreements and covenants required to be performed and complied
with by it under this Agreement on or prior to the Closing Date. Aptec shall
have received a certificate to such effect of an executive officer of NRC;
(c) All consents, waivers, approvals and authorizations
required to be obtained from any Governmental Entity prior to the consummation
of the transactions contemplated hereby shall have been obtained, except where
the failure to obtain any such consent, waiver, approval or authorization would
not have a Material Adverse Effect;
(d) On or before the tenth (10th) Business Day from the date
of this Agreement, First Union National Bank shall have delivered to NRC, and
NRC shall have delivered to Aptec and EM, in form and substance acceptable to
Aptec and EM, written confirmation that its credit facilities have been extended
through October 31, 1999 upon the terms currently in effect; and
(e) Public Shareholders who shall have dissented and demanded
the right to receive the fair value of their shares of NRC Common Stock, as
provided in Section 1.09, shall not represent in the aggregate more than ten
percent (10%) of all shares of NRC Common Stock held by the Public Shareholders
immediately before the Effective Time.
Section 5.03 Conditions Precedent to the Obligations of NRC.
The obligation of NRC to consummate the Merger is subject to the satisfaction,
at or prior to the Effective Time, of each of the following further conditions:
(a) Each of the representations and warranties of Aptec and
Newco contained in this Agreement shall have been true and correct in all
material respects when made and on and as of the Closing Date as if made on and
as of such date. NRC shall have received a certificate to such effect of an
executive officer of Aptec;
(b) Each of Aptec and Newco shall have performed and complied
in all material respects with all agreements and covenants required to be
performed and complied with by it under this Agreement on or prior to the
Closing Date. NRC shall have received a certificate to such effect of an
executive officer of Aptec; and
(c) All consents, waivers, approvals and authorizations
required to be obtained from any Governmental Entity prior to the consummation
of the transactions contemplated hereby shall have been obtained, except where
the failure to obtain any such consent, waiver, approval or authorization would
not have a Material Adverse Effect.
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ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS SURVIVING
THE MERGER
Section 6.01 Covenants to the Pollock Holders. The
representations, warranties and covenants in this Article VI shall survive the
Merger and apply for the period of set forth therein; provided, however, that
such covenants shall terminate and have no further force or effect in the event
that each Statement Filer, as defined below, disposes of its shares of Aptec
stock in a taxable transaction. The indemnification provision of Section 6.03
shall survive for the period provided in Section 6.03.
Section 6.02 Representations, Warranties and Covenants of
Aptec. Aptec hereby represents, warrants and covenants with the Pollock Holders
that:
(a) On the Closing Date, Aptec will have been engaged in an
active trade or business (as defined in Treas. Reg. ss. 1.367(a)-3(c)(3)(i)(A)
and (ii)) in Canada throughout the entire 36-month period ending at the
Effective Time;
(b) Neither Aptec nor Newco has, nor will have at the
Effective Time, any intention to dispose of or discontinue the trade or business
that it conducts in Canada referred to in Section 6.02(a);
(c) Before January 1, 2005, Aptec will not dispose of any of
the shares of Newco stock owned following the Merger, except in (i) dispositions
that do not constitute exchanges for United States federal income tax purposes
and (ii) dispositions in which gain is not required to be recognized for United
States federal income tax purposes;
(d) Before January 1, 2005, Aptec will cause Newco not to
dispose of substantially all, within the meaning of Section 368(a)(1)(C) of the
Code, of the assets of NRC received in the Merger, except for dispositions
described in Treas. Reg. ss.1.367(a)-8(e)(3)(B);
(e) (i) In the event Aptec disposes of the stock of Newco or
Newco disposes of substantially all of the assets of NRC received in the Merger,
in either case in a transaction not violating Section 6.02(c) or Section
6.02(d), Aptec shall cooperate with the Pollock Holders in complying with the
requirements of Section 367 of the Code and the regulations promulgated
thereunder, and shall provide the Pollock Holders with any information that is
within the control of Aptec or Newco and that is reasonably requested to enable
them to comply with such statute and regulations and (ii) in the event Aptec
disposes of the stock of Newco or Newco disposes of substantially all of the
assets of NRC received in the Merger, in either case in a transaction violating
the covenants of Section 6.02(c) or Section 6.02(d), Aptec shall provide notice
of such disposition to the Pollock Holders;
(f) Aptec shall cause NRC to attach to NRC's timely filed
income tax return for the fiscal year ending on the date of the Merger a
"Section 367(a) - Reporting of Cross--
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Border Transfer under Reg. ss.1.367(a)-3(c)(6)" statement including the
information required by Treas. Reg. ss.1.367(a)-3(c)(6) and meeting the other
requirements of that section;
(g) None of the Shareholders of Aptec is, and immediately
before the Effective Time none will be, a U.S. person for U.S. federal income
tax purposes; and
(h) No assets have been or will be acquired by Aptec during
the 36-month period ending at the Effective Time other than in the ordinary
course of business, except assets the acquisition of which is described in
Treas. Reg. ss.1.367(a)-3(c)(3)(iii)(B)(1).
Section 6.03 Indemnification for Certain Tax Consequences.
(a) If Aptec or Newco breaches or violates any of the
representations, warranties and covenants contained in Section 6.02 of this
Agreement, which results in a Statement Filer, as defined below, (or any other
person) being required to recognize gain on the exchange of his or her NRC
Common Stock or warrants for Aptec Common Stock (the "NRC Exchange"), prior to
the end of the five taxable year period referred to in Treas. Reg. ss. 1.367(a)-
8(b)(3) (the "End Date"), then Aptec shall be liable to reimburse the Statement
Filer (or other person) for the amount of interest and penalties which he or she
is required to pay to the United States Government as a consequence of such gain
recognition [plus an amount equal to the Hypothetical Interest (as defined
below) on the amount of income tax paid to the United States Government by the
Statement Filer(s) as a consequence of such gain recognition;] provided,
however, that no amounts shall be due pursuant to this Section 6.03 to the
extent that amounts are paid by EM pursuant to Section 5.11 of the Stock
Acquisition Agreement. Each such reimbursement amount shall be grossed up to
take into account the amount of additional tax payable by the Statement Filer as
a consequence of receipt of any reimbursement as provided above plus the amount
of any gross-up received pursuant to this sentence. Any claim for
indemnification under this Section 6.03 must be made within 30 days after the
expiration of the statute of limitations on assessment of tax for the relevant
year.
(b) A "Statement Filer" is a person who files a Gain
Recognition Agreement under Treas. Reg. ss.1.367(a)-8 with respect to any NRC
Exchange.
(c) Any amounts due pursuant to Section 6.03(a) with respect
to the payment of interest and penalties paid to the United States Government by
the Statement Filer(s) shall be paid to the Statement Filer(s) within ten (10)
Business Days after the delivery to EM of a calculation in reasonable detail of
the interest and penalties paid and proof of payment of the interest and
penalties. Any amounts due pursuant to Section 6.03(a) with respect to the tax
on any gross-up shall be paid to the Statement Filer(s) within ten (10) Business
Days after the delivery to EM of a calculation in reasonable detail of the
amount of income tax due as a result of the receipt of any such gross-up and
proof of payment of the tax.
(d) "Hypothetical Interest" with respect to tax paid by any
Statement Filer shall mean an amount of interest calculated at the rate of Prime
(as defined below) plus three percentage points compounded monthly for the
period beginning with the date on which an amount of tax is paid by the
Statement Filer(s) to United States Government and ending on the End Date.
Hypothetical Interest due hereunder to the Statement Filer(s) shall be paid in
arrears on the first day of each quarter annual period following the Tax Payment
Date.
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(e) "Prime" for purposes of this Agreement shall mean the
Prime Rate as published in the Wall Street Journal on the Closing Date.
(f) No limitation set forth in this Agreement except in this
Article VI or any other agreement with respect to time or amount of
indemnification due any party hereunder shall apply to amounts due under this
Section 6.03.
ARTICLE VII
TERMINATION
Section 7.01 Termination. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of NRC:
(a) by mutual written agreement of NRC and Aptec;
(b) by either NRC or Aptec, if the Merger has not been
consummated by September 30, 1999; provided that the right to terminate this
Agreement pursuant to this Section 7.01(b) will not be available to any party
whose breach of any provision of this Agreement results in the failure of the
Merger to be consummated by such time; and further provided that Aptec may in
its sole discretion extend the date for the consummation of the Merger to a date
not later than October 31, 1999 in the event that the definitive Proxy Statement
is not mailed to NRC's Shareholders on or before August 16, 1999;
(c) by either NRC or Aptec, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise prohibited
or if any judgment, injunction, order or decree enjoining the parties from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable;
(d) by Aptec, in the event of any material breach by the
Pollock Holders under the Voting Agreement;
(e) by Aptec, upon a material breach of any representation,
warranty, covenant or agreement of NRC, or if any representation or warranty of
NRC shall become untrue in any material respect; and
(f) by NRC, upon a material breach of any representation,
warranty, covenant or agreement of Aptec or Newco, or if any representation or
warranty of Aptec or Newco shall become untrue.
(g) If an event comes to the attention of Aptec at any time
prior to Closing which could reasonably form the basis of a claim by EM under
the Stock Acquisition Agreement ("SAA") that EM would not close under the SAA
(the "Event"), Aptec shall be required to:
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(i) Immediately notify each of EM and NRC of the
occurrence of the Event and inquire of EM if it intends to
close under the SAA notwithstanding the Event, and
(ii) within 10 business days of such notice advise
NRC of EM's reply to the inquiry reference in clause (i)
above.
If, as and when EM advises Aptec of its intention not to close
under the SAA, or fails to respond to such notice, NRC shall be entitled to
terminate, and be released of its obligations pursuant to the Agreement and Plan
of Merger without any further action on the part of either Aptec or NRC.
The party desiring to terminate this Agreement pursuant to
this Section 7.01 shall give notice of such termination to the other party.
Section 7.02 Effect of Termination. If this Agreement is
terminated pursuant to Section 7.01, this Agreement will become void and of no
effect with no liability on the part of any party hereto or its respective
directors, officers or shareholders, except that the agreements contained in
Section 7.03 will survive the termination hereof. Nothing herein shall relieve
any party from liability for any breach of this Agreement.
Section 7.03 Fees and Expenses. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement will be paid by
the party incurring such expenses, except as otherwise provided in the SAA.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All notices, requests and other
communications to any party hereunder shall be in writing and shall be deemed to
have been duly given when delivered in person, by overnight courier or by
facsimile to the respective parties as follows:
If to Aptec or Newco, to:
Aptec Instruments Ltd.
East 50B Caldari Road
Concord, Ontario
Canada L4K 4N8
Attention: Edward Zieba
with a copy to:
Torkin Manes Cohen & Arbus
151 Yonge Street, Suite 1500
Toronto, Ontario
Canada M5C 2W7
Attention: Howard Burshtein, Esq.
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and with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Telephone: (212) 351-4000
Facsimile: (212) 351-4035
Attention: Stephan H. Haimo, Esq.
If to NRC, to:
Nuclear Research Corporation
125 Titus Avenue
Warrington, Pennsylvania 18976
Attention: Earl M. Pollock
with a copy if on or before July 4, 1999 to:
Wolf, Block, Schorr and Solis-Cohen LLP
111 South 15th Street
Philadelphia, Pennsylvania 19102-2678
Attention: Mark K. Kessler, Esq.
and if after July 4, 1999 a copy to:
Wolf, Block, Schorr & Solis-Cohen LLP
1650 Arch Street, 22nd Floor
Philadelphia, Pennsylvania 19103
Attention: Mark K. Kessler, Esq.
and a copy to:
Adelman, Lavine, Gold and Levin
Two Penn Center Plaza
Suite 1900
Philadelphia, Pennsylvania 19102
Attention: Gary M. Schildhorn, Esq.
or such other address or facsimile number as such party may specify for the
purpose by written notice to the other parties hereto. Each such notice, request
or other communication will be effective: (i) if delivered in person, when such
delivery is made at the address specified in this Section 8.01; (ii) if
delivered by overnight courier, the next Business Day after such delivery is
sent to the address specified in this Section 8.01; or (iii) if delivered by
facsimile, when such
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facsimile is transmitted to the facsimile number specified in this Section 8.01
and the appropriate confirmation is received.
Section 8.02 Survival of Representations, Warranties and
Agreements. The representations and warranties and agreements contained herein
and in any certificate or other writing delivered pursuant hereto will not
survive beyond the Effective Time. This Section 8.02 will not limit any covenant
or agreement of the parties which by its terms contemplates performance or
application after the Effective Time, including, but not limited to, the
representations, warranties and covenants contained in Article VI and Section
7.03.
Section 8.03 Amendment. This Agreement may be amended by NRC
and Aptec at any time before or after any approval of this Agreement by the
shareholders of NRC. After any such approval, no amendment may be made that: (i)
decreases the Cash Consideration or that adversely affects the rights of NRC's
shareholders without the approval of such shareholders; or (ii) adversely
affects the rights of the Pollock Holders without the approval of the Pollock
Holders. This Agreement may not be amended except by an instrument in writing
signed on behalf of all the parties.
Section 8.04 Extension; Waiver. At any time prior to the
Effective Time, the parties may: (i) extend the time for the performance of any
of the obligations or other acts of any other party; (ii) waive any inaccuracies
in the representations and warranties contained herein by any other party or in
any document, certificate or writing delivered pursuant hereto by any other
party; or (iii) waive compliance with any of the agreements of any other party
or with any conditions to its own obligations. Any agreement on the part of any
party to any such extension or waiver will be valid only if set forth in an
instrument in writing signed on behalf of such party.
Section 8.05 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. No party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other parties.
Section 8.06 Governing Law. This Agreement will be construed
in accordance with and governed by the law of the State of New York applicable
to agreements entered into and to be performed wholly within such State, except
that the PBCL will apply to the Merger.
Section 8.07 Jurisdiction. Each of the parties: (i) consents
to submit itself to the personal jurisdiction of any federal or state court
located in the State of New York in the event any dispute arises out of this
Agreement or the Merger; (ii) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court; and (iii) agrees that it will not bring any action relating to this
Agreement or the Merger in any court other than a federal or state court sitting
in the State of New York.
Section 8.08 Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement will become effective when each party shall have
received counterparts hereof signed by all of the other parties.
Section 8.09 Entire Agreement. This Agreement and the other
agreements referred to herein or executed contemporaneously herewith constitute
the entire agreement, and
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supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any party.
Section 8.10 Headings. 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.
Section 8.11 Severability. In the event that any one or more
of the provisions contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.
Section 8.12 Additional Definitions.
(a) When used in this Agreement, the following terms have the
following meanings:
"Affiliate" as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person.
"Business Day" means any day other than a Saturday, Sunday or
any other day on which banks in the State of New York are authorized or
obligated to be closed.
"Code" means the Internal Revenue Code of 1986, as amended.
"Dollars" or "$" means United States dollars, unless otherwise
specified.
"GAAP" means generally accepted accounting principles
consistently applied in effect in the United States of America as of the date of
the applicable determination.
"Governmental Entity" means any government or subdivision
thereof, or any administrative, governmental or regulatory authority, agency,
commission, tribunal or body, domestic, foreign or supranational.
"knowledge of NRC" means any fact or matter which is known by
any officer or director of NRC, or should have been known by such person after
due inquiry.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
"Material Adverse Effect" means any change or event that
individually or when taken together with all other changes and events, is or is
reasonably likely to be materially adverse to the business, assets, liabilities,
operations or condition (financial or otherwise) or prospects of NRC and its
Subsidiaries, taken as a whole, other than any such effect arising out of or
resulting from the transactions contemplated by this Agreement or general
economic, financial, or market conditions. A Material Adverse Effect shall be
conclusively deemed to exist
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if there occurs any event which causes or may reasonably be expected to cause or
result in estimable monetary loss which, individually or when aggregated with
all other events, exceeds $75,000.
"NRC Subsidiary" means any Subsidiary of NRC.
"Person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" of any Person means any other Person of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
are directly or indirectly owned or controlled by such Person.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed by its respective authorized officer as of the day
and year first above written.
APTEC INSTRUMENTS LTD.
By: /s/ Edward Zieba
-----------------------------
Name: Edward Zieba
Title: President
APTEC ACQUISITION CORPORATION
By: /s/ Edward Zieba
----------------------------
Name: Edward Zieba
Title: President
NUCLEAR RESEARCH CORPORATION
By: /s/ Earl M. Pollock
-----------------------------
Name: Earl M. Pollock
Title: President
A-37
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Annex B
Opinion of Howard, Lawson & Co.
June 16, 1999
Mr. Charles Sulzberger, Director
Nuclear Research Corporation
125 Titus Avenue
Warrington, PA 18976
Dear Mr. Sulzberger:
We understand that Nuclear Research Corporation ("NRC" or the
"Company") is considering a merger with Aptec Acquisition Corp. ("Newco"), a
U.S. subsidiary of a New Brunswick corporation, Aptec Instruments Ltd. ("Aptec")
and a related second step transaction involving a purchase of shares in the
surviving corporation from the current controlling shareholders of NRC
(collectively, the "Transaction"). The allocation of the value of the cash and
Aptec stock will be made on a pro rata basis to all NRC shareholders; however,
due to the fact that the transactions will not supply enough cash to buy out all
NRC shareholders for cash, and that the ultimate control shareholders of Newco
insist that all shareholders other than the Pollock Holders be paid cash and
have no continuing shareholder interest in Aptec or Newco, the Pollock Holders
will receive a combination of cash and stock in Aptec. We have been engaged for
the purpose of rendering our opinion to the Independent Director of the Company
as to the fairness, from a financial point of view, of the allocation of value
in the Transaction to certain shareholders of the Company.
The Transaction
The Company, Aptec and Newco (a wholly owned subsidiary of Aptec), will
be entering into an agreement (the "Merger Agreement"), whereby the Company will
merge with and into Newco. In consideration for their stock in the Company, the
shareholders will receive cash and shares of the common stock of Aptec.
Of the 27,658 shares of NRC common stock outstanding, 15,502 shares (or
56.05% of the total) are held by Earl M. Pollock and members of his immediate
family (the "Pollock Holders"). Mr. Pollock also holds options and/or warrants
exercisable into an additional 16,000 common shares (collectively, the "Pollock
Holder warrants"). The Merger Agreement provides that shareholders including the
option holders, other than the Pollock Holders, will receive all cash for their
shares and that the Pollock Holders, in exchange for their NRC shares and the
Pollock Holder warrants, will receive cash and all of the common shares of Aptec
received in the merger.
Contemporaneously, the Company and the Pollock Holders will also be
entering into an agreement (the "Stock Acquisition Agreement") with Eurisys
Mesures SA ("EM"), Aptec, Newco and certain shareholders of Aptec (the "Zieba
Holders") which provides, among other things, that: i) EM will purchase common
shares in Aptec from the Zieba Holders, the Pollock Holders, and Aptec, such
that EM will obtain a 51 % interest in Aptec for a cash price of $12,112,500;
ii) the Pollock Holders make the representation and warranties in the Merger
Agreement on behalf of EM; and iii) indemnification of EM by the Pollock Holders
will be limited to $1.5 million, of which $314,500 in cash is to be placed in
escrow by the Pollock Holders.
B-1
<PAGE>
Independent Director
Nuclear Research Corporation
June 16, 1999
Page 2
Aptec, the Zieba Holders, the Pollock Holders, and EM will also be
entering into an agreement (the "Shareholders Agreement") which provides, among
other things, for i) Pollock Holders to elect one director (out of seven); ii)
restrictions on the sale of stock by the Pollock Holders; iii) EM's right of
first refusal in the event that the Pollock Holders receive an offer to sell
their stock; iv) drag along and tag along rights, in the event that EM sells
stock; and v) put and call rights on the shares of the Pollock Holders. The put
and call rights provide that, beginning in 2003, the Pollock Holders will have
the right to put their shares to EM and EM shall have the right to call the
shares. In each of 2003, 2004, and 2005, the rights shall apply to approximately
one-third of the shares, cumulatively. The respective price will be 4, 5, and 6
times the average EBITDA (Earning before Interest Depreciation and Amortization)
for the two fiscal years preceding the exercise of the right.
Mr. Earl M. Pollock and Aptec will also be entering into a
non-competition, employment and consulting agreement (the "Non-competition
Agreement") which provides, among other things, for a salary in the first year
of $225,000 and a consulting fee of $150,000 in the second year.
The Transaction
As a result of the Transaction, the Non-Pollock shareholders of NRC,
including the Non-Pollock Holders of options, will receive $3,285,201 in cash in
exchange for their NRC common shares and options, the Pollock Holders will
receive $3,144,799 in cash and 6,860 shares of the common stock of Aptec for
their 15,502 shares of NRC common stock and for the Pollock Holder warrants. You
have asked us to provide our opinion as to the fairness, from a financial point
of view, of the allocation (the "Allocation") of the value of the Transaction to
the shareholders of NRC, other than the Pollock Holders.
Materials Reviewed and Activities Conducted
In arriving at our opinion, we reviewed and analyzed materials we
deemed relevant regarding the Transaction, including the following:
1. The Agreement and Plan of Merger, dated June 16, 1999;
2. The Stock Acquisition Agreement, dated June 16, 1999;
3. The Shareholders Agreement, dated June 16, 1999;
4. The Non-Competition Agreement, dated June 16, 1999 between
Aptec Instruments, Ltd., Eurisys Mesures SA, and Mr. Earl M.
Pollock;
5. The Employment Agreement and the Consulting Agreement dated
June 16, 1999, between Aptec Instruments, Ltd., Aptec
Acquisition Corp., and Mr. Earl M. Pollock;
6. The Interim Management Agreement, dated June 16, 1999;
7. The Voting Agreement, dated June 16, 1999;
8. The Letter of Intent regarding EM's proposal to purchase a
majority interest in the Aptec Companies and Nuclear Research
Corporation dated March 26, 1999;
9. The Memorandum of Understanding dated February 26, 1999;
10. Nuclear Research Corp. Annual Report and Form 10-KSB for the
fiscal year ended June 30, 1998, Nuclear Research Corp. Forms
10-QSB for the quarters ended September 30, 1998 and December
31, 1998;
B-2
<PAGE>
Independent Director
Nuclear Research Corporation
June 16, 1999
Page 3
11. Nuclear Research Corporation Statement of Operations and
Balance Sheet for the nine months ended March 31, 1999;
12. Nuclear Research Corp. Projected Statement of Income and Cash
Flow for the Years Ending, June 30, 1999, 2000, and 2001;
13. Aptec Instruments, Ltd. audited consolidated financial
statements for the fiscal years ended August 31, 1997 and
August 31, 1998;
14. Aptec Instruments, Inc., Projected Combined Financial
Statements for the years ending August 31, 1999, 2000, and
2001 (unaudited);
15. Memorandum from BDO Dunwoody re: Aptec-NRC Merger and EM
Purchase of Control, dated May 14, 1999;
16. Minutes from certain meetings of the board of directors of the
Company; and,
17. Such other studies, analyses, inquiries and investigations as
we deemed appropriate for purposes of this opinion.
We also held meetings with certain representatives of the Company's
management to discuss the Transaction, the events leading to the Transaction,
the business and operations of the Company and Aptec, and historical and
projected financial statements of the Company and Aptec.
Limiting Conditions
In rendering our opinion, we have relied on the completeness and
accuracy of the information provided to us by the management of the Company
including the information listed earlier. We did not independently verify the
financial, legal, tax, operating and other information provided to us by the
Company or publicly available and relied on the completeness and accuracy of
such information in all respects. We did not make independent appraisals or
evaluations of the assets of the Company, and relied upon the representations of
management concerning information with respect to the Company and its financial
statements. We assumed that the information relating to the prospects of the
Company and Aptec furnished by such companies reflects the best then currently
available estimates and judgments of their respective management. We relied on
the Company to advise us promptly if any information previously provided became
inaccurate or was required to be updated. Our analysis is necessarily based upon
economic, market and other conditions and the information made available to us
as of the date of our opinion. We were not asked to provide an opinion on the
aggregate transaction price or on the transaction taken as a whole and therefore
provide no such opinion.
B-3
<PAGE>
Independent Director
Nuclear Research Corporation
June 16, 1999
Page 4
Opinion
Based upon and subject to the foregoing, it is our opinion that the
Allocation is fair, from a financial point of view, to the shareholders of NRC
other than the Pollock Holders.
/s/ Howard, Lawson & Co.
--------------------------
HOWARD, LAWSON & CO.
B-4
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Annex C
Pennsylvania Business Corporation Law of 1988
Sections 1571-1580 and 1906
Dissenters Rights
ss.1571 APPLICATION AND EFFECT OF SUBCHAPTER
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders
of the shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights
shall be available without regard to the exception provided in that paragraph in
the case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless
the articles, the plan or the terms of the transaction entitle all shareholders
of the class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special treatment).
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(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the other
corporation and with or without the intervention of another corporation or other
person, shall not be entitled to the rights and remedies of dissenting
shareholders provided in this subchapter regardless of the fact, if it be the
case, that the acquisition was accomplished by the issuance of voting shares of
the corporation to be outstanding immediately after the acquisition sufficient
to elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of
the board of directors may direct that or all or a part of the shareholders
shall have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute,
if a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that
the shareholders have a right to dissent and obtain payment of the fair value of
their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not
be relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
ss.1572 DEFINITIONS. The following words and phrases when used in this
subchapter shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
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ss.1573 RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
ss.1574 NOTICE OF INTENTION TO DISSENT. If the proposed corporate action is
submitted to a vote at a meeting of shareholders of a business corporation, any
person who wishes to dissent and obtain payment of the fair value of his shares
must file with the corporation, prior to the vote, a written notice of intention
to demand that he be paid the fair value for his shares if the proposed action
is effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
ss.1575 NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporation action.
In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of the uncertificated shares to what extent
transfer of shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the shareholder, or the person on
whose behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall not be less than 30 days
from the mailing of the notice.
ss.1576 FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
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(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified by effectuation of
the proposed corporate action.
ss.1577 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporate action. Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the
issuer of the shares held or owned by the dissenter for a fiscal year ending not
more than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair
value of shares.
(3) A notice of the right of the dissenter to demand payment
or supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
ss.1578 RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
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(b) Effect of failure to file estimate. Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
ss.1579 VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section
1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
ss.1580 COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
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(b) Assessment of counsel fees and expert fees where lack of good fair
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
ss.1906 SPECIAL TREATMENT OF HOLDERS OF SHARES OF SAME CLASS OR SERIES.
(a) General rule. Except as otherwise restricted in the articles, an
amendment or plan may contain a provision classifying the holders of shares of a
class or series into one or more separate groups by reference to any facts or
circumstances that are not manifestly unreasonable and providing mandatory
treatment for shares of the class or series held by particular shareholders or
groups of shareholders that differs materially from the treatment accorded other
shareholders or groups of shareholders holding shares of the same class or
series (including a provision modifying or rescinding rights previously created
under this section) if;
(1) (i) such provision is specifically authorized by a
majority of the votes cast by all shareholders entitled to vote on the amendment
or plan, as well as by a majority of the votes cast by any class or series of
shares any of the shares of which are so classified into groups, whether or not
such class or series would otherwise be entitled to vote on the amendment or
plan; and
(ii) the provision voted on specifically enumerates
the type and extent of the special treatment authorized; or
(2) under all the facts and circumstances, a court of
competent jurisdiction finds such special treatment is undertaken in good faith,
after reasonable deliberation and is in the best interest of the corporation.
(b) Statutory voting rights upon special treatment. Except as provided
in subsection (c), if an amendment or plan contains a provision for special
treatment, each group of holders of any outstanding shares of a class or series
who are to receive the same special treatment under the amendment or plan shall
be entitled to vote as a special class in respect to the plan regardless of any
limitations stated in the articles or bylaws on the voting rights or any class
or series.
(c) Dissenters rights upon special treatment. If any amendment or plan
contains a provision for special treatment without requiring for the adoption of
the amendment or plan the statutory class vote required by subsection (b), the
holder of any outstanding shares the statutory class voting rights of which are
so denied, who objects to the amendment or plan and complies with Subchapter D
of Chapter 15 (relating to dissenters rights), shall be entitled to the rights
and remedies of dissenting shareholders provided in that subchapter.
(d) Exceptions. This section shall not apply to:
(1) The creation or issuance of securities, contracts,
warrants or other instruments evidencing any shares, option rights, securities
having conversion or option rights or obligations authorized by section 2513
(relating to disparate treatment of certain persons).
(2) A provision of an amendment or plan that offers to all
holders of shares of a class or series the same option to elect certain
treatment.
(3) An amendment or plan that contains an express provision
that this section not apply or that fails to contain an express provision that
this section shall apply. The shareholders of a corporation that proposes an
amendment or plan to which this section is not applicable by reason of this
paragraph shall have the remedies contemplated by section 1105 (relating to
restriction on equitable relief).
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PROXY
NUCLEAR RESEARCH CORPORATION
Special Meeting-September 9, 1999
The undersigned appoints each of Earl M. Pollock and Charles H.
Sulzberger, Jr., severally, as Proxy with the power to appoint his substitute,
to represent and vote as designated below, all shares of the undersigned at the
Special Meeting of Shareholders of Nuclear Research Corporation ("NRC") at the
offices of NRC, located at 125 Titus Avenue, Warrington, Pennsylvania, at 9:00
a.m. on Thursday, September 9, 1999, and any adjournment or postponement
thereof.
The Board of Directors recommends a vote FOR:
1. Approval and adoption of the agreement
and plan of merger, dated as of June 16, |_| FOR |_| AGAINST |_| ABSTAIN
1999, among Nuclear Research Corporation,
Aptec Instruments Ltd. and Aptec
Acquisition Corp.
--------------------------------------------------------
(Continued and to be signed and dated on the other side)
<PAGE>
In their discretion the Proxies are authorized to vote upon such
other business as may properly come before the special meeting or any
adjournment thereof.
DATE __________________________ , 1999
______________________________________
______________________________________
______________________________________
PLEASE DATE AND SIGN ABOVE exactly as
same appears indicating if appropriate,
official position or representative
capacity. If stock is held in joint
tenancy, each joint owner should sign.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE PROPOSAL. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF NUCLEAR RESEARCH CORPORATION.
